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June 2020, No. 94


Export

Six Challenges Iran Is Facing in Exports


Today, for a variety of reasons, exports have been the focus of the export drive, and all the pillars of government are looking for something positive to happen in the export sector.


Assessments show that Iran’s exports are currently facing the risk of being classified as “economic uncertainty”, “uncertainty in the international situation”, “unfavorable business environment”, “economic vacuum in diplomacy”, “weak export rules and regulations” and “productivity and competitiveness weaknesses.”

On the other hand, “economic stability”, “rapid response”, “export persistence”, “product diversification”, “strong communication” and “support and accountability” are some of the requirements and preconditions that policy makers can consider in exporting steel industries.

Explaining the general approach of the country’s trade programs, the deputy minister of Industry, Mine and Trade for commercial affairs said that the export runway for the industry is green but the government import policy is based on restrictions and sanction. In this regard, the steel industry has been referred to as a capacity that can replace oil exports; in fact, from a policy perspective, completing the value chain in the steel industry is an important advantage that should be considered as a model by other industries in the country.

On the other hand, the person in charge of Export Support Arm outlined support programs for the steel and mining sectors. In this regard, the managing director of Export Guarantee Fund believes that the Iranian businessmen are not familiar with export guarantee fund services and this has led them to move towards banking services, while the most operational part is to support exporters of guarantee fund services. Accordingly, in cases where LCs are not usable, guarantee fund insurance can be a substitute for LCs and help to recover exporters’ claims.

 

Six Export Challenges

According to this classification, the first challenge lies in the uncertainty and unpredictability of the economic environment. The former head of Iran Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA) stated that the problem has been constant in recent years but has escalated in the past two years. There is a problem in this regard that economic activists do not know what foreign exchange and international decisions, policies and conditions will be for the next month or a year. Therefore, this leads to instability in decision-making, and the overall export environment of the international dimension is challenged.

From Mohsen Jalalpour’s point of view, the second challenge is the uncertainty in the international situation. He said: Today in our country the outlook about governance is different and economic activists cannot make decisions based on these different outlooks. Mr. President has recently argued that they know no other way than interacting with the world and insist that they are interested in communicating with the world, but in the same week pulses have come from some other decision making institutions that we cannot work with the world, but should rather rely on our internal capacities and look at ourselves. As an economic activist, I do not approve or disapprove either of these two views, but we need to know what the overall direction of the world is to adapt to it.

The former head of the ICCIMA also mentioned the unfavorable business environment as the third concern. According to him, part of this unfavorable business environment is due to foreign sanctions, and another part to laws and regulations, as well as shortcomings in policymaking. But the lack of an economic outlook at the Foreign Ministry and a focus on political affairs was the fourth challenge highlighted by the economist. Jalalpour pointed out that 99% of the Foreign Ministry’s focus is on political issues and only 1% goes to economic affairs. In this context, there is a need for an economic outlook in the Iranian embassies, and as long as this outlook is not in place, the country’s export needs cannot be properly addressed.

In this context, the inefficiency of other export laws and regulations was the fifth challenge mentioned by Jalalpour. He emphasized that the country’s trade and customs base is focused on imports but to improve exports there is a vacuum of facilitating rules and regulations. Ultimately, the sixth challenge lies in the weakness in productivity and competitiveness. He explained: In the past years we have not been able to take effective action in the field of competitiveness, and the main reason was because the economy is state owned. When there are companies and institutions that are financed by government resources, it is impossible to create rivalry and be present in the global space, while also helping exports.

Meantime, Hossein Modarres Khiabani, Deputy Minister of Industry, Mine and Trade for Commercial Affairs, pointed to the importance of exports as a macroeconomic goal and said: “Today, due to some foreign exchange and trade policies, as well as significant price differences between foreign and local currencies many commodities have export capabilities that need to be exploited. We used to export about 3,500 out of 8,000 categories of commodity tariffs before, but today we have more than 4,200 categories. So today, exports are important to us in many ways, and non-oil exports are replacing oil exports, and most of our forex needs will be met.

The official also cited the use of empty and surplus capacities as a way to expand exports. “At present we have surplus capacity in our products and the domestic demand is shrinking, and it is here that exports can play a role,” he said. In the absence of exports some of our production units will be shut down; there are empty capacities of all kinds of goods that must be used. The developed countries of the world are developing up to 10 industries, but we invested in more than 65 industries out of 100, which resulted in a waste of resources because it was not based on comparative advantage. On the other hand, in some cases we formed upstream industries but did not pay attention to the downstream and its inputs; in fact, the upstream supply chain does not participate in the downstream sector, which in itself causes problems.

On the importance and attention to the capacities of the mining industry, he said: The mining industry has a very high capacity and can replace the oil industry. We hold 2% of the world’s mineral reserves and are on the copper and iron ore belt. Today we can plan on the mining and steel industries to replace oil. Steel also has a high potential; the value chain formed today for steel can be a model for other industries as well.

At the same time, the official continued: “Exports can also benefit the market by adjusting prices, as well as maintaining sustainable employment. The recently created export space has led to the return of 40,000 workers to the factories and the recruitment of 100,000 new workers. All of this has happened because of improved exports. Today our export runway is green, but we imposed restrictions and sanctions on imports and banned the import of more than 1,500 items. According to the latest statistics, our trade balance is $100 million positive.

So the existing facts prove that the overall trend is toward exports and the state does not hold an import-oriented outlook. The government’s policy on exports is geared towards development and growth, but imports are primarily controlled. Part of import control aims at managing foreign exchange resources, the deputy minister said. “Measures have also been taken, including that export incentives have been restored, we have launched an Export Development Task Force to resolve problems, and we have raised the guarantee fund’s capital.” Today, for a variety of reasons, exports have been the focus of the export drive, and all the pillars of government are looking for something positive to happen in the export sector.

Modarres Khiabani pointed to the unequal conditions for exporters in the international arena and said: Today, the most cruel and severe sanctions have been imposed on our country; all the requirements of an exporter such as banking, securities, transportation ... are faced with the sanctions. So the conditions of our businessmen and producers are not equal to those of any country. The $32 billion the country fetched from exports in the first nine months is almost like a miracle.

“There is a constant competition in the international environment that needs to be responded to on a timely basis; it is no longer time to make a decision or set a tariff and take no action until a few years later. We must act internationally based on the requirements of the day. We cannot be consistent in the circumstances when sanctions are applied and need to be responded to. However, as has been the case for the past six months, exchange rate stability has reduced the number of guidelines and directives. We are meant to avoid rushing emotions and decisions, but naturally some of the decisions come from the peripheral environment”.

 

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