Iran: World's Largest Untapped Frontier Market

Iran: World’s Largest Untapped Frontier Market

IRAN IN BRIEF

Population 78.4 million (2nd Stock exchange $100bn largest after Egypt) (Tehran) Area 1,648,195 sq km (2nd No of listed 314 largest in Middle East) companies GDP (2014, $404bn ($401bn of Literacy (10-49 97% current price) UAE) ages) GDP (2014, PPP) $1,334bn ($1.508bn Young population 60% under 30 years of Turkey) old GDP per capita $17,114 ($16,100 of Major industries: Manufacturing & (PPP) Brazil) mining, oil & gas, services, agriculture Crude oil reserves 4th world‘s largest Key exports Crude oil, petroleum products Natural gas 1st world‘s largest Gross official $110bn reserves reserves Crude oil 2nd largest in OPEC External debt 1.8% of GDP production

Iran: World's Largest Untapped Frontier Market

CONTENTS

Iran in Brief 2 Iran in Numbers 6 Summary 8 Recent Key Developments At a Glance 9 Economy 11 GDP and Oil Exports 11 Foreign Investments: Inviting Global Oil Majors 14 Inflation and Exchange Rate 16 Government Finances 18 Economic Outlook 20 Key Macroeconomic Indicators 22 Politics 23 Political System 23 Presidential Elections 24 Nuclear Program 25 Comprehensive Nuclear Deal 27 Framework Nuclear Deal 28 Landmark Interim Agreement 29 International Sanctions on Iran 30 Key Industry Focus 33 Oil & Gas 33 Mining and Manufacturing 36 Banking and Financial Services 39 Power 41 Transport and Aviation 43 Telecom 45 Retail Market 47 Pharma and Health Care 49 Education 52 Tourism and Hospitality 55 Digital Economy 58 Opportunities Across Asset Classes 60 Public Equities 60 Private Equity 64 Real Estate 65 Annex I. ECONOMIC AND INDUSTRY INDICATORS 67 Key Macroeconomic Indicators 67 GDP Performance, 2005-2014 67 GDP Projections, 2014, 2020 and 2030 ($bn, current prices) 67 Population and Income ranking, 2014 68 GDP Growth Projections, 2015-2020, 2025, 2030 ($bn, current) 68 Exports, incl. Crude Oil and Petroleum Products, 2010-2014 68 Geographic Destinations of Crude Oil Exports, 2010-2014 (‗000 bpd) 68 Monetary indicators (end of period, trln. Rials) 69 Exchange rate (IRR/$) 69 Government budget (trln. Rials) 69 Tax revenue (trln. Rials) 69 Oil & Gas Sector Indicators 69 Mineral Resources, Reserves, % of World 69 World‘s Top Iron Producers, 2013-2014 70

Iran: World's Largest Untapped Frontier Market

Composition of Iran Manufacturing, 2011 70 Iran Manufacturing 70 Iranian Mining and Manufacturing Contribution to GDP (at current prices), IRR bn 70 Production of Electricity (Bn Kw/h) 71 Access to electricity, % of rural population, 2012 71 Access to electricity, % of urban population, 2012 71 Subscribers to Telecom Services in 2012 and 2015, mn 71 Internet Penetration, % Population in MENA countries, 2014 71 Tourist Arrivals 71 Average age of selected Iranian and international airline fleets in 2015 72 Life expectancy at birth in Iran, total 72 Health Expenditure in Iran 72 Gross intake rate in pre-primary education 72 Net Intake rate in the first grade of primary education 72 Top-10 Domestic Production Pharmaceutical Companies (2009-2010) 73 Annex II. Tse-30 Listed Companies Profiles 74 2020 Insights Profile 75

Iran: World's Largest Untapped Frontier Market

IRAN IN NUMBERS

Real GDP Growth Exports

Source: IMF WEO Apr.2015, 2020Insights estimates (years are financial) Source: US EIA, OPEC 2015

Population (million) Inflation (end of period, %)

Source: IMF WEO 2015 Source: Central Bank of Iran

Top 10 Proven Oil Reserves (bn barrels) Top-10 Proven Natural Gas Reserve (% of world’s total)

Source: International Energy Agency, The Oil and Gas Journal, January 2015 Source: BP 2015

Iran: World's Largest Untapped Frontier Market

GDP per capita (PPP, $, 2014) Access to electricity (% of urban population, 2012)

Source: IMF WEO 2015 Source: World Bank

Internet Penetration (% population, 2014) International Tourist Arrivals

Source: Internet World Stats Source: The World Bank, 2020Insights

Top-20 Largest Economies Ranking 2020 ($bn, GDP) Top-20 Largest Economies Ranking 2030 ($bn, GDP)

Source: IMF WEO 2015, 2020Insights estimates Source: IMF WEO 2015, PWC 2015, 2020Insights estimates

Iran: World's Largest Untapped Frontier Market

SUMMARY

Iran has emerged as the world‘s largest untapped frontier market after the second largest economy in the Middle East and North Africa (MENA) has achieved a breakthrough long-awaited nuclear deal with the world powers and is re-entering the global economy with no sanctions. After more than a year and a half of tough negotiations, Iran finally reached a deal with the world powers that may start a new era of relations with the West and rapid economic growth. Started with the historical phone call with US President Obama in September 2013, signing a landmark interim deal in November 2013, reaching a framework agreement in April 2015 and the much-anticipated comprehensive deal on July 14, 2015, now Iran is to benefit foreign trade and investments with no restrictions. Hit hard with sanctions, including in oil trading and foreign investments, Iran has now invited global energy firms to invest in its world class oil and gas reserves. As the slump in crude oil exports, the country‘s largest revenue earner, has eased 13% y-o-y in 2014 versus 39% y-o-y a year earlier due to the sanctions, Iran has experienced a sharp rebound with 3% positive GDP growth last year from contractions in the previous two years. Rapid increase in inflation and depreciation in exchange rate has also slowed down thanks to rebound in economic activities, exports and optimism in business environment. Although US$12bn sanction relief achieved so far under the interim nuclear pact reached in November 2013 helped somewhat weather the recession, expected upcoming positive developments are likely to bring turning points into the economic landscape of Iran. After certain sanctions have been eased, now Iran has the right to ship oil to some Asian countries, including China, India, Turkey, Japan, South Korea and Taiwan. Factoring in the said above, we estimate Iran‘s economy may experience a positive growth rate of 1.5% in 2015/16, assuming that expected increase in crude oil exports once the sanctions are removed and revival in public and private sector activities should support the economic acceleration. We view that given the recent warming in the country‘s relationships with the West, constructive approach to resolving concerns over its nuclear program and readiness to award large scale oil and gas contracts to global firms that would allow inflow of several multi-billion dollar foreign investments across industries, Iran has the potential to become the world‘s largest frontier market and one of the fastest growing economies globally in the coming years. Therefore, we believe early stage and forward-looking investors will start tapping this massive market as, albeit not without downside risks, it is set to offer probably the most unprecedented opportunities across different industries and asset classes in the medium and long terms. Iran‘s economy has strong potential to experience rapid growth in the coming decade and enter the league of top twenty largest economies by 2020 and to be among top ten in the world by 2030.

Iran: World's Largest Untapped Frontier Market

RECENT KEY DEVELOPMENTS AT A GLANCE

Historic Nuclear Deal reached with World Powers Iran and the world powers, including the US, the UK, Russia, Germany, France and China have reached a long-awaited deal in Vienna on July 14, 2015, putting an end to a 12-year standoff between the Islamic Republic and the West. After 18 days of uninterrupted marathon talks, the parties agreed that Iran will significantly limit its nuclear ability for more than a decade in exchange for removal of sanctions against it. As a result of the constructive diplomacy, the agreement is a historic milestone towards unprecedented US-Iran rapprochement after 37 years of hostilities. The UN, US and EU have committed to terminate sanctions related to activities related to financial, banking, insurance, oil and petrochemical products trade and investment, automotive, transactions in commercial passenger aircraft, shipping, shipbuilding and transport; gold and other precious metals, as well as delist a number of persons and companies/agencies that were subjected to asset freeze and visa ban.

Economy jumped rapidly 3% y-o-y in 2014/15 on business confidence Iran experienced a strong economic growth rate of 3% in the financial year of 2014/15 after substantial contraction of 6.6% and 1.9% in the previous two years (IMF April 2015). An interim nuclear agreement reached in November 2013 with the world powers represented by the P5+1 group, including the five permanent UN Security Council members plus Germany, has boosted business confidence and allowed temporary ease of sanctions on crude oil exports, automobile sector and domestic and international bank transactions that supported the sharp positive economic growth.

Crude exports fall slowed, thanks to Asian buyers Despite the fact that the sanctions require to keep the crude oil exports from Iran at 1mpbd, it reached 1.1mbpd in 2014 thanks to sales to China, India and Japan, still lower than 1.2mbpd in 2013. Oil exports started rising in November 2013 amid the breakthrough interim agreement with the world powers that requires freezing key parts of Iran‘s nuclear activities in return for about US$7bn worth temporary sanctions relief. Iran has lost about US$80bn in revenues due to the sanctions, as crude oil exports, which make up about 60% of the Iranian government budget, more than halved from pre-sanction level of 2.5mbpd in 2011 and lost estimated US$50bn in 2013.

Iran needs US$200bn investment in oil & gas, invited global majors President Rouhani met with senior executives of over 30 companies, including some of the world‘s largest energy groups such as BP, Royal Dutch Shell, Total, ENI, Gazprom Neft and Petrobras at the World Economic Forum on January 23 this year in Davos. Iran is keen to attract major foreign investments into its sanctions-hit economy, especially its oil & gas sector. In May, Iranian Oil Minister Bijan Namdar Zanganeh said the country needs US$200bn investments into its oil and gas industry. He said Tehran would offer foreign oil firms more attractive terms than those a decade ago, that are ―long-term, with better situation‖ than the old contracts. Leaders of European oil majors including Royal

Iran: World's Largest Untapped Frontier Market

Dutch Shell, BP, Total and Eni for the first time on June 3 this year have openly declared interest in returning to Iran. The Iranian Oil Minister mentioned US major names Chevron and ConocoPhillips to develop its oil and gas fields demonstrating the country‘s openness to partner with American businesses.

Inflation and Rial depreciation cooled down Central bank‘s new policy enabled to bring down inflation from over 40% to around 16% in less than two years. From March till December of 2014 (first three quarters of Iranian financial year) Central bank managed to keep growth rate of base money on negative territory. Meanwhile, shrinking of monetary base didn‘t influence much to liquidity of financial system as money multiplier increased. It helped M2 to grow by 15% for the same period of time. This is evidence that monetary policy under new administration has gained some credibility.

In mid of 2013 one of the elements of reforms initiated by newly elected President Rouhani was a convergence official and parallel market rates based on actual demand and supply of foreign currency. In order to achieve it official rate was depreciated in one month (July of 2013) by 40%. After the Geneva deal in November 2013 when Iran and world six powers reached a nuclear agreement allowed market rate to appreciate by 21% from its lowest level in June 2013. This resulted in decreasing of two rates discrepancy from 66% in June of 2013 to 16% in August 2014. However, there is still big difference between the official and market rate. By the end of 2014, it was around 20%, which is expected to further narrow down once the economic situation improves once the sanctions are removed and exports and foreign investment inflows rise.

Iran elected new moderate President Rouhani Iran‘s new President Hassan Rouhani won the elections held on 14 June 2013 with over 50% of the popular votes. As the seventh President of Iran, Rouhani was sworn in during a parliament session where for the first time since Iran‘s 1979 Islamic Revolution foreign dignitaries including regional leaders from over 50 countries attended the presidential inauguration ceremony. With the majority votes going to Rouhani, there was no need for the additional run off amongst leading candidates. Rouhani‘s victory was unexpected for many observers as he was the only moderate candidate and the other candidates were conservative. The key criteria towards success in elections were that a candidate should be able to address two major issues ahead of Iran - foreign policy and domestic stability. Rouhani‘s success can be explained by his experience as a key nuclear program negotiator under Supreme Leader Ali Khomenei and his pro-liberalization nature.

Iran: World's Largest Untapped Frontier Market

ECONOMY

GDP and Oil Exports

Real GDP Growth

Source: IMF WEO Apr.2015, 2020Insights estimates (years are financial) Iran is the 2nd largest economy in the Middle East and North Africa (MENA) with US$404bn GDP (at current prices in 2014) after Saudi Arabia and the world‘s 29th largest economy, larger than the United Arab Emirates, Thailand, South Africa and Malaysia. Valued at purchasing power parity, Iran is world‘s 18th largest economy ahead of even some developed economies such as Australia and the Netherlands.

Iran experienced a strong economic growth rate of 3% in the financial year of 2014/15 after substantial contraction of 6.6% and 1.9% in the previous two years (IMF April 2015). An interim nuclear agreement reached in November 2013 with the world powers represented by the P5+1 group, including the five permanent UN Security Council members plus Germany, has boosted business confidence and allowed temporary ease of sanctions on crude oil exports, automobile sector and domestic and international bank transactions that supported the sharp positive economic growth.

GDP composition, 2014

Iran: World's Largest Untapped Frontier Market

Source: Central Bank of Iran The economic structure of Iran is diversified, and not over dependent on oil only as many think. Oil makes only one-sixth of the country‘s GDP, although it is true that crude oil and petroleum products are responsible 54% of total exports revenue. Iran has well developed industry across various sectors such as automobile, electronics, construction materials, machinery and others.

The oil and gas rich country has been severely hit by the international sanctions on crude oil exports imposed late 2011 and summer 2012. Iran‘s total oil (petroleum and other liquids) production last year were estimated at approximately 3.4 million barrels per day (mbpd), including 2.8 mbpd of crude oil. The optimism around the nuclear talks enabled crude oil production to increase appr. 200,000 bpd compared to a year earlier, however still nearly 800,000 bpd lower than pre-sanction levels.

