Sunday, August 7, 2011

Investing in Asia – A New Paradigm for Iran

Cash Trapped in India, South Korea and China Turned into Investment. A Historic Opportunity for Iran

By Nader Uskowi

The International Monetary Fund (IMF) reported this week that Iran's economy is growing by 3.2% in 2011. The positive assessment of the Iranian economy reversed IMF’s own prediction of 0% growth made in April. IMF identifies a recovery in agriculture during rising food prices across the globe and higher oil prices as the main factors in the growth of the country’s GDP.

The IMF praised Iran's subsidy reforms, implemented by President Ahmadinejad in December 2010, which resulted in the removal of nearly $60 billion in annual product subsidies, equivalent to 15% of GDP. I have been an early and strong supporter of Ahmadinejad’s subsidy reform program. It will spur additional GDP growth in the coming years.

The publication of the IMF report coincided with other published reports indicating Iran’s serious problems in colleting payments for its crude oil sold to its major Asian customers. This blogger understands that nearly $30 billion of the country’s cash is trapped in India, South Korea and China due to inability of those countries to transfer those funds to Iran because of US banking sanctions. But this problem can be turned into a historic opportunity for Iran. Let me explain how.

In the past six years or so, in writings and in discussions with the country’s senior economists and policy makers, I have argued that Iran could not afford to regard its oil revenues as the never-ending hard currency source for its budgetary needs. Iran needs to invest a significant portion of those revenues, generating income, with the government receiving its share by taxing the income so generated. The investments, I have argued, should include foreign investment. Now that considerable amounts of the country’s cash are trapped in major Asian markets, and in spite of that the country’s economy is growing at a healthy rate, as indicated by the IMF report, the Iranian government should turn these oil payment problems into a historic opportunity to start major investments in India, China and South Korea, in the tune of $30 billion as a starter.

To be successful, Iran needs to find a niche for its investments that would be common in those three countries. I believe automobile industry is the solution. Iran is already having success with its domestic car production. It can use nearly $5 billion in cash it now has in South Korea as the initial investment in a major Korean car manufacturing to gain added technology needed in today’s automobiles. It can use its nearly $7 billion cash in India and reportedly nearly $20 billion in China to start joint ventures with the local automobile producers to build its brands in the two countries that will be growing for years to come, with families getting rich enough to purchase multiple new cars. The profits generated could be reinvested in these projects with huge implications for Iran’s growing market shares in the fastest growing industry in top two fastest growing economies. This would be a new paradigm for the country, a historic opportunity that the government should not miss.


Anonymous said...

Don't get fooled mr.Uskowi , the IMF used data provided by the Iranian government.

Khorramshar after all these years still isn't rebuild yet . The people of Bam and Sistan Baluchestan are all jobless and addicted. These are the places where the money should go not India,China or South Korea.

Anonymous said...

There's no fooling about this one. The subsidies were too extensive and a real drain on economic growth.

Removing them was beneficial. Unfortunately, there are a heck of a lot of Iranians living below the poverty line and are gonna be squeezed by the move.

However, seeking to invest the oil-genereated credits in foreign countries may suffer for lack of enthusiasm for that investment on the part of the other countries for fear of running afoul of, and becoming entangled in, the sanctions regimes in place

Anonymous said...

"Don't get fooled mr.Uskowi , the IMF used data provided by the Iranian government."

Classic!!! So now the IMF is also the Iranian government's mouthpiece? How so? What next?The UN is controlled by Iran, right?

Pray tell..Dude, are you really that dumb???

"The people of Bam and Sistan Baluchestan are all jobless and addicted."

Like seriously?? They're ALL JOBLESS and ADDICTS? Everybody in Sistan Baluchistan is JOBLESS according to you.

Can I call you a liar???

Mark Pyruz said...

Good post, Nader.

It might be just the right time to invest in the auto industry, too, in these countries. Some of it could also be used for the motorcycle industry, as well, which Iran is also engaged in. Agricultural machines, too....

Anonymous said...

Mr Uskowi this miss-information given to the IMF was given by a totalitarian state remember the Soviet Union? Information given by a fascist bureaucracy is propaganda only a few months ago according them IMF was Zionist now they and their supporters will use it as propaganda but reality always comes back to haunt.Looking forward to juvenile comments by their subordinates.

Anonymous said...

Let's keep perspective here, Iran's real GDP is closer to a TRILLION dollars in nominal PPP terms and $30 billion in India, South Korea and China is literally peanuts. Iran's official FOREX and "sanctions busting" contingency fund is over $150 billion or more, so there are more than adequate funds for investing in Asian nations and other major trading partners.

