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iran

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  IRAN

REPUBLICAN REFERENCE

Area (sq.km)
1.648 million

Population
66,128,965

Capital
Teheran

Currency
Iranian rials

President
Mohammad Khatami-Ardakani

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Background:
Known as Persia until 1935, Iran became an Islamic republic in 1979 after the ruling shah was forced into exile. Conservative clerical forces subsequently crushed the westernising liberal element. During 1980-88, Iran fought a bloody, indecisive war with Iraq over disputed territory, which caused large-scale damage to its economy. The key current issue is how rapidly the country should open up to the modernising influences of the outside world, with a conservative faction in control of some key institutions, such as the Council of Guardians, and a reformist faction centred on elected President Khatami.

Update 02

Now that the war in Afghanistan is well past its peak, the focus of Iran's government is shifting towards the opportunity to re-establish an influence in the internal politics of its eastern neighbour. Not only Iran supports the Hizb-i Wahdat, one of the partners in Karzai's coalition government in Kabul, but it is also establishing direct (but not always open) links with big and small players in western and south-western Afghanistan, including Ismail Khan, the warlord in control of Herat and the surrounding provinces, and several tribal chiefs. Iranian goods are already swarming through western Afghanistan, while Teheran has repeatedly stated its willingness to take part in the reconstruction of Afghanistan, especially in terms of building bridges and roads along the western border, which would favour the expansion of Iran's influence there. A memorandum of understanding for the construction of 75 small factories has already been signed.
The Iranian government is clearly nervous at the prospects of the US firmly establishing themselves in Afghanistan and Central Asia, possibly through the development of client states. The appointment of Zalmay Khalizad, a former adviser of Unocal, to the role of special US envoy to Afghanistan, must not have pleased the Iranian government, which would rather see the Central Asian pipelines of the future cross its own territory and not that of Afghanistan. Iran's moves in western Afghanistan should also be seen in this light and have prompted some observers to wonder whether Iran and the US, after a short-lived improvement in their relations just in the two months following September 11, are now on a collision course again. 
The factional infighting at the top of the Iranian institutions does not make deciphering Iran's moves in Afghanistan any easier. The "hostile" moves denounced by President Bush and other members of the administration and reiterated by Khalizad might be attributable to conservative elements within Iran's state structure. Reformists such as President Khatami and centrists such as former president Rafsanjani do not appear to have altered their recently stated stance, favourable to a rapprochement with the West. So far, Supreme Leader Khamenei has not objected to Khatami's cautious attempts to reform.
The situation is compounded by the influence that events in Afghanistan, with the first signs of a watering down of the fundamentalist character of the country's institutions, might have on Iranian society. The recently stated willingness to re-establish the pre-taliban status for women has caused some excitement among the large portion of the Iranian population which is increasingly impatient towards the strictures of the Islamic constitution, even if Iran remains to date much more liberal than Afghanistan. Conservative elements in Iran might be stimulated to do what they can to delay changes in Afghanistan.
If geopolitics plays against a real thaw in the relations between Iran and the US, the economic and business rationale remains favourable. In fact it might be becoming stronger than ever, as 2002 is heralded as a year of intense activity in the field of oil and gas exploitation. Since few major contracts saw the light in 2001, several await decisive progress during 2002. Among them, Azadegan, Iran's largest field, the development of which appears likely to be trusted to a Japanese consortium, with investments expected to be in the range of $4.5 billion. A large part of the South Pars gas fields contracts, worth investments for another $4 billion, appear certain to go to Norway's Statoil, while the remaining contracts and the Bangestan scheme, a $2.5 billion deal, are still undecided. Even the Russian Lukoil is making plans to start bidding for some of the lucrative Iranian contracts.
Interestingly, Phase 1 of the South Pars scheme, run by the Iranian Petropars, is 18 months late, while foreign companies have been doing much better in developing other phases of the same scheme. This might contribute to explain while the reformist government is so eager to attract considerable foreign resources and expertise to fund at least part of its $24 billion investment plan in the oil industry for 2002-2006. Even if the Iranian government has been in the recent past keen to state the limited impact of the American embargo, the forced absence of American companies from the scene, due to the August 2001 renewal of the Iran Libya Sanctions Act, is unlikely to be welcomed by the Iranian government. Not only it reduces the competition among the potential applicants, but it also hampers the access to advanced technology for the exploitation of the fields. Nor are American business pleased either to be missing such opportunities. 
However, in the short terms geopolitical considerations will prevail over economic ones. US Secretary of State Colin Powell confirmed even before the January 2002 surge in hostile declarations that sanctions are there to stay. Not even Iranian reformists, on the other hand, would be ready to hand over a blank cheque to Americans. A reformist paper for example openly supported in January the adoption of the euro for use international deals, which had already been announced by the Iran National Oil Company. Iranian reformists want to do business with the US, but are keen to protect the autonomy of Iran.
The dilemma of the Iranian government is that in order to free the country from its dependence on oil in the long term, it has to rely on an expanded exploitation of that resource, in order to fund investments in other sectors. The cost of the planned doubling of the output by 2020 is huge and goes beyond the $24 billion to be invested directly in the oil industry. For example, Iran has currently on order 10 new oil tankers, which are being built in China and South Korea at the cost of $750 million. At the same time, the expansion of oil production is likely to have negative effects on oil prices even in the medium and long terms, after the recession ends in the industrialised world, especially since other producers, such as Russia and Venezuela, have similar plans. Even in January 2002 Iran had to cut its sales of crude by 10%, in accordance with Opec's decisions. Consequently, in the future international politics will play an increasingly important role in the trading of oil and gas, as Russia's President Putin appears to have understood. In order to secure markets for its growing production, Iran will have to become friendlier to Western governments, most of which are already showing an interest in intensifying contacts with it, as shown by the visit of Germany's Finance Minister Hans Eichel in early January.
While Iran waits for the development of its oil industry to deliver higher growth and extra resources, the privatisation reforms are supposed to improve the economic performance in the short term. So far the privatisation program has been criticised for the shortcomings of laws and regulations, unclear long-term strategies, the wariness of some ministries towards the program and a lack of business skills among some of the entrepreneurs who have taken over former state firms. 2001 was no exception to a pattern of slow and not very successful reforms, as signalled by the appointment of Tahmasb Mazaheri, known to favour a centralist approach, as economy and finance minister. One important development of 2001 was the Eurobond issue of October, through which Iran signalled its willingness to join the international financial community. Smaller signals of movement towards a less centralised and state-controlled economy keep coming. During 2001, other significant steps have been the approval, by the Iranian parliament, of a law on foreign investment, streamlining bureaucratic procedures and guaranteeing profit repatriation, and by both the parliament and the Council of Guardians of Iran's adhesion to the New York Convention on foreign arbitration. Such small steps are bound to continue in 2002. In January, the Supreme National Security Council rejected the idea of applying filters to the Internet, recognising its "focal role in economic, cultural and social development".

