3rd Iran-Europe Forum

​[AS PREPARED FOR DELIVERY] 

Good afternoon,

 

Thank you for the invitation to be here today.

 

We gather here at the dawn of a new era full of promise for Iran. After more than 10 years of economic and diplomatic isolation, Iran is set to re-integrate into the global economy.

 

But while sanctions have been lifted, the most important work lies ahead. It is not enough for Iran to have access to global markets. Iran must be able to compete in global markets.

 

Currently, Iran is punching far below its weight.

 

The country ranks 74 out of 140 on the Global Competitiveness Index; 118 out of 189 on the Doing Business Index; and lags behind in the areas of financial market maturity, labor market efficiency, and technological readiness.

 

This is unfortunate. Let me share some figures to tell you why.

 

Iran's economy - with an annual GDP of $400 billion - is the second largest in the region behind Saudi Arabia. Half of its 80 million population is under 35. And its economy is projected to grow 7% next year.

 

The country is a source of untapped potential.

 

Iran can do better. Iran must do better. That's what we're here to discuss today: strategies to make Iran globally competitive.

 

In this context, today, I'd like to focus on two important pillars of competitiveness: trade and investment.

 

 

FDI has played a central role in fostering economic and social development in many countries. And it can do the same in Iran. FDI can help the country to create jobs, access markets, receive and transfer knowledge and technology or to develop local suppliers.

 

In this way, FDI can also contribute to the SDGs - the 17 goals that embody the international community's aspirations on the economic, social, and environmental fronts.

 

UNCTAD has estimated that the investments needed to achieve the SDGs range from $3.3 to $4.5 trillion per year. At current investment levels, this leaves a gap of some $2.5 trillion, per year.

 

And as you correctly can guess: we can't meet this target without the private sector. Enhanced public-private dialogue on investment and enterprise development policies is essential.

 

Let me give you a brief overview of the FDI picture worldwide.

 

Based on UNCTAD's latest Investment statistics, between 2014 and 2015, global FDI flows increased by 36%, to USD $1.7 trillion. In the same period, FDI to developing countries increased by 5% , to USD $741 billion.

 

However, the outlook for 2016 is much cloudier.

 

This reflects a fragile global economy, financial market volatility, weak aggregate demand, and significant deceleration in some large emerging market economies.

 

In 2014, Iran  attracted USD $2.1 billion in FDI , continuing a declining trend since 2012, when it attracted a record $4.7 billion. In relative terms, FDI inflows per capita or as a percentage of GDP are among the lowest in the region.

 

A key challenge is to reverse this trend and fully capitalize on the opportunities created by the lifting of sanctions.

 

This is where UNCTAD can come into the picture.

 

One of our comparative advantages is our deep expertise in the area of FDI. Through investment policy reviews and related areas of work, UNCTAD continues helping developing economies to attract more FDI and maximize its benefits for sustainable development.

 

In simplified terms, what we can say is that securing the benefits of FDI -in terms of insertion into global value chains, job creation, industrial linkages, skills and technology transfers - depend on the capacity of the local economy to absorb FDI.

 

In this regard, any successful investment strategy to boost Iran's competitiveness should focus on 3 steps:

 

First, defining clear strategic objectives.

 

In this step, Iran would review its potential comparative/competitive advantages with the highest chances of success. It would involve identifying sectors to prioritize for attracting FDI, and which activities - if any - should be reserved for domestic investors. It would also identify complementarities between the domestic supplier base and potential foreign investors.

 

 

In this step, Iran would review its legal and regulatory framework. It would also look to promote a vibrant local private sector and support integration into global value chains by using targeted sectoral interventions.

 

 

This is where implementation often gets stuck. Putting the right investment framework into place is meaningless unless it can be effectively implemented. Effectiveness implies solid institutions that have solid human and financial resources. This is arguably the most vague but most important step in any investment strategy.

 

In sum, if harnessed properly, investment can be a major driver of competitiveness in Iran's future.

 

Let me now turn to a second pillar of competitiveness: trade.

 

Given the ongoing commodities slump, Iran has no choice but to diversify its exports and improve its competitiveness. Two years ago, oil still represented 70 percent of the value of Iranian goods exports. And under sanctions, Iran's top 10 export markets accounted for 93% of its total exports. Diversification must be a key priority.

 

Trade can be an enabler of diversification and structural change, but only with the right policies. Successful trade policy involves more than the trade ministry. To reap the benefits of trade integration, Iran's policymakers need to think horizontally and plan across the entire government. Iran needs a coherent set of industrial policies and appropriate regulatory and institutional frameworks.

 

With its educated workforce, for instance, Iran would likely not be able to compete on cost in low-tech industries. But it could carve out a niche in higher value-added industries that compete through differentiation.

The trends point in the right direction. In 2014, high-skill and tech-intensive manufacturing represented 45% of non-oil goods exports. But more can be done to promote upgrading, technology adoption, and innovation in this area.

 

Iran can support SMEs through clusters and through integration into regional and global value chains.

 

Iran can improve ICT connectivity and facilitate e-commerce uptake.

 

Iran can create the conditions for efficient markets through competition and consumer protection policies.

 

And the country can study how an appreciating currency could increase export capacity through cheaper imports of intermediate goods - and then support sectors that could benefit from existing or emerging comparative advantages.

 

Iran can also tap the potential of booming trade in services.

 

In 2014, services account for a little over half of the country's GDP and a little under half of its employment. With youth unemployment at 25%, job creation in an expanding services sector would have positive ripple effects across the economy.

 

And the potential of the services sector is underestimated.

 

R&D, product design, and marketing services can all add higher value to exports. And services are often the "grease" that keeps the engine of an economy moving: efficient energy, telecoms, and transport services are essential to lower production costs - and thus - greater competitiveness.

 

In both goods and services trade, greater exposure to international competition will put some local firms out of business while others gain new market shares abroad and create jobs. But this is part of the nature of trade, and a challenge that can be seen as an opportunity.

 

This brings me to Iran's wish to join the WTO, with the commitments that this entails: to non-discrimination, transparency, openness, and the rule of law in the international trading system.

 

When Iran joins the WTO, it will be required to bind its tariffs at lower levels or eliminate them completely. But the process will be flexible enough to allow Iran to strategically decide which tariffs to cut and which to preserve at higher levels. 

 

The economic adaptation to trade liberalization and the needed regulatory frameworks needs to be gradual and sequenced. And it needs to remain coherent with national and sectoral development.

 

In this way, the multilateral trading system has the potential to contribute to development. But it's not a substitute for regionalism.

 

Regional integration enlarges markets, creates economies of scale, and promotes the production of more capital-intensive goods. Greater integration into regional markets would allow Iran to explore complementarities with neighbors - leading to export diversification and more resilience to external shocks.

 

Let me stop here.

 

I have sketched out two key pillars of competitiveness for Iran: trade and investment. Both are essential to driving economic growth that is sustainable and inclusive.

 

Critically, success in these two areas will involve contributions from all stakeholders: governments, the private sector, international organizations, academia, and civil society. It is only through these joint efforts that Iran will be able to compete as a major player in the global economy.

 

This outcome would be good for the Iranian people. And it would be good for the world.

 

Thank you for your attention.