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Country Risk: Iran

 

Flag of Iran

Official Name: Islamic Republic of Iran
Internet Domain: .ir

International Dialing Code: +98
Time Zone: UTC +3.5

Table of Contents

Location and Size Comparative Economic Indicators
Government Credit and Collections
Legal System Risk Assessment
People Business Climate
Economy Business Protocol
Economic Indicators Other Sources of Information

Location and Size

Iran is located in the Middle East, bordering the Gulf of Oman, the Persian Gulf and the Caspian Sea, between Iraq and Pakistan. Iran’s area is 1.6 million sq. km. (636,295 sq. mi.), which is slightly larger than Alaska. Only 9.78% of the country is arable land.

Government

Islamic Republic. Iran became a unique Islamic republic in 1979, when the monarchy was overthrown and religious clerics assumed political control under supreme leader Ayatollah Khomenei. The branches are as follows:

  • Executive: Supreme Leader (head of state) Ayatollah Ali KHAMENEI(appointed for life in June 1989), president (head of government) Mahmoud AHMANDI-NEEEEJ, Council of Ministers, Assembly of Experts, Expediency Council, Council of Guardians
  • Legislative: 290-member National Assembly
  • Judicial: Supreme Judiciary

The Supreme Leader – the highest power in the land – appoints the head of the judiciary, military leaders, the head of radio and TV and Friday prayer leaders. He also confirms the election of Iran’s president, selects six members of the 12-member Guardian Council, an influential body which has to pass all legislation and which can veto would-be election candidates.

Legal System

Based on Sharia (Islamic) law. Iran has not accepted compulsory International Court of Justice (ICJ) jurisdiction. (What does this mean?)

People

About half of the population is under 25 years old. Do not confuse Iranians with Arabs. Both have different languages, cultures and histories.

  • Population: 83,024,745 (2018 est.)
  • Population growth rate: 1.19% (2018 est.)
  • Languages: Persian (aka Farsi – official) and Persian dialects 58%, Turkic and Turkic dialects 26%, Kurdish 9%, Luri 2%, Balochi 1%, Arabic 1%, Turkish 1%, other 2%
  • Literacy: 85.5% (2016 est.)
  • Ethnic Make-up: Persian 51%, Azeri 24%, Gilaki and Mazandarani 8%, Kurd 7%, Arab 3%, Lur 2%, Baloch 2%, Turkmen 2%, other 1%
  • Religions: Muslim 98% (Shia 89%, Sunni 9%), other (includes Zoroastrian, Jewish, Christian, and Baha’i) 2%

Map of Iran

Economy

Iran’s economy is marked by statist policies, inefficiencies, and reliance on oil and gas exports, but Iran also possesses significant agricultural, industrial, and service sectors. The Iranian government directly owns and operates hundreds of state-owned enterprises and indirectly controls many companies affiliated with the country’s security forces. Distortions – including corruption, price controls, subsidies, and a banking system holding billions of dollars of non-performing loans – weigh down the economy, undermining the potential for private-sector-led growth.

Private sector activity includes small-scale workshops, farming, some manufacturing, and services, in addition to medium-scale construction, cement production, mining, and metalworking. Significant informal market activity flourishes and corruption is widespread.

The lifting of most nuclear-related sanctions under the Joint Comprehensive Plan of Action (JCPOA) in January 2016 sparked a restoration of Iran’s oil production and revenue that drove rapid GDP growth, but economic growth declined in 2017 as oil production plateaued. The economy continues to suffer from low levels of investment and declines in productivity since before the JCPOA, and from high levels of unemployment, especially among women and college-educated Iranian youth.

In May 2017, the re-election of President Hasan RUHANI generated widespread public expectations that the economic benefits of the JCPOA would expand and reach all levels of society. RUHANI will need to implement structural reforms that strengthen the banking sector and improve Iran’s business climate to attract foreign investment and encourage the growth of the private sector. Sanctions that are not related to Iran’s nuclear program remain in effect, and these—plus fears over the possible re-imposition of nuclear-related sanctions—will continue to deter foreign investors from engaging with Iran.

