Investment has historically been a cornerstone of Iran’s development, from the construction of the national railway to private sector-led industrial projects. Yet, in recent years, both domestic and foreign investment in state-led development projects has significantly declined, even compared to the 1990s, when despite energy and currency challenges, investment remained relatively robust.
Experts emphasize that capital is inherently “smart” and seeks safe and predictable environments. In Iran, recurring challenges such as sanctions, currency volatility, and low business environment rankings have created a climate that discourages investment.
Government intervention and economic centralization are among the main deterrents. Mohammad Reza Najafi-Manesh, a member of the Iranian Chamber of Commerce, told Donya-e-Eqtesad, “The government exerts pressure on investors while maintaining a dominant role in the economy. To improve investment, the state must step back from state-controlled projects and promote privatization. Until then, the private sector sees the investment climate as uncertain.”
He added that in the 1990s, domestic investment was stronger and could serve as a foundation to attract foreign investors.
Key Obstacle
Expropriation fears continue to loom. Farshid Shokrkhodaei, head of the Chamber’s Investment and Finance Commission, said, “The use of expropriation—even decades after the revolution—remains a key obstacle. Unless private property rights are fully recognized, private sector investment in development projects cannot advance.”
He emphasized that political and social reforms are crucial to mitigate risks such as sanctions, banking limitations, and inflation, which together have contributed to declining investment levels.
Contract enforcement issues further undermine confidence. Arman Khaleghi, vice-chairman of the Tax, Labor, and Social Security Commission, noted, “The private sector has negative memories from government contracts, including the Moghans Agro-Industry and Arak Machinery agreements, which were terminated or penalized. Until past commitments are honored and guarantees provided, the private sector will avoid or reluctantly participate in state projects.”
Economic stability and social order are essential. Mousa Ahmadzadeh, vice-chair of the Macro-Economy Commission, explained, “Iran has significant potential with skilled human resources and capital, but uncertainty imposes high costs. Attracting both domestic and foreign investors requires economic stability, reduced state intervention, and a credible framework for investment security.”
He added that aligning with global economic norms and improving international trade infrastructure would further enhance Iran’s appeal.
A combination of sanctions, inadequate international relations, government dominance in the economy, weak contract enforcement, and social structural challenges has restricted both domestic and foreign investment in Iran’s development projects.
Experts agree that regaining investor confidence requires a strategic shift: privatization, honoring past and future contracts, addressing international constraints, and establishing economic and social stability. Without these reforms, Iran risks continuing capital outflows and missed opportunities for development.
