The Iranian governments have tried to reduce some of their obligations in recent decades due to limitations on financial resources and new expenditures and tasks they have assumed. In doing so, free trade zones and metropolises were hurt in an almost similar way, says Nasser Zakeri, an economist, in an article for the Persian daily Shargh. A translation of the text follows:
One of the main reasons behind the relative failure of free zones in our country compared with competing free zones is their lack of adequate infrastructures since the very beginning. Instead of allocating resources to improve the infrastructures and attractiveness of FTZs for investors, the government has forced the organizations in charge to sell land to provide the necessary financial resources. This comes as rivals had the necessary infrastructures at their disposal from the get-go.
That the total annual turnover of Iran’s seven FTZs is not comparable to say, the $100-billion turnover of the UAE’s Jebel Ali has many reasons, but undoubtedly the government’s failure to provide infrastructure is the most important of them.
Iran’s free trade zones were struggling with the provision of resources to complete the infrastructure chain since their establishment. Apparently, the statesmen of the time believed that by just giving the name of FTZ to a region and introducing investment incentives, the price of lands owned by FTZ organizations would increase and so the organizations can generate resources by selling land.
Article 24 of the law on FTZs refers to the provision of income through the sale or lease of land by the organizations in charge of managing the zones.
Over the past years, the reliance of free zone organizations on land sales as a source of income has increased continuously. Land and real-estate sales account for 43% of capital expenditure of FTZs in the current year’s budget (2022-23).
However, the excessive sale of lands within the free zones can destroy the path to prosperity and deprive FTZs of the opportunity to achieve sustainable development. This approach has turned property sale to a profitable business in FTZs. But the point is that the lion’s share of this profit goes to land buyers, because the FTZ organizations are forced to offer their lands at cost, as the region is plagued by poor infrastructures; when this shortcoming is eliminated, the price of land increases and the large part of the profit goes to the current land owners. In other words, the land is sold at a low price.
Efficient Governance Underlined
Metropolises are also affected by this budgetary approach in another way. Urban management in large cities has to fund huge construction projects to improve the well-being of citizens from its limited resources. The move leads to excessive reliance on income from unrestrained construction.
The government’s approach regarding reducing the burden of its obligations in the free trade zones and large cities has solved some budgetary problems. However, it has distanced the free zones from their real function, i.e., attracting domestic and foreign investors. After all, investors don’t like to work in areas where infrastructures are not adequate.
Also, it has forced both free zones and large cities to block their own way toward development by selling land or allowing unrestrained construction. This approach reduces the power of FTZ organizations to influence the future of the region as they have given away most of their properties only to achieve budgetary goals. Over the years, they will not have enough land to hand over to economic players.
Municipalities also impose an unfavorable construction pattern by allowing unrestrained construction, which deprives future managers of the possibility to carry out reforms for several decades.
The way out of this situation is to revise macroeconomic policies and reform the government’s budgeting principles. In the first step, the government should prioritize its tasks according to an efficient model; it needs to correctly allocate the budget to the most important expenditures and set aside less important goals. It should properly fulfill its neglected responsibilities regarding the country’s development.