Iran has lost about US$80bn in revenues due to the sanctions, US President Barack Obama‘s administration said in a statement in November 2013. Crude oil exports, which make up about 60% of the Iranian government budget, more than halved from pre-sanction level of 2.5mbpd in 2011 and lost estimated US$50bn in 2013. Despite the fact that the sanctions require to keep the crude oil exports from Iran at 1mpbd, it reached 1.1mbpd in 2014 thanks to sales to China, India and Japan, still lower than 1.2mbpd in 2013. Oil exports started rising in November 2013 amid the breakthrough interim agreement with the world powers that requires freezing key parts of Iran‘s nuclear activities in return for about US$7bn worth temporary sanctions relief.

Iran: World's Largest Untapped Frontier Market

Iran’s Exports

Source: US EIA, OPEC As of June, total relief as a result of the interim deal reached US$12bn, including 13 tons of gold bullion transferred by the South African government to the account of Central Bank of Iran. The temporary relief comprised suspension of certain sanctions on about US$1.5bn worth revenue from gold and precious metals, Iran‘s auto sector and petrochemical exports; allowing purchases of Iranian oil to remain at the level of 1 mbpd (US$4.2bn of the US$100bn worth sales stockpiled in banks across the world to be transferred in instalments over the next six months).

However, the agreement maintains the major sanctions related to oil sales, finance, and banking transactions, and the relief will be revoked if Iran fails to abide by its commitments of the agreement.

Iran is seeking a further easing of sanctions to recover from lowest crude oil exports since 1990 and therefore is trying to achieve a comprehensive agreement on its nuclear program scheduled to be reached by July 7, 2015.

Iran: World's Largest Untapped Frontier Market

Iran’s Crude Oil Exports (‘000bpd) Iran’s Crude Oil Export Destinations (‘000bpd)

Source: OPEC 2015

Iran’s Monthly Crude Oil and Condensate Exports (mbpd)

Source: US EIA, Eurostat, Lloyd’s List Intelligence (APEX)

To boost its economy the Iranian government decided in January 2014 issuing 150 trillion Rials (app.US$6bn) worth bonds. The plan suggests Ministry of Petroleum was authorized to issue US$2bn bonds, Ministry of Energy US$1.6bn, Ministry of Roads and Urban Development US$1bn, and Ministry of Defence US$201mn and Ministries of Telecommunications, Industry and Mines, Agriculture each US$403mn.

Iran: World's Largest Untapped Frontier Market

Foreign Investments: Inviting Global Oil Majors

As the country has been isolated from the international investment community for many years, foreign direct investments have been negligible or negative. However, the situation is about to change. The new leadership under President Rouhani is willing to pursue economic reforms including bringing foreign investments to its crippled economy.

President Rouhani met with senior executives of over 30 companies, including some of the world‘s largest energy groups such as BP, Royal Dutch Shell, Total, ENI, Gazprom Neft and Petrobras at the World Economic Forum on January 23 2014 in Davos. Iran is keen to attract major foreign investments into its sanctions-hit economy, especially its oil & gas sector. Iran has the world‘s fourth largest oil reserves and world‘s largest gas reserves. Qatar already offered to assist Iran in development of South Pars, the world‘s largest gas deposit, which is shared between the two countries. In May, Iranian Oil Minister Bijan Namdar Zanganeh said the country needs US$200bn investments into its oil and gas industry. He said Tehran would offer foreign oil firms more attractive terms than those a decade ago, that are ―long-term, with better situation‖ than the old contracts.

In their turn, leaders of European oil majors including Royal Dutch Shell, BP, Total and Eni for the first time have openly declared interest in returning to Iran on June 3 this year. ―Iran is a wonderful country with a fantastic resource base,... As soon as there is legitimate opportunity, we will be looking at Iran.‖ said Ben van Beurden, CEO of Shell. ―We like Iran‖ said Patrick Pouyanne, CEO at Total. BP CEO Bob Dudley said that once sanctions are lifted his company would be ―very much‖ interested in investing in Iran. The Iranian Oil Minister mentioned US major names Chevron and ConocoPhillips to develop its oil and gas fields demonstrating the country‘s openness to partner with American businesses.

―Iran‘s economy has the potential to be among the world‘s top 10 in the next three decades, a goal which I pursue in wider planning of social, economic as well as domestic and foreign policy.‖, said President Rouhani at World Economic Forum in Davos in January 2014. He declared ―we intend to re-open trade, industrial and economic relations with all our neighbors such as Turkey, Iraq, Russia, Pakistan, Afghanistan, Persian Gulf literal states, the Caucasus region as well as Central Asia and begin multilateral and political cooperation.‖ Iran can effectively capitalize on strong interest of some of its neighbors such as Turkey to actively engage in trade with Iran. Many European companies from diverse industries (from auto to pharmaceuticals) will find Iran as attractive, large export market.

Iran: World's Largest Untapped Frontier Market

Rouhani administration is effectively continuing its charm offensive in effort to win back international business, restore economic ties and reviving the Iranian economy, in our view. Active outreach to global oil majors demonstrates the confidence of the Iranian leadership in its ability to reach the comprehensive nuclear deal and ultimately dismantle crippling sanctions regime. Although achieving positive sustainable results on both above challenging fronts are far from assured, Rouhani‘s speech and meetings in Davos have been well received by global decision-makers and media and are contributing to increasing the ―open for business‖ signs and ―feel-good factor‖ towards Iran.

Iran: World's Largest Untapped Frontier Market

Inflation and Exchange Rate

Up to mid of 2013 Central bank monetary policy was heavily influenced by guidance from Ex-president Ahmadinejad and his cabinet. Large amount of funds, including Central bank‘s, were directed to finance government projects, subsidies and social transfers. One of such giant project financed by Central bank money was the massive Mehr housing project to construct 2.3 million homes. According to Central bank officials, an amount spent to finance the project was around 45% of the base money (reserve money). This, in turn, led to high rate of annual inflation which exceeded 40% in 2012.

Reserve money (end of period, cumulative, trln. Rials)

Source: Central Bank of Iran; Dates converted to relevant period of Gregorian calendar

Inflation (end of period, %)

Source: Central Bank of Iran After presidential election in 2013, in the Central bank new team with fresh governor was formed and sound monetary policy was adopted. Central bank‘s new policy enabled to bring down inflation from over 40% to around 16% in less than two years.

Iran: World's Largest Untapped Frontier Market

From March till December of 2014 (first three quarters of Iranian financial year) Central bank managed to keep growth rate of base money on negative territory. Meanwhile, shrinking of monetary base didn‘t influence much to liquidity of financial system (M2) as money multiplier increased. It helped M2 to grow by 15% for the same period of time. This is evidence that monetary policy under new administration has gained some credibility.

National currency Rial exchange rate has mirrored tendencies occurred in other sectors of economy. Iran could not receive US$ or EUR denominated crude oil export revenues as strict financial and banking sanctions by the US and the EU have not allowed transfers in those currencies to Iranian government accounts. As balance of payment started to deteriorate at end of 2011, market (parallel market) rate of Rial began sharp depreciation. In one and half year this exchange rate lost its value against to US$ by 62%.

Money Multiplier (end of period)

2013 2013 2013 2013 2014 Q1 2014 Q2 2014 Q3 2014 Q4 Q1 Q2 Q3 Q4 Money 4.7 5.2 5.3 5.5 5.2 5.5 5.9 6.0 Multiplier

Source: Central Bank of Iran, 2020Insights estimates

On other side, the Geneva deal on January 20, 2014 where Iran and world six powers reached a nuclear agreement allowed market rate to appreciate by 21% from its lowest level in June 2013. This resulted in decreasing of two rates discrepancy from 66% in June of 2013 to 16% in August 2014. However, there is still big difference between the official and market rate. By the end of 2014, it was around 20%.

Exchange Rate (Rial per US$, end of period)

Iran: World's Largest Untapped Frontier Market

Source: Central Bank of Iran; Dates converted to relevant period of Gregorian calendar

Iran: World's Largest Untapped Frontier Market

Government Finances

Over past years fiscal policy was influenced by several reforms and shocks. In December 2010, a subsidy reform was launched and it followed by markedly slowdown in the economy. Though the reform aimed to be budget-neutral, it influenced to government budget through a significant deceleration in economic activity and decrease in tax revenues. As sanctions were imposed since late 2011- early 2012, they brought shockwaves and the economy was pushed into a wide contraction. The sanctions brought a sharp decline in income in general economy and to government budget in particular. According to Ministry of Economic Affairs and Finance officials‘ recent statement, ―about 80% of the resources of the state budget used to depend on oil revenues‖. As the fiscal position deteriorated significantly and budget faced about 10 percentage point of GDP decline in total revenues since 2010, the authorities decreased spending by close to 6 percentage points of GDP (with capital spending comprising about two-thirds of the cut). As a result, according to IMF data, the overall fiscal balance shifted from a surplus of 3% of GDP in 2010-2011 to an estimated deficit of 1% of GDP in 2013-2014.

Government budget (trln. Rials) 2008 2009 2010 2011 2012 2013 2013 2014 9M 9M Revenues 379.3 466.5 384.3 544.5 568.2 717.4 448.6 637.8 Expenses, 582.7 593.8 659.3 877.7 890.0 1,197.6 798.6 1,011.7 current Operating -203.4 -127.3 -275.0 -333.2 -321.8 -480.2 -350.0 -373.9 balance Net disposal of 6.4 -39.6 197.9 280.9 276.2 391.9 258.2 276.9 non-financial assets Net lending(+) -197.0 -166.9 -77.1 -52.3 -45.6 -88.3 -91.8 -97.0 /borrowing(-)

Source: CBI Economic Trends

These challenges brought advanced reform strategy, including new developments in fiscal policy. First, the administration has started to increase the revenue sources away from oil. According to IMF report, the intention is to broaden the base for non-oil tax revenues from 6% of GDP to 10% of GDP over the next several years. This would allow to cover current spending through the taxes and oil revenues would be mostly directed to capital spending. Second, several reforms were being initiated to strengthen tax administration, such as implementation of an integrated tax system, a new structure to limit and reform tax incentives for certain activities and for large non-taxpayers (such as in manufacturing and large statutory bodies) and other measures. Third, the planned increase in the VAT rate was brought forward by one year. Authorities agreed that gradual raise of VAT rate would help bring the VAT scale more in line with other resource-intensive country levels.

Iran: World's Largest Untapped Frontier Market

Fourth, the authorities highlighted ongoing efforts to strengthen tax compliance. These measures included large taxpayers and other indirect taxes (such as on professions). The authorities agreed on the potential to tax activities that have had large gains in recent years, such as on capital gains on equity investment and real estate. These efforts should help limit deficits and risks, improve the quality of the envisaged fiscal adjustment, and assist lay the ground for a more sustainable fiscal policy ahead. As result, reforms to the fiscal policy framework should further strengthen the scope for countercyclical fiscal policy, limit fiscal risks, and better support macro- stability. These could be achieved also by (i) taking steps toward annual multi- year expenditure and budget planning; (ii) broadening the coverage of fiscal accounts, their transparency and accountability.

Direct tax (trln. Rials) Indirect tax (trln. Rials)

Source: CBI Economic Trends

Iran: World's Largest Untapped Frontier Market

Economic Outlook

Iran has the potential to enter the league of Top-20 largest economies by 2020 surpassing Taiwan, assuming that the economic sanctions are lifted soon in 2015 and the pace of growth averages 5.5% per annum in 2015-2020, in our view. Under this optimistic scenario, Iran even can reach $1 trillion GDP mark by 2022.

Top-20 Largest Economies Ranking 2020 ($bn, nominal GDP)

Source: IMF WEO 2015, 2020Insights estimates

Under the optimistic scenario, suggesting rapid economic growth supported by strong oil and gas productions and exports, inflow of foreign investments, domestic consumption growth and government reforms, Iran may even enter the Top-10 largest economies by 2030 overtaking such developed and developing countries as Turkey to Mexico and become the only MENA country in the league.

Top-20 Largest Economies Ranking 2030 ($bn, nominal GDP)

Source: IMF WEO 2015, PWC 2015, 2020Insights estimates

Iran: World's Largest Untapped Frontier Market

Although US$12bn sanction relief received so far as of June has somewhat supported the growth, expected upcoming positive developments in the form of fully lifted sanctions are to bring transformational changes to the Iranian economy. After certain sanctions were eased in December 2013, Iran has been increasing oil shipments to some Asian countries, including China, India, Turkey, Japan, South Korea and Taiwan. Once the historical nuclear deal is reached with the world powers, and after the comprehensive agreement is approved by the US Congress, the sanctions should be fully lifted and Iran will gain the full right to sell exports freely. Despite the fact that oil prices are low, Iran should benefit from additional export revenues from increased physical volumes. As restrictions on its petroleum exports and foreign investments, Iran will likely enjoy improved business and investment sentiment that should catapult economic activities in the long-isolated nation.

Having said that, we project Iran will experience up to 1.5% GDP growth in 2015, jump-starting multi-year rapid economic growth (compared to IMF‘s estimated 0.6% growth rate projected in its World Economic Outlook update in April 2015). Even more optimistic estimate was suggested by a top Central Bank of Iran official who said on May 27 that the economy may grow 2% in 2015/16 if the sanctions are lifted.

We believe expected increase in crude oil exports in 2015, subject to the agreement reached with world powers and lifting of the sanctions, and therefore revival in public and private sector activities should support the economic recovery. Although we do not expect rapid influx of foreign capital in 2015, positive sentiment towards Iran‘s active engagement with international community and opening its strategic energy sector to global energy players should trigger the start of multi-billion dollar investments.

We view that given the country‘s recent warming in the relations with the West, constructive approach to resolving concerns over its nuclear program and readiness to award large scale oil and gas contracts to global firms that would allow inflow of multi-billion dollar foreign investments across industries, Iran has the potential to become the world‘s largest frontier market and one of the fastest growing economies globally in the coming years.