Currency: Rial (IRR)

Leading Markets (2017): China 27.5%, India 15.1%, South Korea 11.4%, Turkey 11.1%, Italy 5.7%, Japan 5.3%

Leading Exports – Commodities: Petroleum 80%, chemical and petrochemical products, fruits and nuts, carpets

Leading Suppliers (2017): UAE 29.8%, China 12.7%, Turkey 4.4%, South Korea 4%, Germany 4%

Leading Imports – Commodities: Industrial raw materials and intermediate goods, capital goods, foodstuffs and other consumer goods, technical services

Top Industries: Petroleum, petrochemicals, gas, fertilizer, caustic soda, textiles, cement and other construction materials, food processing (particularly sugar refining and vegetable oil production), ferrous and nonferrous metal fabrication, armaments

Top Agricultural Products: Wheat, rice, other grains, sugar beets, sugarcane, fruits, nuts, cotton; dairy products, wool; caviar

Comparative Economic Indicators – 2018

Iran Iraq Pakistan Turkey Saudi Arabia Afghanistan
Population* (millions) 83.0 40.1 207.8 81.2 33.1 34.9
Population growth rate* (%) 1.19 2.50 1.41 0.49 1.63 2.37
Age Structure
(15 to 64 years old)
70.30 57.44 64.68 67.96 70.94 21.85
 Age Structure

 

(65+ years old)

 

 5.48  3.55  4.56  7.79 3.32  2.61
Literacy (%) 85.5 79.7 57.9 96.2 94.7 38.2
GDP** (USD billions) 1,640.0 649.3 1,061.0 2,186.0 1,775.0 69.45
GDP per capita** (USD) 20,100.0 16,700.0 5,400.0 27,000.0 54,500.0 2,000.0
Economic growth 3.7 -2.1 5.4 7.4 -0.9 2.7
Inflation 9.6 0.1 4.1 11.1 -0.9 5.0
Unemployment rate (%) 11.8 16.0 6.0 10.9 6.0 23.9
Exports (USD billions) 101.4 61.4 32.8 166.2 221.1 0.784
Imports (USD billions) 76.3 39.4 53.11 225.1 119.3 7.6
Currency Rial
IRR
Dinar
IQD
Rupee
PKR
Lira
TRY
Riyal
SAR
Afghani
AFA
Exchange rates (per USD) 9/15/2019 42,105.00 1,190.00 156.10 5.73 3.75 78.20
Exchange rates (per EUR) 9/15/2019

* 2017 estimates
** PPP ” Purchasing Power Parity
Sources: CIA World Factbook, Coface, Oanda

Credit and Collections

As the U.S. has trade sanctions against Iran, ABC-Amega does not collect in and does not have any current experience collecting in Iran.

Risk Assessment

Coface Country Rating: D — A high-risk political and economic situation and an often difficult business environment can have a significant impact on corporate payment behavior. Corporate default probability is very high.

Coface Business Climate Rating: C — The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments.

Credendo Political Risk Rating: 7 ” Highest risk (1-7)
Credendo Commercial Risk Rating: C ” High risk (A, B, C)

Business Climate

Iran has been designated a state sponsor of terrorism due to its activities in Lebanon, and elsewhere in the world. Because of its continued involvement in terrorism, and its nuclear weapons ambitions, it remains subject to U.S., UN, and EU economic sanctions and export controls. The UN Security Council has passed a number of resolutions since 2006 calling for Iran to suspend uranium enrichment and reprocessing and to comply with its International Atomic Energy Agency (IAEA) obligations.

Iran’s five-year economic plans have emphasized a gradual move towards a market-oriented economy, but political and social concerns, and external debt problems, have hampered progress.

Economic Freedom: Iran scored 51.1 on the 2019 Index of Economic Freedom (The Heritage Foundation) making it the 155th freest . Its overall score has increased by 0.2 points. Iran ranks 13th out of 14 countries in the Middle East/North Africa region and the overall score is below the world average.

