Devastating floods of late destroyed buildings and infrastructures across Iran, regardless of the time spent on constructing them and the degree of certainty we felt about their structural resilience. Infrastructures and buildings are redeemable but regaining people’s trust is an extremely long-drawn-out process.
Masoud Khansari, the head of Tehran Chamber of Commerce, Industries, Mines and Agriculture, prefaced his article for the Persian economic daily Donya-e-Eqtesad with this note. A translation of the text follows:
These unwelcome events have sent a message to the people that dams, roads and even the ground they walk on cannot be trusted. Distrust and uncertainty is the same scourge that plague the country’s business environment; it is not a natural disaster; it is the outcome of misguided policies adopted in the past few decades.
The accumulation of the consequences of those policies has turned into a flood of distrust and uncertainty, whereas we could prevent this flood simply by paying attention to the warning signs.
First: The extensive effort of the private sector to improve the business environment, both for the development of domestic activities and attracting foreign investment, has led to the approval of the promising law entitled “Continuous Improvement of the Business Environment” in the early 2010s. However, studies conducted by the Iran Chamber of Commerce, Industries, Mines and Agriculture show that the total index of the implementation of the 53 provisions of this law up until March 2020 stood at 59.31% and the realization of its 14 objectives was 57.09%.
On the other hand, the major part of this realization pertains to the duties and responsibilities assigned for chambers, which usually have little impact on the improvement of business environment when compared with the duties of the government.
It should be noted that the performance of “the dialogue council between the government and the private sector” as a joint sector of governance and the private sector has been remarkable. In fact, significant articles of the law, including articles 2 and 3 that require the government to consult with the private sector before taking any decision, were rarely implemented by the policymaker.
Second: In early 2017, when the society had high hopes about the future, Tehran Chamber of Commerce, Industries, Mines and Agriculture carried out a survey about the expectations of economic players from the then government. More than 2,000 private sector players participated in this survey; their first demand was “the improvement of business environment” with 42.43% of the votes. Such a demand came amid the removal of sanctions, single-digit inflation rate and double-digit economic growth. Markets had reached relative stability and the economy seemed to continue its upward trend.
However, the business environment was not favorable because over the past decades, both during the economic boom (expansion) and bust (recession), the Iranian government has not been willing to forgo its interventions; it has even expanded its bureaucratic system. In other words, even in the most favorable economic conditions of the last decade, there was uncertainty among economic players.
Third: ICCIMA has been compiling and publishing reports on the national business environment for several years now. These reports show the inappropriate components of the business environment. In all the quarterly reports, the “unpredictability and instability of the prices of raw materials and products” and “instability of policies, rules and regulations and business procedures” were among the top three undesirable factors affecting Iran’s business environment. Uncertainty has been the main issue in the country’s business environment for several years.
Economic players can’t find a convincing answer to this important question: “What will the politicians and decision-makers do next?”
The uncertainty of government strategy regarding key micro and macroeconomic issues, namely reducing the budget deficit, controlling money supply and inflation, advancing negotiations to remove sanctions, transparency of foreign exchange policy, development of export, improving the process of securing business licenses and attracting domestic and foreign investment, avoiding the issuing of excessive, ad-hoc directives, bans and restrictions on exports and imports, expansion of command pricing and making its process even more difficult are factors that create uncertainty for businesses. This chronic uncertainty has led to the current circumstances.
The rate of depreciation has outpaced investment rate. The accumulated uncertainties in recent years have turned into a flood that is inundating the business environment. These uncertainties have inflicted huge damage on the economy; yet this is not the end of the story. The nettlesome issue is that the flood of uncertainty will lead to a crisis of disappointment; migration of human and labor capital is irreversible.
A policymaker whose priority is to improve the country’s business environment needs regulatory tools rather than stewardship; they need to reduce the degree of intervention, although you can hardly see such a desire [among policymakers].
