Business Boom in Iran Depends on Int'l Relations
We have problems in both areas. We do not have smooth relations with
our trading partners and foreign banks. Therefore, the capital
owners have no interest in penetrating into our country.
"Economic activities in any country without any connection with the outside
world are doomed to destruction.”
Dr. Mohammad Mehdi Behkish, Secretary General of the Iranian Committee of
the International Chamber of Commerce (ICC) emphasizing the importance of
extroversion in the economic activities of countries, states: “In recent
decades, no developing country has been able to grow properly without
attracting foreign investment.”
The senior economist nevertheless believes that despite the importance of
exploiting foreign investment in Iran, it has practically become very
difficult to absorb foreign capital in the current international context.
“As long as the current insecure conditions persist, it becomes impossible
to attract foreign capital up to a level that it could result in growth,” he
warns. “The lack of smooth relationships with our neighbors and the
countries supplying our requirements create two major problems. On the one
hand, the cost of production goes up and products lose their competitive
power so that the country turns to more imports, one result of which is
widespread unemployment. On the other hand, corruption penetrates into each
and every layer of activities and spreads all over the country like cancer.”
Behkish believes that if our foreign relations are organized, the domestic
business environment too will begin to rebuild and reinvigorate.
In many of your analyses, you offer extroversion as an ultimate solution for
the Iranian economy to come out of the status quo. Why extroversion is so
important to you?
For a completely clear reason! The reason is that economic activities in any
country, without having to deal with the outside world, are doomed to
destruction. The Soviet Union annexed the satellite states because a country
cannot meet all its needs all alone. However, although the Soviet Union
brought many countries under its domain and control, it eventually
disintegrated (1991) due to limited economic relations and lack of
competition. Our country is no exception to the rule. We have to have smooth
and continuous business relations with other countries and use our resources
to provide the opportunity for development of our people and provide them
with the most important need - that is, the possibility of getting an
Now Iranian firms cannot make easy purchases from abroad because
dozens of types of controls are applied and they practically
cannot use any type of financing.
In the absence of smooth trade relations with different countries, our
economic life will be jeopardized. Few examples in the economic sector will
shed light on the subject.
Number one requirement for a society is growth and development. We need
investment in order to realize economic growth. Investments are provided
through three courses: government (in the form of development budget),
private sector investment, and foreign investment.
If we look at the process of growth in our neighboring countries, in some of
them, all the three sources of investment have been realized, and in some of
them foreign investment has become more prominent. But no developing country
has achieved decent growth in recent decades without attracting foreign
investment. China, South Korea, Malaysia and Turkey are good examples.
Our country too ought to take advantage of foreign investment, especially
since the country’s development budget is very limited. But under the
current international conditions, absorption of foreign capital has actually
become very difficult. As long as the current state of insecurity persists,
it will be impossible to attract foreign capital up to a level that it could
result in growth.
It seems that in the past, only one aspect of extroversion which is related
to imports has been heeded, but today, analyses are focused on the issue
that to achieve a high and stable growth Iranian goods must be exported.
Apart from this, what are the requirements for extroversion?
Apart from that, in the business sector we are in dire need of engagement in
international relations. Purchase of goods from foreign markets is
commonplace in international affairs, but when the risk is high costs are
also rising extremely. Furthermore, when foreign banks do not maintain
normal relations with our country, in addition to high costs, uncertainty is
also added to the transaction process.
If, in addition to these two factors, foreign banks could pay us the oil
money whenever and through whatever means they want they will impose a great
deal of uncertainty and costs on our country. Even worse than that, normal
procedures turn unusual and all types of corruption are generated (such as
the use of exchange shops instead of banks). Under such circumstances, only
individuals and organizations have the power to work who have become experts
in handling unusual practices. In this way telling between good and bad and
monitoring implementation of the rules and regulations make no sense. This
happens under conditions that according to the international rules we are
required to prove our compliance with international laws.
In the export sector, the situation becomes more complicated. Because, on
the one hand, we are unable to manufacture low cost and high quality
competitive goods; on the other hand access to export markets is very costly
or impossible. For the same reason, many domestic producers have to export
their goods to a third-party market, replace package tags at the same place
and export the products to the target market under the name of another
country. It is a commodity with a high cost due to expenses imposed and can
only be exported with government subsidies.
