Iran’s government structure is a combination of democracy and modern Islamic theocracy. The head of state is the Supreme Leader, who makes all the major decisions on foreign policy and has control over the armed forces. The Supreme Leader is elected by the Assembly of Experts, which consists of 86 clerics. The clerics are chosen by the Guardian Council, which consists of six jurists and six theologians elected by the Supreme Leader. The Guardian Council is one of the most influential bodies in the country’s political landscape. Iran’s Parliament consists of 290 members who are elected by the public every four years. The Parliament must have approval from the Guardian Council before passing laws. The Parliament has the authority to summon or prosecute ministers or even the president. The President is the executive branch of power and is also elected every four years by the public, although the Guardian Council must approve the candidate before an election (Zohari 2011). Figure 1 illustrates Iran’s government system (Wikipedia 2011). Figure 1 – Islamic Republic of Iran’s Government Structure
One of the most prominent factors affecting foreign direct investment (FDI) in Iran is political instability. Although the country has made significant progress since the Iranian/Islamic Revolution in 1979 (the overthrow of the monarchy), the recent sanctions imposed on Iran by the United Nations (UN) is harming the country’s economy. Iran attempted to avoid a fourth round of UN sanctions by stalling its nuclear fuel plan. They did not succeed: on 9 June 2010, a Security Council resolution was approved. The sanctions expand current UN measures of restricting the country’s banking sector further, banning the sale of additional types of heavy weapons and aims to set up a cargo inspection rule similar to the one in place in North Korea. Hillary Clinton (US Secretary of State) said it is “the most significant sanctions Iran has ever faced.” Although Iran claims that the nuclear programme is for generating electricity, the West suspects that they are seeking to develop nuclear weapons. The United States and Israel (Iran’s main rivals) are not ruling out military action if the nuclear dispute is not resolved through diplomacy. Israel is believed to have the Middle East’s only atomic arsenal. In 1981, Israel bombed a nuclear reactor and in 2007 attacked an alleged nuclear facility in Syria. Iran threatens to retaliate if Israel or the US attacks them, by closing the Strait of Hormuz and targeting their interests in the Gulf. Around 40% of the world’s traded oil exits the Gulf region through the Strait of Hormuz. This political tension has already caused many international companies to stop or scale down operations in Iran (Dahl 2010).
Iran's national currency is the Rial. As of 11 March 2011, the exchange rate of the Rial with the US Dollar is 10 373.20 Iranian Rial (IRR 10 373.20) to one US Dollar ($1) (OANDA 2011).
Inflation refers to an increase in prices over a certain period with a consequent decline in the value of money. Iran has a high inflation rate 13.5% (December 2010) although it has been the lowest since 2006 (also 13.5%), with highest being 25.6% in 2009. The main factors contributing to the high inflation are the rise in global prices and the government’s oil money injection in the economy (ARY News 2009). Figure 2 shows the inflation rate (consumer prices) for the period 2003 to 30 December 2010 as well as the percentage change (Index Mundi 2011)
Figure 2 – Iran Consumer Price Inflation Rate
Low inflation must also be considered for it has both positive and negative effects. On the one hand, it increases consumer spending and reduces production costs, while...