Lack of momentum in promoting “economic diplomacy”, the insignificant presence of commercial attachés in target countries and hurdles created by state agencies in the path of exports are the reasons behind Iran's lackluster performance in international trade.
This was stated by Fatemeh Moqimi, one of the three senior members of Tehran Chamber of Commerce, Industries, Mines and Agriculture, in talks with the chamber’s news website about the current state of exports on the occasion of the National Export Day, Mehr News Agency reported.
The ceremony to mark the day, scheduled for Oct. 20, was called off this year by the National Coronavirus Headquarters to prevent the further spread of Covid-19.
Thirty-nine prominent exporters who have fulfilled their financial commitments and fully repatriated their export revenues over the past year were to be honored by Minister of Industries, Mining and Trade Alireza Razm-Hosseini during the event.
“Japan, South Korea, the US and many European countries enjoy the expertise of scores of commercial attachés for marketing and sales of their products in export markets. This is somewhat of a pipedream for Iran’s economic diplomacy,” Moqimi said.
“With its well-informed experts about export destinations, who have full command of commerce techniques and financial affairs at embassies, Iran’s foreign trade was capable of clearing the barriers during the sanctions regime and, recently, the coronavirus era.”
Noting that the Foreign Ministry still has the chance to empower trade centers at export markets and tap into the potential of private sector, Moqimi said, “The ministry needs to put aside conservatism and take serious steps toward choosing commercial attachés with the help of specialized export consortiums.”
“The overnight creation of guidelines and regulations by governmental agencies has undercut the continuous availability of Iranian products in export markets. Clearing these hurdles are by far more difficult than upending US sanctions,” the veteran entrepreneur said.
Missed Opportunity
Hamidreza Salehi, another senior member of TCCIM, believes that the absence of proper export infrastructures, unstable laws, lack of financial ties with international banks and misguided policies adopted by the Central Bank of Iran are the main issues negatively impacting Iran's non-oil export growth.
“Iran did not achieve export growth despite the rise in the value of foreign currencies against the national currency, which should have automatically increased Iranian products' competitiveness,” he said.
“Apparently, the country was not ready to promote exports. This unpreparedness is a result of our economy’s chronicle of dependency on imports. After all, oil has been the main pillar of Iran’s economy until now.”
Salehi noted that the country’s exports were also hampered by the severance of banking ties with the world, and exports, money transfer and securing credits become meaningless in the absence of banking relations.
“The transient state of rules has failed Iran. We did not succeed in presenting a professional image on the international front when it comes to exports due to the inconsistency of our rules and regulations,” he said.
“Imagine an exporter who beats the competition and wins a market. He needs to keep hold of the market for an extended period of time through a steady supply of products. A sudden change in rules such as an export ban would tarnish the Iranian product’s image. Customers would second guess when it comes to making deals with Iranians. We have lost many markets due to these problems.”
The TCCIM member stressed that CBI’s flawed policies in recent years have turned into exports’ Achilles’ heel.
“Take the allocation of subsidized foreign currency for imports or rules regarding the repatriation of export revenues. The former wasted the country’s resources and gave rise to rent-seeking practices and the latter troubled exporters. An exporter who supplies and exports an item at 300,000 rials per dollar [free market exchange rate] has to go to great lengths to return his earnings to the country and then is forced to sell his foreign currency earnings on the secondary foreign exchange market, known as Nima [the Persian acronym for Integrated Forex Deal System], at a lower rate of say, 220,000 rials per dollar, as a result of much arm-twisting by the government,” he said.
Salehi said this is indicative of the fact that the government is not keen on promoting exports, but is instead looking for a sinner to punish.
“In other countries, however, exporters are encouraged by even buying their foreign currencies at higher rates. Production won’t register a pickup unless you energize export,” he concluded.
No Bright Prospects in Short Run
Hassan Ahmadian, another high-ranking member of TCCIM, was not hopeful about the prospect of export in the second half of the current year (Sept. 22-March 20, 2021).
“The suspension of order registration [the process of listing import items with the customs authorities, which is the first step for importing any commodity], failure to allocate and supply foreign currency and irresponsible decisions taken by the Ministry of Industries, Mining and Trade concerning the provision of raw materials have been the main reasons behind the decline in imports of raw materials and increase in their prices and the consequent decline in production and exports," he said.