In any case, the US economy is now permanently deadbeat and in eternal decline on all fronts and the US dollar is the new Peso and US ability to influence Iran's surging economy is a as great at "winning" the war in Afghanistan.

Even China is dumping the worthless dollar so Iran is now trading with its Asian neighbours in a basket of currencies. US is a dead dog so why worry about it?

In any case, Mark's comment is more relevant to Iran's rapidly growing automotive and manuafcturing sectors. I would agree, Iran needs to be investing more in the rapidly growing Asian economies like South Korea, Malyasia, Indonesia etc in automotive, engineering, electronics, environmental and other high-tech sectors. Iran's total integration with Asia is the key to its future prosperity and economic strength.

Iran is now one the largest users of ROBOTS in manufacturing and has the biggest investment in robotics in West Asia and "Middle-East".

With the complete power shift to Asia and China, Iran is well poised for continued economic growth and prosperity as it has huge energy reserves, stable government, educated population and large and prosperous domestic market. Iran is also a historically trading and mercantile nation and now with increasing trade and influence over its neighbours (Afghanistan, Iraq, Pakistan, Turkey and many Arab and Central Asian nations) its economic clout will only grow. Just Iran, Pakistan, Turkey and Afghanistan (the non-Arab nations of Asia Minor) have a bigger and younger population and consumer base than the bankrupt ageing EU or deadbeat US stuck in losing wars and a declining economy drowning in debt.

Anonymous said...

---"Just Iran, Pakistan, Turkey and Afghanistan (the non-Arab nations of Asia Minor) have a bigger and younger population and consumer base than the bankrupt ageing EU or deadbeat US stuck in losing wars and a declining economy drowning in debt."---

Turkey is doing fine, but Pakistan is about bankrupt and has a population that is half illiterate. Afghanistan IS bankrupt and has a population that is 70% illiterate and has a life expectancy of less than 45 years.

Outside of Turkey, which is likely to be a rival to iran more than a partner, there's not really much there that looks promising for Iran.

Afghanistan, outside of opium poppies. and Pakistan don't offer much.

Anonymous said...


Anonymous said...

First of all the idea of trapped money was completely denied re: China, hasn't been shown re: Korea, and was settled re: India.

Second of all, diversification.

Anonymous said...

It may be worthwhile for the usual Iran bashers to get a whiff of reality in the new Asian millenium.

The fact remains that Iran is poised for rapid economic growth as power completely shifts to Asia. Even the Russian media are being objective about Iran's glowing prospects as the bankrupt US heads towards the dustbin of history:

Iran, it seems, is not in the least bothered by US threats.
Iran holds the fourth largest oil reserves in the world and the second largest gas reserves. The two main oil trading bourse’s in the world are the New York Mercantile exchange (NYMEX) and the Intercontinental Exchange (ICE) in London. Oil is of course priced in dollars. However, Iran has established an oil exchange, known as the International Oil Bourse (IOB). It is located on Kish Island, just off the coast of Iran, and is designated as a free trade zone by the Iranian government. . The IOB is intended as an oil exchange for petroleum, petrochemicals and gas in various currencies other than the U.S. dollar, primarily the euro and Iranian rial and a basket of other major (non-U.S.) currencies. However, on July 13, 2011, Iran began trading on their new bourse.

Iran is under trading sanctions, and has been since 1979. In 2010, the United States and Europe significantly tightened sanctions on Iran, making it almost impossible for anyone to do business with Iranian companies in banking, shipping, insurance, petrochemicals and other trade. However, not everyone takes notice of them, especially China. In fact, Iran supplies China with about one million barrels of oil per day presently and is estimated to account for at least 15% of China’s imports for 2011. China simply ignores the U.S. driven sanctions on Iran. Iran’s oil bourse could also be a way to ignore the sanctions. According to Iranian parliament member Fakhroddin Heydari, Iran’s oil exchange is a way to dodge U.S. sanctions: “It also strengthens Iran’s position in setting oil prices in regional markets. …The oil bourse helps us break the barriers of sanctions; therefore, enabling the world’s outstanding businessmen to enter into transactions without any problem.” And problems do exist. The other energy hungry nation, India, also buys oil from Iran.

At a time when the U.S. dollar is as vulnerable as it has ever been, Iran is piling on the pressure with their oil exchange. The thing that will kill the U.S. dollar as the world’s reserve currency faster than the debt ceiling or a U.S. debt default is if oil producers and consumers trade oil in other currencies.

