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Sehaty Foreign Exchange

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Tehran moves to encourage more inward investment

Financial Times (London)
August 24, 2000,

Iran's parliament yesterday approved a draft law to encourage direct foreign investment, a move welcomed by the foreign business community as a step in the right direction.

However, businessmen warned that a conflict of interests with the Islamic Republic's constitution could still throw up significant barriers.

Unlike the previous law dating back to 1956, the new law does not impose restrictions on what sectors are open to foreign investment.

Legal experts said this could lead to the entry of foreign businesses into such sectors as banking, insurance and telecommunications - all under state control.

The new law would also appear to allow foreign investors to take a majority shareholding in Iranian companies. Until recently they have been generally restricted to a maximum 49 per cent stake.

Experts pointed out, however, that article 81 of the constitution prohibited the "granting of concessions" to foreign companies dealing in commerce, industry, agriculture, services and mineral extraction.

The definition of "concessions" has been more loosely interpreted recently.

The constitution, if rigidly interpreted, also severely restricts the activities of the private sector by stating that big industries and sectors such as banking, insurance and telecommunications "will be publicly owned and administered by the state".

However, the country's central bank is pushing for the creation of private banks and there is also talk of private entry into insurance and telecoms.

"Until we do something with the constitution, everything is open to interpretation. How stable is that?" said one Iranian legal expert.

Some members of the minority conservative opposition spoke against the bill, citing its conflict with the constitution. To become law the bill must go through further revisions and then be approved by the conservative-dominated Council of Guardians.

If blocked, the law could go to the Expediency Council, which has tended to rule in favour of opening up Iran's mostly state-controlled economy.

The sensitivity of the debate was illustrated by the fact that parliament earlier held a closed session to discuss the bill, attended by Ali Yunesi, minister for the intelligence services.

One big international company welcomed the move by parliament as a sign that the administration of President Mohammad Khatami, a moderate, places a high priority on foreign investment.


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