By Pooya Stone
August 29, 2020
One of the major problems of Iran’s economy is the capital escape, which has accelerated at an unprecedented rate in recent years. According to the state-run Arman daily, in the years 2011 to 2019, some $98.4 billion of capital has left the country.
Saeed Leylaz, an expert affiliated with former President Akbar Hashemi Rafsanjani’s “Kargozaran” group, also said in an interview on state television: “From the years 2014-15, the outflow of capital from Iran began and nobody looked at them. I guess within the past 4-5 years, we have had more than $100 billion capital escape from Iran.” (Documentary Network, 11 July 2020).
Arman daily wrote in an article titled “Flight of Dollars” about the “meaning of $98.4 billion capital escape from Iran in nine years and $10.9 billion every year”: “This amount of capital is about 1968 trillion Tomans when calculated by the rate of 20,000 Tomans to each US dollar.”
“If we divide this figure by 84 million people in Iran, it will be 23,428,571 Tomans. Every Iranian receives a subsidy of 540,000 Tomans, and this figure is equivalent to 43 years of subsidies for every Iranian. The amount of capital leaving the country is equivalent to the capital needed to create an average of 7 million jobs or an average of 6.1 million industrial jobs in urban areas (the most expensive type of investment). Let us look at foreign investment flows in the world and estimate the catastrophic grandeur of $ 98.4 billion capital outflow.”
Some of these investments have gone to Turkey and their owners have invested in the real estate sector in Turkey, so that according to the Shargh daily: “During the first seven months of this year, despite the outbreak of the coronavirus, Iranians have so far gained the first rank in buying a property in Turkey by buying 3,168 properties, and in less than four years, they have established 2,721 companies in Turkey and bought 13,355 properties in this country.”
The outflow of capital is due to the stagnation of production in the country and the restrictions that the government has created on production, especially production by non-official people and not in the reign circle and of course the middle class.
Another issue is the support of the destination countries of Iranian capitals for these capitals and their owners.
“Turkey’s justifying laws on attracting foreign investment has increased Turkey’s interest in attracting Iranian investment,” said a member of the Board of Tabriz Chamber in an interview with Shargh daily about the reason for the ease of investment by Iranian investors in Turkey.
Another government expert on the attractiveness of investing abroad, especially the attractiveness of investing in Turkey for Iranian capital owners, said:
“In relation to Turkey, the issue is the escape of capital from the country and not only the outflow of capital from the country for real estate. With the conditions created by Iran’s neighboring and rival countries to attract capital and facilitate foreign investment laws, the attractiveness of capital outflow from the country increases.
“These facilities create stability for investors who can overcome the fluctuations of the domestic market in the long run. The main motivation seems to be the economy, which prefers to invest in a less risky country due to the risks that may be felt in their investments inside the country.” (Shargh, 23 August).
The government’s laws provide facilities only to support the investment of institutions such as the Mostazafan Foundation, Execution of Imam Khomeini’s Order (EIKO), Astan Quds and other institutions affiliated with Supreme Leader Ali Khamenei’s so-called ‘Beit’ (House) such as the Revolutionary Guards and government institutions, but for investors not dependent on the government, the rules are very complex and cumbersome.
The insecurity of capital is not only the concern of domestic investors. Another problem facing foreign investors during the four decades of the clerical establishment’s rule is the lack of security of their investments in Iran.
Barriers to production and investment, especially the lack of guarantee of investment security in the country, is such that Ali Rabiee, spokesman for the Rouhani government, was forced to acknowledge that: “One of the places and issues that we must work with the parliament seriously is barriers to production, the security of investment and the improvement of the business environment.”(Tasnim, 15 May)
Regarding this, the Jahan-e-Sanat daily on 1 June wrote: “In order to achieve economic growth and development, government officials express various opinions. One group emphasizes on improving the business environment and equipping the financial resources of the development and infrastructure sectors, and another group emphasizes improving the inflow of foreign capital.
“Both of these pathways require the passage of bureaucracy and the improvement of the components influencing capital attraction. While the status of market variables, the degree of openness of the economy, economic security, and investment risk and tax policies show that none of the conditions for attracting capital in the Iranian economy is provided.”
A large part of capital outflow has taken place in recent years due to corruption in exports and imports, and government institutions involved in import and export affairs have removed the capital from the country through various corrupted tactics.
As in recent years, elements from both factions of the ruling clerical establishment received large amounts of government currency at the price of 4200 Tomans under the pretext of importing essential and basic goods of the people, and without importing goods for that, deposit money in their accounts in foreign banks or invested it outside the country.
Some also exported goods abroad and instead of importing the resulting currency in cash or goods deposited the money in their accounts abroad.