The recent departure of several foreign investors from Iran has highlighted new dimensions of “isolation” and “monopoly” in the country’s turbulent economy. With the sharp rise in the free-market exchange rate of the U.S. dollar and the prospect of Donald Trump’s return to the White House, exporting oil and attracting investments have become more challenging for the Iranian regime. As a result, the few remaining foreign investment firms are pulling out their capital from Iran.
It was previously reported that the Turkish investor of the “V One” chain stores had been removed from the list of the store’s shareholders.
In early January, it was announced that “Savola Group” of Saudi Arabia, a giant in the Middle Eastern food industry, had exited the Iranian market after two decades of significant presence in the cooking oil sector. Some experts attribute this departure to escalating “political tensions” and “declining profitability.”
But the story doesn’t end here. Hyperstar and Digikala, two prominent brands in Iran’s retail and e-commerce markets, have also recently witnessed the departure of their foreign shareholders. The Emirati company “Majid Al Futtaim” has left Hyperstar’s list of shareholders, and the European investment firm “IIIC,” which owns about 33% of Digikala’s shares, is set to exit Iran in the near future.
Is Iran on the verge of losing its last opportunities to attract investment?
In a statement released on January 1, Savola Group cited its “strategy of timely withdrawal from non-core markets” as the reason for ceasing its operations in Iran. However, speculation about the underlying reasons for the Saudi investor’s exit suggests that political factors and Iran’s international conditions likely played a role in the decision.
Some point out that the company had previously withdrawn from the Moroccan and Iraqi markets, arguing that the decision was solely based on marketing strategies. On the other hand, some argue that since the company supplies over 40% of Iran’s cooking oil and owns 80% of the shares of the prominent “Behshahr Industries,” its decision to leave Iran is still inconsistent with standard economic criteria.
Declining Purchasing Power and a Challenging Business Environment
Iran has faced severe economic challenges in recent years. Rising inflation, extreme currency fluctuations, budget deficits, and increased government taxation have collectively reduced consumers’ purchasing power. This reduction has directly impacted the profitability of businesses, diminishing the appeal of investing in the Iranian market.
Iran has consistently ranked among the lowest countries in international business environment indices. According to the latest rankings by the UK-based “Economist Intelligence Unit,” Iran ranked 81st out of 82 countries from 2014 to 2018, ahead of only Venezuela. However, in the most recent rankings, Iran did not even appear on the list, indicating a further deterioration in the country’s business environment.
In the World Bank’s Ease of Doing Business rankings, Iran stands at 127th out of 190 countries.
The consistent decline in the investment growth rate over the past decade underscores that not only foreign investors but also domestic capital is exiting Iran. A report by the Economic Research Division of the Iranian Chamber of Commerce shows that the average annual investment growth rate in 2010 was -4.7%.
According to official reports, capital flight from Iran significantly accelerated in 2015, peaking in 2017 when the United States withdrew from the JCPOA (Iran nuclear deal). That year, Iran’s net capital account was more than $19 billion in deficit.
Changing Regulations and the Phenomenon of “Shadow Governments”
The instability in regulations and economic policies, particularly rent-seeking mechanisms, has made Iran’s business environment increasingly opaque. Foreign companies that operate based on transparency and fair competition struggle to sustain themselves in Iran’s economy, where many economic opportunities are dominated by rentier and security-affiliated institutions.
The involvement of unofficial entities, such as companies linked to security and religious organizations, has further complicated the economic landscape.
One of the most notorious examples of shadow government interference and security entities disrupting foreign investment in Iran is the 2004 inauguration of Imam Khomeini Airport. The Turkish-Austrian company “TAV” was set to complete all phases of the airport within two years. However, on the opening day, the Islamic Revolutionary Guard Corps (IRGC) blocked the airport’s runway, preventing aircraft operations and effectively terminating the contract. Decades later, subsequent phases of the airport remain incomplete.
The Return of Trump and International Pressures
Some speculations in Iran attribute the foreign investors’ exodus to the return of Donald Trump to the U.S. presidency. Trump’s return raises the likelihood of increased international pressures and sanctions against Iran’s regime. Many multinational companies investing in Iran also have significant operations in Western markets, making continued collaboration with Iran a risk that could subject them to Trump’s stricter policies.
Are Opportunities Lost Forever?
Many experts and private sector representatives are warning of an intensified wave of investor departures from Iran.
The long-term consequences of foreign investors leaving Iran, amid the absence of a clear prospect for attracting new investments, have become alarming. The economic challenges facing the Iranian regime will not be resolved even with the lifting of international sanctions.
In the past decade, Iranians have repeatedly taken to the streets, demanding regime change due to harsh economic and political conditions. In the not-too-distant future, Iran is likely to witness even larger uprisings, ultimately leading to change.
