Those who follow the economic news in Iran under the regime of President Mahmoud Ahmadenijad are often struck by the boasts regarding huge sums of foreign investments, often quoted in the billions of dollars. A fortnight ago, for example, the Tehran Times stated that the People’s Republic of China will be investing $92 billion in Iran’s oil and gas industry. These boasts seem to stand counter to reality. The Tehran Times’ statement, for example, is undercut by a piece on Saturday in the Iranian daily I’timad that quoted deputy foreign minister Mahdi Mir Abu-Talibi as saying that Chinese banks, under American pressure, have cut their business relations with the Iranian banks for the last four months. Almost all Western and Japanese banks have done so already.
One further suspects that many of the “pipelines” that the Iranians, in their eagerness to instill confidence in their economy, tout as carrying gas and oil are, in fact, only pipedreams. There is no evidence that a single inch of new pipeline has been laid in recent years and, indeed, there is no evidence of foreign investments in this sector. Iran desperately needs Western technology, which is obviously not available because of the sanctions. Thus, despite its enormous oil and gas reserves, Iran must import gas from Turkmenistan to heat its northern territory. When Turkmenistan cut the supply last month over pricing issues, millions of Iranians suffered from the bitter cold and Iran was forced to suspend the supply of natural gas to Turkey, which it is committed, by bilateral agreement, to provide. Iran must also import gasoline and diesel, mainly from India, to keep its urban drivers content.
The fact of the matter is that no direct foreign investments are coming into Iran. And the source of this statement is no other than the central bank of Iran, which, in a controversial report, leaked to the reform Iranian daily Rooz, that the government has not been able to attract a single dollar of foreign investment since March of 2007. The report reveals that the government has offered foreign investors tens of projects but there have been no takers.
In the absence of foreign investors, Ahmadinejad’s government turned to companies owned by the Revolutionary Guards and other government agencies for investments. As a result, it has been able to announce that it had attracted $4 billion of investments in the oil and gas sectors last year. In reality, the central bank says the government was able, during last year, to draw $400 million from savings in foreign banks; these funds, obviously, do not qualify as foreign investment. Ahmadinejhad has accused his opponents of distorting the facts and claimed that foreign investments are “pouring on the country like rain.” We think this a rain of illusions.
Iran is not poor by necessity; it is poor by choice. Billions of dollars of oil windfall profits were squandered on subsidies (including for gasoline), a vast armament industry, including a clandestine nuclear program, and the financing of terrorism in many hot spots of the world. Operating under the weight of UN, but more potent, US sanctions, Iran is going through hard economic times despite the quintupling of oil prices in the last three years and economic growth of about 6% in the last Iranian year, which ended in March 21, 2007. Inflation was running at more than 19 percent in 2007 compared with 12 percent in 2006; unemployment is high in general but extremely high among the 15-24 age group (estimated at more than 30 percent), 50 percent of the population is poor and more than 20 percent live below the poverty line. Drug abuse is rampant, and hoards of intoxicated Iranians sleep on street pavements. Corruption is rampant, particularly among the Mullahs who are in charge of enforcing the rules of religious orthodoxy and religious piety. And, for all intents and purposes, the country is isolated.
The parliamentary elections in Iran scheduled for the middle of this week, although already skewed by the exclusion of 90 percent of reformist candidates, may provide an indication about the sentiments of the Iranian people regarding the economic illusions of their government.
I am reminded of a book by my late economic professor, Wolfgang Stolper at the University of Michigan, documenting his experience as economic adviser for the Ford Foundation to the Government of Nigeria in the early 1960s. Stolper titled the book Planning without Facts [Harvard University Press, 1966.] Someone who, one day, documents the foreign investment story in Iran under Mahmoud Ahmadinejad may well title the work Investment without Facts.