Our comprehensive assessment of Iran's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Iran, as well as the latest industry developments that could impact Iran's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Iran before your competitors.

Country Risk

Iran Country Risk

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Core Views

  • Recent improvements in relations with the West bode well for the country's economy. That said, uncertainty over the outcome of negotiations over Iran's nuclear programme will ensure that risks to the outlook remain elevated.

  • The economy is set to return to growth in 2014 and 2015, as i mproving relations with the West and better macroeconomic management, coupled with low base effects, will lead to an improved outlook for exports and increased business and consumer confidence. 

  • Downside pressure on the Iranian rial will remain prominent, and the unit will remain sensitive to developments in nuclear negotiations over the coming quarters.

Major Forecast Changes

  • We have revised our real GDP...

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Iran Operational Risk Coverage (9)

Iran Operational Risk

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BMI View: Iran is a logistics underperformer within the Middle East and North Africa   ( MENA ) region. All aspects of the country's economy and trade have suffered due to international sanctions. Further more, high levels of bureaucracy provide an additional barrier to trading from the country, and the utilities infrastructure is struggling to meet demand. Iran therefore scores poorly overall in the BMI Logistics Risks Index, with 46.4 out of 100 ranking the country 13th out of 18 states in the MENA region. However, there is potential for improvement in this score, as Iran's transport network is adequate for meeting its supply chain needs, and the country is well positioned to develop a...

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Iran Crime & Security

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Iran's continuing pursuit of a nuclear programme in spite of international condemnation and sanctions has made it one of the most ostracised states in the world. The country experiences largely unfriendly relations with most other nations, and its vulnerability has increased since June 2014 with the rising threat of the Islamic State of Iraq and the Levant (ISIS) in neighbouring Iraq and Syria. Iran's overall score is highly depressed by these interstate security risks. However, due to its strong policing capabilities and relatively low levels of organised crime across the country, the risk of criminal activity affecting foreign workers and businesses remains low. Iran has therefore been awarded an overall score of 41.7 out of 100 in the BMI Crime and Security Risk Index. This score is the highest of Iran's neighbouring nations, and places the country in joint eighth position out of 18 Middle East and Africa (MENA) states, along with its...

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Iran Labour Market

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The major impediment to the fulfilment of Iran's labour potential is the poor state of the Iranian economy through international sanctions. Not only does this represent a dearth of opportunities for skilled and educated workers, but also a lack of employment opportunities for the many unskilled labourers in Iran. Iran scores 47.3 out of 100 for its Labour Market Risks, placing it in ninth position out of 18 countries in the Middle East and North Africa (MENA) region.

In terms of the size of Iran's labour force, the country has a burgeoning youthful population. While this is often a boon in developed economies, in Iran it is placing unprecedented stress upon the job markets as there are too few opportunities being vacated by elder members of the workforce to provide employment for the many young members entering Iran's labour force. These young workers also often have a higher level of literacy and education than their older compatriots due...

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Iran Logistics

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Iran is a logistics underperformer within the Middle East and North Africa (MENA) region. All aspects of the country's economy and trade have suffered due to international sanctions. Furthermore, high levels of bureaucracy provide an additional barrier to trading from the country, and the utilities infrastructure is struggling to meet demand. Iran therefore scores poorly overall in the BMI Logistics Risks Index, with 46.4 out of 100 ranking the country 13th out of 18 states in the MENA region. However, there is potential for improvement in this score, as Iran's transport network is adequate for meeting its supply chain needs, and the country is well positioned to develop a role as a transit point for trade between the Middle East and Asia. In addition, the lifting of sanctions, which began in 2013, will gradually start to create opportunities for investors in this large and underdeveloped market.

The growth of Iran's...

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Iran Trade & Investment

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There are significant risks to potential investors considering entering Iran with regards to the imposition of international restrictions and sanctions by many countries, particularly in the developed world, hampering both external capacity for trade and investment, but also hindering Iran's access to financial markets and trading mechanisms internationally. Iran has been awarded a score of 28.1 out of 100 for its Trade and Investment Risk. This places it in fourth lowest position regionally out of 18 countries.

