Iran’s Hidden State: Here’s What Every Investor Needs to Know 1
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As America prepares to end more than three decades of sanctions, we took a closer look at this evolving market. Here’s the second of two-part report

Among the charitable foundations that dominate Iran’s economy, the most prominent is the custodian of the Imam Reza Shrine in Mashhad.

Rooted well before the revolution, the foundation known as Astan Quds Razavi has expanded into industries from agriculture and livestock farming to real estate, construction, mining, transportation, medicine and energy. AQR reportedly owns 43% of the city of Mashhad and 90% of the arable land in Khorasan Province, where it is located – though it also has properties all over the country.

Tax-exempt, as all of the so-called bonyads, AQR collects rents from the buildings erected on its land and hosts over 20 million pilgrims each year.
In all, its economic ventures are probably bringing in over $15 billion in revenue.

At its helm, Supreme Leader Ali Khomeini appointed Abbas Vaez-Tabasi. Notably, Vaez-Tabasi maintained a degree of political independence, establishing the AQR Economic Organization in 2004 to manage the vast holdings, with three family members on the Board of Directors. 

Potshots at Bonyads

After Vaez-Tabasi’s recent death, Khamenei re-established control over this wealthy religious institution, appointing a hardline member of the right-wing faction, Jebhe Peydari. With his background in the judiciary, former Prosecutor General Sayed Ibrahim Raisi is much closer to the security apparatus than his predecessor.

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Raisi’s father-in-law is the ultraconservative Mashhad Friday Prayer Leader Alam al-Hoda, who reportedly played a key role in ‘ensuring’ that all five MPs elected in Mashhad in February were Jebhe Peydari members

Iran’s parliament has taken pot shots at the bonyards. It passed a law in 2014 to remove tax exemptions granted to the parastatal, revolutionary and religious foundations. However, it remains to be seen whether the tax bill can be levied in practice.

Hotel Shasta

Alongside the revolutionary foundations, there’s another entity sprawling the gray zone between the public and semi-private sector. Shasta is the investment arm of Iran’s Social Security Organization.

It’s been one of the biggest beneficiaries of the privatization plan launched in 2006 by then President Ahmadinejad.

Between 2007 and 2009, Iran divested shares in 82 companies for $3.7 billion. Shasta obtained 46% of the stock with Iranian Mehr Eghtesad Company. This company is controlled by the Basij, a paramilitary volunteer militia established by Khomeini.

By 2014, Shasta had amassed $11 billion in assets, or 10% of Tehran’s Stock Exchange, Social Security Organisation Deputy Head Nejat Amini said at the time. Shasta owned shares in 400 companies, with majority ownership in 150 of them.

Through Shasta, the SSO has built a presence in transportation, banking, oil and gas, petrochemicals, telecommunications and tourism. It fully owns the country’s third biggest telecom operator Rightel, along with Bank Refah, the Raja Rail Transportation Company and the hotel chain Homa.

In the hydrocarbon sector, Shasta owns 35% of Bandar Abbas Refinery, and 50% of Lavan Oil Refinery Company.

Health Sector

The SSO and various bonyads aren’t only shareholders in nominally ‘private’ companies; they also combine to dominate some economic sectors themselves.

Two thirds of Iran’s pharmaceutical industry, for example, is in the hands of state-owned bank Melli, the Social Security Organization and Setad Ejraye Farman Emam.

Affiliated to the Ministry of Labour, Cooperatives and Social Welfare, the SSO, reportedly provides healthcare to half of Iran’s 80 million population.

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Given their political malleability and direct link to the Supreme Leader, there’s little prospect of any meaningful decline in the role of the bonyads, SSOs and Revolutionary Guards – and therefore the state in the economy.

There are exceptions, however. Both the Rouhani administration and the IRGC acknowledge that foreign technology is needed to upgrade the oil and gas industries, and so the government and IRGC are likely to come to an understanding.

Foreign companies may be allowed to break the Revolutionary Guards’ monopolies in some lucrative sectors, such as hydrocarbons, in exchange for the IRGC retaining its primacy in other areas, like infrastructure.

For the most part, however, Iran’s economic dazzle is irretrievably interconnected with the mirror mosaic of state.

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