Iran’s business environment weakened for the third consecutive quarter in the autumn of the current year, according to Iran Chamber of Commerce, Industries, Mines and Agriculture.
Iran’s National Business Environment Index stood at 5.94 in Q3 (Sept. 23- Dec. 21) to register a 0.03 percentage point or 0.51% increase compared with the preceding quarter and a 0.01 percentage point or 0.17% increase compared with the corresponding quarter of last year, the chamber said in a new 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 index is indicative of an improving business environment.
Iran’s National Business Environment Index stood at 5.92 in Q2 (June 22-Sept. 22) and 5.9 in Q1 (March 21-June 21).
“Unpredictability and fluctuations in the prices of raw materials and products”, “instability in policies, regulations and executive procedures related to the businesses” and “difficulties associated with funding from banks” remained the most undesirable factors affecting Iran’s business environment during the period under review, according to the findings of the 21st round of this report.
The chamber also measures the index for each of the 31 Iranian provinces. The report names Kurdestan, Kerman and Gilan as the provinces with the worst environments to do business in and Markazi, West Azarbaijan and Fars as the best.
The average real production capacity of economic enterprises participating in this survey stood at 41.33% in Q3, indicating an increase of 1.01 percentage points compared with the preceding quarter.
Worst Business Environment for Services
The services sector had the worst business environment in Q3 with 5.89 points followed by industry (5.81) and agriculture (5.72).
Reports by the Statistical Center of Iran show the Producer Price Inflation for the services sector reached an all-time high in Q3.
The average Producer Price Inflation for the services sector in the four-quarter period ending Dec. 21, which marks the end of the third quarter of the current Iranian year, increased by 46.3% compared with the same period of the year before.
According to the Statistical Center of Iran, this marks the highest annual inflation since winter 2013 (the earliest available data on services producers' inflation on SCI’s website).
The overall PPI for the services sector stood at 394.6 in Q3 of the current fiscal year (Sept. 23-Dec. 21), indicating a 10% increase compared with the preceding quarter.
The index indicates a 45.8% increase compared with the same quarter of the year before.
The services sector employed 49.9% of the Iranian employed population (11.74 million) in Q3, 0.9% higher than the corresponding period of last year, whereas industrial and agricultural sectors provided 34.7% and 15.4% of jobs respectively.
Over 8.16 million were employed in the industrial sector, indicating an increase of 0.4% year-on-year and 3.63 million worked in the agriculture sector, posting a 1.3% 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 sector employed 9.72 million men and 2.01 million women in the three-month period, such that 7.22 million men and 941,441 women were working in the industrial sector and 3.09 million men and 540,008 women worked in the agriculture sector in Q3.
Services accounted for 58.1% or 10.3 million of all jobs in urban areas and 24.7% or 1.44 million of jobs in rural areas. The industrial sector made up 35.8% or 6.35 million of the jobs in urban areas and comprised 31.2% or 1.81 million of employment in rural areas. This is while 6% or 1.06 million of the total jobs in urban areas and 44.1% or 2.56 million of the jobs in rural areas were in the agriculture sector.
Businesses With Worst, Best Environments
As for 21 fields of business, the worst three business environments were posted for “construction”, “transportation and warehouse services” and “real-estate services” and the top tier included “real-estate services”, “human health and social work” and “office works and support services”.
Enterprises with more than 200 employees had the best business environment with a score of 5.55 while those with 11-49 employees had the worst business environment with a score of 5.96.
Businesses operating for less than two years indicated the best business environment (5.55) while those operating for 6-10 years had the worst business environment (6).
World Bank’s Ease of Doing Business Index
The ICCIMA index is fashioned after World Bank’s “Ease of Doing Business” index, a tool for countries seeking to measure costs of doing business.
In September 2021, the World Bank announced it was “discontinuing” its “Doing Business” report, which ranks countries on the ease of opening and operating a company.
It cited the outcome of an investigation that found the World Bank had changed the rankings under pressure of funding. This wasn’t the first time the rankings had come in for criticism. A 2008 internal evaluation report highlighted their lack of transparency, while in 2018 the Bank’s chief economist, Paul Romer, resigned, decrying data manipulation.
According to Ian Richards, UNCTAD economist, the Doing Business had become too politicized. It was originally intended as a way to measure improvements in countries’ business environments. It used an index score based on the number of procedures and time to, for example, start a business or get a construction permit; there were 10 indicators.
However, the bank also used it to rank countries, fêting top scorers and reformers. Governments soon saw a good ranking as an end in itself, regardless of how it impacted their development. A slip in rank could be politically damaging.
“After data irregularities on Doing Business 2018 and 2020 were reported internally in June 2020, World Bank management paused the next Doing Business report and initiated a series of reviews and audits of the report and its methodology.
In addition, because the internal reports raised ethical matters, including the conduct of former board officials as well as current and/or former bank staff, management reported the allegations to the bank’s appropriate internal accountability mechanisms.
After reviewing all the information available to date on Doing Business, including the findings of past reviews, audits and the report the Bank released on behalf of the Board of Executive Directors, World Bank Group management has taken the decision to discontinue the Doing Business report.
The World Bank Group remains firmly committed to advancing the role of the private sector in development and providing support to governments to design the regulatory environment that supports this,” the World Bank said in a statement.
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 in last place with a score of 20.
