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September 2004 / No. 31


Trade & Business

Investors who transfer their capital from Iran to the other side of the Persian Gulf mention investment insecurity, as well as problems related to bank interest rates and facilities as the main cause for the transfer.

Losing $12 Billion to Dubai

Dubai will soon become the third economic hub for Iranian expatriates. Studies carried out by the Economic Department of the Ministry of Foreign Affairs show that Iranians have transferred $12 billion worth of capital to Dubai during the past two years. Investors who transfer their capital from Iran to the other side of the Persian Gulf mention investment insecurity, as well as problems related to bank interest rates and facilities as the main cause for the transfer.

Extensive publicity by housing agencies in Dubai that has not only been aired in news networks ran by Iranian expatriates, but have also found their way into domestic media, has prompted Iranian capitalists to change their money into dollars and take it to Dubai to purchase residential flats there. Iranian buyers of real estate in Dubai mention suitable infrastructures and existence of creditable educational centers with the best facilities as the main reason why they had purchased real estate and transferred their capital there.

Alireza Salari, former Iranian Ambassador to the United Arab Emirates wrote in his report about situation of Iranian investors in Dubai that “... selling real estate in Dubai is a ready ground for absorbing the capital of Iranians due to existence of suitable infrastructures regarding education and IT while social calm, and lack of factional and political conflicts has doubled willingness of Iranians to take their money there.”

“In addition to Iranians living in the country, Iranian expatriates from across the world, some of whom cannot directly work in Iran due to political problems, take their capital to a region which is similar to the Iranian society to get a sense of proximity to Iran.”

In another part of his report, Salari noted that “... problems resulting from instability of project management in Iran, arresting investors, inattention to time factor in implementing big projects and extreme caution exercised by domestic directors when implementing projects are major reasons for capital flight from Iran.”

The main reason for the success of real estate companies in Dubai was taking advantage of creditable consultancy and contractor companies for the implementation of projects. To encourage investors, the government must pave the way for investment in free zones and other parts of the country where national projects are being carried out. At the same time, taking advantage of foreign consultants for implementing projects can prevent capital flight while absence of needed infrastructures for attracting capital to the country is a big problem that discourages investments in Iran.

Despite all the publicity for encouraging participation of the private sector during the past years, total investment in the country has fallen. Meanwhile, a comparison between investment in Iranian free trade zones and Dubai indicates a wide gap between the two regions. Iranian investors that consider Dubai a safe place for investment have made purchasing real estate their first target. They believe that purchasing flats or residential units will provide a good base for their children. At the same time, the government of the United Arab Emirates has eased regulations and investment conditions.

Foreign investors who came to Iran during the past years were discouraged due to the cold welcome they received here and found the United Arab Emirates a much better place for investment. Their investments drew other investors to the United Arab Emirates. The United Arab Emirates, especially Dubai, will soon turn into an Iranian society. The place is probably the third country accepting Iranian immigrants and will register a new record in absorbing Iranian capital and immigrants. That record previously belonged to some states of the United States of America as well as Canada, which have now been overtaken by Dubai. Though the powerful role of media cannot be ignored in this regard.

Statistics show that projects in which Iranians invest in the United Arab Emirates are collectively worth $500 million to $1 billion. Each month, Iranian air travel agencies conduct 1,000 flights to the Untied Arab Emirates. How else could we justify this high number of monthly flights?

More than a decade ago the government incurred heavy costs to establish free trade zones in Iran in order to prevent capital flight. However, austerity and inefficient laws made investment uneconomical despite the 13 years that have passed since the establishment of the said zones.

At the same time, some sources have even opined that based on economic rules, Iranian free trade zones encourage capital flight. Economic experts believe that attracting foreign investment and preventing flight of domestic capital would need adequate investment grounds inside the country. A prerequisite for doing so is to provide investment security and reduce economic risk. Although various figures have been produced on Iran’s investment risk by various international bodies, there is no doubt that political instability and behavior of international community toward Iran will have a direct effect on the process of taking more capital into the country.

The wealthy Arabs say that “capital is shy” and for this reason, before investing in any kind of project, investors should be assured about the destiny of their investments.

Geographical location of Iran and having common borders with 15 countries is a God-bestowed bounty that must be used to the best effect. At the same time, provinces must assume a more active role and be delegated higher sovereignty rights to attract investments from domestic and foreign investors. Perhaps this will be a last-ditch effort by a government, which has already lost previous opportunities. If such concerns were addressed properly by sectoral documents and the Fourth Economic Development Plan, the future could be promising.

 

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  Sep.  2004 / No. 31