Economy major focus as Rouhani wins second term in Iran

Iranians voted overwhelmingly to re-elect incumbent president Hassan Rouhani during the Islamic Republic’s election on May 19, a vote many are describing as a victory for the country’s moderate forces.

Mr Rouhani, largely considered a ‘reformer’ compared with his opponents, defeated hard-line cleric Ebrahim Raisi by a nearly 20-point margin, winning 57% to 38.5%. The president is known for ratifying Iran’s landmark nuclear deal with six world powers in 2015, resulting in the lifting of many economic sanctions and the country’s reopening to parts of the world market.

Since the lifting of sanctions, Mr Rouhani has presided over a fall in inflation from 45% to single digits, stabilisation of the Iranian rial, doubled oil exports and rebounded economic growth: the IMF forecasts 6.6% real GDP growth for 2016-17. New investments and contracts have been agreed in the automotive and aerospace sectors.

Yet many ordinary Iranians, who have not felt this progress, lament a lack of improvement in living standards. A major problem is Iran’s double-digit unemployment, which is particularly high among young people. Mr Rouhani also faces criticism from hardliners for being too quick to open up to the West.

It’s the economy

The president’s most pressing mandate, therefore, is the economy, which many voters view as intimately tied to the nuclear deal. The economy is also an area over which the president presides, while many other state matters such as foreign affairs and security rest in the hands of the all-powerful and unelected Ayatollah Khamenei. Regardless of Mr Rouhani’s efforts to implement reforms and attract investment, however, the business climate is expected to remain complicated and unpredictable.     

“Uncertainty around sanctions and Iran’s foreign relations will remain a major challenge for the investment climate,” says Arthur Snell, managing director of security analyst PGI Intelligence and a former intelligence officer.

Investors will continue to face a complex environment, says Mr Snell, adding: “Conservatives in parliament, the security services, media and other powerful institutions will continue to challenge Mr Rouhani for influence. The president will retain only limited powers to push back against efforts by the courts and security services to protect their own interests by discouraging investors.”

Also causing concern, says Mr Snell, is the rhetoric of US president Donald Trump, whose administration “could seriously undermine the nuclear deal by pressuring Western companies not to do business in Iran”.

He adds: “Washington could increase tensions further by imposing additional unilateral sanctions, as it did in February in response to a ballistic missile test.”