BMI Industry View
BMI View: Iran's construction sector is poised for robust growth in the wake of sanctions removal, bothb throughout 2016 and over the first half of our forecast period, driven primarily by an influx of international investment and a post-sanctions financial windfall. We expect transport and energy in particular to attract the lion's share of investment, reflecting the high levels of structural demand in sectors long plagued by underinvestment.
Latest Updates And Structural Trends
■ We have raised our 2016 growth forecast for Iran's construction sector, from 4.5% to 7.9%. This growth pattern will persist over the entirety of our forecast period, and we expect Iran's construction sector to comprise a steadily growing share of the country's overall GDP, from 10% today to over 12% by 2025.
■ Our optimistic growth outlook for Iran's power and transport
subsectors is driven by a raft of high value investment
pledges. Foremost among these is Turkish firm UNIT International's USD4.2bn
deal signed on June 1 with
the Iranian energy ministry to build seven natural gas-fired power plants in
Iran. In the transport
space, Italy's state-owned highway management firm Anas signed a deal
with the Iranian Ministry of
Roads to build and manage a 1,200km road in the country. The EUR3.6bn (USD4bn)
bulding a road connecting the port of Bandar Imam Khomeini to Bazargah.
■ Reflecting the lifting of sanctions in January 2016, Iran's Project Risk Index score on the cost subsection of the Finance pillar, which quantifies a country's access to development funding, registered a dramatic improvement, jumping from a previous score of 5 to a current score of 50.
■ The lifting of international sanctions continues to have a positive impact on Iran's overall Risk Reward Index (RRI) score. Iran scores 48.0 out of 100 on the RRI this quarter, an improvement from last quarter's 42.3 yet still trailing the regional average of 53.6.
■ Iran registers its worst score in the Industry Risks pillar of the RRI with a score of 35.0, reflecting the high barriers to entry, opaque tendering process, and lack of competition in its infrastructure market. We expect Iran's competitive landscape to diversify considerably as the lifting of international sanctions allows foreign players to return and highlight this as an area in which Iran is likely to improve further.
■ Iran receives an improved score of 46.2 for Country Risks, but still considerably below the regional average of 55. Despite the lifting of sanctions, structural problems with its political system remain - the country suffers from endemic levels of corruption, a weak institutional framework, and political interference in the judiciary is rife.