Under these circumstances, exports which are the cornerstone of economic
growth, start declining. This trend of declining exports has persisted over
the recent years and the decline is projected to be higher this year. Let’s
not forget that export of goods can increase the incentive for production
and boost output, which in turn would lead to increased employment. To draw
a comparison, export of goods (except for petrochemicals and condensates)
last calendar year was less than $20 billion, while Turkey with a population
almost equal to Iran exported more than $150 billion during the period.
Here, we can clearly see the impact of good international relations on the
export of Iran and Turkey. Another area is the purchase of technology. The
purchase of machinery and technology from other countries requires extensive
banking relations. In the absence of such interaction, the possibility of
financing for purchases is lost. In the meantime, they (West) would refuse
to sell us technology under various pretexts. Failure to buy aircraft is a
good indication of these restrictions.
¯Even a small firm cannot keep up with its work in the absence of smooth
international relations. Most small or medium-sized entities are forced to
procure their needed machinery and raw materials from other markets. Even
when the domestic product is available, some prefer to buy from another
place to increase competition. In addition, small and medium-sized
enterprises do not just buy in cash but most of them use a kind of
Now Iranian firms cannot make easy purchases from abroad because dozens of
types of controls (for example, dual use) are applied and they practically
cannot use any type of financing. Worse, they cannot open LCs to provide the
necessary guarantees. If we measure the risks of such units, we would
definitely advise them not to do the business; or the risk is so high that
would make any purchases uneconomical.
Our economy has survived under these conditions in the hope that the
sanctions will be lifted. Ever since we signed the Joint Comprehensive Plan
of Action (better known as Iran Nuclear Deal), all the hopes were that our
(foreign) trade ties would be normalized but these expectations have not
Who prevented realization of these hopes and expectations?
Looking for someone to blame will not solve any problem, but we know that
continuation of these conditions will not bring us growth and development.
Instead, the army of the jobless will become bigger and bigger each and
every day. It seems that before discussing economic practices, it is better
to focus on how we can change our foreign relations. As long as we fail to
change international relations in line with our trade and industrial needs
there would be no boom in businesses and production and trade will become
more restricted every day.
The potential danger of public protests threatens the stability of the
country. In a study conducted by a government research institute,
significant results have been obtained. Many may be convinced that the
recent protests were motivated by poverty and inequality, while according to
the research conducted by the state-owned agency, the main reason for the
protests was the unemployment of educated youth. Educated young people who
sell the carpet under the feet of their parents and spend the money on their
education, with great hopes, expect the country’s officials to provide them
with job opportunities, and this is the least need of a society. The same
thing happened in Egypt, and the young unemployed people played the most
important role in the uprising in that country.
The problem is very simple. We need high and sustainable economic growth to
cut unemployment. Sustained economic growth also requires capital. A
significant portion of this capital must be supplied from abroad, and we
need to have good relationship with the world in order to attract this
A few years ago in an article I emphasized that the strategic advantage of
our country is trade, and therefore Iranians are more known to be good
businessmen than artisans. Therefore, if we want to use the country’s
strategic position for greater prosperity, we should expand the flow of
goods from the country, which requires development of ports, roads and
equipment that make transit easy and feasible. Development of transit
requires confidence building with our neighbors. This trust is shaky for the
time being. The power of diplomacy in the future will prove to what extent
it can meet the need for community development.
What types are the current obstacles in the way of domestic and foreign
investment in the Iranian economy? Are they more of political nature or
Usually capital will flow into a place where security is maintained in the
first place. In the second place, investors would rather get involved in
activities that are profitable. The type of our relationship with foreign
countries and sources of capital supply defines investment security. If
there is no default on the liabilities and the withdrawal of capital and
related profits can easily be relocated, security is provided for moving
capital. But the profitability of activities depends on the business
environment inside the country. If the business environment does not provide
enough space for healthy competition or the barriers to production are such
that capital productivity is insignificant, the investor would not come to
We have problems in both areas. We do not have smooth relations with our
trading partners and foreign banks. Therefore, the capital owners have no
interest in penetrating into our country. In addition, the business
environment is not favorable in our country, and so the activities cannot be
profitable unless they use rent.
I am convinced that if our foreign relations are organized, the domestic
business environment too will begin to rebuild and reinvigorate.