What has been reported by the Iranian government’s statistical institutions speaks about the government’s failure to attract foreign countries and economic entities to invest in Iran. An opportunity that is now not imaginable anymore due to the regime’s insistence on its nuclear and terror activities.
The decrease of real investment, and the decrease of countries that desire to invest in Iran, and the increase of the macroeconomic variables such as the monetary base, liquidity, and most important the inflation are adding to this crisis.
According to the report of Iran’s Deputy of Economic Studies of the Chamber of Commerce in the 2000s, the average annual growth of investment was -4.7 percent, and the amount of a real investment was just 171 trillion tomans. This number in 2011 this the amount of investment reached 100 trillion which decreased to 98 trillion tomans in 2019.
To understand the loss for the Iranian government, it is enough to know that the total operating deficit of the 2020 budget released by the Supreme Audit Court on Tuesday was 183.3 trillion tomans, while the country’s total real investment that year accounted for only 54 percent of the operating deficit.
The continuation of this trend can be more destructive in the coming years. To compensate its shortcomings, the most important of which is the construction of power plants for electricity supply, the government needs a huge amount of investment which it doesn’t seem able to fund at least until the 5-year horizon.
Because of the regime’s nuclear crisis and the return of the regime’s oil sanctions, which have damaged the country’s uniaxial economy, the situation of the country’s investments become critical so that in addition to the decrease of the investment, the annual investment growth fall to -6.8 percent and the capital formation become negative.
Therefore, government economists call this decade the worst in Iran’s economic history, and many of them speak about an ‘unreversible crisis’ because nothing is predictable and is indeterminate and the situation has reached a state of uncertainty.
This situation has now led to the increase of the prices in the asset market and the lack of investments even by the country’s people. The people instead of investing, attended in parallel markets like currency and gold to avoid a sharp devaluation of their currency.
In addition to this crisis and parallel to it welfare fall rapidly in the society and the Gini coefficient exceeds 0.4 in 2018-2020 which is a sign of the increase of the class gap in the society.
The government respectively was forced to borrow huge amounts from the national bank to cover their budget deficit, which hurts the future generation of the country, losing their resources to invest in the development.
According to central bank reports, by March 2020, liquidity reached 3476 trillion tomans, an increase of 40.6 percent compared to March 2019 and an 84 percent increase compared to March 2018.
Liquidity was reported at the end of 2019 and 2018 at 2472 trillion tomans and 1882 trillion tomans, respectively.
To understand the magnitude of the numbers of economic variables in the 2000s, it is enough to know that the base volume of money in 2019 was about 352 trillion tomans.
According to the Tehran Chamber of Commerce’s deputy for review, assuming an annual growth of 5 percent of investments from this year in 2034, the country’s real investment will reach the figure of what it was in 2011, 170 trillion tomans.
And that is only if the regime becomes successful in the nuclear negotiations and be able to remove all the obstacles and sanctions which many of which are not related to its nuclear case, then it must witness a 10 percent increase of investment annually.
Meanwhile, other economic variables like monetary base, liquidity, and inflation will continue their path and these variables will not change positively and will challenge a real investment in the country’s economy.
Also lurking in Iran’s economy is the depreciation of capital. From the beginning of 2011 until 2017 the real investment was much higher than the depreciation of capital and the investments were able to cover the depreciation of capital. However, since 2018 this decreased suddenly and became equal to the depreciation of capital.
It should be noted that the depreciation rate with steep stability was increasing every year, but the amount of investment declined with a steep slope. So that in 2019 and 2020, real investment in the country did not compensate for depreciation costs.
As noted, the presence of a real private sector in the economic activities is important which does not exist in Iran, the only thing that does exist are the so-called private-government driven companies which the regime calls ‘Khosulati’ and are mainly in the hands of the regime’s IRGC. Important because without their presence the regime is forced to print more money which is increasing the inflation as we are witnessing now.
Simply said, this is something which is making the life of the coming generation difficult and hopeless.