Today, many countries try to attract foreign investments to make up for the deficit in domestic financial resources. The ever-increasing need for modern technologies, too, has helped intensify the global thirst for foreign investments.
On the other hand, international companies, especially multinational conglomerates, are willing to invest in areas with higher returns.
In the past two decades, foreign investments have grown rapidly worldwide to the effect that the foreign investment growth has exceeded that of global trade and more than doubled that of exports since the 1970s.
Naturally, Iran too is not immune to these developments and understands the need to actively interact at the international level. The hydrocarbon resource-rich country has a huge potential for foreign investments. But given its limited financial resources, there is need for greater efforts by the officials to encourage foreign investments.

Ups and Downs
A quarter century has now passed since the 1979 Islamic Revolution. Iran has experienced various ups-and-downs in relation to foreign investments over the period.
During the 1980-1988 war with Saddam Hussein's Iraq, quite understandably there was little room for foreign investments as the country was fully engaged in an all-out battle with the then western-backed Iraqi dictator.
With the war ending in a ceasefire, Iran launched its five-year development plans in the late 1980s. The country started thinking of attracting foreign direct investments (FDI) due to its financial shortages and outdated technologies.

Article 29 of the First Five-Year Plan envisaged laws to operate free trade and industrial zones.

First Step
The initial step was taken through Article 29 of the First Five-Year Plan, which envisaged laws to operate free trade and industrial zones. In the first year of the Third Five-Year Plan (2000-2005), the law on encouraging and protecting foreign investments was passed by parliament, paving the way for attracting foreign investments after nearly two decades.
Moreover, in budget laws for 2002 and 2003, several infrastructure projects in power, oil, water and sewerage, railway, road, airport, telecommunication and port sectors were planned to be implemented with the help of foreign investments.
The development plans also tried to fortify the country's economic structures. Such efforts strengthened especially during the third plan, when the Foreign Exchange Reserve Fund was created and the single foreign exchange parity rate, direct tax and tax aggregation laws, foreign trade liberalization, removal of non-tariff barriers, strengthening of capital market, etc., were enforced.
On the political front, the Khatami administration's policy of dŽtente and the initiative to sign the Additional Protocol to the Non-Proliferation Treaty (NPT) to make nuclear activities further transparent, have helped to further boost the country's economic interactions with the international community.

Investment Risk
The tangible improvement in Iran's economic situation and its political stability has led to a decline in the country's investment risk rate. Experts say Iran's investment risk rate is likely to come down from four to three as major international institutions have reportedly lowered the rate. The investment risk scale ranges from 1 the lowest and 7 the highest.
However, some analysts contend international institutions are not willing to announce Iran's real investment risk for certain reasons.
Despite this, foreign investments have more than doubled in the first five months of the current Iranian year (started March) against the figure for the corresponding period last year to reach over two billion dollars.
But this is still insufficient. The national economy should first and foremost try to boost the private sector role in efforts to improve development goals.
There are several ways to make use of foreign capital. One stipulates the government must guarantee all investment risks as well as return of principal capital and interest. The investor does not care for the fate of the project in this case and will only demand his principal capital and interest after a given period of time. Borrowing is another mode of foreign financial supply.

Efforts to complete some 9,000 national and 54,000 local development projects started last year.

But foreign direct investment is the best as it helps transfer technology as well.
By definition, FDI is money invested in production by a foreigner awarded part-ownership (stocks) of production. For example, a foreign corporation may finance a factory in return for stock certificates, a share of the profits from production and some voting rights in the management of the enterprise.
The World Bank defines FDI as 'net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor'.

Gov't Role
A traditional and inefficient investment method has for long been in force in Iran. That is, the government has to make the much-needed investments in all minor and major development projects. It has to shoulder this burden using petrodollars, which are insufficient for its current expenses, let alone for funding development projects.
This is while there still are a large number of development projects across Iran, which have been left unfinished due to shortage of funds. President Mohammad Khatami's administration inherited many of them, which were launched without adequate feasibility studies. Some of these projects lacked economic viability too.
The government is trying hard to complete all development projects by March 2005.

Tangible improvement in Iran's economic situation and its political stability has led to a decline in the country's investment risk rate.

Efforts to complete some 9,000 national and 54,000 local development projects started last year, when the government completed some 36,000 local projects. The government and the Management and Planning Organization (MPO) will not authorize new state-sponsored development projects until the existing projects are completed.
The budget bill for this year has stipulated that domestic private and foreign investments must be used in implementing development projects. The government has in the past two years tried to tread the same path.
The Investment Organization is presently engaged in talks on several investment projects with private domestic and foreign parties. Article 26 of the fourth development plan bill, too, has stressed the need to continue the same strategy during 2005-2010.
The government is also planning to seek further assistance from the World Bank, which has already provided funds for health, sewerage and environment projects as well as plans for reinforcing infrastructures in Kermanshah, Hamedan, Zanjan and Qazvin.
Nevertheless, it seems that the $13.9 billion worth of investments projected by the fourth plan bill to be made in various economic sectors would be insufficient and the country would need far more in foreign finances, should its development goals be realized.

Two million people work in the handicraft sector.

About four decades ago, the then government, after years of apathy, decided to pay more attention to the handicrafts sector. Consequently, the Iran Handicrafts Organization was officially established in 1969 under the auspices of the Ministry of Industries.
Although the establishment of this organization meant that our artisans had an independent entity directly supervising their activities, which has continued to this day, the handicrafts organization has not been able to fulfill its duties in an effective manner.
Some two years ago, the cabinet compiled a plan for revamping the existing organization. The MPs ratified the plan but suggested that the government should decide on the new structure of the organization.
The point is that those who are in charge of devising the plans for restructuring the organization should keep in mind that handicrafts could serve as a reliable and lucrative source of revenue for our oil-dependent economy.
Therefore, their decisions should protect the legitimate rights of handicraft workers all over the country. Those in charge should keep in mind that they have the onus to compile plans for promoting the rich Iranian culture of arts worldwide.
Hence, they should take care to ensure that their approach is effective and that they have a duty to promote the well-being of the present and future generations of craftsmen.
All plans regarding the handicrafts sector should aim at exalting the status of the craftsmen and artisans and give an impetus to their unique talents.
Finally a strong organization must be established which seriously works to protect our national heritage. It must be noted that the leader, the president, the State Expediency Council (SEC) and parliamentarians have always underscored this need. There are about two million people involved in the handicrafts sector nationwide and if we include their families and dependents, they may number some 10 million. Thus, planners should understand the responsibility that rests on them to serve the interests of this large section of the society. Let us hope that our craftsmen acquire the global status that they rightly deserve.