Iran: World's Largest Untapped Frontier Market

KEY MACROECONOMIC INDICATORS

Indicator 2009 2010 2011 2012 2013 2014 2015e

Population and income

Population, mn 73.2 74.3 75.1 76.0 77.0 77.8 79.0

GDP per capita, US$ 5,420 6,421 7,511 5,512 5,039 4,941 5,200 National accounts

GDP (current price), Rials, 3,936 4797 6,285 7,150 9,421 10,706 12,290 trln

GDP (current price), US$bn 397 464 564 419 380 404 400

Real GDP growth, y-o-y, % 2.3 6.6 3.8 -6.6 -1.9 3.0 1.5 Monetary indicators and inflation

CPI eop, y-o-y, % 10.5 19.7 20.5 41.2 19.7 16 17

Exchange rate (average 9,979 10,601 13,568 26,059 31,839 32,931 31,500 parallel market rate), Rials per US$

Gross official reserves, US$bn 78.0 78.9 92.2 104.4 107.7 110.1 112 Government finance

Revenue, % of GDP 21.4 21.9 19.1 14.2 14.1 14.2 13.5

Expenditure, % of GDP 20.6 19.1 18.9 14.5 15.0 15.6 16.1

Budget balance, % of GDP 0.8 2.8 0.2 -0.3 -0.9 -1.4 -2.5 Balance of payments

Exports, US$bn 88.3 112.8 145.5 98.0 93.0 92.2 96.0

of which: Oil & gas 70.0 90.2 118.9 68.1 64.8 52.7 51.0

Imports, US$bn 69.2 75.4 77.8 67.1 68.3 71.0 70.0

Trade balance, US$bn 19.1 37.3 67.1 31.0 24.7 21.2 26.0

Source: IMF, Central Bank of Iran, 2020Insights estimates e = estimate; f = forecast

Iran: World's Largest Untapped Frontier Market

POLITICS

Political System

Iran‘s political system, consisting of elected and unelected institutions, is often described as idiosyncratic theo-democracy, which is neither democratic nor the opposite. The highest authority in Iran rests in the Institute of Supreme Leader. The Supreme Leader, Ayatollah Ali Khamenei since 1989, has been the head of state and the highest religious authority in Iran. He is the Guardian of the Islamic Republic. The Supreme Leader appoints the head of judiciary, six of the members of the Guardian Council, commanders of armed forces and others. He also confirms the president‘s election. The Assembly of Experts comprising of religious clerics choose the Supreme Leader.

The Assembly of Experts has responsibilities to appoint the Supreme Leader and monitor his performance. The assembly has powers to remove the Supreme Leader if he is deemed incapable of fulfilling his duties. 86 members of the assembly are directly elected every eight years. Only clerics can join the assembly. Candidates for election are vetted by the Guardian Council.

Iran’s Political Structure

Source: BBC

The Supreme Leader may delegate some of his powers to the Expediency Council, an advisory body to him. The Council members – prominent religious, social and political figures – are appointed by the Supreme Leader.

The Guardian Council is one of the most influential institutions in Iran. It has direct influence on the outcome of elections. Members of the Guardian Council are elected for six year term on rotational basis. The Council is comprised of twelve members: six theologians appointed by the Supreme Leader and six jurists nominated by the judiciary and approved by parliament. The Council has to approve all bills passed by parliament and has the power to veto them. The

Iran: World's Largest Untapped Frontier Market

Council can bar candidates from standing in elections to parliament, presidency and the Assembly of Experts.

President is elected for four years and serves no more than two consecutive terms. He is the second-highest ranking official in the country. He is the head of the executive branch of power. He chooses Cabinet members. They must be approved by parliament.

The 290-member Parliament is elected every four years. The parliament has the power to introduce and pass laws, as well as to summon and impeach the president or cabinet ministers.

Presidential Elections

President Rouhani

Source: Reuters Iran‘s new President Hassan Rouhani won the elections held on 14 June 2013 with over 50% of the popular votes. As the seventh President of Iran, Rouhani was sworn in during a parliament session where for the first time since Iran‘s 1979 Islamic Revolution foreign dignitaries including regional leaders from over 50 countries attended the presidential inauguration ceremony. With the majority votes going to Rouhani, there was no need for the additional run off amongst leading candidates. Nearly 37mn (73%) people out of 50mn eligible voters participated in the elections. The incumbent Mahmoud Ahmedinejad had already run for re-election in the controversial 2009 elections. Under the Iranian Constitution, a presidential candidate is limited to two terms or 8 years in office.

The President of Iran, the chief of executive branch, is the second most important figure after the Supreme Leader. The duties are similar to heads of governments in other countries, except that key governmental organizations, including armed forces, judiciary system and state television are under the control of the Supreme Leader.

The new act adopted in December 2012 in electoral legislation added more flavor to the elections. Now, Electoral Commission, as opposed to solely Ministry of Interior, announces the results. For the first time in Iran‘s history the Electoral Commission consisting of eleven members (3 lawyers, 7 experts, and 1 from the Parliament) undertook supervision over the elections. During the elections this year, the Guardian Council picked 8 candidates, which included the popular

Iran: World's Largest Untapped Frontier Market

candidates Sayeed Jalili, the Secretary of the Supreme National Security Council since 2007, and Muhammad Bagher Ghalibaf, the Mayor of Tehran since 2005.

Rouhani‘s victory was unexpected for many observers as he was the only moderate candidate and the other candidates were conservative. According to the Iranian Elections Tracking Polls (IPOS), during the early days of elections, Sayeed Jalili and Ghalibaf, who had been understandably popular, led the race amongst the decided voters. However, during their lead, around 50% of the voters had been undecided, therefore, victory was no way guaranteed. The last three days of elections were decisive, while Rouhani quickly gained more votes.

Presidential Election Results

Source: Ministry of Interior of Iran Source: The Telegraph

The key criteria towards success in elections were that a candidate should be able to address two major issues ahead of Iran - foreign policy and domestic stability. Rouhani‘s success can be explained by his experience as a key nuclear program negotiator under Supreme Leader Ali Khomenei and his pro-liberalization nature. The Supreme Leader wanted to see results relatively quickly with regard to Iran‘s nuclear program, sanctions and the relationship with the West to lift the country from the economic crisis. Rouhani has been given this mandate, because the Supreme Leader wanted a change in failed policy with the West. That can explain why Rouhani came over Sayeed Jalili, who had been negotiating the nuclear program of Iran for the last three years, resulting in more sanctions against Iran.

President Rouhani started his balancing act between Iran and the West from his first day in office. He handed the list of ministerial nominations to the Iranian Parliament on the same inauguration day and proposed a balanced cabinet between reformists and conservative factions. The candidate list includes Mohammad Javad Zarif as the Foreign Affairs Minister, who holds an American PhD and participated in nuclear talks with Western powers during 2003-2005. The key post candidates also are Bijan Zanganeh as the Oil Minster and Mahmoud Alavi as the Intelligence Minister.

Iran: World's Largest Untapped Frontier Market

Nuclear Program

Iran‘s nuclear initiative started in the 1950s with the support of the United States to the Shah of Iran within the framework of ―Atom for Peace‖ program. Shah Pahlavi had a vision to use nuclear energy as an alternative as he described ―Petroleum is a noble material, much too valuable to burn... We envision producing, as soon as possible, 23,000 megawatts of electricity using nuclear plants‖ in 1974. It continued until Iranian Revolution in 1979 when Shah Pahlavi was overthrown from the monarchic state.

Iran‘s nuclear program came to international spotlight in 2002 when the opposition revealed suspicions over enrichments facilities. The Iranian government agreed to the inspections by the UN, however, the concern that nuclear enrichment could be used for developing weapons had not been cleared. The International Atomic Energy Association (IAEA) was not able to assert that the nuclear enrichment would be used solely for peaceful purposes. The subsequent negotiations resulted in suspension of enrichment; however, the deal fell apart with the victory of President Mahmoud Ahmedinejad in the elections of 2005.

Iran’s Nuclear Facilities

Source: ThinkProgress Since 2006, the UN Security Council has adopted six resolutions that require Iran to stop enriching uranium and clear international concerns. Attempts at negotiations with Iran by the so-called P5+1 - the US, UK, France, China, Russia and Germany - have entered into a deadlock, with neither side prepared to make concessions.

Now, it has become clear that, the nuclear program issue has given Iran too much of an economic deadweight. While Iran stands firm on it ―inalienable right‖ to access to nuclear energy for peaceful purposes, the country needs to make some concessions to prove that the technology is used in peaceful purposes. Although President Rouhani made clear during the UN General Assembly in September

Iran: World's Largest Untapped Frontier Market

2013 that Iran wants only peace and does not intend to build nuclear weapons, the US and the West will deal with Iran very cautiously.

Phone Conversation Between Leaders

Source: ABC News Early initiatives towards talks over the nuclear program have been laid during the Iranian delegation‘s visit to New York for the UN General Assembly. The US educated Foreign Minister of Iran Javad Zarif and US Secretary of State John Kerry held a brief one-on-one meeting at the UN headquarters on 26 September 2013. While the talks during the meeting were far from any concrete action in near future, the attitude towards a dialogue appears to be changing positively. Javad Zarif seemed satisfied with the ―substantive‖ nature of the talks.

Optimism on relations between the US and Iran culminated with the historic 15- minute telephone conversation between Rouhani and Obama just before the Iranian President headed back from New York. The phone call has been hailed as the first high level contact between the leaders in more than three decades.

Three weeks after the initial discussions at the UN General Assembly, Iranian delegation and representatives from the US, France, Russia, Britain, and China met in Geneva for negotiations over Iran‘s nuclear program. This was the first round of negotiations since Rouhani took office. Iranian delegation offered a proposal with the presentation ―Closing the Unnecessary Crisis and Opening New Horizons‖. Deputy Foreign Minister Abbas Araghchi stated that the delegation is for ―very serious‖ and ―target oriented‖ conversation with the P5+1, the permanent members of the UN Security Council. The Iranian side said they are prepared to suspend 20% enrichment, willing to negotiate on placing a cap on centrifuges used to make low-grade enriched uranium, and ready to limit the enrichment program to two facilities in exchange for lifting economic sanctions. Iran and the world powers held several rounds of talks on the nuclear program throughout October and November.

Iran: World's Largest Untapped Frontier Market

Comprehensive Nuclear Deal

Iran and World Power Foreign Ministers (July 14, 2015, Vienna)

Source: Reuters Iran and the world powers, including the US, the UK, Russia, Germany, France and China have reached a long-awaited deal in Vienna on July 14, 2015, putting an end to a 12-year standoff between the Islamic Republic and the West. After 18 days of uninterrupted marathon talks, the parties agreed that Iran will significantly limit its nuclear ability for more than a decade in exchange for removal of sanctions against it. Started with the historical phone call with US President Obama in September 2013, signing a landmark interim deal in November 2013, reaching a framework agreement in April 2015 and the much- anticipated comprehensive deal today, now Iran is to benefit foreign trade and investments with no restrictions. As a result of the constructive diplomacy, the agreement is a historic milestone towards unprecedented US-Iran rapprochement after 37 years of hostilities. ―Today after two years of negotiation the United States together with the international community has achieved something that decades of animosity has not: a comprehensive long- term deal with Iran that will prevent it from obtaining a nuclear weapon," said President Obama said on July 14 from the White House.

The JCPOA of appr.160 pages states that Iran agreed to, among others:

● keep its level of uranium enrichment at up to 3.67% for 15 years ● remove 2/3 of installed centrifuges, the Arak reactor be used for peaceful purposes ● to export excessive amount of heavy water, get rid of 98% uranium stockpile ● the spent fuel activities to be suspended for 15 years ● store no more than 300kg of low-enriched uranium, ● permit IEAE for 15 years to monitor key nuclear facilities

In their turn, the US and EU have agreed to terminate the sanctions related to:

● activities related to financial, banking, insurance, oil and petrochemical products trade and investment, ● automotive, transactions in commercial passenger aircraft, shipping, shipbuilding and transport; gold and other precious metals, as well as

Iran: World's Largest Untapped Frontier Market

● delist a number of persons and companies/agencies that were subjected to asset freeze and visa ban.

The UN arms embargo against Iran will remain in force for five years, while the restrictions on rocket technology exchange are to be kept for eight years. The economic sanctions could be restored within 65 days if Iran doesn‘t comply with the terms of the JCPOA. The agreement is yet to be approved by the US Congress and Iran‘s Supreme Leader Ayatollah Ali Khamenei, and to be ratified by the UN Security Council and come into force 90 days later.

Framework Nuclear Deal

Iran and World Power Foreign Ministers (2 Apr., 2015, Switzerland)

Source: AFP Iran and world powers, or also so-called the P5+1, including the US, UK, France, China, Russia plus Germany, reached a long-awaited framework agreement on curbing Iran‘s nuclear program for at least a decade on April 2, 2015 in Switzerland. The deal has been hailed as a historical achievement that sought to pave the way for ending long-lasting confrontation between Iran and the West, in particular the US. ―Today, after many months of tough principal diplomacy, we have achieved the framework for that deal. And, it is a good deal, a deal that meets our core objectives,‖ said US President Barack Obama on April 2, 2015.

Key parameters of a Joint Comprehensive Plan of Action (JCPOA) on Iran‘s nuclear program that were reached in Switzerland on April 2 whereby Iran has agreed were:

● to reduce by appr. two-thirds its installed centrifuges. ● to not enrich uranium over 3.67% for at least 15 years. ● to reduce its current stockpile of about 10,000 kg of low-enriched uranium (LEU) to 300 kg of 3.67% LEU for 15 years. ● all excess centrifuges and enrichment infrastructure will be placed in IAEA monitored storage and will be used only as replacements for operating centrifuges and equipment. ● to not enrich uranium at its Fordow facility and to not build any new uranium enriching facilities for 15 years.

Iran: World's Largest Untapped Frontier Market

In addition, the Action Plan suggests that the IAEA will have regular access to all of Iran‘s nuclear facilities, including to its enrichment facility at Natanz and its former enrichment facility at Fordow. Iran will also need to redesign and rebuild a heavy water research reactor in Arak.

