Investment is indispensable for economic growth. Without the injection of fresh capital, production, employment, productivity, and technological advancement cannot progress. Yet despite its vast potential, Iran has failed to attract meaningful investment—whether domestic or foreign. Mohammad Reza Aref, former First Vice President, recently stated: “To achieve 8% economic growth, we need at least $200 billion in annual investment.” He added that domestic investors do not have the capacity to meet this volume, making it imperative to create a welcoming environment for foreign investors. It is striking to note that the current volume of investment in Iran doesn’t even reach one-tenth of this figure.
In a year whose official slogan is “Investment for Production,” it is fitting to take a comparative approach to assess Iran’s investment climate and examine how countries like the UAE, Turkey, and Malaysia managed to reverse capital flight and position themselves as regional investment hubs.
Structural and Institutional Roots of Capital Flight
Iran’s political economy, as a whole, is afflicted by a complex blend of persistent factors that cause capital flight and discourage the wealthy from establishing productive enterprises. These factors can be broadly classified as follows:
A) Political Uncertainty and Sanctions:
Capital flees from uncertainty—no matter how high the return. Especially after the U.S. withdrawal from the JCPOA, Iran faced sweeping financial, banking, and energy sanctions. Being cut off from the global banking system (SWIFT), volatility in foreign policy, and barriers to financial transfers have all dramatically increased the risks of investing in Iran.
B) Weak Legal Protections and Property Rights:
Investors in Iran sometimes face serious threats—ranging from expropriation to unilateral contract cancellations and weak independent arbitration. Private ownership lacks both strength and stability, and at times even conflicts with formal state structures.
C) A State-Dominated, Rent-Seeking Economy:
Unlike competitive economies, over 80% of economic activities in Iran are controlled by the state, quasi-governmental entities, and semi-public corporations. This severely undermines the motivation of genuine private sector actors and sidelines healthy competition.
D) Corruption and Inefficient Bureaucracy:
According to Transparency International’s Corruption Perceptions Index, Iran ranks near the bottom. Opaque licensing processes, arbitrary legal changes, and the lack of transparent e-governance make the business environment unpredictable. While there have been some improvements in recent years, Iran still remains in the lower ranks.
It’s important to emphasize that foreign investor hesitancy is not the only concern—domestic capital is also fleeing. According to the Central Bank of Iran, from 2020 to 2023, more than $70 billion of private capital exited the country, mostly heading to the UAE, Turkey, and Persian Gulf states. This shows that even Iranian investors lack confidence in the country’s economic future.
Where Does Iran Stand—and How Can It Become Investment-Friendly?
Looking at the experiences of other nations can offer valuable lessons and inspiration for Iran’s policymakers. Although many countries have succeeded in attracting domestic and foreign investment, three examples—well-known to Iranians—stand out, each with its own core strategies.
United Arab Emirates – Investment Built on Stability:
With a population smaller than Tehran’s, the UAE has become a regional investment magnet. What has brought in hundreds of billions of dollars to Dubai and Abu Dhabi? Guaranteed property rights—even for foreigners—transparent and appealing tax laws, streamlined e-governance, minimal bureaucracy, a balanced and non-interventionist foreign policy, and stable exchange rates anchored to the U.S. dollar. Iran performs poorly on most of these fronts.
Turkey – Attracting Investment Amid Crises:
Despite its political and economic turmoil, Turkey remains attractive to international investors. Why? First, it maintains a relatively independent judiciary. Second, its tax system is simple and predictable. Third, foreigners can legally own land. And fourth, it participates in trade and customs agreements with the European Union.
Malaysia – Reform Over Rhetoric:
Since the 1990s, Malaysia has implemented sweeping reforms in its judiciary, financial system, and education, transforming it into a magnet for major companies like Toyota, Samsung, and Intel. The main drivers of this investment include: a legal system that blends Islamic values with international standards, special economic zones with generous incentives, strong support for innovation and technology, and robust transportation and communication infrastructure. Iran, despite its cultural and religious affinities with Malaysia, has failed to leverage this model.
Iran’s Potential—and the Prerequisites for Attracting Investment
Iran undeniably possesses significant investment potential. Realizing this potential, however, depends on meeting several key prerequisites. These may include:
Reforming Foreign Relations and Returning to Smart Diplomacy:
Lifting sanctions, actively joining economic pacts, and constructive engagement with the global economy are foundational steps.
Guaranteeing Property Rights and Reforming the Judiciary:
Independent economic courts, international arbitration mechanisms, and government-backed contract enforcement must be implemented.
Ensuring Economic Stability Through Predictable Currency and Fiscal Policies:
Unifying exchange rates, controlling inflation, eliminating rent-seeking currency allocations, and strengthening central bank independence are vital.
Tackling Corruption at the Root:
The solution lies in transparent digital governance, eliminating unnecessary permits, and digitizing public services.
Reframing the Private Sector—from 'Potential Criminal' to 'Development Partner':
Policymakers must view the private sector as part of national strength—not a rival to the state or a political threat.
As Mohammad Reza Aref noted, Iran needs $200 billion in annual investment to reach 8% economic growth. But unless the investment climate, diplomacy, macroeconomy, and legal system are overhauled, this goal will remain a mere slogan. The central question facing the Islamic Republic is this: Does it possess the political, institutional, and cultural readiness to become an investment-friendly country? The answer will shape the economic fate of Iran for the next decade.
NOURNEWS