U.S. Economic Sanctions

The U.S. sanctions against Iran apply to all U.S. persons and entities (companies, non-profit groups, government agencies, etc.) wherever located. Below is an overview of the U.S. sanctions against Iran:

Reason for Sanction Date What is Sanctioned
Support of international terrorism and aggressive actions against non-belligerent shipping in Persian Gulf 10/29/1987 Embargo on Iranian-origin goods
Sponsorship of international terrorism and pursuit of weapons of mass destruction 05/06/1995 Prevention of U.S. involvement in petroleum development in Iran
Clarification of above 08/19/1997 Prohibition of virtually all trade and investment activities
Easement of sanctions 03/17/2000 Eased to allow U.S. persons to purchase and import carpets and food products (dried fruits, nuts and caviar)
11/10/2008 Revoked authorization to process transfers involving Iran that originate and end with non-Iranian foreign banks
Current Imports allowed: gifts valued at $100 or less; information or informational materials; specific foodstuffs; carpets and other specific textiles
Current Exports not allowed (unless licensed by OFAC): goods; technology; services; either directly or indirectly.

The above is not an exhaustive list. See Iran ” What You Need To Know About U.S. Economic Sanctions.
For further information on U.S. Economic Sanctions related to Iran, visit the website of the U.S. Department of the Treasury Office of Foreign Assets Control.

Some Recent Articles on U.N. and EU Sanctions against Iran

EU, Germany mulling tougher sanctions against Iran, WashingtonTV.com, August 19, 2009

Israeli FM calls for UN sanctions on Iran, Trend.com, July 28, 2009

Business Protocol

Iranians see themselves as having two distinct identities: “zaher” (public) and “batin” (private). The inner circle forms the basis of a person’s social and business network. Loyalty to the family comes before other social relationships and business in Iran. Nepotism is considered a good thing, since it implies that employing people one knows and trusts is of primary importance.

Iranians prefer to do business with those they know and respect, therefore they expect to spend time cultivating a personal relationship before business is conducted. Whom you know is often more important than what you know, so it is important to network and cultivate a number of contacts.

Business Cards: Business cards are only exchanged by senior-level people. Make sure your business card includes your title and have one side translated into Farsi. Present your card so the Farsi side faces the recipient.

Business Attire: Since Iranians judge people on appearances, dress appropriately and stay in a high standard hotel. Business attire is formal and conservative. Men should wear dark colored conservative business suits. Women should always dress modestly and cover their hair.

Names and Titles: Address your Iranian business associates by their title and their surname. Wait to be invited before moving to first names.

Conversation: In Iran, the concept of family is more private than in many other cultures. Female relatives must be protected from outside influences and are taken care of at all times. It is inappropriate to ask questions about an Iranian’s wife or other female relatives.

Gifts: If you are invited to an Iranian’s house, take flowers or pastry to the hosts. When giving a gift, always apologize for its inadequacy. Gifts should be elegantly wrapped and are not generally opened when received.

Meetings: Appointments are necessary and should be made 4 to 6 weeks in advance. Confirm the meeting one week in advance and when you arrive in the country. Punctuality is seen as a virtue. The first meeting with an Iranian company is generally not business-focused. Expect your colleagues to spend time getting to know you as a person.

Written materials should be available in both Farsi and English. Do not remove your suit jacket without permission. Do not look at your watch or try to rush the meeting. If you appear fixated on the amount of time the meeting is taking, you will not be trusted.

Negotiations: Iranians are deliberate negotiators who can drive a hard bargain. Iranians may display emotion, walk out of the meeting, or even threaten to terminate the relationship in an attempt to convince you to change your position. Iranians often use time as a negotiating tactic, especially if they know that you have a deadline. Decisions are made at the top of the company, either by one person or a small council. Your success is defined by your ability to build effective personal relationships, combined with a clearly outlined and well-presented proposal.

Acceptable Public Conduct: Avoid talking loudly. Do not hold hands with the opposite sex in public, unless these are children or older members of the family.

Sources for further information on doing business in Iran

Generally, due to U.S. sanctions, U.S. companies are not allowed to do business in Iran. However, for those countries and businesses allowed to do business in Iran, here are some resources.

New Sanctions, New Hurdles for Western Firms STILL Doing Business in Iran

Risks of Doing Business in Iran – FDD

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This information is provided by ABC-Amega Inc. This report represents a compilation of information from a wide variety of reputable sources.

Economic Indicators: Variety of sources including the CIA World Factbook, Coface Country Rating, Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Historical Exchange Rates: OANDA.com The Currency Site.