Landmark Interim Agreement

On 24 November 2013, Iran and world powers reached an agreement that freezes key parts of Iran‘s nuclear activities in return for about US$7bn worth temporary sanctions relief. The hard-fought deal, the first such agreement in 10 years, has broken a long-lasting diplomatic gridlock between Iran and the West. The six month agreement commits Iran to curb key activities of its nuclear program, in particular to halt enrichment above 5%, and neutralize its stockpile of near-20% uranium; to halt progress on its enrichment capacity (including no installing additional centrifuges of any type); no further advances of its activities at the Arak reactor; and to increased transparency and monitoring of its nuclear program.

In exchange, world powers represented by the P5+1 group, including the five permanent UN Security Council members plus Germany, have agreed to provide temporary relief in sanctions comprising suspension of certain sanctions on about US$1.5bn worth revenue from gold and precious metals, Iran‘s auto sector and petrochemical exports; allowing purchases of Iranian oil to remain at their current levels (US$4.2bn worth sales to be transferred in instalments). As of June 2015, total relief as a result of the interim deal reached US$12bn, including 13 tons of gold bullion transferred by the South African government to the account of Central Bank of Iran. However, the arrangement maintains the major sanctions related to oil sales, finance, and banking transactions; and the relief will be revoked if Iran fails to abide by its commitments of the agreement.

This interim deal was the starting point of further difficult rounds of negotiations to reach the comprehensive agreement. Therefore, the next steps will be crucial as Iran and the US will be thoroughly tested in their ability to overcome domestic and international opponents, make necessary, politically difficult concessions and reach permanent deal.

President Obama hailed the agreement as ―an important step toward a comprehensive solution that addresses our concerns with the Islamic Republic of Iran‘s Nuclear Program‖. While this deal is a ―first step,‖ Obama states, ―... it achieves a great deal.‖ Obama acknowledges that this first step marks ―the most significant and tangible progress‖ with Iran since he took office. President Rouhani stated at a press conference, which was broadcast live in Iran, that the accord marks ―a starting point for a new chapter for the Iranian nation. The world came to realize that respecting the Iranian nation will bring about positive results and that threats won‘t bear fruit.‖ The president said that Iran ―has never and will never seek nuclear weapons.‖

Iran: World's Largest Untapped Frontier Market

The historic agreement has been welcomed by major powers including Russia, China, and India. Russian President Vladimir Putin called the deal a ―breakthrough‖, while German Foreign Minister Guido Westerwelle hailed it as a ―turning point.‖ For India, as reported by The Times of India news agency, the deal provides a ―relief‖ to continue trade relations with Iran and to safeguard its investments in the region. On the contrary, Israel‘s Prime Minister Benjamin Netanyahu condemned the deal as ―historic mistake.‖

International Sanctions on Iran

UN Sanctions Since 2006, the UN Security Council has adopted six resolutions on Iran. The resolutions imposed four rounds of progressive sanctions against Iran in response to its nuclear program. The sanctions were imposed under Chapter VII of the Charter of the United Nations Charter, making them legally binding on Iran and all other UN member states.

UN sanctions could be grouped into the following groups:

- Proliferation-sensitive nuclear and ballistic missile program-related embargo - Arms embargo - Travel ban - Asset freeze and business restrictions - Inspections of cargo and ban on bunkering services - Ban on financial services

Initially, the Security Council adopted Resolution 1696 calling Iran to suspend its enrichment program and verify its compliance with the IAEA Board of Governor‘s requirements. The Security Council Resolution 1696 warned Iran that its failure to comply could result in economic sanctions

Timeline of UN Security Council Sanctions Resolution Date Passed Measures # 1929 Jun. 9, 2010 Expands and reinforces sanctions, including restrictions on arms, finance, shipping and other proliferation sensitive activities. Calls upon all states to prevent the transfer to Iran of weapons systems. 1835 Sept. 27, 2008 Reaffirms previous resolutions and demands that Iran stop uranium enrichment. 1803 Mar. 03, 2008 Extends sanctions. Restricts the import of dual use technology and calls UN member states to inspect cargos suspected of transporting nuclear material to and from Iran. Expands the list of travel ban and asset freezes. 1747 Mar. 24, 2007 Bans Iranian arms exports and freezes assets of 28 individuals and entities related to Iran‘s nuclear program. 1737 Dec. 23, 2006 Imposes sanctions against Iran. Calls for compliance with IAEA requirements, bans trade with Iran of all items, materials, equipment, goods and technology which could contribute to uranium enrichment program. Lists people and entities related to Iran‘s nuclear program targeted with assets freeze. Establishes a Sanctions Committee to monitor compliance to sanctions. 1696 Jun. 31, 2006 Demands that Iran suspend all uranium enrichment program by Aug. 31, 2006. Threatens Iran with sanctions in case of non-compliance.

Iran: World's Largest Untapped Frontier Market

Sources: UN Security Council Resolutions and Global Policy Forum

Following non-compliance, the Security Council adopted Resolution 1737 imposing sanctions against the state of Iran and Iranian individuals and entities related to the country‘s nuclear program. The resolution required to freeze assets of certain Iranian individuals and entities. As Iran failed to comply with previous two resolutions, the UN Security Council adopted Resolution 1747. It called Iran to verify that its nuclear program had only peaceful purposes. The resolution expanded and enhanced previous sanctions. Resolution 1803 adopted on March 3, 2008 broadened the scope of sanctions. It required the states to prevent the entry into or transit through their territories of specified individuals related to Iran‘s nuclear program. The resolution called on states to inspect cargo going to or from Iran on aircraft and vessels owned or operated by Iran Air Cargo and IRI Shipping Line.

Resolution 1835 did not set out new sanctions against Iran. It reaffirmed the four previously adopted resolutions and the Security Council‘s commitment to a negotiated solution to the Iranian nuclear issue. Resolution 1929 banned Iran from investing in nuclear, missile technology and uranium mining abroad. It established complete arms embargo on Iran and prohibited the country from ballistic missile development. The resolution imposed a new inspection regime of vessels and aircraft. Finally, the resolution imposed financial sanctions against Iran to curb its ability to finance nuclear development program.

US, EU and Other Countries’ Sanctions The United States has had sanctions imposed on Iran since the Islamic Revolution in 1979 and they have evolved over time – from targeting Iran‘s support of militant movements in the Middle East in the 1980s, to extensive and comprehensive encompassing politics, economics, business and finance today. Earlier US sanctions were unilateral in nature, however recently they have expanded with the involvement of UN and EU and some other countries. Iran Sanctions Act (ISA), the core of current US sanctions, forces foreign firms to choose between participating in the US market, or operating in or conduct energy-related transactions with Iran.

Previously, the EU and other countries seemed less concerned about Iran‘s policies. However, with the development of the Iranian nuclear program, EU approach has converged with US policies and its sanctions have become almost as extensive as those of the US. The EU started implementation of oil embargo in January 2012 and imposed financial restrictions and bans in response to continued non-compliance with UN Security Council resolutions and lack of progress in nuclear negotiations. Britain and Canada imposed bans on dealing with Iran‘s financial institutions, including the country‘s central bank. Russia and China follow the policy that they will impose only those sanctions specifically required by UN Security Council resolutions.

The US sanctions against Iran remain the most sweeping sanctions of any country in the world. The sanctions are:

Iran: World's Largest Untapped Frontier Market

- Ban on US Trade with and Investment in Iran - Sanctions on Foreign Firms that Do Business with Iran‘s Energy Sector - Ban on US Foreign Assistance to Iran - Ban on Arms Exports to Iran - Restrictions on Exports to Iran of Dual Use Items - Sanctions Against International Lending to Iran - Sanctions Against Foreign Firms that Sell Weapons of Mass Destruction- Related Technology to Iran - Ban on Transactions with Terrorism Supporting Entities - Travel Ban on Certain Iranian Nationals - Restrictions on Iranian Shipping - Banking Sanctions

The sanctions have had a dramatic effect on Iran‘s economy, halving Iran‘s crude oil sales from 2.5mbd in 2011. The country was estimated to lose US$50bn in oil revenues in 2013. Its oil production has fallen from 4mbd in 2011 to present 2.6- 2.8mbd. Further declines in production and shutting down of wells risk harming the wells as resuming production at a shut well is costly. Sanctions devastated foreign investments into the country‘s oil sector.

Iran: World's Largest Untapped Frontier Market

KEY INDUSTRY FOCUS

Oil & Gas

Iran holds the world‘s largest 1,201.4 trillion cubic feet (Tcf) of natural gas reserves (after taking over Russia in 2014), accounting for over 18% of the total global proven reserves, according to British Petroleum. Nearly all of Iranian natural gas is consumed domestically, 98.6% of 172,6bcm produced in 2014. Although slowly expanding, Iran‘s natural gas sector is underdeveloped and requires large investments for development. Despite the country's abundant reserves, Iran's natural gas production growth has been slow over the past few years as international sanctions have seriously affected the energy sector.

Top 10 Proven Natural Gas Reserve Holders # Country Tcf Tcm Share of total, % 1 Iran 1,201.4 34.0 18.2% 2 Russia 1,152.8 32.6 17.4% 3 Qatar 866.2 24.5 13.1% 4 Turkmenistan 617.3 17.5 9.3% 5 USA 345.0 9.8 5.2% 6 Saudi Arabia 288.4 8.2 4.4% 7 UAE 215.1 6.1 3.3% 8 Venezuela 197.1 5.6 3.0% 9 Nigeria 180.1 5.1 2.7% 10 Algeria 159.1 4.5 2.4%

North America 429.0 12.1 6.5% South & Central America 270.6 7.7 4.1% Europe & Eurasia 2049.5 58.0 31.0% Middle East 2818.6 79.8 42.7% Africa 499.8 14.2 7.6% Asia Pacific 539.0 15.3 8.2% Total World 6,606.4 187.1 100.0% Source: BP 2015

Iran is the fourth largest holder of proven oil reserves with 155 billion barrels, 9% of world‘s total, according to the US Energy Information Administration (EIA). Iran‘s economy heavily relies on the exports of oil; however due to sanctions, the figures have declined over the past two years. Iran had been the second largest oil exporter after Saudi Arabia in the Organization of the Petroleum Exporting Countries (OPEC) until 2012 when Iraq took over the spot. Iran now has a task to negotiate with the members to bring the production to pre-sanction level of over 4mb per day. The oil embargo imposed by the EU, effective from July 2012, and sanctions on insurance and transportation against Iran‘s oil sector had a dramatic effect on the already declining crude exports. According to the EIA, Iran‘s crude oil exports have dropped from 2.5mb per day in 2011 and 1.5mb per day in 2012 to just over 1mb per day for the first nine months in 2013. The crude oil production fell sharply accordingly from 3.7mb per day in 2011 and 3mb per day in 2012 to 2.8mb per day as of November 2013. The OPEC has kept its oil output level unchanged at 30mb per day for 1H 2014

Iran: World's Largest Untapped Frontier Market

Top 10 Proven Oil Reserve Holders Effect of Sanctions on Crude Oil Exports (bn barrels)

Source: International Energy Agency, The Oil and Gas Journal, Source: U.S. EIA, based on Lloyd's List Intelligence, Global Trade January 2015 Information Services, Eurostat, and trade press

During the last 2 years, since President Rouhani came to power, Iranian officials have been busy talking to international investors. Iran especially wants to attract oil majors back into the country. Royal Dutch Shell, British Petroleum (BP), Malaysia's Petronas, Spain's Repsol, Russia's Lukoil, France‘s Total and Italy's Eni have expressed their willingness to resume work in Iran should sanctions be removed. Iranian Oil Minister Bijan Zangeneh has also had discussions with Vitol, Austria‘s OMV, France‘s Technip and Gaz de France. According to media reports, other interested companies include Gazprom, China National Petroleum Corporation, Sinopec, Reiance Industries Limited, Malaysia‘s Petronas and three Indian companies—Indian Oil Corporation, ONG Videsh and Oil India Ltd.

South Pars Phase 12 project Abouzar Production Platform

Source: PressTV Source: NIOC

Crude oil exports make up about 60% of the Iranian government budget. It is important for Iran to take initial steps to attract investments from global oil majors as preparation ahead of the lifting of the economic sanctions. Iran wants to double oil exports if international sanctions are lifted, according to various government officials. According to Wall Street Journal, Iran‘s deputy oil minister for planning and supervision, Mansour Moazami said that oil exports would reach 2.3 million barrels, compared to current 1.2 million barrels.

Iran: World's Largest Untapped Frontier Market

Iran Oil Production, ‘000 bpd

Source: BP World Energy Outlook 2015 In May, Iranian Oil Minister Bijan Namdar Zanganeh said the country needs US$200bn investments into its oil and gas industry. He said Tehran would offer foreign oil firms more attractive terms than those a decade ago, that are ―long- term, with better situation‖ than the old contracts.

Some officials state that the industry needs US$50bn annually for development and preservation of the current situation. According to Sara Vakhshouri, the former Market Analyst at the National Iranian Oil Company (NIOC), more than 80% of oil wells in Iran are in their ―second halves of their lives‖ and oil recovery factor in the wells are under 20% as compared to world practice of 35% to 45%. It has to be mentioned that, because of tightening sanctions, almost all foreign involvement in Iran‘s oil and gas fields was terminated in 2010. The country struggled to attract major oil &gas companies to invest under current ―buyback‖ contract system. Under the terms of these contracts, foreign companies are prohibited to take an equity stake in resources, instead they are reimbursed the costs for the scope of work and an agreed upon return. In this regard, a special committee, led by Iranian Oil Minister‘s adviser Mehdi Hosseini, has been tasked to review the current system and prepare new Iran Petroleum Contract. According to Financial Times, quoting Mr. Hosseini, it is expected that Iranian president will approve the new contract in the coming months, with details to be announced by the end of 2015. Iran is still far from implementing product sharing contracts (PSA) as the Constitution of the country does not allow foreign and private ownership in natural resources

Iran’s State Owned Energy Companies Company Objective

Iran: World's Largest Untapped Frontier Market

National Iranian Oil Company NIOC controls oil and natural gas upstream activities, as well as (NIOC) oil downstream activities, through its subsidiaries. National Iranian Gas Company NIGC controls natural gas downstream activities. The company's (NIGC) objective is to process, deliver, and distribute gas for domestic use. NIGC operates through several subsidiaries. National Petrochemical Company NPC operates several petrochemical complexes through its (NPC) subsidiaries. Iran exported 13 million tons of petrochemicals in 2013. Source: U.S. Energy Information Administration, Facts Global Energy, and Arab Oil and Gas Directory

Iran: World's Largest Untapped Frontier Market

Mining and Manufacturing

Iran holds estimated 7% of the world‘s mineral resources and ranks 15 among the top mineral rich countries of the world with about 68 types of minerals. The country is in the top ten in terms of zinc (1st), copper (9th), iron (9th), and uranium (10th) reserves. Iran is the most mineral rich country in the Middle East with estimated value of US$700bn.

