Foreign Investment Promotion in Iran, Lessons from the Experiences of Selected Countries in the utilization of Incentive Tools

Given the great reliance of the Sixth Development Plan Bill on foreign financial resources (more than 22%), there is clearly a serious need for devising certain mechanisms for the attraction of foreign investment, if the 8% growth objective of the Plan is to be fulfilled. In order to propose relevant articles to be included in the Sixth Development Plan Bill, this study reviewed the theoretical literature related to factors affecting foreign investment and its incentives and examined the experience of a number of countries successful in the field of supportive policies and regulations for the promotion of foreign investment.

Examining the experiences of countries such as China, Brazil, Egypt, India, Turkey, and Qatar suggests that foreign investment in these countries is mainly focused on four fields of strategic foreign investment, value chain enhancing investment, joint ventures, and commercial investments (changing trade into Investment). In these countries, the objectives of attracting foreign investment include financing, technology transfer, regional development, encouraging clustering, and reducing dependence on imports of intermediate goods needed by the target sectors. Supportive measures include financial, tax and trade incentives, as well as those encouraging reinvestment.

 The review of the capacities envisaged in the provisions of the Sixth Development Plan Bill suggests that the proposed articles are limited to joint ventures and some components of the strategic investment, while other dimensions have not been adequately addressed. In addition, the actual planning for the promotion of investment in upgrading the value chain has been postponed to the first year of the Plan to be done by all relevant organizations, the fulfillment of which is indeed doubtful. On the other hand, incentives for attracting foreign investment have been limited to investment incentives in deprived regions, which were already provided for under the Foreign Investment Promotion and Protection Act. The only new investment incentive in the Bill is where rail transportation is allowed to be considered tantamount to the investment in deprived regions and can benefit from some advantages. All said, achieving a 22.2% share of external resources in funding for the objectives of the six Development Plan seems improbable.

Ultimately, considering the need for attracting and encouraging foreign investment in the country in accordance with Article 1 of the Sixth Development Plan Bill, and the need to avoid the application of discriminatory measures regarding foreign investment in accordance with Article 8 of the Foreign Investment Promotion and Protection Act, a number of initiatives have been proposed to enhance foreign investment, including:

  • Allowing non-joint-venture foreign investments to benefit from tax exemptions of Article 31.i of the "Act on Elimination of Barriers to Competitive Production and Promotion of the Financial System of the Country";
  • Extending the scope of tax exemptions under Article 31.j of the said Act;
  • Extending the scope of tax exemptions under Article 30 of the said Act to include all activities of foreign joint venture investments;
  • Granting interest-free facilities under Articles 5 and 7 of the "Act on the Protection of Knowledge-Based Enterprises and Institutes and Commercialization of Innovations and Inventions" to priority industries and foreign investment projects in knowledge-based industries; and
  • Allowing the National Development Fund to grant facilities up to 50% of the cost of foreign investment projects to export-oriented foreign joint and non-joint venture investments, giving priority to the development of downstream value chain of intermediate industries (Petrochemicals, basic metals, non-metal consumables), high-tech industries, new and renewable energies, having regard to such conditions as competitiveness and economic efficiency.
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