IRAN. The Road Ahead. Ahmad Azizi March 2016

Transcription

1 IRAN The Road Ahead Ahmad Azizi March 2016

2 Iran The road ahead Why Iran? Economy Market Prospects Foreign Investment Challenges Banking Future Plans - GDP target & financial sector reform JCPOA take away message

3 Why Iran? Strategic & Stable Partner 18 th largest economy (GDP PPP b source: IBRD) Diversified economy (oil only 15%, Service 53% of GDP) GDP growth 3% year ending March 2015 Resource rich, Fossil fuel (Oil & Gas combined) - alterna[ve to Russia Strong infrastructure (need for modernisa[on) Market size, High GDP growth poten[als Young, educated & welcoming popula[on of 79m Highly-skilled labor force Priva[sa[on & deregula[on plans

4 Economy Recent Performance; GDP growth 3% Infla[on: CPI Feb 2016, 12.6% / PTP 9.6% (June 2014 = 45.1%) PPI Feb 2016, 5.5% / PTP 3.4% Currency stability 11% reduc[on of interbank market rate (29% to 18%) TSE Index growth Unemployment 10.7% Liquidity growth 18.3% (as at Dec months) Monetary base 8.9% (as at Dec months) Money mul[plier: 6.4 (8.6% increase - Q3) Net foreign assets of CBI +16.9%

5 Economy - Continued Strategic loca[on, 16 neighbors, land and see access Very low foreign debt & Low government debt Impeccable payment track record despite revolu[on, war, sanc[ons etc. Historical surplus in all sec[ons of BOP Sizeable, historically capable banking sector with interna[onal experience Government support for banking sector Re-emergence aper liping of Sanc[ons (market poten[als) Stable in a turbulent region Vibrant and peaceful society (mul[-ethnicity) Elec[ons, etc

6 Economy: Positive Prospects EIU Projec[on: % GDP Major Analysts are forecas[ng considerable GDP growth for 2016: FT Economist World Bank IMF IRAN WORLD

7 Economy: Positive Trends Recovery (GDP growth of 2015 Y/E March 2015) Monetary and fiscal discipline Reduc[on of Infla[on Stability of FX market Market stability Infla[onary Expecta[on Management Change in the composi[on of liquidity (indigenous) Reduc[on of interbank rate (from 29% to 19%) Planning currency unifica[on, countercyclical policies (debt & tax)

8 Foreign Investment, FIPPA Sovereign guarantee (FIPPA) Repatria[on guarantee Equal treatment with local investors Interna[onal arbitra[on, courts Need for : Ra[ng Currency Unifica[on & hedging instruments (IRR-EUR NDF is quoted) local financial system interac[on with Int. Fin. Markets More transparency, IFRS,

9 Foreign Investment Tax Flat corpora[on tax of 25% No dis[nc[on between Foreign & Local firms Personal tax maximum 35% VAT 9% Very low tax burden 9% GDP (France 44%)

10 Economic Challenges 1. Low oil prices (makes FX a poli[cal economy considera[on) 2. Overcoming years of disconnectedness, Remaining Sanc[ons, etc 3. Structural reforms; including financial sector reform (credit crunch, shadow banking, NPL, low capital adequacy, capital market, Gov debt, correspondent banking, regula[on and supervision, resolu[on regimes, etc) 4. Business environment; Governance, Legal system reform, Transparency, An[ corrup[on 5. Policy credibility, produc[vity, priva[sa[on,

11 Economic Challenges 6. Financial markets are not well integrated into world market 7. Nominal exchange rate (ER) as historical anchor of monetary policy 8. Failed nominal ER, pro-cyclical fiscal & credit policy: RER apprecia[on, Dutch Disease & tradable output contrac[on 9. FX parity, specula[ve asacks, lack of hedging instrument 10.Debt Market Development 11. Bad Bank V Good Bank 12. Profit (Interest) rates, Infla[onary expecta[on & Monetary discipline

12 Economic Challenges weak recovery

13 Sectoral Growth Rate

14 Economy: Challenges

15 Economy: Challenges

16 Banking Balance sheet summary Loans Assets Deposits Liabili[es Government owned 3 17% 17% 19% 17% Specialised Banks 5 26% 21% 13% 21% De-na[onalised Banks 4 34% 33% 34% 32% Private Banks 18 22% 27% 32% 27% Credit Ins[tu[on 2 1% 2% 2% 2% Total % 100% 100% 100%

