There have been three views on the impact of sanctions in the economic discourse of policymakers over the past years; one group believes that sanctions have no effect, what so ever; the second group says the sanctions have little effect on the economy, and the third group of policymakers is of the opinion that the sanctions have significant impact on the economy. The US government claims that the sanctions imposed on Iran are the most punishing in the history. Mehrad Ebad, a senior member of Tehran Chamber of Commerce, Industries, Mines and Agriculture prefaced his write-up for the chamber's website with this note. Below is a translation of the text.
Economic sanctions against Iran began at the beginning of the Islamic Revolution after Iran hostage crisis of 1979 and continued into the Iran-Iraq War. Brutal sanctions were imposed against Iran during the presidency of Akbar Hashemi Rafsanjani. Sanctions were eased during the administration of Mohammad Khatami, but regained steam during the presidency of Mahmoud Ahmadinejad. In 2006, the resolutions of the United Nations Security Council against Iran were approved and the sanctions became stricter. The Joint Comprehensive Plan of Action made a dent in the sanctions, but with Donald Trump in office, they were reinstated and have continued so far.
Young entrepreneurs, those who started their businesses during the past 15 years, faced new rounds of sanction over the time. When the JCPOA was signed, international trade almost returned to a semi-normal state for Iranians for a year. As a result, the private sector saw a relative stability in the business environment; international transactions were carried out directly, banking ties were established and, like in any other country, money could be transferred easily through the banking system.
The important point is that, unlike policymakers, entrepreneurs have acknowledged that sanctions have plagued their businesses in the last two decades. Young entrepreneurs who were mainly born after the revolution and have lived through sanctions; these people bore the brunt of sanctions. They did not have the chance to improve their financial footing through a transparent procedure and therefore are less resilient in the teeth of storms compared to large businesses.
Five business fields that have been troubled the most by sanctions are banking, human resources, money supply, imports and export.
Banking
With the beginning of the new round of sanctions, LC (letter of credit), one of the most widely used payment methods in Iran and the world, was removed from the economic exchanges in Iran. Transfer of currency through banks has not been possible for years now, the private sector and small and medium-sized enterprises have been able to transfer money only through brokers.
Most of the foreign traders have been in this field for no more than 10 years; they are not familiar with the process of money transfer by letter of credit; this is a big threat because once international ties are formed again, the Iranian business community will have no knowledge of the world's payment methods. In addition, banking processes have made significant progress in the past decade; this would compound our problems. Letters of credit in advanced countries have gone electronic and we have failed to keep up with the times.
Banking was one of the main sectors hit by sanctions; most of the international currency transactions were practically removed from the banking business in Iran, banks turned into regulators who, by receiving 30% of foreign currency deposits, have only supervised the transfer of money. The transfer of funds is also carried out through central bank authorized brokers.
SMEs had to buy currency at a higher rate during the sanctions era and there was no guarantee that the broker would transfer the money; payments were occasionally made with long delays.
Human Resources
Over the past decade, we have been faced with a significant increase in the migration of the elite. It has become immensely difficult to employ skilled workers; the migration of efficient human capital has led to the shortage of specialized workers. I remember 20 years ago, long queues used to be formed for job vacancies, but now, a handful of applicants show up for an expert job opening.
Lack of Working Capital
SMEs have been struggling with lack of working capital to start or expand their businesses in the past couple of decades. Difficulties regarding securing international loans or domestic loans without real-estate collateral and the double-digit inflation stemming from sanctions have undermined the financial power of companies, especially smaller companies.
Imports
There is no denying the fact that economic players need to have high quality raw materials to manufacture high-quality products. A large part of raw materials is not produced in the country; they are supplied via imports. Despite sanctions, imports of raw materials have decreased over the past couple of years because first, foreign companies were reluctant to cooperate with Iran and second Iran's foreign currency resources were limited.
Foreign companies' reluctance resulted in increase in price of goods. Business owners started to register their companies in foreign countries, and foreign companies cooperated with Iran through small, third-party companies. Lack of direct communication with suppliers has been problematic; Iran's foreign trade is not in line with international standards. Notably, when compared to large state-run companies, SMEs were more capable of end running sanctions.
Exports
Fewer foreign buyers have been willing to work with Iranian companies during the sanctions. Therefore, neighboring countries became Iran's main export destinations. The legal obligation to return exports gains to the country has been the main problem resulting from sanctions. The process is not possible through banks and the revenues gained from exports are be received through forex brokers or in cash. On the other hand, destabilizing decisions made by policy makers have tightened the noose on exporters.
All in all, sanctions have inflicted great damage on young entrepreneurs. We hope to see Iran's path to development become even and the country forge normal international relations with the world.
