THE LAST, LARGE, UNTAPPED MARKET IN THE WORLD
Iran is the second largest country in the Middle East with an area of 1.6 million km².
Iran’s strategic location between landlocked countries in the north and east, the oil-rich Persian Gulf and the Caspian Sea regions as well as its position between Asia and Europe has historically created a unique economic and geopolitical advantage for the country.
With approximately 78 million inhabitants, Iran has one of the largest populations in the region and is comparable in size to Turkey. The country has an exceptionally strong economic demography: 54% of the population is under the age of 30.
At present, approximately 2 million people are turning 20 every year, entering both production and consumption age. As opposed to the aging populations of Europe, these age groups will be joining the workforce and draw rising disposable income which will boost national consumption to an even higher rate in the coming years.
Iran’s population is well-educated with literacy rates rising from 55% in 1980 to 84% in 2011. In 2011, there were 4 million university students.
Traditionally a rural society, Iran has significantly urbanized over the past 60 years. In 1956, 69% of the population lived in rural areas; today, 71% are urban dwellers and more than 50% of the urban population has already grown up in an urban environment.
After the end of the Iran-Iraq war, the first priority of the post-war government was an extensive re-construction and development plan. Key drivers of the economy include the continuous expansion of industry, the young and well-educated population, and the appetite for a more liberalized and privatized economy. Iran also benefits from an abundance of natural resources, including the fourth largest proven oil reserves in the world and the largest gas reserves. Its major mineral resources include iron ore, copper, zinc and lead, and gold.
Before the imposition of sanctions, economic growth was consistent and relatively high. The 7 year average growth rate (2005-2011) was 4.6%. Between 1998 and 2008, increased government support for key industry sectors, higher capital expenditure for infrastructure development and strong credit growth were the key underlying factors in the growth of the non-oil sector. After sanctions tightened, the economy contracted by 6.6% and 1.9% in 2012 and 2013, respectively.
The oil sector, however, has experienced less growth over the past few years due to insufficient investment resulting from the sanctions regime. As expected, both oil production and oil revenues declined significantly during this period. However, certain non-oil sectors, including Services and Real Estate, experienced major growth.
The comprehensive nuclear accord agreed between Iran and the EU3+3 followed by the privatization policies that were projected in Iran’s existing development plan could be seen a good indicator for future growth and dynamism in the Iranian market, and specifically on the Tehran Stock Exchange (TSE). The TSE has been widely publicized by the government since the start of 2008. With the attractive returns of the TSE, a gradual displacement of funds from other sectors and into the equity market is taking place. If Iran joins the global community, this trend is expected to continue going forward. Regulations are complex, but improving each year. It is expected that given the removal of sanctions, the TSE will regain its full membership in the World Federation of Exchanges and a founding member of the Federation of Euro-Asia Stock Exchanges (FEAS). By opening the newly incorporated Iranian Farabourse (OTC) market in 2009, a series of regulations for managed funds, exchange traded funds, real-estate investment trust fund and future market has been introduced. Issuance of debt instruments in semi-government and private sector through corporate finance companies is growing gradually. The combination of the factors mentioned above, the strong economic outlook, and the privatization process make the Iranian capital market a unique investment opportunity.