Sanctions drive Iran industry to standstill
International sanctions, which made it impossible to import equipment and components put manufacturing sector of Iran in a difficult position. Deputy Minister of Industry Mohsen Salehiani said the manufacturing sector of Iran in the current Iranian calendar year, which ends on March 20, 2013, needs 800 trillion rials (about $65 billion) to meet the needs. Last year, the figure was around 500 trillion rials.
Today, according to various estimates, the volume of industrial production in Iran is 30-35 percent of GDP, and with the fall of imports of raw materials, machinery and other technologies that affect most of the country's industry, the production rate can fall even lower. Thus, due to the inability of component parts import from Europe, car factories are under the threat of closure. According to the Ministry of Industry of Iran, the decline in the first half of the year by 42 percent was observed at the second most important sector of the Iranian industry after oil - automobile.
Prohibition of the West to carry out banking transactions with Tehran deprived local companies from technical ability to pay for imported goods from abroad. In addition, the Iranian producers have enormous difficulties with the consequences of the unprecedented high price of foreign currency in the country and galloping inflation (25 percent), resulting in a significant increase in production costs.
For example, Iranian textile industry is on the verge of bankruptcy due to the above mentioned reasons, in particular because of the rise in price of raw materials in the country, as well as the increase of the price of any yarn and cotton from abroad. Food industry of Iran is operating at half of its capacity due to the high cost of agricultural raw materials. Production of medicines, however, as the production of detergents and cosmetics, is also in a state of crisis.
According to the information of the of Iranian workers Association in July, the country had 1230 companies with 100,000 of workers during that period, but in the aggregate, these companies had a debt of $7 billion, and was forced to cut production and staff, or just shut down. If for example, the automobile factories are fully closed in Iran, more than 700 thousand workers will remain unemployed.
It should be noted that even before the sanctions Iran industrial sector had a low share of GDP, which was a consequence of the fact that half of the industry was working on older equipment, which need to be upgraded. In addition, the situation was complicated by the high level of taxation, low productivity, poor management, difficulties in obtaining credit and high interest rates. The program of privatization of large enterprises hampered due to lack of investors who held back due to a difficult political situation in the country, and heavy investment conditions. All of these long-standing problems, coupled with toughening sanctions of the West paralyze Iran's industrial production.
Positive in all of this cycle of events is the fact that Iran is seeking to establish local production of the products (equipment and components), which it imported earlier. According to official data of the country, the industry and the agricultural sector haven't not only increased the level of production to replace imports, but did so with less reliance on mediation.
Thus, whereas until recently Iran imported boards for control of compressors needed by National Iranian Gas Company (NIGC) for gas pressure control, now the Iranian experts themselves produce the equipment, unavailable because of international sanctions and needed to control pressure in pipelines. Production technologies of pipes designed for pumping acid gas and meeting all modern requirements have been utilized in this area. The line for the production of such pipes was commissioned three months ago, and there is no need in imports of these products any more.
About two months ago, Iran has mastered the technology of reactor manufacturing for producing hydrogen with purity of 99.8 per cent, resulting in Iran ranking second in the world after Italy in production of such reactors in the domestic market.
Next year, Iran will not need to import steel products, as new projects on the production of steel in the country will be running at full capacity. According to official statistics, Iran has produced more than 6.25 million tons of steel in the first five months of the current Iranian year, showing an increase of 8.8 percent year on year.
Most of the equipment necessary for the Iranian oil industry is provided by domestic manufacturers. In recent years, Iran has made great achievements in defense sector and attained self-sufficiency in production of essential military equipment and systems. To mitigate the impact of Western sanctions country is ready to start its own production 290 species of medicinal drugs.
However Iranian specialists and experts believe that the industrial, agricultural and energy sector of the country are not at the level allowing to increase the production. The industry needs modern equipment that would meet not only current technical parameters, but also would be consistent with the requirements of environmental safety. Due to non-compliance with international standards, performance indicators of final production are far behind the world level.
For support of domestic producers Iranian government should introduce incentives, both reducing tax rates and embedding large-scale investments. Iran's National Development Fund (NDF) has allocated three billion dollars of its assets in loans to support the development of agriculture and industry. In general, Iran plans to send ten percent of the NDF assets to support domestic production. Iran has also temporarily banned the import of some 'luxury', most of which is produced in the country and there is no need for their import.
