The removal of sanctions won’t work miracles unless macroeconomic approaches are employed on the basis of modern development strategies. This was stated by Farzad Mehrani, an expert in international commerce, in an article for Persian economic daily Donya-e-Eqtesad.
A translation of the text follows:
Anticipation is not a negative mental state, rather it can be heartening and inspiring if the prospects are bright and rewarding. Iranian people’s anticipation of the nuclear deal’s revival, in the runup to the anniversary of Islamic Revolution (Feb. 11) and Iranian New Year (March 21), is positive and promising. People’s casual conversations everywhere return to the ongoing nuclear negotiations in Vienna, Austria.
Now imagine that the short-term memory of Iranian people has been fully wiped; let’s forget about psychological analyses and what happened over the past three decades vis-a-vis Iran’s confrontation with the West and its political and economic consequences, or nuclear talks through the eyes of a teenager born in the 2000s.
How are we going to answer the following questions: What positive changes do you expect after the agreement with the West? And the second question is what should the policymaker do after the agreement with the West to break the loop entangling the country and start a move forward?
The list of positive developments for the government (at least in the short run): The release of frozen foreign exchange resources abroad, sales of oil and obtaining foreign currency relatively equal to other oil exporters, addressing the budget deficit via export earnings, the possibility of investment in development projects, the likelihood of financing pension funds, reducing tax pressures, and the like.
The list of positive developments for people (at least in the short run): The appreciation of the rial against foreign currencies, increase in the purchasing power of people, decrease in inflation expectations and inflation-inducing impulses, relative calm in markets and emergence of optimism about the economy’s future, the possibility of opening accounts in foreign banks, Schengen visas for travelers, improvement in labor market, and the like.
The list of positive developments for foreign trade: Almost no positive development will occur spontaneously as a result of the lifting of sanctions against the private sector in foreign trade.
Transactional and Trade Challenges
One of the biggest challenges for foreign trade stemming from sanctions has been the blockage of the conventional banking transactions and money transfers.
If the policymaker fails to work out a solution for measures taken against Iran by the Financial Action Task Force (an intergovernmental organization that monitors money laundering and terrorism financing worldwide) and the United Nations Convention against Transnational Organized Crime and the International Convention for the Suppression of the Financing of Terrorism, the country is likely to jump out of the frying pan of sanctions into the fire of FATF’s penalties.
Deprivation of preferential and free trade agreements with other countries is another challenge facing the country’s foreign trade. It is not possible to facilitate foreign trade unless we lower tariff and non-tariff barriers so that non-competitive domestic industries enjoy the possibility of competition and empowerment, and competitive industries enjoy the ease of exports to foreign markets.
Accession to World Trade Organization is the most important agreement of all. Facilitating foreign trade without accession to WTO is like warming up alongside the pitch. Even if we are willing to enter trade agreement with only a limited number of neighboring countries, we have to remove tariff and non-tariff barriers, and settle the problem with WTO since almost all key neighboring countries (except for Iraq, which is on the way to accession) are members of WTO; their WTO commitments will certainly overshadow bilateral negotiations.
Of course, occasional restrictions or bans on imports or exports imposed for regulating the domestic market is another hurdle in the way of streamlining foreign trade and reaching real preferential or free trade agreements.
Poor Transportation Facilities, Marketing
Poor road, rail and air transport infrastructures and not having access to modern and well-equipped fleet are other challenges troubling Iran’s foreign trade.
Worn-out transit roads, shortage of new trucks, incomplete railroads of Rasht-Astara and Chabahar-Zahedan, and problems regarding rail transshipment with Turkmenistan, existing challenges at border customs with Iraq, Pakistan and Afghanistan, as well as the limited capacity of southern ports are among other challenges of transportation sector.
Financial resources and effective interactions with neighboring countries are needed to solve these problems.
The issue of marketing Iranian products abroad is very complicated. Multifold components are in play for a product to find its way into a foreign market. In fact, overseas marketing is a multidimensional equation; fixing one problem won’t translate into the whole problems going away. We cannot pay a short visit to the market of one country whenever we are feeling well and get out of it whenever we feel sick.
Entering a market, maintaining the market share and constantly competing with competitors, without government support, also require a grasp of the psychological habits of the target market’s customers.
When the shelves of an Iraqi supermarket are empty of Iranian goods, Turkish or Saudi goods will definitely replace them. When Iranian goods do not meet the industrial or health standards approved by reputable international authorities, the standard organizations of the destination country will find an excuse for stonewalling.
When Turkish, Russian, Chinese or Arab contractors win tenders to carry out industrial, construction and power plant projects as our country is struggling with sanctions, it certainly won’t be easy for Iranian contractors and exporters of services to regain the lost opportunities.
Need for Fundamental Economic Reforms
As long as our banks are specialized in all businesses, except professional banking, as long as our stock market is a remote island far from the global stock network, as long as the central bank is regarded as the government’s piggy bank, as long as our ease of business ranking is in three digits, as long as subsidized energy is handily available for inefficient cement and steel industries, as long as subsidized gasoline begets all kinds of destructive and unproductive jobs, as long as the tariff barriers of automotive industry and institutionalized economic corruption stay put, as long as the needs of the agricultural sector are incommensurate with the country's water resources, as long as the interests of the nation and future generations fall victim to populist economic politics such as the housing policy, as long as interests of certain individuals and groups take precedence over national interests, as long as the tourism industry does not go beyond the country’s historical attractions, and as long as the government fails to employ monetary and financial tools to regulate the markets, the country’s economy will face serious challenges and the removal of sanctions will not have a direct impact on resolving the problems.
And finally, just as we have not seen the industrial, production, export or economic growth thrive during the years sanctions were absent or less severe, we certainly won’t see an astonishing salvation, or the opening of the lost gates to development paradise in the near future.
Unless macroeconomic approaches are based on modern development strategies, the lifting of sanctions would simply unshackle the heavy chains holding the tired and wounded legs of the country's economy and foreign trade; the removal of sanctions alone cannot breathe a new life into this weary economy.
