Iran's economy moving from bad to less bad

As Iranian President Hassan Rouhani prepares to address the United Nations and the world from New York, his country's economy is showing signs of strength. But it still has a long way to go.

A trader speaks with a stock market official beneath the electronic board at the Tehran Stock Exchange, Sept. 15, 2010.
Caren Firouz | Reuters
A trader speaks with a stock market official beneath the electronic board at the Tehran Stock Exchange, Sept. 15, 2010.

Iran's currency, the rial, has stabilized. The inflation rate, while still bad in the midteens, has fallen from the astronomical 40 percent range. In the second quarter of this year, Iran's gross domestic product was in the plus column for the first time in 2½ years, rising 2.5 percent.

The CEO of Turquoise Partners, the largest investment company in Iran that's licensed to do business with foreign entities, said he sees the impact firsthand. "The growth is most definitely attracting renewed interest in foreign investment from Asia and Europe," Ramin Rabii said.

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Of course, the Islamic state's economy still has a long way to go. Unemployment, for example, remains in the 15 percent range. But Iranian economists said that number actually marks an achievement, pointing out that the number of new university graduates flooding the workforce is rising, making steady unemployment—even at 15 percent—a victory of sorts.

"The Iranian market is more resilient to bad news than other parts of the world, because there is less of a foreign investment component in Iran, relatively speaking." -Ramin Rabii, CEO, Turquoise Partners

Despite some improvement on the economic side, the Tehran Stock Exchange is taking a beating this year. It's down 15 percent year to date and 10 percent since April, after hitting record levels in 2013.

While there are several issues affecting Tehran's exchange, Rabii said Iran's standoff with the West over its nuclear ambitions is the biggest sticking point for markets. Stocks in Iran saw a rise during only one month this year so far—July—because many Iranians and foreign investors thought at the time that a deal to lift the U.S.-led sanctions was near.

When those talks collapsed, so did the price of stocks. But Rabii expects a rebound for Iranian equities, even if there's no agreement.

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"If the nuclear issue is resolved, we'll see a big jump," he said. "But if there's no deal, that doesn't necessarily mean stocks here will fall dramatically."

Rabii pointed out that there's still relatively little foreign money in Iranian stocks: "The Iranian market is more resilient to bad news than other parts of the world, because there is less of a foreign investment component in Iran, relatively speaking."

Iran's President Hassan Rouhani
Umit Bektas | Reuters
Iran's President Hassan Rouhani

While Iran does have billions in oil exports, a large part of the economy is built on domestic production and domestic consumption, making the Islamic Republic less vulnerable to outside influences.

Rabii expects stocks to rebound off near-term lows, but other Iranian market watchers fear that if sanctions against the petrochemical sector worsen and are backed by members of the international community from outside the European Union or U.S., that Iranian stocks could fall fast.

This handout image supplied by the IIPA (Iran International Photo Agency) shows a view of the reactor building at the Russian-built Bushehr nuclear power plant.
Getty Images
This handout image supplied by the IIPA (Iran International Photo Agency) shows a view of the reactor building at the Russian-built Bushehr nuclear power plant.

Most analysts watching Iran's economy agree that Rouhani has made positive changes after inheriting an economy in ruin from his presidential predecessor Mahmoud Ahmadinejad. That said, Iran's nowhere near where it would like to be economically, and foreign investment is likely to remain limited as long as the nuclear issues remain unresolved.

"Unless there's a nuclear deal and sanctions are eased, Iran's economy is unlikely to improve significantly," said Alireza Nader, international policy analyst at Rand Corp. "Iran's economy is still in bad shape."

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Turquoise handles 90 percent of the foreign inflows into the Iranian stock market, and Rabii admitted that despite increased interest from overseas, it's still difficult to get investors to commit money, because of sanctions worries.

"We're even getting more interest from investors in the United States," he said. "Although when we do, we have to tell them U.S. law prohibits investment in Iran."