Mineral Resources, Reserves, % of World Iran Iran Mineral Resource Unit Reserve, % Reserve of world Iron ore 2.7 Bt 0.8 Copper 2.6 Bt 4 Zinc 11 Mt 4 Gold 250 MT 0.5 Barite 10 Mt 5 Phosphate 16.5 Mt 0.05 Source: Iran Mine and Mining Industrial Development Organization

According to the US Geological Survey (USGS), about 40 mineral commodities were mined and about 15 metals and mineral-related commodities were refined or manufactured, respectively. The country was estimated to account for about 9% of the world‘s output of gypsum and pumice; more than 2% of the world‘s output of barite, feldspar, nitrogen, and sulfur; and more than 1% of cement, industrial (or glass) sand, iron ore, and molybdenum. Major iron ore, copper, zinc deposits are located in the central parts of Iran, the Korasan region having the most operating mines.

The Mining Code of 1998 and the Constitution are the bases for the regulation of the mining sector, while the Petroleum Act of 1998 regulates the oil and gas sector. The Ministry of Industries and Mining administer all mining, smelting and refining industries except for oil and gas. The Iranian Mines and Mining Industries Development and Renovation Organization (IMIDRO) controls majority of the mining and processing companies.

World’s Top Iron Producers, 2013-2014 Mine Production, Mt Reserves, Mt 2013 2014e Crude Ore Iron Content 1 China 1,450 1,500 23 000 7 200 2 Australia 609 660 53 000 23,000 3 Brazil 317 320 31,000 16,000 4 India 150 150 8,100 5,200 5 Russia 105 105 25 000 14 000 6 Ukraine 82 82 6 500 2 300 7 South Africa 72 78 1 000 650 8 United States 53 58 6 900 2 100 9 Iran 50 45 2 500 1 400

Iran: World's Largest Untapped Frontier Market

10 Canada 43 41 6 300 2 300 11 Kazakhstan 26 26 2 500 900 12 Sweden 26 26 3 500 2 200 Source: The USGS

In 2014, the USGS estimated that Iran was the ninth largest iron ore producer in the world with 45Mt production in 2014 and 50Mt in 2013. Iran is the only Middle East country included in the USGS list of 12 countries. Iran holds iron ore reserves of 2.5Bt in crude with 1.4Bt usable iron content.

The mining sector is largely underexplored and underinvested, many mines categorized as abandoned despite the possibility for further exploration and expansion due to lack of investments and expertise. Iran does not export its iron ore because it does not have the refining capacity. Furthermore, there is much legal work to be done to systematize exploration and mining activities as well as providing favourable terms to investors. Starting from 2012, Iran hosts Mining & Mining Industries Conference, mainly aimed at attracting foreign investors.

Composition of Iran Manufacturing , 2011

Source: Central Bank of Iran Manufacturing is the third largest sector in terms of contributing the economy, constituting over 11.7% of GDP.

Manufacturing shrank -3.9% y-o-y in 2014. Issued operating permits for new manufacturing units declined 13.7% while the amount of investment increased 28.8%. Bank of Industry and Mine, as the sole specialized bank in the manufacturing and mining sector, paid RLS18.3tn facilities to the sector, showing 11.3% increase compared with the year before, according to the country‘s Central Bank data.

With the integration into the world economy, we believe that Iran will be one of the hotspots in the Middle East for mining investments. Although Iran has been producing most of the minerals on its soil, it is only a tiny portion of the reserves

Iran: World's Largest Untapped Frontier Market

Manufacturing

Establishment permits of Operation permits of manufacturing units manufacturing units Production index of large manufacturing Investment establishment (billion Investment (billion Year s 1 (1383=100) Number rials) Number rials)

2010 193.4 15 839 881 277 6 891 194 068 2011 206 15 948 816 431 6 348 159 568 2012 187.4 15 469 640 825 4 084 86 786.9 2013 179.7 19 206 1 241 062 - - 2014Q 1 184.1 3 825 347 598 - -

Source: Central Bank of Iran

Mining and Manufacturing Contribution to GDP (at current prices), IRR bn

% change Share,% 2011/201 2012/201 2013/201 2012/201 2012/201 2 3 4 3 2013/2014 3 2013/2014 Mining 47,827 73,237 94,078 53.1 28.5 1 1 Manufacturin g 689,284 893,743 1,090,953 29.7 22.1 12.6 11.7

Source: Central Bank of Iran

Iran: World's Largest Untapped Frontier Market

Banking and Financial Services

Iran‘s banking system consists of commercial banks, specialized banks, savings funds, cooperative banks, non-bank financial institutions and insurance companies. There are 8 state-owned banks, including three commercial, five specialized banks, and nineteen private commercial banks. The banking system operates based on Islamic banking rules. Seven of the Iranian state-owned banks are among the top 10 largest Islamic banks in the world, according to Asian Banker research in 2008.

The industry has undergone extensive changes over the past decade due to factors such as increased government regulation and technological advances. Changes in policy have affected both state-owned and private banks. Generally, it appears that state-owned banks have been more affected by the Iranian government‘s regulatory initiatives launched in 2005, which obliged all banks to markedly reduce deposit and loan interest rates. The government also imposed different interest rates and conditions on state-owned versus private banks. For instance, state-owned banks are obliged to assign higher priority in their lending operations to areas such as advanced technology projects, small and medium- sized enterprises and housing projects for low-income earners. However, the level of non-performing loans (NPLs) of state-owned banks increased considerably in the same period. Hence, it seems that the government control on the state owned banks has tended to limit the ability of managers to allocate their resources efficiently and to operate at an efficient scale.

Top 5 Iranian Banks Bank Total Capital to Return on Assets Assets Ratio Assets (%) (US$mn) (%) 1 Bank Saderat Iran 54,877 5.66 1.45 2 Pasargad Bank 18,057 16.93 3.5 3 Bank of Industry and Mine 9,432 27.04 0.87 4 Mellat Bank 68,370 3.51 1.14 5 Tejarat Bank 45,188 4.66 1.26 Source:Central Bank of Iran

The Central Insurance of Iran (Bimeh Markazi Iran) regulates insurance sector, which is dominated by five state owned companies. Almost 60% of Insurance premiums are generated from Car Insurance, while Life insurance constitutes 20% of premiums.

Iran: World's Largest Untapped Frontier Market

Number of Banks Total Size of banks (US$bn)

Number of State Owned Banks 8 Inc Specialized 5 Number of Commercial Banks 19 Number of ATMs 26626

Source: Central bank of Iran

With the forthcoming removal of sanctions from Iranian banking system and with the expected market entry of foreign financial institutions, Iranian banks are expected to expand the range of services they offer. We believe that further liberalization will significantly contribute to development of the banking sector. Expansion of bank networks, especially in rural areas, is essential to increase access to finance. Interest rate liberalization started with some freedom in setting deposit rates, and should be extended to loan products. A level playing field between state and private banks, including in the areas of regulation and supervision, is critical to promote competition. The move towards a market‐ determined exchange rate calls for enhanced regulation and supervision of banks.

Iran: World's Largest Untapped Frontier Market

Power

The expected resolution of Iranian nuclear issues and lift of sanctions will cause a significant pressure on supply of infrastructure services. Therefore, the country will need funds to rebuild and upgrade current infrastructure system. On May 4th 2015, the president of Iran‘s Securities and Exchange Organization, Mohammad Fetanat said, ―Today we are witnessing increasing number of foreign companies which intend to make investment in Iran as, according to world economic experts, Iran is among economies which are rapidly developing and proper grounds exist for cooperation and investment in it‖ at 7th International Conference on Islamic Capital Market. Iranian government admits the need of foreign investments to develop infrastructure sector and is ready to help investors.

Production of Electricity (Bn Kw/h) Gas and Hydroelectric, diesel and Year Steam combined cycle wind turbines Total 2010 94.1 129.1 9.9 233 2011 95.9 131.5 12.7 240.1 2012 92 143.5 12.7 248.2 2013 90.7 153.3 14.8 258.7 2014Q1 21.2 43.5 3.9 68.6

Source:Central Bank of Iran

Iran stood at the 4th place in the world by the power network growth with approximately 400 power plants (2013). The capacity of installed power reached 63,571MW and covered over 27 million subscribers. The country plans to increase its electricity capacity to 122,000Mw by 2022. The primary energy source is gas accounting 70% of total power generation (2013), followed by hydropower, nuclear and non hydro renewables. The Iranian government is planning to increase power prices in 2015 to ease consumption growth. In 2012, Iran imported approximately 12 billion KWh of electricity from neighbouring countries. The first nuclear power plant started to operate in 2013. According to the 2012 World Bank survey, the access to electricity is relatively high in the Middle East region, reaching 100% of urban and 97.7% of rural population.

Iran: World's Largest Untapped Frontier Market

Access to electricity, % of rural population, 2012

Source: World Bank

Access to electricity, % of urban population, 2012

Source: World Bank

Iran: World's Largest Untapped Frontier Market

Transport and Aviation

Iran is neighbouring Afghanistan, Armenia, Azerbaijan, Iraq, Pakistan, Turkmenistan and Turkey. The transport sector of the country possesses significant importance for the economic development of the country. Iran‘s road system covers approximately 200,000 from which 73% are paved and 11,000 kilometres of railroad. The country has 16 ports, the main are Assaluyeh, Bandar Abbas, Bandar-e Khomeyni and Kharg.

Transport Network Map of Iran

Source: ParsTimes Iran has 16 airlines with approximately 251 commercial planes and offers destination for 70 countries. In 2013, the country had 319 airports. Due to aging aircrafts, the renovation is highly needed. The development of the sector will require purchasing of 400 airliners by 2025. Thus, the country needs foreign investment in the aviation sector, as the sector has not been investment for last 10 years. Moreover, the western sanctions had extremely negative impact on the industry and with the lift of it, many foreign aviation companies pledge to join Iranian aviation market.

Mahan Air

Iran: World's Largest Untapped Frontier Market

Source: Press Tv In 2015, despite its sanction, Iran purchased 15 second-hand civilian airplanes. The average age of Iranian airplanes reaches 19 years. Iranian airplanes‘ brands include Fokker, Boeing and Airbus. The fleet quality should improve soon as the sanctions on purchase and servicing the Western-produced airplanes will be lifted once the latest comprehensive agreement is approved by the US, EU lawmakers and Iran‘s Supreme Leader.

Beijing, Dubai, Istanbul, London, Paris and Rome are the major destinations of Iranian airplanes. With regards to Iran‘s air market segmentation, tourism destination countries include Malaysia, Dubai, and Turkey, while luxury hotels and honey moon destination is Turkey. Due to the increase of flight to Iran, Dubai increased its airport base by linking 5 more cities, including Ahwaz, Hamadan, Isfahan, Shiraz and Tabriz in 2015. Bangkok was one of the major destinations. Yet, due to fuel and economic crisis, the fight to Bangkok was stopped in 2012. Starting July 23, Mahan Air, the main private Iranian airlines, will start flights between Teheran and Athens.

Destinations of Iran Air

Source: Iran Air

Iran: World's Largest Untapped Frontier Market

Telecom

Subscribers to Telecom Services in 2012 and 2015, mn

Sector 2012 2015 Broadband 4.5 5.5 Fixed-line telephony 29.3 30 Mobile phone 61.2 72.1

Source: Iran-Telecom Mobile and Broadband report Telecom sector is the second biggest non-oil market in Iran with the total number of mobile subscribers reaching 72.1mn, fixed line telephony 30mn and broadband subscribers 5.5mn (2015). In mobile sub-group, there are 6 mobile operators with major players such as Tamin Telecom and MTN Group. The fixed line network doubled since 2000, increasing to approximately 30 million lines.

Internet Penetration, % Population in MENA countries, 2014

Source: Internet World Stats

Mobile Phone shop in Tehran

Source: Wall Street Journal

Iran: World's Largest Untapped Frontier Market

Approximately 40mn citizens have access to internet in Iran (2015), according to the Iranian Ministry of Communication and Information Technology. In 2014, 3G and 4G networks were installed by Iranian telecom operators, such as Telecommunication Company of Iran (TCI), the largest mobile phone operator and sole provider of fixed-line operator service. 15% of the population have access to the internet on cell phones. It is stated in Iran-Telecoms Mobile and Broadband report, the country‘s telecom service is above the world average, especially in the mobile subscriber numbers. This makes the country‘s telecom market the largest in the Middle East.

The telecom infrastructure is monopolized by the government which is owned by Telecommunication Infrastructure Company of Iran that provides services to all private and public operators and is accountable for all international gateway and IP connectivity services. The organization provides the following services:

● Connection to IP network (internet) ● Connection to VPN/MPLS ● Internet traffic transmission ● International traffic transmission ● Connection to global internet network for telecommunication operators in neighbouring countries ● International and local telex ● Data-HL ● VSAT satellite bandwidth ● Transfer of audio-visual bandwidth ● Point-to-point international lease circuit ● Point-to-point civil lease circuits ● Civil traffic transaction

As the country‘s telecom, and in general media and technology sectors as well are largely underinvested given the profitable large scale of the population and strong income base, there are early investors eager to tap into in the market. Due to the sanctions, the country has not benefitted sufficient investments in the sector. As the international sanctions are expected to be removed soon, investors will likely be ready to invest in the country. South Africa-based telecom firm MTN Group already pledged to invest in Iran‘s telecom business.