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AUTOMOBILES

Production line for new car to go on stream on 3 Feb 02 


Managing Director of Iran Khodrow Company Manuchehr Gharavi said recently that Samand cars - the biggest industrial project ever implemented in Iran - has been successfully manufactured, bringing the company a step closer to globalisation. 
Gharavi told a ceremony, marking introduction of the first national car, that his company has the capacity to produce 100,000 cars a year. 
He said this week 40 Samand cars were produced at the company a day and the figure are expected to rise to 50 from next week. 
He added that gradually the company will raise its production capacity to 350 such cars a day as of next year. The Samand production line will go on stream from 3 February. 

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BANKING

Private bank begins operations in Iran


Bank Karafarin became the first private bank to operate in Iran since the Islamic revolution's renationalisation programme 23 years ago. The move, part of the government's creeping financial reforms, has raised hopes that more licences will follow, possibly culminating in the return of foreign banks. 
Dr Parviz Aghili, the bank's US-educated managing director, said his bank was "100 per cent private" and the government did not hold even "a single share". Bank Karafarin received its licence on December 26, 2001 from the Central Bank of Iran after providing US$25m (£17m) in initial capital. With 700 shareholders, its balance sheet currently stands at around US$60m. It had previously operated for two years as a non-banking credit institution under the name Karafarinan.
Article 44 of the constitution places the banking sector under state monopoly; however, the previous parliament's re-interpretation of the article paved the way for the return of private banking. 
Two more banks have been given the all-clear to open in the next few weeks, while a further 44 institutions have applied for banking licenses. But so far, foreign banks are only allowed to have their branches in free zones in the Persian Gulf islands of Kish, Qeshm and Chabahar.
Bringing back private and foreign banks is part of a wider package of reforms to restructure and make more transparent and competitive the operations of 12 state-owned Iranian banks. Lack of transparency in the sector has been seen as aiding recent multi-million-dollar corruption scandals. Private economists think some state banks are technically insolvent and warn they would need recapitalisation before they could be privatised.
"The issue of private banking and linking that to foreign participation is an undeniable necessity. We are interested in foreign banks' presence," Iraj Nadimi, a parliamentarian, told the FT. 
Iran's banks follow the Islamic non-usury system, setting "profit rates" instead of interest rates on deposits and "expected rate of profit on facilities" on loans. But unlike state-owned banks, private banks would be free to decide on loans and profit rates.

