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A FEW POINTSHossein Abdoh Tabrizi
June 6, 2015
www.finance.ir
MACROECONOMIC ENVIRONMENT OF IRAN
Current stagflation situation in Iran
High inflation rate and high volatility
Low GDP per capita growth
High amount of money supply
High unemployment rate
Capital market inefficiency
PRODUCTIVITY AND CAPITAL INPUTS IN THE CAKE OF CAPITAL FORMATION
Current share of Capital is too high
The missing part of the cake is productivity
2000 2001 2002 2003 2004 2005 2006 20070
5
10
15
20
25
30
35
40
45
Gross Fixed Capital Formation (% of GDP)
China
India
Iran
High income: OECD
United States
World
Year
% o
f G
DP
GDP
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
0
1,000,000,000
2,000,000,000
3,000,000,000
4,000,000,000
5,000,000,000
6,000,000,000
7,000,000,000
8,000,000,000
GDP (Billion Rials)
GDP (current) GDP (constatnt 1997)
Billion
Ria
ls
GDP PER CAPITA
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
0
10
20
30
40
50
60
70
80
90
100
GDP per capita (Billion Rials)
GDP per capita (current) GDP per capita (constatnt 1997)
Billion
Ria
ls
INFLATION
Average inflation rate: 19.55 %
Single Digit Inflation Rate: 2 Years
Two Digit Inflation Rate: 34 Years
Inflation Rate over 20 Percent: 17 Years
Inflation Rate over 30 Percent: 3 Years
Highest Inflation Rate: 49.4 Percent (1995)
Lowest Inflation Rate: 6.9 Percent (1985)
CHALLENGES
High unemployment rate
Lower family budgets
To keep unemployment rate at its current level, we need a growth rate of 6%
Major engine of economic growth during last Government: “capital factor” Capital stock and economic growth went hand in hand
Even with revenues similar to Ahmadinejad’s Government, the growth rate would have dropped to 2%-3% corridor
Major demographic changes
LABOR MARKET
Reduction of Labor Participation Rate
3.5 million unemployed
Major difference of male & female unemployment rates
Major difference of unemployment rates across age groups
4.5 million students: the army of unemployed
Average Unemployment Rate: 11.94%
Highest Unemployment Rate: 14.3% (2000)
Lowest Unemployment Rate: 9.1% (1996)
MAJOR DEMOGRAPHIC CHANGES
1976 1986 1996 2006 20110
10
20
30
40
50
60
70
80
44.5 45.5
39.5
25.1 23.4
52 51.556.1
69.7 70.9
3.5 3 4.4 5.2 5.7
Demographic Changes
0-14 15-64 65+
%
THE ROLE OF PRODUCTIVITY
Productivity Training
Education
Startups
VCs
IRANIAN BANKS’ CURRENT SITUATION
Large amount of doubtful and bad debts
Low liquidity problems
Lack of secondary markets for banks’ assets
Investing in real state
VC’S CAN NOT RELY ON TROUBLED BANKS:
Banks are so deep in trouble that can not help VC’s at this stage
DOMESTIC CREDIT TO PRIVATE SECTOR
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
21.1
17.7 16.518.0
19.4 19.6 19.5
23.1 22.3
26.329.0 30.0
33.6
37.3
32.2 33.5
13.7 12.5 12.5 12.2
Domestic credit to private sector (% of GDP)
Iran, Islamic Rep.
% o
f G
DP
DOMESTIC CREDIT TO PRIVATE SECTOR
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0 Domestic credit to private sector
Iran, Islamic Rep. Low income
Middle income High income: nonOECD
Heavily indebted poor countries (HIPC) High income: OECD
% o
f G
DP
ASSET AND EQUITY OF IRANIAN BANKS
1385 1386 1387 1388 1389 1390 1391 13920
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
Nominal Asset and Nominal Equity
Asset (nominal) Equity (nominal)
Billion
ria
ls
REAL GROWTH OF BANKS’ ASSETS
2007 2008 2009 2010 2011 2012 2013
-20
-10
0
10
20
30
40
8.35
-16.38
35.05
6.59
3.36
-5.71-3.77
Real Growth of Banks’ Assets
%
GROWTH OF DOUBTFUL AND BAD DEBTS
2007 2008 2009 2010 2011 2012 2013
-30
-20
-10
0
10
20
30
40
50Growth of Doubtful and Bad Debts
%
GROWTH OF DOUBTFUL AND BAD DEBTS
2007 2008 2009 2010 2011 2012 20130
10
20
30
40
50
60
Growth of Doubtful and Bad Debts%
A Few Points about Solutions
MAJOR OBSTACLES MENTIONED
Poor implementation of regulations & laws (weak judicial system/corruption)
No proximity to other successful ventures (no Silicon Valley effect)
Unavailability of talented human resources
Cultural issues dissuading individuals from entrepreneurship
Poor linkages & unavailability of quality educational institutions
Financial institutions not keen on supporting technology related ventures
MAJOR PROBLEMS WITH IRANIAN STARTUP INDUSTRY
Project-Based rather than Fund (Company) Based
Suede-Governmental structures
Mostly financing seed-stage research
Concentrated on R&D, forgetting economic success side
Established funds are not VC’s
MAJOR PROBLEMS WITH IRANIAN STARTUP INDUSTRY II
Limited capital base
Less financial intermediation
So many universities playing stockholder role
Missing institutions in Iranian Startup Ecosystem
Iranian Judicial System cannot support intellectual properties
LACK OF SEED AND EARLY STAGE ANGLE INVESTORS
Mainly because of:
High disequilibrium interest rate
Illusive real estate market
Ample opportunities yet to invest in real assets
Informal money market for trade dealers
Gold and Exchange deals due to sanctions
Day trading in the Exchange by the youth
ENERGY CONSUMPTION
Cheap subsidized energy ended to high consumption rate, and low productivity of industries
Startups have huge potentials in energy saving fields
700 million barrels in a
year×
60 Dollars
162.2 billion m3 in a year
×50 cents
123 billion dollars
Insignificant tiny miniature risk of imported and market tested concepts and ideas
Do we really have VC in developing countries?
“I still don’t know how to put my money into a project in Iran”
Sanctions, Disengagement with Iran, Isolation, and financial sanctions in particular
FINANCIAL SANCTIONS
Too Many Problems
So Many Obstacles
Yet, Such a Huge Arena of Opportunities