Iran: World's Largest Untapped Frontier Market

Retail Market

Iran is the second largest consumer market in MENA region (after Egypt) with 78 million upper middle income people. Average Iranian has a strong buyer power as GDP per capita at purchasing-power-parity (PPP) in the country exceeds $17,000 surpassing that in most of the emerging economies.

Iran’s GDP per capita (PPP, $) GDP per capita, comparison (PPP, $)

Source: IMF WEO Apr.2015

Isfahan City Center

Source: Isfahan City Center

Generally retail industry in Iran remains fragmented with a large number of independent small and medium sized chain stores and bazaars, the traditional markets that are favourite place for shopping for regular Iranians. However, the

Iran: World's Largest Untapped Frontier Market

growing trend among the majority Iranians is purchasing at western-style shopping malls and the number of local shoppers going there has been rising. In terms of modern shopping malls, Iran is probably one of the world‘s leading countries. The world‘s largest shopping mall by number of stores, Persian Gulf Complex, is in the city of Shiraz (over 2,200 shops). The world‘s fifth largest shopping mall is also located in Iran, in the city of Isfahan. The 465,000 sq m (leasable area) with over 770 retail stores Isfahan City Center (ICC), also the largest mall in Iran, was launched in 2012 and is larger than Siam Paragon of Bangkok and the Dubai Mall of Dubai. Like any modern shopping malls, recently built shopping centers in Iran are designed by foreign architects and built using state-of-the-art technologies, equipment, products and services. For instance, the Isfahan City Center is designed by a Dubai-based architect firm and includes the general shopping mall, a museum, a hypermarket, restaurants, airline offices, an international financial center and a World trade center, and an amusement center with seven cinema screens and a 5-star hotel.

Hyperstar Supermarket (Tehran)

Source: www.brianiselin.com Apple Store in Tehran

Source: NIAC Insight

Iran: World's Largest Untapped Frontier Market

The bulk of the retail industry belongs to three major supermarkets – Refah Supermarkets, Shahrvand Supermarkets and Hyperstar Market, the first international chain store in Iran that UAE-based retail operator Majid Al Futtaim Group bought from French Carrefour. These supermarkets sell international brand products primarily imported through Dubai (Iran imports almost one- third of its imports through UAE). Despite the fact Iran has a strong agriculture sector that serves as a base for food manufacturing, most of the consumer goods, including $12bn (WTO, 2012) worth food products are imported and distributed to the end users through traditional stores and bazaars and new style supermarkets. Despite the sanctions, a number of US brands still are selling in Iran. Coca Cola and Pepsi Cola are sold in the Iranian stores as the US sanctions allow these firms to operate through non-US subsidiaries to ship their syrup to Iranian bottlers and distributors. iPhones arrive to the sanctioned country through networks in Dubai or Asian distributors.

Fashion is not news to Iran. Along with major fashion event centers such as New York, Paris and Milan, Iran also held the first ever fashion event in March this year. As income has been growing, so has the demand for fashion goods. Almost all shopping mall stores sell goods with global brands. There are no official stores by western brands in Iran yet but these products enter the country primarily from UAE and Turkey and are sold at unofficially.

Iran: World's Largest Untapped Frontier Market

Pharma and Health Care

Pharmaceutical market‘s expenditure reached US$3.5bn (2012) and is expected to grow to US$4.2bn by 2019. In total, 89 companies operated in pharmaceutical industry in 2010. These pharmaceutical companies provide 90% of the country‘s demand in 2015. Also, 93 private companies imported medicine in 2010, while 35 companies operated in distribution of medicine. In 2013, over 7000 pharmacies and 15 major domestic dealers operated in Iran.

Top-10 Domestic Production Pharmaceutical Companies (2009-2010)

Company Name Market Share % Cumulative Market Share % 1 Darou Parkhsh Pharma 6.6 6.6 2 Exir Pharma 6.1 12.7 3 Jaber Ebne Hayyan 5.8 18.5 4 Farabi 5.3 23.8 5 Tehran Chemie 5.2 29 6 Alborz Darou 3.8 32.8 7 Sobhan Darou 3.7 36.5 8 Osvah 3.6 40.1 9 Dana 2.9 42.9 10 Aboureihan 2.8 45.7

Source: Trend Analysis of the pharmaceutical market in Iran

Pharmacy in Iran

Source: The Guardian The country needs investment in products and medical devices. Medical devices industry was worth US$964mn in 2012. Yet, the country imported 88% of medical devices from overseas. The medical devices expenditure is expected to reach US$2bn by 2017.

Approximately 200,000 health tourists visited Iran for transplant, ophthalmology, orthopedic and dentistry purposes and generated US$1.5bn. The majority of tourists visit from India, Oman, Kuwait, Turkey, Iraq, Turkmenistan, Azerbaijan and Pakistan.

Iran: World's Largest Untapped Frontier Market

Iranian domestic pharmaceutical industry produces mainly small molecule chemical medicine. The government provides a substantial amount of investment in pharmaceutical companies to produce biopharmaceuticals. In addition to investment, the importation, production of medical products is controlled by the Iranian government.

In 2014, the First International Exhibition on Pharmaceutical Industries and Relevant Services opened at Tehran International Permanent Fairground where more than 160 domestic and overseas companies participated to introduce the latest developments of pharmaceutical industry.

Healthcare System Network in Iran

Source: International Medical System, 2009 Public health care system in Iran is often mentioned among the best in the region. It emphasizes equity, community and intersectoral participation, as well as government financing of essential and other services. Iranian constitution guarantees basic health care, most public clinics, vaccination programs and prescription drugs are heavily subsidized by the state. The Ministry of Health and Medical Education finances delivers directly primary health care while public secondary and tertiary care are financed through public insurance schemes. According to the World Health Organization, Iran spends 6.7% of GDP on health annually. It is estimated that more than 85% of population living in rural and deprived regions has access to primary health care services. According to UNICEF, the infant mortality rate is 28.6 per 1,000 live births; under-five mortality rate is 34 per 1,000 and maternal mortality rate is 25 per 100,000 live births. The country has managed to reduce poliomyelitis to the point of near- eradication. 90% of Iran‘s population has access to safe drinking and more than 80% has access to sanitary facilities. According to the Economist magazine, around 73% of Iranians are insured through the public health ministry and the social security program.

Health expenditure in Iran per capita, PPP Life expectancy at birth, total (years)

Iran: World's Largest Untapped Frontier Market

Source: World Health Organisation Source: The World Bank

Despite having a proper and well functioning health care system, Iran has not been able to fully keep pace with changes in demographic developments. Rural areas in some parts of the country are not fully covered and health centers are inadequately equipped. International sanctions imposed on Iran are one of the biggest barriers to effective health care, as the country is often unable to import lifesaving medicines produced abroad. Iran's president, Hassan Rouhani, has promised to make healthcare available for all Iranians in the next four years. According to the plan, all Iranians would be protected under a nationwide health insurance programme. At least five million most vulnerable citizens would be the first people to benefit from the initiative.

Iran: World's Largest Untapped Frontier Market

Education

In the accordance with the article 30 of the Constitution of the Islamic Republic of Iran, "the government is obliged to provide free of charge education for all individuals up to the end of secondary level of education and to facilitate free higher education up to achieving self –sufficiency", so education in Iran has an outstanding importance and is on the list with National Priorities. The education Pre-University Education is supervised by consists of 2 levels: K-12 Education and Higher Education.

Gross intake rate in pre-primary education, %

Source: Ministry of Education, Iran

Pre-University Education the Ministry of Education of the Islamic Republic of Iran and has several steps:

● Kindergarten (Mahde Koodak) (optional). 5-6 years old kids go to kindergarten in order to get pre-primary knowledge

Net Intake rate in the first grade of primary education, %

Source: Ministry of Education, Iran

Iran: World's Largest Untapped Frontier Market

● Primary school (Dabestan). From the age of 6 kids study at the Primary school for 5 years and after passing exams, they obtain Certificate on Primary Education. Primary school is free and compulsory.

● Middle school a.k.a. Orientation Cycle (Rahnamayi). Three years of study from the age of 10-11, help the students to identify the strong sides and skills, which they then can use as major subject for further education.

The above 8-years education is compulsory for all the citizens of the Islamic Republic of Iran. During the studies, the students get knowledge in three main fields: exact and natural science (maths, physics, biology, chemistry, etc), humanitarian subjects (Persian language and literature, geography, history) and Islamic studies (Arabic language, reading and understanding of Holy Quran, history of Islam and civilization). ● High School a.k.a Upper Secondary (Dabirestan). Not compulsory 3 years of studies for the students aged between 14 and 17 were enrolled. The education has three school directions: the theoretical, the professional (technical-vocational) and the manual /handicraft (Kar- Danesh). In the frames of theoretical Graduates from University of Tehran direction, the classes are divided into scientific, humanitarian and Source: Ministry of Education, Iran medical. It‘s supposed that by this time the student has already made the choice of future profession. The requirement to enter into higher education is to have a High school diploma, and finally pass the national university entrance exam, Iranian University Entrance Exam (Konkur), which equals to the French baccalauréat exam. A lot of students do a one (or two-year) pre- university course known as Peeshdaneshgahe, which is the equivalent of GCE A-levels and International Baccalaureate. The completion of the pre-university course earns students the Pre-University Certificate.

The other two directions help the students to start career in industrial, agricultural or trading segments. The Kar-Danesh track develops semi-skilled and skilled workers, foremen, and supervisors. Besides, each path has its own specialties (e.g. 'math/physics'; 'experimental sciences' or 'literature/humanities' in the case of the theoretical path). After finishing High school, the students study for 2 years at Vocational or Technical school for Associate Degree (Fogh-e- Diplomor Kardani), after which the students become highly-skilled workers.

Iran: World's Largest Untapped Frontier Market

Although most of the schools in Iran are local, there are about 10 International schools as well. As a joint initiative of the British and Dutch Embassies in 2000, there was founded the British School, Tehran in 2000. The campus is located in the northern suburbs of Tehran in the grounds of the British Embassy Residence. At present the school shares this campus and a number of facilities with the German School. Another school, Tehran International School offers courses validated by International Baccalaureate. There are also École Française de Téhéran, Deutsche Botschaftsschule Teheran, Tehran Japanese School, Russian Embassy School in Tehran, Pakistani school, etc.

Higher Education

Iran has a large network of private, public, and state affiliated universities offering degrees in higher education. State-run universities of Iran are under the direct supervision of Iran's Ministry of Science, Research and Technology (for non-medical universities) and Ministry of Health and Medical Education (for medical schools).

Higher education is sanctioned by different levels of diplomas: Fogh-e- Diplom or Kardani after 2 years of higher education, Karshenasi (also known under the name ―licence‖) is delivered after 4 years of higher education (Bachelor's degree). Karshenasi-ye Arshad is delivered after 2 more years of study (Master's degree). After which, another exam allows the candidate to pursue a doctoral program (PhD).

According to 2008 statistics, there over 3.5 million students were enrolled at more than 250 Universities in Iran. The Top-5 Universities list in Iran is following:

● University of Tehran (Tehran) ● University of Applied Science and Technology (Tehran) ● Tarbiat Modares University (Tehran) ● Ferdowsi University of Mashhad (Mashhad) ● Tehran University of Medical Sciences (Tehran)

Business Education As the economy grows in Iran, the demand for business education is growing as well. Several Universities offer different degrees in Business studies, Management or Economics.

The most popular courses are provided by The Iranian Business School, which was opened in 2010 under the initiative of a group of individuals to develop management practices for locals by bringing an internationally recognised standard of executive education to Iran. From its' start, hundreds have benefited from the School‘s executive education programmes, delivered by some of the

Iran: World's Largest Untapped Frontier Market

world‘s most respected academics in the field. IBS has been no less than ground breaking in the context of breadth, the quality of content and the elevated benchmark for teaching that it has brought to the Iranian market a market that hitherto had to travel abroad to access such optimal standards for business education. Building on the success of these programmes and further developing its proven model for collaboration with leading European business schools, S is proud to introduce the Aalto EMBA in cooperation with Aalto University, Finland in January 2014.

Iran: World's Largest Untapped Frontier Market

Tourism and Hospitality

Iran is a country with rich nature, history as well as cultural and historical monuments that serve as basis for the development of tourism. There are 17 UNESCO-registered world heritage sites and the country boasts with many natural monuments of recreational importance, territories with beautiful landscapes, including sandy beaches, forests, waterfalls, lakes, caves, etc. Iran has more than 7000 years of continuous civilization and cultural heritage background. It was among the top ten countries with highest potential for attraction of international tourists at world ranking according to UNWTO report in 2009.

Capital city Tehran, showcases how the country has developed from its ancient history, with its galleries, coffee shops, restaurants and modern buildings. Kashan city in the province of Isfahan is famous for its bazaar and enormous mansions that date back to the Qajar era. Isfahan, is the center of Iran‘s magnificence, with its mosques, historical monuments and. The Old City in Yazd is a network of narrow streets among mudbrick houses, ancient wind towers and network of hotels and restaurants. The province of Fars, including Shiraz city is very rich in historical buildings and monuments. Among areas of recreational importance, Chabahar area located in south-eastern part of Iran, Pre-Caspian areas of the province of Mazandaran or beaches of Kish Island can be mentioned. The botanical garden of Eram situated in Shiraz has long history is also well- known area for being a public museum. Dizin, the ski resort is being developed at the slopes of Alborz Mountains, to the north of Tehran city. Dizin area covers slopes altitudes of which are up to 3600 meters.