If the main oil consuming and producing nations in the world conspire to trade oil over an open exchange, similar to Iran’s Oil Bourse, and price the oil in currencies other than or as well as the U.S. dollar, then the world is likely to be economically more stable. The possibility of seeing commodity exchanges emerging in Russia, Venezuela, Hong Kong, the UAE, or India is high. These exchanges could trade oil and other commodities against national currencies, rather than only against the U.S. dollar. By trading commodities over an exchange, each country involved will be able to provide open liquidity pools. One of the key requisites to becoming a reserve currency is for that country to provide liquidity in their currency. For Russia, trading their oil in rubles would be a natural first step towards cementing the ruble as one of the key world currencies. Likewise, China is already encouraging its trading partners to trade in the Chinese yuan, also likely to be a key world currency.

Iran’s IOB is not new. The timing of its move to trading physical cargos of oil on July 13 seems a clear step towards putting pressure on the U.S. dollar, and to show others that an alternative to the status quo of oil trading is available.

Anonymous said...

Anon 2:48 AM.This warped record you keep playing is sounding very tiresome.You must be one of the regimes automatons.

Anonymous said...

anon 7:41 AM, what's your counter claim to what anon 2:48 AM's posted?

It is FACT that the dollar in under a lot of pressure. It is also FACT that China,the main US creditor has voiced concerns and displeasure on US debt. It is FACT that Asian stock markets are selling off their dollar assets since last week.Hello??
It is also FACT that the US now has a debt of about $15 - $17 TRILLION with no way out except default.

Now, any sane economist in the US should be the last to lecture any country on economic giving the state of rot their economy is. The Whole of Europe literally have their economies hanging on a strings with Italy and Spain technically bankrupt.

These are FACTS. I hope you can counter that with FACTS not propaganda and smear tactics.

Or could it be that you hate that fact that Iran's coped pretty well, despite the global economic downturn?

Anonymous said...


Anonymous said...

9:33 AM, Look under your computer and or whatever device you're using to post comments here and see where it's made..CHINA!!!!! Or at least there're parts that come from CHINA.

If you've added the Chinese too to your hate list, maybe it's time you ditched their products as well..Y'know, your ipad, iphone, mp3/4, laptop etc and buy American ones.. Oh sorry, the US doesn't make them anymore.

And while you're at it, you can also visit Guantanamo and say hi to the free people there who have been held against their will without charge. Some "free society" you live in there..Because the last time I checked, it's not BRUTAL REGIME CHINA that's running Guantanamo..Go figure..Hint - try USA.

Ouch, US stocks just fell again as we speak...

Anonymous said...

--' power shifts completely to Asia...."----

sez who?

and on what evidence is this rather silly statement based?

Anonymous said...

Anon 9:29 AM..Is the other regime automaton questioning me about the warped record. You delude yourself in "FACT".
You watch to much Press TV "FACT"
You believe in anti-western propaganda "FACT"
You live in the West and praise Dictatorships "FACT"
Iranian economy and currency in ruination with its high inflation and mass unemployment "FACT"
You should go and live in Caliphate Iran and experience the wonders "FACT"
Now you know which filing cabinet to insert your "FACTS"in.

Nader Uskowi said...

To the last few anonymous commentators,

The subject of this post is a call for Iran’s investing its trapped cash in India, South Korea and China in those countries and a discussion of what niche industry would be wise and technologically doable for Iran to invest in. Although we welcome our readers’ comments to create a space here for frank exchange of ideas on the subjects under discussion, and although we believe a vibrant comments sections is the ley to the success of this blog, but some of your comments are not at all relevant to this post and the language used is not conducive to the free exchange of ideas. Please limit your comments to the theme under discussion and please note personal attacks on other commentators and questioning their integrity is outside the norms of civilized discussions and are not acceptable. Thanks for your attention and cooperation to make this blog a better platform for discussion of topics of importance for Iran and the Iranian society.

Anonymous said...

India just made some part payment of her debt to NIOC..

Anonymous said...

Maybe we should invest in getting our first nuclear power plant online. That would help create savings, no?

How long can we keep dumping money into this nuclear hole in the ground?

Anonymous said...

Thank you Mr Nader Uskowi,
I used to read your blog regularly. Unfortunately the comment section has become intolerable and does not add any real value to a free discussion and exchange of ideas.
I have noticed your warnings but I do not belive it will work. It is not possible to post deragotary comments under the name of freedom of speach. I also understand that you can not read and pass or fail every single comment but something drastic needs to be done.
Kind regards

Steve said...

