Iran’s business environment deteriorated in the first quarter of the current fiscal year (March 21-June 21) compared to the previous quarter, Iran Chamber of Commerce, Industries, Mines and Agriculture reported.
Iran’s National Business Environment Index stood at 5.90 in Q1 (spring) of the current fiscal year to register a 0.10 percentage point or 1.64% increase compared with the preceding quarter (winter) but a 0.11 percentage point or 1.91% decrease compared with the corresponding quarter of last year, the chamber said in a report published on its website.
The index calculated by ICCIMA measures business friendliness of Iran’s economy, with 10 indicating the worst grade. In other words, the decline in the index indicates an improvement in business environment.
Iran’s National Business Environment Index stood at 5.80 in Q4 of last fiscal year (Dec. 21, 2020-March 20) and 6.01 in Q1 of fiscal 2020-21.
“Unpredictability and fluctuations in the prices of raw materials and products”, “uncertainties about policies, rules, regulations and business formalities” and “difficulties associated with getting bank credit” remain the most undesirable factors affecting Iran’s business environment during the period under review, according to the findings of the 19th round of this report.
The chamber also measures the index for each of the 31 Iranian provinces. The report names Kermanshah, Kerman and Kurdestan as the provinces with the least favorable environments to do business in and Semnan, Markazi, and Khorasan Razavi as the best.
The average real production capacity of economic enterprises participating in this survey stood at 38.64% in Q1, indicating a decrease of four percentage points compared with the preceding quarter.
Worst Business Environment in Services
The services sector had the worst business environment in Q1 with 5.96 points, followed by agriculture (5.83) and industries (5.78).
Reports by the Statistical Center of Iran show the overall Producer Price Index for the services sector (using the year ending March 2017 as a base year) stood at 322.8 in the first quarter of the current fiscal year, indicating a 11.2% increase compared with the preceding quarter.
The index measured for Q1 producer inflation in the services sector indicates a 48.7% increase compared with the same quarter of the year before, marking the highest year-on-year inflation since spring 2012 (the earliest available data on services producers' inflation on SCI’s website).
The average PPI for the services sector in the four-quarter period ending June 21 increased by 42% compared with the same period of the year before, which is the highest annual inflation since winter 2013 (the earliest available data on services producers' inflation on SCI’s website).
The services sector employed 48.8% of the Iranian employed population (11.55 million) in the first quarter of the current Iranian year (March 21-June 21), which was 0.9% less than the corresponding period of last year, the latest SCI data showed.
The industrial and agricultural sectors provided 33.2% and 17.9% of jobs respectively.
Over 7.87 million were employed in the industrial sector, indicating an increase of 1.4% compared with the same period of the year before and 4.24 million worked in agriculture, posting a 0.7% decrease YOY.
The services sector consists of wholesale and retail trade; restaurants and hotels; transport, storage and communications; financing, insurance, real-estate and business services; as well as community, social, education, health and personal services.
The services sector employed 9.55 million men and 2 million women in the three-month period.
Over 6.99 million men and 875,573 women were working in the industrial sector and 3.5 million men and 746,601 women worked in the agriculture sector in Q1.
Services sector accounted for 57.8% or 10.18 million of all jobs in urban areas and 22.6% or 1.36 million of jobs in rural areas.
The industrial sector made up 35% or 6.16 million of the jobs in urban areas and comprised 28.1% or 1.7 million of employment in rural areas.
This is while 7.1% or 1.25 million of the total jobs in urban areas and 49.4% or 2.99 million of the jobs in rural areas were in the agriculture sector.
Businesses With Worst, Best Environment
As for 21 fields of business, the worst three business environments pertained to “administrative and support services”, “professional, scientific, and technical activities” and “water networks, wastewater management, and wastewater treatment,” while the top three included “finance and insurance”, “health and social work” and “education”.
Enterprises with 200 and more employees had the best business environment with a score of 5.71 while those with fewer than five employees had the worst business environment with a score of 6.02.
Businesses operating for more than 16 years had the best business environment (5. 76) while those operating for less than two years had the worst business environment (6.76).
Covid-19 Impact
The impact of Covid-19 disease on business environment in Q1 was measured to be 6.24.
Based on the International Standard Industrial Classification of All Economic Activities, businesses that suffered most from the outbreak of Covid-19 in Q1 included “properties and real estate” with a score of 7.98, “other activities in services” with 7.89 and “accommodation and food providers, including hotels, restaurants and reception halls” with 7.77 while those that suffered the least included “finance and insurance” with a score of 3.45, “mining” with 5.25 and “information and communications” with 5.45.
The impact of Covid-19 on businesses was the highest in Ardabil with 8.23, South Khorasan with 7.82, North Khorasan with 7.51 and West Azarbaijan with 7.26 and lowest in Markazi with 4.93, Semnan with 4.99, Isfahan with 5.47 and Zanjan with 5.56.
World Bank’s ‘Ease of Doing Business’ Report
The ICCIMA index is fashioned after World Bank’s “Ease of Doing Business” index, “a valued tool for countries seeking to measure costs of doing business”.
In August 2020, the World Bank Group issued a statement saying irregularities were reported regarding changes to the data used in the report. It had found some data irregularities in the Doing Business 2018 and Doing Business 2020 reports.
“A number of irregularities have been reported regarding changes to the data in the Doing Business 2018 and Doing Business 2020 reports, published in October 2017 and 2019. The changes in the data were inconsistent with the Doing Business methodology," it said.
The Doing Business report 2020, published in October 2019, captured 294 regulatory reforms implemented between May 2018 and May 2019. A Wall Street Journal report said that the data of China, Azerbaijan, the UAE and Saudi Arabia have been inappropriately altered.
The World Bank added that the board of executive directors have been briefed on the situation, as have the authorities of the countries that were most affected by the data irregularities. The publication of the Doing Business report will be paused until assessments are conducted by the bank.
According to Doing Business 2020 published in October 2019, Iran’s ease of doing business ranking improved by one place to stand at 127th among 190 world economies.
The report shows the country’s distance to frontier score saw a decline of 0.1 percentage point, from last year’s 58.6 to 58.5 in the new report.
New Zealand topped the list of 190 countries in the ease of doing business with a score of 86.8, followed by Singapore with 86.2 and Hong Kong with 85.3, while Somalia was at last place with a score of 20.