International Tourist Arrivals

Source: The World Bank, Silk Road Capital According to the Travel and Tourism Competitiveness report published by World Economic Forum in 2015 Iran is the most affordable country for tourists amongst the 141 countries studied. At the same time it has to be noted that Iran, in terms of foreign tourist arrivals, was ranked only 48th by UNWTO among top 50 countries with significant tourism potential in 2013. It is clear that country‘s troubled affairs with international community is resulting in limited utilization of its tourism potential. Majority of tourists visiting Iran are from neighbouring countries as Iraq, Azerbaijan, Afghanistan, Turkey and Turkmenistan. Number of

Iran: World's Largest Untapped Frontier Market

visitors from Western and major Asian countries is limited due to broadly negative image of the country.

Persepolis, the capital of the Achaemid empire Kish island, Iran

Source: Guardian Source: Iran Daily

Despite this, the number of foreign tourists to Iran has been growing over the last decade. Number of tourists more than doubled since 2005 as it exceeded 5 million tourists in 2014. According to World Travel and Tourism Council, the total contribution of Travel & Tourism to GDP was 6.3% of GDP in 2014, and is forecasted to rise by further 6.1% in 2015. According to government officials, in 2013 tourism brought some US$6bn in revenue. It is estimated that foreign tourists, most of whom are from nearby countries, spend about US$1,500 each in Iran. The recent increase in tourists arrivals is attributed to the 2013 election of president Hassan Rouhani, who has advocated for tourism, hoping that it will boost the country‘s image. Among the steps taken by the authorities to boost tourism is looser visa policies. The government has instructed Iranian embassies abroad to issue visas within less than a week, while in the past applications took more than a month.

Dariush Grand Hotel, Kish island The Abbasi Hotel, Isfahan

Source: Dariush Grand Hotel Source: Abbasi Hotel

Iran: World's Largest Untapped Frontier Market

Tourism arrivals in Iran are expected to continue to grow which will have positive impact on tourism sector development. According to Statistical Centre of Iran there were 3,058 hotels in the country with 82,077 rooms and 215,379 beds in 2013. However, 2,161 of them or over 70% are classified as 1* and 2* hotels. The tourism industry is already struggling to catch up with the recent increase in visitor arrivals. We expect that tourism and hospitality will greatly benefit from improving international image of the country and could start attracting foreign investors and international hotel chains.

Iran: World's Largest Untapped Frontier Market

Digital Economy

Café Bazaar

Source: Cafe Bazaar Iran’s millennials are launching successful start- ups

Source: The Washington Post Over the past decade, the Iranian government has increased the privatization in telecom, media and technology sectors and since then, the country has experienced a major development. As the sectors are controlled by the government, the largest online and mobile applications and websites, such as Facebook, Twitter, and Whatsapp are restricted. Rather than using these applications and websites, Iranian young entrepreneurs developed its own versions. For instance, www.aparat.com, founded by Mohammad-Javad Shakouri Moghaddam, is a video sharing website which is alternative to Youtube which was banned in 2012. Café Bazaar which imitates Google Play App recommends more 25,000 apps to download for gaming, social media, messaging and other uses, and it gets approximately 20 million visits a week within Iran. (Source: www.wsj.com) This is also seen in e-commerce sector. It has its own website named Escam and Digikala instead of eBay and Amazon, and rather than PayPal, ZarinPal is used to make payments. Digikala is Iranian online e-commerce website comparable to Amazon with approximately 750,000 visitors per day and 2.3 million subscribers, 85-90% of Iran‘s e-commerce takes place on Digikala. Estimated value of Digikala reaches US$150mn.

Iran: World's Largest Untapped Frontier Market

According to Ministry of Communications and Information Technology, between 2009 and 2010, Iran experienced a rapid growth in information and communication technology. This promoted Iranian digital economy sector controlled by Iran International Chamber of Commerce (ICC). Under ICC, Digital economy Commission was established in order to provide facilities to E-business, IT and Telecom companies to be effective in international business via internet. So far 37 Iranian companies who are the users and providers of information technology and electronic services have been listed on the committee. As a result of digital economic enhancement in Iran, the country was ranked 68th country in Digital Economy Ratings in 2010, according to the Economist Intelligence Unit. To measure digital economy, six sectors were analyzed, such as connectivity and technology infrastructure, business environment, social and cultural environment, legal environment, government policy and vision, and consumer and business adoption.

Iran: World's Largest Untapped Frontier Market

OPPORTUNITIES ACROSS ASSET CLASSES

Public Equities

The Tehran Stock Exchange is a big, liquid exchange with relatively low PE ratios and high dividend yields. There is a great diversity of sectors on the market and it is the chosen vehicle for Iran‘s vast privatization plans. The Tehran Stock Exchange (TSE) registered an exceptional growth rate of +133% in 2013 ranking among the world‘s best performing markets. Main reason behind these moves were Iranian Strong devaluation between 2012 and 2013, after which Iranian investors started to move their assets to domestic equities. TSE fell more than 21% during 2014. More than 50% of the Iranian market cap attributed to companies which produce commodities, with the recent decline in global commodity prices which was a dominant factor in the market in 2014

The new political atmosphere in Iran‘s foreign policy and the negotiations between Iran and the P5+1 group is insufficient despite the fact that Iran and P5+1 group regular meetings. Companies are experiencing problems with selling products, which shows Iranian stock market short-lived recovery of 2014, and the struggle to keep the positive momentum in 2015.

TEDPIX Performance 5 Year TSE Market Capitalization, US$mn

Source: TSE

With the market capitalization of under US$100bn (lowest in 2 years) and 314 companies listed on the TSE, Iran is the world‘s largest frontier market. The market size shrank from US$164bn in 2014 to current US$97bn as of may 2015. Average P/E also decreased in recent years reaching 5.7. However the average daily trading volume has been increasing and reached US$700 mn. Chemicals and By-Products, Monetary Intermediation and Basic Metals , as categorized by the TSE, collectively make up 46.5% of the market capitalization with respective market shares of 23.0%, 13.4%, and 10.1%. Marked has dropped 11% from its peak in April, 2015

Recently, Securities and exchange organization announced new set of rules and regulations

Iran: World's Largest Untapped Frontier Market

Major Sectors by Mkt Cap

Source: TSE The limit for daily price fluctuations increased from 8 % to 10% meaning that a single stock can fluctuate from -5% to +5% in value relative to the last closed price. Which is considered as a good development for the Iranian market as it is trying to move towards a more liberalized environment.

Iranian Currency

2013 was concurrent with the decreasing trade balance. Since August 2014, the exchange rate has been moving upward gradually and the trade balance has been increasing. It is worth mentioning that imports in 2014 dropped as a result of importers expecting the possibility of a nuclear deal and a possible appreciation of the Rial. However, with the extension of negotiations, the depreciation of the Rial accelerated up in later. The continuation of this trend could lead to an increasing trade balance in the coming months. The exchange rate market has been fairly stable after the arrival in office of the new government in August 2013.

In December 2014, the value of the Iranian Rial showed signs of significant fluctuation in the free market due to the failure of a solid outcome in nuclear negotiations. Market speculators who had been inactive for a while due to the relative calm political environment began to inject money into the market. The Rial weakened to its lowest level in the past 17 months with a 7% drop in November. Historically speaking, Rial devaluation reminds investors of the market boom in 2013 which resulted from 60% depreciation of the Rial in 2012.

Iran: World's Largest Untapped Frontier Market

Source: Turquoise Partners

According to IMF and CBI officials, if the sanctions are removed, the economy will struggle to deal with the immediate impact during the initial months of removal, although the impact could result in a 2.5% to 3% growth rate in 2015 - 2016 Under the removal of sanctions scenario, the banking system expects frozen foreign assets to be released immediately. Furthermore, introducing international credit card systems and resuming contact with foreign banks would also become possible in time. By March 2017, the inflation will reach to a single digit number; meanwhile, the policy makers have been successful in decreasing inflation from a rate of 45% in 2013 to 15.5% in April 2015, on a point to point basis.

TOP 5 listed companies

# Name Market Cap, US$ mn 1 Persian Gulf Petrochemical Industry 9,042 2 Mobile Communications of Iran 3,664 3 Tamin Petrochemical Co. 3,573 4 Esfahan's Mobarakeh Steel Co. 3,506 5 Persian Oil & Gas Development 3,363 Source: Iranian Stock Exchange as of May 31, 2015

1. Persian Gulf Petrochemical Industry Co., through its subsidiaries, provides polymers, aromatics, chemical and basic products, and feed stocks. It produces petrochemical products; and markets and sells petrochemical products in the international markets, as well as supplying Iran‘s petrochemical downstream industries. The company also offers maintenance and repair services for the residential units at the petrochemical special economic zone; and social services, as well as provides finance for Iran‘s petrochemical projects and to manage payment of facilities attracted through foreign investment, joint ventures, or loans. In addition, it offers fertilizers and liquefied gases. The company was founded in 1976 and is based in Tehran, Iran.

Iran: World's Largest Untapped Frontier Market

2. Mobile Telecommunication Company of Iran also known under its brand name Hamrahe Aval is the first and largest mobile operator in Iran. MCI is a subsidiary of the Telecommunication Company of Iran and has approximately 17 million postpaid and 49 million prepaid subscribers. Hamrahe Aval's service is available in 1,239 cities and over 70,000 kilometers of highway in Iran. It provides roaming services via 271 partner operators in more than 112 countries. In August 2013, the company moved from the OTC to the Tehran Stock Exchange. Currently, 90% of MCI's shares are owned by the Telecommunication Company of Iran, and the remaining 10% of shares are public at the Tehran Stock Exchange. In 2015, MCI launched 3G and 4G LTE technologies by a new brand name as "Notrino".

3. Tamin Petroleum and Petrochemical Investment Company (TAPPICO) was incorporated in 2003 in Teheran, Iran. Its main activity is oil and gas extraction but the company is also engaged in investment activities.

4. Esfahan's Mobarakeh Steel Company engages in the production and sale of hot and cold rolled flat steel products, as well as per-painted, galvanized, and tin-plate coated products in Iran. Its products include hot-rolled coils and sheets; pickled coils; cold-rolled coils and sheets; tin- plated coils and sheets; galvanized coils; and pre-colored coils. The company's products are used in various industries, such as automotive, construction, household appliances, and packaging. It exports its products to Belgium, France, Italy, Spain, Qatar, Saudi Arabia, the United Arab Emirates, Kuwait, Iraq, Oman, Jordan, Armenia, and Georgia. The company is based in Esfahan, Iran.

5. Pars Oil and Gas Company (POGC), a subsidiary of National Iranian Oil Company (NIOC), was established in 1998. POGC‘s mandate is the development of the South Pars gas field and North Pars gas field respectively.Decisiveness of the Ministry of Petroleum to uphold and exploit the Islamic Republic of Iran rights in the South Pars gas field led onto the establishment of POGC. POGC utilizing modern management knowledge, tools and techniques as well as experienced seasoned managers, specialists and experts in the execution of oil and gas projects, has thus far taken major steps in the realization of NIOC's objectives.

Iran: World's Largest Untapped Frontier Market

Private Equity

Private equity market in Iran with foreign institutional investors participation is almost non-existent as the international financial sanctions have not allowed their funds to be channelled to the businesses in the country. Although there is handful of private equity firms, the scale of their capacity is negligible for massive Iranian market. However, we believe there are players with private investor funds including those of high net worth individuals both from the country and the region. Like with any other frontier markets, Iran will attract frontier debt investors, private equity investors in unlisted companies and small funds focusing on listed stocks. The hospitality, retail and service sectors have attracted private investments from MENA region and Iranians living abroad.

As the international sanctions still apply for Iran, it is premature to say that the foreign private equity capital can be invested in the market, although it is untapped and therefore offers massive opportunities. Being optimistic that Iran will remain committed to its obligations under international nuclear deals and opens its energy and other sectors to foreign investments, we believe forward- thinking investors will be closely watching the situation in Iran and will be tapping this second largest market in the Middle East when it becomes investable.

Iran: World's Largest Untapped Frontier Market

Real Estate

Tehran, Iran

Real estate market in Iran remains to be among the most attractive sectors for investment as developers and local investors are rushed into market looking to benefit from surge in interest. Steep volatility is not new to property market, as this was the case several times in the past affected by various economic factors and investment cycles. It has to be noted that during the period which coincided with the presidency of Mahmoud Ahmadinejad, property market was subject to unhealthy growth influenced by external factors, change in policies and regulations. According to local sources in the period between June 2005 and June 2012, land prices in urban areas grew by over 80%, and the price of residential units increased by 220%. Previous boom was in 2007-2009, fuelled by high oil prices country‘s banks offered low interest loans to local population. Global economic crisis affected as property prices dropped over 30%.

Housing Units by Type of Facilities, million units

Source: Statistical Centre of Iran, 2011 Census In general, external banking sanctions, closure of accounts outside the country, has resulted in repatriation of Iranian funds from overseas, most of which channelled into the property market. Property investment was considered as a hedge against inflation which further contributed to appreciation of prices. The

Iran: World's Largest Untapped Frontier Market

housing and construction sectors contribute 5% of the country‘s GDP, and act as indicator of the overall economic outlook in the country. Embargoes imposed by the West have sent Iran‘s currency Rial crashing, pushing up import prices and contributing to spiralling overall inflation. The depreciation of the Rial had major influence on the property market during the last few years. Investment opportunities were limited: stock market has been stagnant; foreign currency markets were unattractive due to government-imposed exchange-rate controls; the banking system offered low interest rates as a way of countering rampant inflation. Local population, unable to invest in other assets and unable to move money abroad due to the banking sanctions, have invested heavily into the property market tried to protect savings. This has sparked massive demand for real estate, pushing prices immediately. Foreign capital has also played a large role, as money repatriated by Iranians living abroad has significantly increased since Iran was first hit by U.N. sanctions in 2006.

Tehran International Tower Shahrak-e Gharb (West Town), Tehran

Property prices offered a guaranteed profit in Iran until 2013. However, starting from summer 2013, property market has experienced significant real decline in housing prices. According to the Statistical Center of Iran and other local sources, housing prices have dropped by 14-25% in the year ending March 2014. We believe that despite the recent turmoil/correction, property market will recover backed by strong local demand. Furthermore, if the sanctions imposed on Iran will be eased or lifted, improved prospects of the country will have direct effect on the Iran property market.

