Iranian Government Decides Not To Give Up On Free Trade Zones

Mandy Robinson, Tax-news.com, London

02 April 2001

Iran says it has decided to pursue the development of its free trade zones (FTZs) in a bid to improve upon attempts to boost exports and attract foreign investment. So far the FTZs have failed to fulfill these objectives but the government doesn't want to give up on them yet and the recent appointment of new leaders of each of the three zones - Kish, Qeshm and Chabahar - has given the government fresh impetus in supporting the FTZs. Hossein Nasiri, secretary of the High Council of Free Trade Zones in Iran, told the Financial Times last week: 'The consensus is that they should exist.'

The three zones were established eight years ago to create special conditions to attract investors, such as tax breaks, 100 per cent ownership of companies and a visa-free regime, but the zones have imported more than they have exported and it is rumoured that they have attracted smugglers rather than investors. However, the FTZs became publicly controversial in Iran when an ex-governor of Kish, Mohammad-Reza Yazdanpanah, was arrested on charges of fraud earlier this year. Although details have not been released it is understood that he may be connected to clandestine deals related to the sale of an hotel to foreign investors and of Kish's mobile telephone company to a Lebanese firm.

Mr Nasiri said the zones had set their goals too high and 'idealistic definitions' could not be achieved due to lack of government investment and support in the zones' infrastructure. With reference to Qeshm, he claimed: 'The government gave an island without anything and said this is a free zone, and nothing happened.'

However, the government's latest resolve to further develop the FTZs could turn the fortunes of the zones around. Mr Nasiri informed the Financial Times that he would like to see the FTZs become offshore banking centres for the country's domestic banks and he intends to persuade foreign banks, which are all barred from operating in Iran, to take advantage of new legislation that allows them to open branches in the FTZs. This could lead to Iranians depositing their investments in Iran instead of neighbouring countries. Mr Nasiri estimated that Iranians have deposited £1.3 billion in banks in neighbouring countries, and even state-run or affiliated companies such as car manufacturers Saipa and Iran Khodro have over £1 billion in foreign banks.

A statement from the three FTZs declared: 'In the beginning the FTZs' self funding nature has generally meant a lack of infrastructure and poor development. Only recent years have seen an increase in governmental funding. Furthermore, a law has recently been passed by the parliament offering governmental guarantees against nationalisation and expropriation for foreign investments in the FTZs. These developments mark stepped-up efforts to increase the level of foreign investment in Iran. Therefore, today the FTZs offer foreign investors a good entry point, allowing a safe opportunity to start working on the Iranian market and to position themselves well for the expected opening of the economy.'

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