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CONSTRUCTION

Iran plans to build 75 factories 


Iran signed a memorandum of understanding with Afghanistan on setting up 75 factories in the neighbouring war-ravaged country, the official Iran news agency said.
Afghanistan's new interim administration has made repeated appeals for aid to help reconstruct its infrastructure, which was devastated by more than 20 years of war. 
Iran aims to set up factories producing flour, detergents, cotton, construction materials, packaging, chemicals and carpets in joint ventures with Afghanistan, the agency said.
More than 50 donor nations are to attend a two-day conference in Tokyo, starting tomorrow, where they are expected to announce an aid package for Afghanistan that the United Nations and the World Bank estimate will cost about US$15 billion over 10 years. 

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FOREIGN INVESTMENT

Majlis discusses foreign investment bill once again


The bill for assimilation and supporting of foreign investment that has been returned from, Guardian Council was discussed at the open session of the Majlis and some amendments were approved. 
Based on these amendments, foreign investment will be accepted if it leads to economic growth, upgrading of technology and promotion of quality of products and an increase in the opportunities for employment and export; and if does not threat national security and public interests, does not destroy the environment and does not disrupt the country's economy. 
Meanwhile, foreign investment should not grant monopoly and government concessions to foreign investors. In any case, the share of foreign investment in the country's gross national product in each sector should not exceed 35 per cent. 
This amendment stresses that individual cases of investment by foreign governments in the Islamic Republic of Iran, shall depend on the approval of the Islamic Consultative Assembly (Majlis). And investment by foreign government companies will be regarded as private investment.

Lari says officials serious in attracting foreign investments 

Interior Minister Abdolvahed Musavi Lari said that officials are determined to attract foreign investment, adding "all the conditions are laid out for this objective." 
Speaking at a seminar on foreign investments, he added that increase of gross domestic product (GDP) from six per cent in the last Iranian year (ended 20 March) to eight per cent this year is indication of such a resolve. 
He also referred to the 'wise and prudent steps taken by the government regarding foreign investments in the recent years', adding by preserving national interests and maintaining social norms and values which have been accepted by the rest of the world, "We invite the Iranian expatriates to invest in the country." 
New conditions prevail in the country for investments and these conditions should specially cater to the tastes and culture of Iranians residing in the Persian Gulf states. 
He also called the southern neighbours should be given priority in investing in Iran, adding close proximity and similar cultural traits make investing in Iran for businessmen in these countries attractive. 
He also singled out Fars province with young expert manpower and suitable ecological conditions as better than many other countries for Iranian expatriates in the Persian Gulf littoral states. 
Earlier in December, five member of Majlis Commission on Economic Affairs were given the task of holding discussion with the oversight Guardian Council (GC) in a bid to overcome objections raised by the body to the bill on foreign investment. 
One of the members Nadimi, an MP from northern city of Lahijan said that the investments issue will be discussed with the GC and other related organs. "It is likely that with the exception of one or two issues, on all others, we can agree with the GC," he noted. 
Nadimi also quoted the GC as saying that the body is not against foreign investments in Iran, but, only deems it necessary to include several safeguards in the law. 
A member of the Majlis Presiding Board, Esmail Jabbarzadeh, criticized `the limbo that the proposed foreign investment bill is in'. 
It has been over 18 months that the bill has been stalled in the finance, he noted. 
Jabbarzadeh, who is also among the bill sponsors, told IRNA that by 2006, Iran will have over eight million unemployed. Existence of such a huge pool of unemployed will not only have adverse effects on the economy, `but will also jeopardize the national security', he stated. 
Annually Iran needs over 14.5bn dollars of foreign investment so that 750,000-800,000 new jobs can be created in the economy, Jabbarzadeh said. 

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FOREIGN DEBT

Azerbaijan pays back US$10.8 million in debt


Azerbaijan repaid some US$10.8 million of its overdue debt to the Iranian electricity company, Tavanir, Deputy Azeri Prime Minister, Yaqoub Ayoubev stated on 12 January 2002. 
Mr. Ayoubev said that Baku has begun repayment of its debts to Iran since January 2001. The Azeri official said his country owes US$44.3 million in debt to Iran for importing electricity for Nakhichevan. Azerbaijan has to repay some US$2.7 million in debt to Iran every three months, he noted. 
To supply Nakhichevan, Azerbaijan imports electricity from Iran and Turkey. 
Iran's special envoy for Caspian Sea Affairs, Mehdi Safari, earlier in Baku discussed issues of mutual interest, including delivering Iranian electricity to Azerbaijan. 

