The removal of trade and fiscal sanctions on Iran will provide the national economy with the opportunity to present its investments opportunities to foreign investors and make further use of other countries’ financial resources.
The English newspaper Iran Daily in an article by Farhad Khan-Mirzaei wrote Following the sanctions, the role of domestic and foreign relative prices will gain more significance in allocating fiscal resources. These two factors determine whether an Iranian producer can raise output or has to adjust production with changes in domestic market in the post-sanctions era.
This is while, relative prices are highly dependent on fluctuations in hard currency rates which will play a key role in shaping Iran’s reaction to economic conditions following the removal of the sanctions.
Foreign companies are tempted by Iran’s high potential and untapped market. Currently, Iran’s economy is greatly in need of foreign funds for spurring growth. Domestic banks however lack adequate fiscal reserves to fund economic agencies. Under such circumstances, the flow of foreign capitals to the country will have both long and short-term impacts on the economy.
Generally, foreign investors adopt either an import-oriented investment approach or an export-oriented one. In an import-oriented approach, they target Iran’s huge consumer market and compete with Iranian counterparts to gain a bigger share of this market. This is while in the second approach they aim to make use of Iran’s investment advantages such as rich energy resources and workforce and produce high quality export items. Here, dominating the domestic market is not the main area of competition between domestic and foreign companies. They compete to capture Iran’s energy and job market. This approach provides the opportunity for domestic producers to use the experiences of foreign counterparts to gain a more significant presence in global arenas. In addition, with the increase in demands for workforce and energy resources, job market condition will improve and the income of domestic energy companies will increase.
The government’s policies will determine the orientation of foreign agencies. More stable foreign exchange rates, i.e. lesser fluctuations in inflation rates, will consequently lead to a decline in real hard currency prices and bring the domestic consumer market into the spotlight of foreign investors. Lower forex rates will raise the competitiveness of domestic products compelling foreign firms to adopt an export-oriented investment approach. Determining the future forex policies are required to be among the priorities of the 11th government. The Central Bank of Iran is also required to announce these policies.