Economist Morad Rahdari has criticized the neglectful approach toward the business environment in an article for the Persian daily Shargh.
A translation of the text follows:
Businesses need an environment to grow just like plants need light, water and fertilizer, while some may even need special care. The same is true about the business environment where rules and regulations governing the society create added value-generating activities. Even government practices such as issuing permits to providing easy access to infrastructures such as energy carriers, producer rights and extending facilities to remove foreign trade obstacles are all components of a business environment.
Sometimes the rules per se do not create a challenge, but problems crop up when they are enforced. That’s why it is said that failure to carry out a law is better than its poor enforcement.
The World Bank uses 11 indicators to measure the efficiency of business environment in 190 countries each year and Iran’s place has been usually behind 130 countries over the last decade.
Article 22 of Iran’s Sixth Five-Year Development Plan [2017-22] had envisioned that in the fiscal 2021-22, Iran’s ranking would have improved to the 70th place, but we have been stuck around the same place for years.
Favorable Business Environment
Note that we are talking about a favorable business environment, not a faked one.
A favorable business environment does not include brokerage and promotes economic activities that create added value to meet desirable needs or demands. A favorable business environment does not act against the law and the values of society.
We know that only jobs that boost economic growth are the sustainable ones. Unfortunately, many jobs in our society are not sustainable. Studies show that job stability averages 80% in the global economy, whereas according to the Research Center of Iran Chamber of Commerce, Industries, Mines and Agriculture, more than one million people lost their jobs in the past year.
As we speak, more than 61% of Iran's industrial capacity remain unused while a significant number of people lost their jobs in recent years. Why did we fail to react quickly to this crisis? It is 12 years now that real production has not grown and net investment is not positive. Are we aware of the economic and social consequences of this problem?
Small businesses account for 41% of employment despite having 24% of the total capital; they create 13% of production added value. This means that our production is capital-intensive.
The share of services sector in Iran’s economy is large and its real unemployment is significant. Iran's economy revolves more around capital. Eighty-seven percent of production are being generated by 59% of employees. Societies that value independence and self-sufficiency separate production from foreign currency, because if the exchange rate of foreign currency rises by say 10%, the country’s production will suffer more and prices will rise sharply in terms of rial.
Problems Galore
Problems are galore when it comes to the execution of rules and regulations regarding the improvement of business environment. For example, in our economy, protecting the rights of consumers and producers simultaneously is problematic.
The country has a standard-setting organization, but even the products of Iran Khodro and SAIPA, for instance, are not up to scratch, let alone other manufacturers.
Creating a favorable business environment should not be limited to the needs of employers; the needs of employees and workers are important, too. An engineer with 10 years of experience receives the same salary as a simple worker. Even if the engineer is creative and innovative, he is not motivated enough to create something new.
Sadly, high unemployment rate allows large industries to exploit human resources. Workers’ recourse to justice proves fruitless because decision-makers have ties with employers. That’s why the business environment does not improve.
It is interesting to note that there are 17 governmental organizations and monitoring agencies responsible for the fight against trafficking, but the capacity of smuggling in our economy stands at $20 billion, i.e., 50% of Iran’s foreign trade.
Even in the fiscal 2012-13, 70% of the capacity of industries remained idle.
Unanswered Questions
Why does our economy prefer brokerage to productive activities? Is the Dutch disease in our economy incurable? Why don’t governments see themselves as the partners of the private sector? Why is oil income valued more than tax revenues?
We know that economic insecurity is mostly caused by unstable laws. In other words, a significant proportion of problems have internal rather than external causes.
Will the problem with production go away once the sanctions are removed? A significant part of these problems will be solved but the history of our industrial economy shows that many of the problems with the manufacturing sector are to blame on mismanagement.
In 2002-03, the corporate income tax was reduced from 45% to 25%. Two years later, the capacity of government’s tax revenue increased because investment in production outweighed investment in trade, and production became economically justified. So it is possible to design effective plans to strengthen production.
Today, the same judiciary that ordered the closure of industries due to their inability to repay debts has changed its approach, separating production by legal entities from the crimes of real entities. It has learned from experience that it should not take measures that result in unemployment of workers.
So it is possible to better serve the domestic economy by improving approaches.