Holding the country's industrial sector on the rise with all might, even without existing sanctions, is correct for Iran, and should be considered as a positive change.
Azerbaijan to preserve investment appeal in future
According to the socio and economic development concept for 2013 and the next three years, investment activity will be observed in Azerbaijan. The real growth rate of investments in the country at a level of 17.3 per cent is forecast for 2013.
Investments are expected to reach 15.218 billion manat in 2012, 18 billion manat in 2013, 17.672 billion manat in 2014, 17.932 billion manat in 2015 and 18.189 billion manat in 2016.
The investments worth tens of billions of dollars invested in Azerbaijan testify to the fact that local and foreign investors show interest in the country in terms of investment attractiveness.
Almost all the conditions of a favourable investment climate have been ensured. On the one hand, this is a dynamically developing economy with a large consumer market and solvent demand whilst on the other, rich natural resources the development of which promises huge profits and an associated unique geographical position. The low investment risk associated with the financial stability and stability of the socio-political system may also refer to Azerbaijan's investment advantages.
As opposed to previous years when foreign capital dominated the country, the current existing gap between domestic and foreign investments in favour of domestic ones will remain in the future. This gap will be kept at a stable level - 2.3-2.7 times, which is optimal. Azerbaijan's growing financial opportunities allow it to independently invest in the necessary economic sectors, to develop any sphere such as tourism and make it more attractive for foreign investors.
It is expected that domestic investments will hit 11.148 billion manat, foreign - 4.07 billion manat in 2012, 12.79 billion and 5.215 billion manat respectively in 2013, 12.337 billion and 5.335 billion manat in 2014, 12.523 billion and 5.409 billion manat in 2015, 12.695 billion and 5.494 billion manat respectively in 2016.
According to the statistics, at present, the investments through the state line (60 per cent) dominate the structure of domestic investments. According to the forecasts, private investments will play a major role in the future. At present, public investments dominate the Azerbaijani economy today and this it is a correct situation in terms of time. The funds allocated within the state investment programme play a key role in the economic development of the country. The infrastructure and transportation projects are being implemented. This is the foundation for attracting the private investments.
According to the forecast public investments in 2012 are expected to reach 8.532 billion manat, non-state - 6.686 billion manat, in 2013 - 9.74 billion and 8.261 billion manat respectively, in 2014 - 8.664 billion and 9.008 billion manat, in 2015 - 8.423 billion and 9.508 billion manat and in 2016 - 8.1 billion and 10.088 billion manat respectively.
The investments in the non-oil sector will remain a priority. In particular, investments in the agricultural, construction, communication, transport and tourism industries will encourage their further development. The average annual growth of the Azerbaijani economy is projected at 5.3 per cent in 2013 and the following three years. This will be achieved mainly by the growth of the non-oil sector. As a result, the share of non-oil production in the country's GDP will increase from 47.6 per cent to 70.6 per cent in the medium term prospect.
Investments in the oil and gas sector in 2012 are projected at 4.378 billion manat, in 2013 - 5.509 billion manat, in 2014 - 5.553 billion manat, in 2015 - 5.442 billion manat and in 2016 - 5.396 billion manat. Accordingly, investments in other sectors in 2012 will amount to 10.84 billion manat, in 2013 - 12.492 billion manat, in 2014 - 12.139 billion manat, in 2015 - 12.489 billion manat and in 2016 - 12.793 billion manat.
Steady growth of investments is also expected in the oil sector for the next two years. Investments in this sector will mainly cover the gas production projects at such fields as Absheron, Umid and Shah Deniz, deep-lying gas development on the block of the Azeri-Chirag-Guneshli fields.
However a gradual decline in investments in the oil sector by one to two per cent is forecast from 2015. It is worth recalling that the big investments in the Azerbaijani extractive industry at the initial stage after the restoration of the country's independence had a powerful multiplicative effect due to the growth of an industrial, technological demand and increasing business activity in Azerbaijan's economy in general.
Iraq arms itself, 'Kurdistan' develops economy
Iraq is arming itself. Even if a deal worth $4.3 billion with Russia fails, it is still highly visible. It has contracts worth $ 11 billion with the U.S. and $2.5 billion with Ukraine. It also has the contracts with the countries of South-Eastern Europe.