This is particularly prevalent in terms of Economic Openness, for which Iran is awarded a score of 21.9. In this section, the main risk is of international sanctions limiting the ease and ability of trading with or investing in Iran. Though Iran possesses around 7% of the world's natural reserves including 10% of the global proven oil reserves and 16% of the world's natural gas reserves, this wealth is difficult to invest in due to...

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Iran Industry Coverage (18)

Agribusiness

Iran Agribusiness

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BMI View:   Financial sanctions designed to pressure Tehran over its nuclear programme are playing havoc with Iran's ability to import goods. Food price inflation is soaring, leading to a serious decrease in meat consumption. The use of barter in place of regular trade can be seen as a feasible, albeit temporary, way of circumventing sanctions to meet demand. Although President Hassan Rouhani, who is more moderate than his predecessor Mahmoud Ahmadinejad, will most likely adopt a more conciliatory stance with the West, many sanctions are expected to remain in place. Over the longer term, we believe that the continued investment by the government to improve infrastructure - such as the improvement of irrigation systems - will help the country to turn away from its backward agrarian system and will yield results in terms of better-quality grains. We are especially upbeat in our outlook for grains and...

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Autos

Iran Autos

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Iranian auto production has got off to a strong start in FY14/15. According to a report by IRNA, the country registered a 73.4% year-on-year (y-o-y) increase in auto output to 404,010 vehicles between March 21 and August 22, compared with 232,993 vehicles in the same period a year earlier. A total of 345,217 sedans were manufactured in the reported period, representing a y-o-y increase of 74.3% from 198,059 units. Production of SAIPA's Nasim and Saiba Pride models reached 75,863 units between March 21 and August 22, while production of Peugeot's 405 and 206 reached 39,475 and 33,962 units, respectively. A total of 77 buses, 27 minibuses, 4,060 trucks and 54,629 vans were produced by Iranian automakers in the reported period.

Given this strong start to FY14/15, BMI believes the time is right to revise upwards our current production forecasts for Iran. We are now targeting 47.6% growth in car output, to reach 900,790...

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Commercial Banking

Iran Commercial Banking

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Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Iran Consumer Electronics

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BMI View: W e believe there is some scope for upside potential to our growth forecasts, however, we do not expect the effect to be seen before end - 2014. The opening up of the 3G market to other players should drive demand for smartphones in the medium- to long-term and we have revised our forecast upward for this part of the market. W e expect the lifting of sanction s in 2013 to begin to have an effect on market growth and the availability of devices towards en d - 2014. Iran's large population offers considerable growth potential. However, we...

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Defence & Security

Iran Defence & Security

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BMI View: The significant 17.5% year-on-year (y-o-y) increase in defence spending for 2015 is due to an increase in the value of the local currency. A second extension to the interim deal on the nuclear program in November 2013 seems the best outcome if the parties fail to reach a deal within the context of the P5+1 talks by the November 24 deadline. A short term non-admitted tactical cooperation to combat the Islamic State (IS) between Iran and the West is possible, long-term cooperation is questionable.

Iran's annual defence budget is modest in comparison with that of its neighbours Israel, Saudi Arabia, and Iraq. Details of the defence budget are only summarily divulged to public scrutiny if at all. For 2015, our forecasts estimate defence spending to reach USD11.6bn, which fades in comparison with the USD59.5bn forecast for Saudi Arabia. We...

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Freight Transport

Iran Freight Transport

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Our outlook for the Iranian freight transport sector in 2015 is that the country will begin to see a return to growth in volumes, in part due to base effects, and in part due to the more moderate stance adopted by new President Rouhani, and the loosening of sanctions against the country. Although the ports and shipping industry continue to face significant challenges, rail freight continues to see strong investment. That said, it will take time for the Iranian economy to recover, and consumption levels will remain depressed for some time.

Headline Industry Data

  • 2015 port of Bandar Abbas throughput is forecast to expand by 6.7%, and to average growth of 6.8% per annum through to 2019.

  • 2015 road freight volume is forecast to expand by 3.6% and to average growth of 4.4% per annum through to 2019.

  • 2015 rail freight...