Iran: World's Largest Untapped Frontier Market

ANNEX I. ECONOMIC AND INDUSTRY INDICATORS

Key Macroeconomic Indicators Indicator 2009 2010 2011 2012 2013 2014 2015e

Population and income

Population, mn 73.2 74.3 75.1 76.0 77.0 77.8 79.0

GDP per capita, $ 5,420 6,421 7,511 5,512 5,039 4,941 5,200 National accounts GDP (current price), Rials, 3,936 4797 6,285 7,150 9,421 10,706 12,290 trln

GDP (current price), $bn 397 464 564 419 380 404 400

Real GDP growth, y-o-y, % 2.3 6.6 3.8 -6.6 -1.9 3.0 1.5 Monetary indicators and inflation CPI eop, y-o-y, % 10.5 19.7 20.5 41.2 19.7 16 17

Exchange rate (average 9,979 10,601 13,568 26,059 31,839 32,931 31,500 parallel market rate), Rials per $

Gross official reserves, $bn 78.0 78.9 92.2 104.4 107.7 110.1 112 Government finance Revenue, % of GDP 21.4 21.9 19.1 14.2 14.1 14.2 13.5

Expenditure, % of GDP 20.6 19.1 18.9 14.5 15.0 15.6 16.1

Budget balance, % of GDP 0.8 2.8 0.2 -0.3 -0.9 -1.4 -2.5 Balance of payments Exports, $bn 88.3 112.8 145.5 98.0 93.0 92.2 96.0

of which: Oil & gas 70.0 90.2 118.9 68.1 64.8 52.7 51.0

Imports, $bn 69.2 75.4 77.8 67.1 68.3 71.0 70.0

Trade balance, $bn 19.1 37.3 67.1 31.0 24.7 21.2 26.0

Source: IMF WEO 2015, Central Bank of Iran, 2020Insights estimates e = estimate

GDP Performance, 2005-2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GDP, $bn, PPP 912.4 994.1 1,113.6 1,145.9 1,181.3 1,274.4 1,349.5 1,282.9 1,277.2 1,334.3 GDP, $bn, 218.3 257.8 337.3 391.2 396.7 464.0 564.5 418.9 380.3 404.1 current GDP, % y-o-y 4.2 5.7 9.1 0.9 2.3 6.6 3.8 -6.6 -1.9 3.0

Source: IMF WEO 2015, Central Bank of Iran, 2020Insights estimates

GDP Projections, 2014, 2020 and 2030 ($bn, current prices) Rank Country 2014 Rank Country 2020 Rank Country 2030 1 US 17,419 1 US 22,489 1 China 26,667 2 China 10,380 2 China 16,157 2 US 25,451 3 Japan 4,616 3 Japan 4,933 3 India 7,304 4 Germany 3,860 4 Germany 4,105 4 Japan 5,994 5 UK 2,945 5 UK 3,731 5 Germany 4,734 6 France 2,847 6 India 3,640 6 Brazil 4,065 7 Brazil 2,353 7 France 3,013 7 UK 3,908 8 Italy 2,148 8 Brazil 2,354 8 France 3,663 9 India 2,050 9 Italy 2,173 9 Russia 3,323

Iran: World's Largest Untapped Frontier Market

10 Russia 1,857 10 Russia 2,081 10 Iran 2,899 11 Canada 1,789 11 Canada 2,044 11 Mexico 2,881 12 Australia 1,444 12 S.Korea 2,012 12 Indonesia 2,660 13 Korea 1,417 13 Mexico 1,653 13 Italy 2,638 14 Spain 1,407 14 Australia 1,491 14 S.Korea 2,557 15 Mexico 1,283 15 Spain 1,487 15 Canada 2,391 16 Indonesia 889 16 Indonesia 1,307 16 Spain 2,077 17 Netherlands 866 17 Turkey 1,012 17 Saudi Arabia 2,048 18 Turkey 806 18 Netherlands 911 18 Australia 2,009 19 Saudi Arabia 752 19 Saudi Arabia 902 19 Turkey 1,822 20 Switzerland 712 20 Iran 782 20 Nigeria 1,756 29 Iran 393 Source: IMF WEO 2015, Central Bank of Iran, 2020Insights estimates

Population and Income ranking, 2014 Country Population, Country GDP per capita, $, mn people PPP (2014) Egypt 86.7 S.Korea 35,277 Iran 78.4 Poland 25,105 Turkey 76.9 Malaysia 24,654 Thailand 68.7 Turkey 19,610 UK 64.5 Iran 17,114 France 63.9 Brazil 16,096 S.Africa 54.0 Iraq 14,571 S.Korea 50.4 S.Africa 13,046 Iraq 35.9 China 12,880 Saudi Arabia 30.8 Egypt 10,877 Source: IMF WEO 2015, Central Bank of Iran, 2020Insights estimates

GDP Growth Projections, 2015-2020, 2025, 2030 ($bn, current) Growth Scenarios 2015 2016 2017 2018 2019 2020 2025 2030

Scenario I: 6.4% y-o-y growth 428 471 528 602 686 782 1,505 2,899

Scenario II: 5.5% y-o-y growth 424 458 504 565 632 708 1,248 2,200

Scenario III: 4.5% y-o-y growth 416 437 472 519 571 628 1,012 1,630

Source: IMF WEO 2015, 2020Insights estimates

Exports, incl. Crude Oil and Petroleum Products, 2010-2014 2010 2011 2012 2013 2014 Total exports, $mn, 112,788 144,874 107,409 91,793 98,981 Crude oil and petroleum, $mn 72,228 114,751 101,468 61,923 53,652 Crude oil exports, '000 bpd 2,248 2,537 2,102 1,215 1,109 Petroleum products exports, '000 bpd 368 441 456 394 470

Source: IMF, OPEC, Central Bank of Iran, 2020Insights estimates

Geographic Destinations of Crude Oil Exports, 2010-2014 (‘000 bpd) 2010 2011 2012 2013 2014

Asia and Pacific 1,367 1,630 1,839 1,085 992 Europe 764 780 162 128 117 Africa 117 127 101 2 - Source: OPEC, 2020Insights estimates

Iran: World's Largest Untapped Frontier Market

Monetary indicators (end of period, trln. Rials) 2010 2011 2012 2013 2014 2015e

Money base 650.9 666.5 878.0 993.4 1147.6 1263.4 M2 2706.8 3257.4 4300.5 5507.7 6836.6 7674.8 Inflation, eop, % y- 19.9 20.5 41.2 19.7 16.2 11.0 o-y Source: CBI Economic Trends, 2020 Insights estimates

Exchange rate (IRR/$) 2009 2010 2011 2012 2013 2014 Q3

Interbank market rate (average reference rate/CBI’s 9,920 10,339 10,962 12,260 21,253 26,772 rate) Parallel market rate (average selling rate) 9,979 10,601 13,568 26,059 31,839 32,931

Source: CBI Economic Trends,

Source: CBI Economic Trends

Tax revenue (trln. Rials) 2008 2009 2010 2011 2012 2013 2013 2014 9M 9M Direct tax, total 167.2 209.0 168.7 220.4 248.3 277.9 190.3 267.1 Corporate tax 127.8 167.3 116.5 157.9 169.7 180.0 120.6 180.1 Income tax 31.6 33.9 41.1 49.6 62.7 76.1 54.9 68.6 Wealth tax 7.8 7.8 11.1 12.9 15.9 21.8 14.8 18.4 Indirect tax, total 72.6 91.1 115.8 139.0 146.9 216.4 124.5 211.6 Import tax 56.7 62.6 77.9 78.9 76.4 80.4 37.7 54.6 Tax on goods and services, incl. VAT 15.9 28.5 37.9 60.1 70.5 136.0 86.8 157.0

Source: CBI Economic Trends

Oil & Gas Sector Indicators 2008 2009 2010 2011 2012 2013 2014

Oil production (‘000 bpd) 4,396 4,249 4,352 4,373 3,742 3,525 3,614 Oil consumption (‘000 bpd) 1,960 2,012 1,874 1.910 1,928 2,038 2,024 Oil refinery capacities (‘000 bpd) 1,805 1,860 1,860 1.860 1,892 1,970 1,985 Natural gas production (bcm) 132.4 144.2 152.4 159.9 165.6 164.0 172.6 Natural gas consumption (bcm) 134.8 143.2 152.9 162.4 161.5 159.4 170.2

Source: BP World Energy Outlook 2015

Iran: World's Largest Untapped Frontier Market

Mineral Resources, Reserves, % of World Mineral Resource Iran Reserve Unit Iran Reserve, % of world

Iron ore 2.7 Bt 0.8 Copper 2.6 Bt 4 Zinc 11 Mt 4 Gold 250 Mt 0.5 Barite 10 Mt 5 Phosphate 16.5 Mt 0.05

Source: Iran Mine and Mining Industrial Development Organization

Source: The USGS

Composition of Iran Manufacturing, 2011 Sectors Percentage Machinery and equipment 14.30% Chemicals 6.30% Food and beverages, tobacco 18.30% Textile 7.50% Other 53.60%

Source: Central Bank of Iran

Iran Manufacturing

Establishment permits of Operation permits of manufacturing units manufacturing units

Year Production Number Investment Number Investment index of large (billion rials) (billion rials) manufacturing establishments 1 (1383=100) 2010 193.4 15 839 881 277 6 891 194 068 2011 206 15 948 816 431 6 348 159 568 2012 187.4 15 469 640 825 4 084 86 786.9 2013 179.7 19 206 1 241 062 - - 2014Q1 184.1 3 825 347 598 - -

Source: Central Bank of Iran

Iran: World's Largest Untapped Frontier Market

Iranian Mining and Manufacturing Contribution to GDP (at current prices), IRR bn

% change Share,% 2012/2013 2013/2014 2012/2013 2013/2014 2012/2013 2013/2014 Mining 73,237 94,078 53.1 28.5 1 1 Manufacturing 893,743 1,090,953 29.7 22.1 12.6 11.7

Source: Central Bank of Iran

Production of Electricity (Bn Kw/h)

Year Steam Gas and combined Hydroelectric, diesel and Total cycle wind turbines 2010 94.1 129.1 9.9 233 2011 95.9 131.5 12.7 240.1 2012 92 143.5 12.7 248.2 2013 90.7 153.3 14.8 258.7 2014Q1 21.2 43.5 3.9 68.6

Source: Central Bank of Iran

Access to electricity, % of rural Access to electricity, % of urban population, 2012 population, 2012

Countries Percentage Countries Percentage Israel 100% Iran 100% Jordan 99.40% Iraq 100% Iran 97.70% Israel 100% Iraq 96.80% Jordan 99.50% Oman 93.00% Oman 99.40% Saudi Arabia 92.80% Saudi Arabia 98.70% UAE 92.80% UAE 98.50% Bahrain 92.80% Bahrain 98.30% Qatar 92.80% Qatar 97.70% Kuwait 92.80% Kuwait 97.70%

Source: World Bank

Subscribers to Telecom Services in 2012 and 2015, mn Sector 2012 2015

Broadband 4.5 5.5 Fixed-line telephony 29.3 30 Mobile phone 61.2 72.1

Source: Iran-Telecom Mobile and Broadband report

Internet Penetration, % Population in MENA countries, 2014 Countries Penetration, % Bahrain 96.40% United Arab Emirates 93.20% Qatar 91.90% Jordan 86.10% Oman 78.60% Kuwait 75.60% Israel 74.70% Saudi Arabia 65.90%

Iran: World's Largest Untapped Frontier Market

Iran 57.20% Iraq 9.00% Source: Internet World Stats

Tourist Arrivals 2008 2009 2010 2011 2012 2013 2014

International tourism arrivals, ‘000 2,034 2,116 2,938 3,354 3,834 4,769 5,010

Source: The World Bank, 2020Insights

Average age of selected Iranian and international airline fleets in 2015 Iran Airlines Fleet Size Age International Fleet Size Age Airlines Iran Air 47 27 years Delta Air Lines 803 17.0 years Zagros Airlines 15 25.3 years Lufthansa 276 11.2 years Iran Air Tours 13 24.5 years Ryanair 319 6.5 years Mahan Air 55 23.5 years Emirates 234 6.3 years Iran Aseman Airlines 33 23.2 years EasyJet 217 6.2 years

Source: Forbes

Life expectancy at birth in Iran, total Year Years

2004 71.15 2005 71.49 2006 71.83 2007 72.16 2008 72.48 2009 72.81 2010 73.13 2011 73.45 2012 73.76 2013 74.07

Source: The World Bank

Health Expenditure in Iran Year Per capita total Per capita total Per capita Per capita government expenditure on expenditure on government expenditure on health health at average health (PPP int.$) expenditure on (PPP int. $) exchange rate ($) health at average exchange rate ($) 2012 490.2 1562.2 197.9 630.8 2011 482.6 1294.9 208.1 558.4 2010 416 1097.8 162.5 428.8 2009 357.2 825.4 149.5 345.4 2008 312.8 717 122.4 280.6 2007 219.9 600 98.1 267.6 2006 174.4 550.3 80.9 255.2 2005 156.1 523.2 69 231.3 2004 116.8 425.8 50.8 185.1 2003 96.7 393.3 44.3 180.2

Source: The World Health Organization

Iran: World's Largest Untapped Frontier Market

Gross intake rate in pre-primary education 2000 2006 2010 2012 2013

% 29.3 70.0 53.4 61.5 58.0

Source: Ministry of Education, Iran

Net Intake rate in the first grade of primary education 2000 2006 2010 2012 2013 2014

% 93.8 95.3 96.8 96.8 97.7 97.9

Source: Ministry of Education, Iran

Top-10 Domestic Production Pharmaceutical Companies (2009-2010)

Source: Trend Analysis of the pharmaceutical market in Iran