“Production is the basis of development of export potential; the poor state of production in the first six months of the year would have repercussions for both domestic supply and exports. It’s been months now that the manufacturing sector is grappling with issues like shortage of raw materials and instability of foreign currency exchange rates.”
Ahmadian noted that the government seems to have delayed all economic decisions to after US elections without considering the point that even if the desired candidate wins, it would take months before any positive result could emerge.
“Exports might begin to increase no sooner than the final months of the current year or early next year,” he concluded.
Raw Materials Stuck in Customs Offices
The short supply of foreign currency for imports of raw materials is the biggest challenge facing the Iranian industries.
According to Abdolvahab Sahlabadi, the head of Iran’s House of Industry, Mining and Trade, many producers purchase their needed raw materials from foreign countries but their imports get stuck in the customs.
“One manufacturer is now paying $5,200 per day in demurrage charges. This comes as they managed to skirt sanctions and buy unprocessed goods or spare parts with great difficulty, only to fail to clear them from customs,” he said.
Sahlabadi said it is six months now that producer goods have been piled up at customs, adding that “[without production], manufacturers cannot have exports and exports earnings to repatriate to the country; the Central Bank of Iran and the Ministry of Industries, Mining and Trade need to reach an agreement in this regard”.
“The multiple exchange rate system has puzzled producers. Some of them have even floated the idea of discharging their goods by providing forex at free market rate but their proposal was rejected,” he was quoted as saying by Fars News Agency.
Following the depreciation of the national currency rial against foreign currencies in early 2017, the government introduced stringent rules like banning the import of non-essential goods, especially those produced inside the country (known as Group IV goods). It allocated subsidized currency at the rate of 42,000 rials to a dollar to 25 categories of goods (also known as Group I or essential goods) to help protect consumers against galloping inflation, rampant price gouging and hoarding, not to mention the high and rising cost of living.
Two other categories of imports were also defined: Group II, which mostly included raw materials, intermediate and capital goods, and Group III consisting of essential consumer goods.
Importers of products in Group II were to meet their forex requirements from the secondary forex market. Importers of goods in Group III could buy hard currency from exporters who were not required to offer their forex earnings on the secondary foreign exchange market, Nima.
Export earnings are supposed to be returned via one of the following ways: selling currency on Nima, cash transfers through hawala, selling currency to exchange bureaus, using their money to import goods and machinery or allowing a third party to do so.
Nima is a platform where exporters sell their overseas earnings to companies importing non-essential goods. It logs data bout repatriated and purchased forex for import and export.
CBI does not permit importers to use their own foreign currency, in or outside the country, to import goods, due to transparency issues.
High Export Concentration Index
Iran’s Export Concentration Index, which estimates a country’s reliance on a limited group of commodities as its primary source of foreign exchange income, stood at 0.43 in 2019, about six times bigger than that of Turkey and Poland.
According to a report by ILNA, citing the Economic Analysis Center of Tehran Chamber of Commerce, Industries, Mines and Agriculture, the high concentration score must be a concern for economic planners as it subjects the country’s trade vulnerability to changes in global demand.
The index is calculated as a sum of squared shares of products constituting a country's exports. Ranging from 0 (perfect diversification) to 1 (concentrated on a single product), a comparison of index scores to the contribution of natural resources to GDP worldwide shows that resource-rich countries tend to have less diversified export bases.
Among 13 countries surveyed by TCCIM, Iran ranks first in the index with the score of 0.43 and Turkey and Poland come last with a score of 0.07. After Turkey and Poland, the Southeast Asian country Thailand ranked higher than other countries with a score of 0.08. It was followed by China (0.09), India (0.12), Indonesia (0.14), Mexico (0.15), Brazil (0.16), Vietnam (019), Malaysia (0.23), Georgia (0.25) and Russia (0.34).
“Iran’s high score is driven by its export concentration in petrochemicals and gas condensates,” Mohammad Lahouti, the head of Iran Exports Confederation, told the Persian-language daily Donya-e-Eqtesad.
“Petrochemicals, which are the raw materials for factories and intermediate goods account for 50% of Iran's export basket. We need to lend support to downstream industries and gradually create production chain to increase the diversification and added value of the country’s exports,” he said.
Lahouti believes that there is no less concern about Iran’s limited export destinations than its limited group of export commodities.