Why does Baghdad need so many offensive weapons for? Even Turkey, having difficult relations with Baghdad, exported (frankly speaking defence industry goods) worth $31 million to Iraq for 10 months of this year compared to $1 million in the same period of 2011. All comments of Internet users concerning the reports about Iraq's arms purchases are the same. Why does the country need so many weapons? Is it not better to spend the huge amounts of money for reconstruction and development of the economy, construction of industrial facilities and infrastructure?
Various variants of the answer to this question are being discussed in social networks and blogs. In particular, the situation that may arise in Syria in the case of Bashar Al- Assad's regime falling and which will be fraught with inter-tribal chaos resembling post-Saddam Iraq. The danger to Baghdad's Shiite government is that radical Sunni groups are likely to come to power in Syria, which can then ignite a new sectarian conflict in Iraq. The bloggers remind us that today over a million Iraqi Sunnis live in Syria who fled there from persecution because of sectarian clashes in Iraq in 2005-2007, and they can play a role in returning the positions which Sunnis had during Saddam's leadership, including ruling the country.
There are other suggestions why Iraq is so heavily armed. The Turkish version based on Iraqi leaders' statements about the time to stop Turkish aircraft flying over Iraqi northern provinces and to cancel the mandate to hold Turkish Armed Forces military operations against PKK militants in Iraqi border regions with Turkey is being discussed.
There are also comments that the purchasing of arms is connected with the rise of nationalism in the country and that Iraq is trying to regain its status as a formidable regional power. All its neighbors feared it.
There are statements on countering Israel's Zionist regime whereby aircraft will allegedly refuel in the air over Iraq's territory to reach Iran's nuclear facilities.
However, there is a problem disturbing the al-Maliki's government most of all.
Around one-third of Iraq's oil is in the north of Iraq, in the Kurdish autonomy. According to various estimates, this hits 45-60 billion barrels.
President of the Kurdish autonomy Massoud Barzani is conducting an irreproachable policy from the point of view of the interests of the Kurdish people.
Some key elements can be included in a logical chain: establishing transparent and good conditions for attracting foreign investments and in particular in the development of oil and gas deposits, the oil companies' interest including the largest ones.
Also under consideration is the practical development and revenue - the contribution of income from oil in other areas of the economy and education and the expansion of economic relations with the outside world. Winning the reputation of a reliable partner is also important.
This can be confirmed by many examples. News is disseminated almost weekly that yet another company is interested in doing business with the Kurdish autonomy.
The latest news came from the UAE and Turkey a few days ago. Abu Dhabi's State Oil Company (UAE) TAQA is holding preliminary talks with the Iraqi Kurdish autonomy to buy a controlling package of shares in the General Exploration Partners consortium which is the operator of the Atrush oil field, Al-Quds Al-Arabi newspaper said.
The Turkish Genel Energy Company plans to acquire a 49 per cent stake in the Heritage Oil Company for the Miran gas field in Iraq's Kurdish autonomy, Zaman newspaper said. The deal value is estimated at $249 million. Gas reserves in the Miran field hit 150 million cubic meters. This is the largest gas field in Iraq.
According to Kurdish sources, the autonomous region now has about 450 large projects worth $21 billion, 21 per cent of which are funded at least partially through foreign direct investments. Around $7 billion is expected to be invested in the economy by Kurdish and foreign companies this year. Twenty countries including Arabic ones, have expressed an interest in cooperating and investing in the region.
Finally, ensuring security in the autonomy can also be included in the actions of the conducted policy.
This independent policy which became possible due to big oil revenues seems to greatly annoy Baghdad.
Petroleum Law, which is very important in removing mutual tension and delineating the powers of the parties, has not been adopted yet. Baghdad and Erbil cannot, or do not want to compromise, but time is in the Kurds' favour. Baghdad still could not oppose anything in return, except ultimatums with threats of imposing sanctions against the oil companies of American, Turkey and Russia, have decided to begin working on the autonomy without the permission of the Iraqi government.
The central government cannot find effective mechanisms to influence the on-going processes, considering them as a threat to its interests. It also feels that the Iraqi Kurdish autonomy's full independence may become the result of these processes in the future.
However apparently, Baghdad does not intend to bear with it. Seeing no other way out, Baghdad is being armed in an attempt to resort to the old, tried and tested method called 'threat by using force'.