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FOREIGN TRADE

Germany to boost Iranian trade links 


German Economy Minister Werner Mueller said yesterday Iran was a good customer for German companies and said it was his ambition to restore German trade links with other former off-limit trading partners. 
In an interview with NTV television, Mueller said it was his ambition that by the next German elections in September the country would have restored export credit cover to most of the countries cut off in recent years but drew the line at Iraq. 
"It's from Yugoslavia to Cuba...it is my goal that in these four years (in government) we will have tackled all these cases," Mueller said. 
Mueller noted Germany had already granted one billion euros worth of export credits with Iran in 2001. "I expect with Iran we will soon be doing big business." 

Iran Exports Steel to 30 Countries Worldwide

Iran is renowned for quality steel and currently exports the product to 30 countries worldwide, according to Deputy Minister of Industries and Mines, and Managing Director of Iran's National Steel Company Mostafa Moazenzadeh.
"Canada, Mexico, Japan, Spain, France, Greece and a few other European as well as Asian countries are among the markets importing Iran's steel," he added. 
He noted that since the beginning of the current Iranian year on April 21, 1.2 million tons of steel have been exported and according to the planned schedule the amount is expected to reach 1.5 million tons by the end of current Iranian year, which will show an increase of 200,000 tons over last year's export.
Referring to the current standstill dominating the global steel market and its low price, he said, "The revenue of this year's steel export is estimated to reach US$300 million in hard currency." He concluded that based on the planned scheme, this year's steel production will amount to seven million tons.

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INFORMATION TECHNOLOGY

Iran to Enter Software Export Market


Secretary of the Iranian Association of software Exporters Mohammad-Reza Hosseini said during a computer exhibition that Iranians are planning to export software after achieving the required international standards.
Hosseini who was speaking during the opening ceremony of Iran's first Multimedia and Computer Software Products Exhibitions at Tehran's Permanent Fairs Ground said that the main objective of arranging for the exhibition is to gain a clear image of the country's export capabilities in that highly profitable filed. 
"Yet, Iran has still no official software exports," he said. He listed some of Iran's potential capabilities in becoming a major computer software exporter in the region and attributed the current lack of official exports in the field to inefficiency in the certain infrastructure apparatus which need to be eliminated to enable the investors in the filed take optimum benefit of their investment.
The software exporters' association secretary then turned to the issue of production of certain software in Iran and their unofficial exports to some countries, arguing, "One of the other major objectives of organizing this exhibition is to spot the deficiencies and find practical methods for official exports of these products." 
Hosseini asked all Iranian software producers to take proper care to manufacture their goods based on all international standards, which will help them enter foreign markets without much difficulty once the other obstacles are eliminated. 
Among the other objectives of organizing the exhibition Hosseini referred to achieving a new outlook towards production of most advanced software currently in use around the globe, which will enable Iranian manufacturers produce a more diverse range of software. 
"There is a very high potential in the field which needs to be channelised and made appropriate use of, and this field should be dealt with quite independently from the computer and information processing sectors," added Hosseini. 
Asking the government to provide for the speedy growth of the software industry in Iran, the software exporters' association secretary drew the attention of the Iranian authorities to the vast potentials in the field and the great possible benefits that Iran can gain if proper attention is paid and sufficient assets are provided for the sector.
The Multimedia and Computer Software Products Exhibition is organized at a 3,000 sq meter ground at Tehran's Permanent Fairs Ground, uptown Tehran and about a hundred Iranian software manufacturers have participated in it this year.

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TRADE & INDUSTRY

Libya stress closer trade ties to Iran


Head of Iran Chamber of Commerce, Industries and Mines (ICCIM) Ali Naqi Khamoushi said that private sector activity does not have any political ramifications so political discussions between governments should not hinder private sector cooperation.
Khamoushi told the visiting Libyan Heads of Union of Chambers of Commerce Sulayman Al-Barouni that generally severing trade ties should be the last resort when two countries break off diplomatic relations, IRNA reported.
The Libyan official was quoted as saying that the two countries chambers of commerce can expand bilateral trade ties. He said that following the establishment of sea transportation links between the two countries, ''Flights between Tehran and Tripoli are to be established in the near future.'' 
"Referring to the success of the last week's Iranian delegation's visit to Tripoli, he said the joint statements on expansion of private sector cooperation which was recently signed and the agreement between the two countries traders heralds a bright future in bilateral ties," IRNA reported.

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