BMI View: As the majority of international sanctions have been lifted faster than expected and new historic data has been released, we have upwardly revised our construction industry growth forecast for Iran in 2016 from 3.2% to 4.5%. The lifting of sanctions is resulting in the gradual return of private investment as well as improv ing Iran's access to funding for projects. As such, we expect the country's risk profile - particularly in the financing stage of the project life cycle - to continue to improv e .
Latest Updates And Structural Trends
We forecast 4.5% y-o-y real construction industry growth in Iran in 2016 and an average of 6.1% over the next five years as a result of the lifting of international sanctions and strong demand for infrastructure.
Persistently low oil prices - our Oil & Gas Team forecasts Brent to average USD46.5/bbl in 2016 - will reduce government revenue, limiting public spending in infrastructure.
As we expected, the lifting of sanctions is already having a positive impact on Iran's capability to finance infrastructure projects. Reflecting the reduced risk in the financing stage, Iran now scores 34 out of 100 in the Financing Risk pillar of our Project Risk Index (PRI), from a previous score of 18.8.
Although we anticipate investment opportunities across all sectors, railway projects will attract considerable interest, as evidenced by the announcements that the Islamic Republic of Iran Railways (RAI) has signed a memorandum of understanding (MoU) with German Siemens for cooperation in the rail sector. The MoU includes projects such as Tehran-Mashhad railroad electrification and the construction of Tehran-Isfahan high-speed railway. In addition, state-owned Russian Railways (RZD) signed a USD1.28bn contract with RAI to electrify a 495km railway line. The contract is funded by a Russian government credit allocation to the government of Iran.
Greater competitiveness in Iran's labour market will be required to support growth in the construction industry. Although Iran's labour force is highly educated by regional standards, high labour costs will continue to pose a structural barrier to investment.
Despite an improving outlook for Iran's infrastructure sector, the country will continue to present challenges, including elevated political risk, macroeconomic weaknesses and corruption.
|e/f = BMI estimate/forecast. Source: National Sources, BMI|
|Construction industry value, IRRbn||1,148,519.11||1,325,968.00||1,534,316.42||1,786,684.33||2,064,963.33||2,333,473.55||2,696,861.63||3,105,075.87||3,452,683.02||3,979,134.10||4,428,588.53|
|Construction Industry Value, Real Growth, % y-o-y||2.10||4.45||5.71||6.45||6.58||6.00||5.57||5.14||5.19||5.25||5.30|
|Construction Industry Value, % of GDP||9.6||9.5||9.6||9.8||10.1||10.2||10.6||11.2||11.4||12.1||12.3|
The lifting of international sanctions is having a positive impact on Iran's risks and rewards scores. Iran scores 42.3 out of 100 in our RRI for the Middle East this quarter, an improvement from last year's 37.5.
Iran scores 35.0 out of 100 for Industry Risks, reflecting the high barriers to entry and lack of competition in the infrastructure market. We expect Iran's competitive landscape to diversify considerably as the lifting of international sanctions allows foreign players to return.
Iran receives an improved score of 46.2 for Country Risks, but still below the regional average. The country suffers from endemic levels of corruption and although nominally independent, political interference in the judicial system is rife.
|Risk/Reward Index||Rewards||Industry Rewards||Country Rewards||Risks||Industry Risks||Country Risks|
The Iran Infrastructure Report features BMI Research's market assessment and forecasts covering public procurement and spending on all major infrastructure and construction projects, including transportation and logistics by land, sea and air; power plants and utilities, and commercial construction and property development. The report analyses the impact of regulatory changes and the macroeconomic outlook and features competitive intelligence on contractors and suppliers.
BMI's Iran Infrastructure Report provides industry professionals and strategists, sector analysts, investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the Iranian infrastructure and construction industry.
- Benchmark BMI's independent infrastructure industry forecasts for Iran to test other views - a key input for successful budgetary and planning in the Iranian infrastructure market.
- Target business opportunities and risks in the Iranian infrastructure sector through our reviews of latest industry trends, regulatory changes and major deals, projects and investments in Iran.
- Assess the activities, strategy and market position of your competitors, partners and clients via our Company Profiles (inc. SWOTs, KPIs and latest activity).
BMI Industry View
Summary of BMI’s key industry forecasts, views and trend analysis covering infrastructure and construction, regulatory changes, major investments and projects and significant national and multinational company developments. These are broken down into construction (social, commercial and residential), transport (roads, railways, ports, airports, etc), and energy & utilities (powerplants, pipelines and so on).
Industry SWOT Analysis
Analysis of the major strengths, weaknesses, opportunities and threats within the infrastructure and construction sectors and within the broader political, economic and business environment.
BMI Industry Forecasts
Historic data series (up to 2012) and forecasts to end-2024 for all key industry indicators, supported by explicit assumptions, plus analysis of key developments in the market and risks to the main forecasts. Indicators include:
Construction: Industry value (USDbn); contribution to GDP (%); total capital investment (USDbn); real growth (%).
Construction industry real growth forecasts (%) and industry value (USDbn) forecasts for industry sectors are split into Residential and Non-residential and Infrastructure sectors. Where the data is available for particular countries the infrastructure is further broken down into indicators for the transport subsectors of roads, railways, airports and ports and the energy and utilities sub-sectors of power plants and transmission grids, oil & gas pipelines and water infrastructure. This dataset is unique to the market.
The reports also include analysis of latest projects across the infrastructure sectors (transport, utilities, commercial construction).
BMI’s Infrastructure Risk Reward Index
BMI’s Risk Reward Index provides investors (construction companies, suppliers and partners) looking for opportunities in the region with a clear country-comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points. These provide indices of highest to lowest appeal to investors, with each position explained.
An assessment of the competitive landscape and key challenges to entering the market. Details of the largest companies active in the sector across the sub-segments of the industry, including the key financial figures from some of the largest players in the sector.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
The Infrastructure reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.