17 Banking Past ten years; Sanc[ons impact: Technology & Know how deficits Higher transac[on costs IFRS, Compliance, Banks health indices Governance, regulatory and supervisory standards NPL 7.2% 14.7% 12.8% CAPITAL ADEQUACY 13.1% 9.6% 7.6% Government Debt to Banks / Total assets 2.4% 6% 6.8% Banks debt to CBI / Total asset 1.6% 6% 5.2%

18 Banking (continued) Financial suppression Government debt to Banks Mandatory facili[es & Mandatory rescheduling Mandatory Interest rates Investments in real market: Projects & property market Resulted in Credit and liquidity crunch Fairly developed payment systems

19 Banking (continued) Beser environment since 2013 Posi[ve real rate returns on deposits Monetary & fiscal discipline Reduc[on of CBI reserve requirement QE Plan encouraging consumer borrowing Improved liquidity posi[on resul[ng from JCPOA

20 Future Plan - GDP Target & Financial Sector Reforms GDP target growth 8% for 2016 to 2020 Enabling, providing and consistent enforcement of business laws Strengthen CBI to maintain monetary & financial stability, financial development, strong regula[on and supervision Reform corporate governance, including IFRS Exchange unifica[on Financial safety net, including: Deposit protec[on, Credit bureau, ra[ng agency etc Debt market reform Promo[ng FDI Integra[ng with the global financial system

21 JCPOA Landmark deal entails full termina[on of all Nuclear Related sanc[ons; trust building process, momentum to cooperate P5+1 Commitments (sec28): Good faith and construc[ve atmosphere Refrain from any ac[on inconsistent with the leser, spirit & intent of JCPOA Make every effort to support successful implementa[on Normalisa[on of trade and economic rela[ons (Sec[on 29-EU) Ensure access in areas of trade, technology, finance and energy Facilitate trade, project financing and investment in Iran

22 JCPOA (continued) Liping of sanc[os is comprehensive (annex 5) Consulta[on with Iran in draping the JCPOA Guidelines Snap back would not apply retroac[vely Problems: Remaining USA sanc[ons (mainly primary) US$ SDN list US firms prohibited but their subsidiaries may be allowed Implementa[on risk; Snap-back V Huge investment by par[es Result: Availability of Correspondent banking services, star[ng point

23 JCPOA Challenges & risks Slow provision of correspondent banking services Poli[cal maneuvering e.g. US congress DPAs (deferred prosecu[on agreement) Fines & fear of USA Government Ongoing inves[ga[ons Extraterritoriality in applica[on of American laws Guidelines (not effec[ve reflec[on of commitments made under JCPOA) FATF statement on Iran Snap-back, Dual use, US components JCPOA Major breakthrough but not enough

24 JCPOA Challenges & risks High cost of compliance & cost of failures (Fines US & EU enforcement) Slow provision of correspondent banking services-cbs (Threat of loss of CBS) Poli[cal maneuvering e.g. US congress Terms of DPAs (deferred prosecu[on agreement) Fines & fear of USA Government / Ongoing inves[ga[ons Dollarisa[on (conversion etc) Extraterritoriality in applica[on of American laws Guidelines (not effec[ve reflec[on of commitments made under JCPOA) FATF statement on Iran Snap-back, Dual use, US components JCPOA Major breakthrough but not enough

25 JCPOA - Upsets Dr Zarif: USA should act to remove psychological barriers Minister of Agriculture: I feel sorry when I see our foreign counterparts are only aper selling their products

26 message East or West East is coming with packages of billions of finance Some in the west are more enthusias[c than others Iran is a rear opportunity with huge poten[al Removal of sanc[ons are good but not enough More to be done by US & EU to ensure delivery of JCPOA promises Need for structural reform to ensure higher growth trajectory Expecta[on Gap/management: Strong infrastructure is available for higher growth

27 quotes on Iran EIU: No market in the world has the same level of untapped poten[al Federica Mogherini: The EU should strive to create a broader network of key actors in the Middle East including Iran

28 Iran The road ahead Thank you