ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
TEHRAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The president, Mahmoud Ahmadinejad, who was
inaugurated for a second term in August 2009,
will continue to implement an unorthodox and
populist conservative agenda over the forecast
period that appears increasingly at odds with
other powerful forces in Iran. In his first term, Mr
Ahmadinejad ensured that any opposition to his
hardline conservative policies from both within
and outside government was dealt with firmly.
Such robustness, at the expense of political unity,
is expected to continue in his next government.
Despite the hardening of Iran's nuclear stance, its
leadership remains sensitive to popular opinion,
which appears to want a peaceful resolution of
the nuclear dispute. The Iranian administration
seems to be testing the diplomatic waters with
the US, with which Iran has had an exceptionally
difficult relationship since the 1979 Islamic
revolution. Following the election of Barack
Obama as US president, Iran appears more
receptive to the idea of direct diplomatic talks
with the US. Despite Mr Obama's apparent
willingness to engage with and reach out to the
Iranian leadership and people, the depth of
animosity between the two countries, and the
internal pressures not to concede too much to
the other, is likely to mean that there will be only
halting progress towards rapprochement.
Economic Performance
The new Ahmadinejad government will be under
strong economic pressure to encourage foreign
investment, after the sharp fall in international oil
prices in early 2009 and because of the near
impossibility of attracting project financing as a
result of sanctions and the global financial
meltdown. Lower oil prices mean that Iran can no
longer rely on its own resources for the major
investments needed to sustain oil production and
meet increased domestic demand for gas and
electricity. However, the combination of sanctions
(imposed in response to Iran's ongoing nuclear
programme) and the drying up of international
credit markets means that Iran has few viable
alternatives. Owing to its nationalist stance, the
government will continue to seek to be self-
reliant, favouring local firms where possible,
especially in the energy and petrochemicals
sectors. Given the concerns over future
investment, Iran's oil production capacity target of
5.6m barrels/day (b/d) by 2010, up from an
estimated 4m b/d at present, will not be met
without outside help. Despite having pushed for
and won a significant cut in OPEC output in
response to a sharp decline in international oil
prices, Iran's domestic economic situation will
add pressure on it to maintain its own production
levels (which are nevertheless estimated to have
declined marginally in 2009) to help to cushion
itself against a significant fall in oil prices. If the
nuclear dispute worsens markedly–leading to an
eventual embargo on Iranian oil exports or an
Iranian cessation of output, or worse, military
action–the impact on economic policymaking
would be severe. Cutbacks in government
spending would be required, and the ability of
Iranian industries to source capital goods or raw
materials from abroad would be disrupted.
Iranian real GDP growth is forecast to strengthen
slightly over the forecast period as a result of
higher oil prices and rising oil output. We
estimate that real GDP growth will have
weakened in 2009/10 to just 0.5%, owing to the
drop in oil earnings over the year, which will have
affected the rate of private consumption and
investment growth. Although these trends will be
reversed–especially in 2010—THE expected net
oil export growth is to be held back by a lack of
refining capacity in 2010-11, which is largely a
result of political interference and subdued
foreign investor interest. This will continue to
leave Iran increasingly reliant on fuel imports,
which have been rising despite the imposition of
petrol rationing in 2007. Despite this, Iranian real
GDP is forecast to pick up steadily to 2.9% in
2010/11, and further to 3.5% in 2011/12.
With fiscal policy likely to remain expansionary,
albeit not to the extent it was in previous years,
concerns over inflation are set to persist in 2010-
11. However, with international non-oil commodity
prices remaining relatively low over the forecast
period, annual inflation is expected to fall quite
sharply to an average of 13.8% in 2010 and 12%
in 2011. Latest official data show that consumer
price growth eased to 13.1% year on year in
August 2009–its lowest level for almost three
years.
Bank Markazi (the central bank) has hitherto
allowed the Iranian rial to weaken in nominal
terms in order to support the competitiveness of
non-oil exports. The rial will have depreciated on
average by around 5% in nominal terms in 2009,
with the currency averaging IR9,928:US$1 for the
year.
The decline in oil export revenue will have
outstripped the drop in import spending in
2009/10, owing to the sharp fall in average oil
prices. Overall, it is forecast that the trade surplus
will have shrunk considerably in 2009/10, to US$
13bn, from over US$31bn in the previous year.
However, because of a rise in global oil prices in
2010, the trade surplus is expected to widen, to
US$24bn in 2010/11, before narrowing again in
2011/12, to US$23bn, as oil prices drop slightly.
The non-merchandise deficit is expected to fall a
little on average in 2010-11, as income and
current transfers surpluses offset an increase in
the services deficit. The rise in international oil
prices will also have a positive impact on the
current-account surplus, which we forecast will
widen to over 3% of GDP in 2010/11, from an
estimated surplus of just 0.6% of GDP in
2009/10, before narrowing again to 2.7% of GDP
in 2011/12.*
* The Economist Intelligence Unit Limited, November 2009
Key Information Contacts
Tehran Stock Exchange Corporation; http://www.iranbourse.com
Securities and Exchange Organization; http://www.seo.ir
Iranian Privatization Organization; http://www.en.ipo.ir
TSE’s Technology Management Company; http://english.tsetmc.com
Central Bank of the Islamic Republic of Iran; http://www.cbi.ir
Iranian Chamber of Commerce, Industries and Mines (ICCIM); http://www.iccim.com
Organization for Investment, Economic & technical Assistance (OIETAI) a division of the Ministry of Finance; http://www.investiniran.ir
REAL GDP
(IRR millions)
CONSUMER PRICES (% CHANGE PA; AV)
(%)
600
26
24
500
22
400
20
300
18
16
200
14
100
12
0
10
2005
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