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Infrastructure

Iran Infrastructure

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BMI View:   We reiterate our view that the Iranian construction industry will pick up momentum in the short-to-medium term, with growth forecast to average 3.6 % over the next five years. While this is highly dependent upon the outcome from negotiations with the West over the nuclear programme, the market is already showing signs of recovery and interest from international firms is on the rise.

The Islamic Republic remains a country of pronounced risks, including political instability, economic challenges and social tensions, and we believe the current situation is unsustainable in the long term. Despite elevated oil prices, US energy sanctions and the EU oil embargo have affected Iranian oil production and consequently the economy at large. With the...

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Insurance

Iran Insurance

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BMI View: Over the course of 2015, Iran's insurance sector should post steady, double digit growth. Much of this growth depends on increasing the volume of policy holders across basic lines. This should be driven by an expanding economy, which in turn will require both domestic reforms and an alleviation of western sanctions. We remain cautiously optimistic that the government will make some progress, albeit tentative ly , in both of these areas; however, the market will continue to record sub-optimal growth.

Over the forecast period the market will operate below capacity; however, the Iranian insurance sector remains large and by regional standards quite developed. Given the relative size of the non-life segment relative to its life counterpart; it will remain the key source of growth for the sector as a whole. Within this...

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Medical Devices

Iran Medical Devices

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Espicom Industry View:   The Iranian medical device market ranks fifth in the Middle East and Africa (MEA) , valued at US$832.5mn. Per capita expend iture, however, is the sixth low est in the MEA, at US$11. The market looks set to expand at a solid 9.1% CAGR to 2018, but this growth could be affected if relations with the world's leading economies fall through over the country's nuclear enrichment policies.

Headline Industry Forecasts

  • In 2013, Iran's medical device market was estimated to be worth US$832.5mn. However, per capita expenditure is very low, at US$11. The market is...

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Metals

Iran Metals

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The outlook for Iran's metals sector is improving for the first time years as sanctions begin to be eased following negotiations with the Western powers. On the whole, however, we are far from sanguine given our bearish outlook for steel prices and the fact that any rapprochement with the West, if indeed it happens, will be drawn out and not have a significant impact in the near term. We note with scepticism, Iran's plans to increase its steel capacity from 20mn tonnes per annum (mntpa) to 55mntpa by 2025, as well as a tripling of aluminium smelter capacity to 1.5mntpa.

While a cut in external trade has impacted negatively on the steel industry, isolation has ensured that imports have also been restricted. However, domestic industrial deficiencies in certain market segments mean that Iran will struggle to meet its own needs in spite of declining consumption. Crude steel output rose 11.1% year-on-year (y-o-y) to 13.27mn tonnes in the first 11...

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Mining

Iran Mining

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We expect to see strong growth in the mining sector of the Middle East and North Africa over the coming years. With low base effects, governmental will to increase non-oil revenues and significant resources it appears the region is set for strong growth. We highlight Turkey and Northern Iraq as key areas for growth. That said, the region will remain peripheral in the global mining sector as it continues to underperform due to political instability in much of the region.

The key issue in the Middle East's mining sector presently is Iran's ongoing negotiations with Western powers. Our core scenario is for negotiations to continue and for limited sanctions relief to be rolled over until 2015. This will benefit the mining sector as it is one of the beneficiaries of an easing of sanctions. On the upside, if negotiations are successful (which we currently give a likelihood of 25%), it will be a game changer for the country's beleaguered mining...

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Oil & Gas

Iran Oil & Gas

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BMI View : Despite a small increase in oil production and exports following the Geneva Interim Agreement, a more significant increase of Iranian crude production and exports can only result from an easing or lifting of international sanctions. In such a situation , a significant ramp-up in production and exports to pre-sanction levels would take (at the very least) three to four years from when sanctions are lifted. Years of underinvestment, maturing oil fields and a lack of field and well maintenance has damaged fields, possibly permanently , destroying some of the country's production capacity. Gas production will continue to grow slowly. However, similarly to oil, a lack of access to capital and technology will prevent production ...