Well, the cash is not really trapped - in India at least - as PressTV is just reporting India to have managed somehow to clear EUR 1 billion (out of 4.8 billions outstanding debt). There is more clearing to follow during the next days.

Anonymous said...

Nader, I used to post more often and tried to initiate a civilized discussion on Iranian issues, but it seems like there is a certain element here that has nothing but juvenile venom to spout against Iran. Fortunately, most Iranians living in Iran are more rational and do not subscribe to such hatemongering.

I appreciate your efforts to modify the online behaviour of some of these people who are really devoid of any valid counter-arguments and indulge in very childish name calling. Most of the Iranian patriots wish well for the homeland, regardless of politics.

There is no denying that the Islamic Republic is doing well since the revolution despite all impediments and daily diatribe of Zionist propaganda and Iranophobia. The wishful anti-Iran foreign based element needs to realize that the popular Islamic Republic is here to stay and no amount of frustrated hate-mongering will alter the manifest destiny of Iran.

Just looking at the EU and US socio-economic implosion should open the eyes of even the blind.

Good luck with your blog.

Kind regards

Nader Uskowi said...

On India payments: One of the Indian refiners, Mangalore, has indeed made a payment of over $1.45 billion through a Turkish bank couple of days ago, with $1.2 billion remaining. Other Indian refiners that together owed Iran $5-7 billion (depending on different official sources) have not yet made the payments. NIOC will start (or has started) shipment of crude to Mengalore but not to others.

The call to invest in the three countries was a strategic call, and Mangalore’s ability to pay half its arrears should not change the goal. If Iran’s economy was growing at a rate of more than 3%, it could afford $30 billion initial investment as suggested. It is difficult to send dollars into these countries for investment, because of sanctions, and it is best to have them deposit all (or a significant portion) of their debts in local currencies in local banks to be used for investment (not purchasing goods) by Iran.

I am arguing to use this debt to start of a paradigm shift: Iran starting a serious foreign investment program for the good of the country and its future generations. The funds generated by these investments could in the long term exceed the actual oil revenues, look at Norway.

Anonymous said...

Good point Nader. Iran is now running surpluses and should start a "Future Fund" from energy revenues as Norway, albeit with 3 million people has done and collected over $500 billion from North Sea oil since 1990. Iran is a much larger nation with different geo-strategic and economic issues, but easily do the same. With the US collapse and power shit to Asia, Iran has no real banking problems left as many Asian and Muslim banks are quickly filling the void. The US/Zionists have indeed sanctioned their own deadbeat economies.

Anonymous said...

The problem with that is that the Iranian government has not got the sincerity or foresight and nationalist responsibility towards its own people like Norway.Iran under this type of government has wasted huge amount of resources on foreign adventures in Lebanon regarding their proxy war against Israel and then the $18 BILLION which ended up in Turkey in a Iranian truck shows that these charlatans can not be trusted with the management of Iranian economy and financial sector.These examples are just the tip of the huge ice berg that the present Iranian government has hidden from the down trodden Iranian people.
Before any anonymous antagonist accuses me of being MKO,Shahist,Neocon or Zionist etc..I am a very concerned Iranian citizen that actually resides in Iran and is not convinced by malicious propaganda.

Anonymous said...

Thank Mr Uskowi for pointing this out regarding the comment section I used to read this site a lot but regrettably there has been a nefarious element with infantile comments regarding the reality in Iran.For an Iranian citizen that actually lives in Iran it can be upsetting that some elements ill informed with a very zealous agenda to propagate a one sided governmental view of Iran.
Once again thanks and hopefully there could be truthful discussions in the near future.

Anonymous said...

Anon 6:16 PM.. Thank you for pointing this out regarding the information given to the IMF by the regime.I live in Ahvaz and travel around Iran extensively and can honestly say it saddens me to see the state of disrepair in khuzestan and varies other places in Iran.It also concerns me to hear from certain "Iranians"who falsely claim that our beloved country is rising economically which is a complete contradiction regarding the reality of the situation.There are many Iranians struggling to make ends meet about 90% of population yet there are fantasists that claim likewise.
Maybe they for once in their life should travel to our homeland and see for themselves instead of watching Press TV and reading government newspapers and Internet sites. I really have pity on them they are lost souls.

Anonymous said...

Anon 11:57 Thanks for pointing that out.It is true what you say there are some minority of uneducated Iranians who make fanciful claims as regards our country being prosperous maybe we should donate a plane ticket to them so that they can travel back to Iran for a once in a life time experience.

Anonymous said...

If they not allow to withdraw those money, why to invest? They wont allow to withdraw the profit from the investment, effectively they stolen that money already.