“Sanctions have created this restriction for the country and have increased the risks associated with trade. Therefore, regardless of conditions, we need to expand our export markets. Or, at least shift exports to our neighboring countries from the export of raw materials to the export of consumer goods. Preferential trade tariffs would also be of help to exports and reduce exporters’ expenses,” he said.
H1 Foreign Trade
Iran’s non-oil foreign trade stood at 62.84 million tons worth $30.34 billion during the first half of the current fiscal year (March 20-Sept. 21), indicating a 28% decline in value compared with the corresponding period of last year.
According to Mehdi Mirashrafi, the head of Islamic Republic of Iran Customs Administration, H1 non-oil exports accounted for 46.31 million tons worth $13.56 billion and imports constituted 16.52 million tons worth $16.78 billion of the total trade figure.
As such, the country’s trade deficit stood at $3.22 billion over the period under review.
When compared with the corresponding period of last year (March 21-Sept. 22, 2019), exports and imports saw a 35% and 21% decline in value respectively.
Iran’s foreign trade stood at $42.16 billion during the same period of last year, with exports hovering around $20.94 billion and imports at $21.22 billion.
Gasoline was the country’s top exported commodity in H1 followed by polyethylene, polyethylene terephthalate, methanol and urea.
“China was Iran’s main export destination, with 13.11 million tons worth $3.7 billion of imports from us during the six-month period to Sept. 21 to account for 27.3% of Iran’s total exports,” Mirashrafi said.
“It was followed by Iraq with 9.28 million tons worth $2.97 billion and a share of 21.9% of Iran’s exports, the UAE with 7.16 million tons worth $1.93 billion and a share of 14.2%, Afghanistan with 3.33 million tons worth $1.1 billion and a share of 8.1% and Turkey with 1.44 million tons worth $731 million and a share of 5.3% from Iran’s total exports. Overall exports to these five countries amounted to $10.44 billion, accounting for 72% of Iran’s exports in terms of weight and 74% in terms of value.”
Top five exporters to Iran in H1 were China with 1.59 million tons worth $4.29 billion and a share of 25.6% of Iran’s total imports, the UAE with 2.11 million tons of non-oil goods worth $3.96 billion and a share of 23%, Turkey with 2.4 million tons worth $1.81 billion and a share of 10.8%, India with 1.26 million tons of non-oil goods worth $1.09 billion and a share of 6.5% and Germany with 772,000 tons of goods worth $835 million and a share of 5%.
These countries together exported 8.16 million tons of non-oil goods worth $12 billion to Iran, accounting for 53% of Iran’s total imports in terms of weight and 70% in terms of value.
Essential goods made up 70% of Iran’s imports; the rest included raw materials, machinery and production components, according to the IRICA chief.
Also known as necessity goods, essential goods are products consumers will buy, regardless of changes in income levels.
Amid high inflation and diminished purchasing power, the Iranian government has sought to ensure a steady supply of essential goods at subsidized prices.
Iran’s 15 neighbors accounted for 70% of the country’s total exports during the first half of the current Iranian year [March 20-Sept. 21], according to the head of the Trade Promotion Organization of Iran.
“This share stood at 60% over the first six months of the previous fiscal year [March 21 2018-Sept. 21, 2019] and 55% during the first half of the fiscal 2017-18,” Hamid Zadboum was also quoted as saying by IRNA.
The official noted that in the last Iranian year (March 2019-20), Iran’s exports to neighboring countries reached $24 billion.
The official believes Iran’s exports to its 15 neighbors, namely the UAE, Iraq, Turkey, Afghanistan, Pakistan, Russia, Oman, Azerbaijan, Turkmenistan, Kuwait, Qatar, Kazakhstan, Armenia, Bahrain and Saudi Arabia, have the potential to reach $125 billion per year.
The Ministry of Industries, Mining and Trade has set the target to raise Iran's annual exports to neighboring countries to $48 billion by the fiscal 2021-22, former caretaker of the Ministry of Industries, Mining and Trade, Hossein Modarres Khiyabani, said.
According to Khiyabani, Iran currently has a 2% share in the neighboring countries' total imports and if the target is realized, the share will rise to 4%, IRNA reported.
“Neighboring states have $1.2 trillion worth of imports [per year] while Iran’s share is only $24 billion,” he concluded.