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Petrochemicals

Iran Petrochemicals

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The surge in capacity expected in 2015 will not be sustainable if feedstock supply is not forthcoming and markets do not absorb output. While the plants may nominally come on stream, BMI's latest Iran Petrochemicals Report states that operation rates are likely to be low and plants will be operating at a loss unless Iranian producers can pass on the full costs of production onto consumers in export markets. To operate at reasonable levels of capacity utilisation, olefins output would have to increase by a third and polymers by a third, but the demand may not exist and may not have existed even without the sanctions regime.

Iran is portraying growth in exports and output as a sign that the industry is on the road to recovery. Although diplomatic rehabilitation and improved external markets have boosted exports, production capacity utilisation is still low. With the prospect of new plants coming onstream in 2015, the...

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Pharmaceuticals & Healthcare

Iran Pharmaceuticals & Healthcare

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BMI View:   BMI continues to adjust its forecasts for Iran's pharmaceutical market to account for the sanction-induced currency crisis and high rates of inflation. The rapid depreciation of the rial means that we expect the value of the market to contract sharply in US dollar terms. While improved international relations have reduced the regulatory risk associated with operating in the market for multinational drugmakers, the recent proclamation of the Islamic State (IS) in neighbouring Iraq and Syria increases the threat of political instability .

Headline Expenditure Projections

  • Pharmaceuticals: IRR44,216bn (USD2.46bn) in 2013 to IRR51,684bn (USD1.63bn) in 2014; +16.9% in local currency terms and -33.9% in US dollar terms.

  • ...

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Power

Iran Power

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BMI View:   With talks to reach an agreement between Iran and the international community in relation to the country's nuclear industry resuming , but no deal yet seeming likely, the outlook for Iran's power sector remains uncertain. Risks are growing that the hoped-for loosening of international sanctions will not materialise, which could threaten the government's hope to boost domestic electricity production in an effort to meet growing demand and increase exports to its neighbours.

Iran will continue to rely largely on conventional thermal sources for electricity generation, with many of the power projects that are currently under construction slated to increase the nation's natural gas generation capacity. At the same time, the government appears committed to plans to increase its nuclear capacity...

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Shipping

Iran Shipping

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We forecast that Iran will return to economic growth in 2014, with real GDP set to expand by 3.2% following a 2.9% contraction in 2013. Container shipping also is set to take tentative steps to recovery, and the removal of port operator Tidewater from EU sanctions lists means that international shipping companies are set to begin calling at Iranian ports such as Bandar Abbas once more. Growth will take time to recover, however, given the massive inflation seen in Iran in recent years, and the damage done to consumers' purchasing power as a result.

Headline Industry Data

  • 2014 Port of Bandar Abbas throughput forecast to grow by 5.6%, and average growth of 6.5% to 2018.

  • 2018 Port of Bandar Abbas throughput expected to reach 2.04mn twenty-foot equivalent units (TEUs) - still not enough to match 2011 volumes.

  • ...

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Telecommunications

Iran Telecommunications

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BMI View:   Iran's telecoms market is an underperformer in the Middle East as a result of political and economic risks, exacerbated by currency depreciation , which is limiting access to the latest device and so limiting the market's growth. Furthermore, the Iranian government is keen to restrict access to international internet content, creating a national internet network that will bypass international gateways and cut off large swathes of global content. For this, the government began talks with the Chinese government in early 2014. That said, over the medium term there is catch-up potential in Iran, and its large population should make it one of the most attractive telecoms markets in the Middle East.

Key Data

  • Fixed-line connections increased by just 1.9% in 2013...

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Water

Iran Water

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BMI View: Iran has recently seen increases in the amount of water extracted and consumed from its mains network, leading to frequent shortages. The underdeveloped network is not capable of dealing with the higher demand, brought about by a steadily increasing population. To combat the water shortages, the Iran government are keen to develop the water infrastructure, particularly with respect to the treatment and reuse of wastewater. A more efficient system, combined with a number of new, well placed dams, is hoped to end the ongoing shortages. Although there has been a slight alleviation in the lack of water, this is most probably due to recent high precipitation levels, rather than any great improvement in the sector. It is clear that much more work is needed. 

The increased precipitation levels in recent months, although providing temporary relief in some areas, will do nothing to alleviate...

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