Domestic Economy

Privatization Fails to Impress

Privatization Fails to ImpressPrivatization Fails to Impress

Nine years after the declaration of general policies of Article 44 of the Constitution by the Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei, which calls for privatization of major state-owned companies, proper implementation of the law remains a major challenge.

Of the 1,100 state-owned companies listed for privatization, only 50% were ceded to the private sector by the end of last Iranian year (March 20), according to deputy economy minister and head of the Iranian Privatization Organization, Ashraf Abdollahpour Hosseini.  

“Majority of the privatized companies so far have been small and medium size enterprises while most large companies were acquired by quasi-government organizations, as the genuine private sector could not afford them,” Mehr News Agency quoted him as saying.

He criticized the managers of government organizations, blaming them for resisting the process of privatization rather than supporting it.

Privatization has been on the government agenda since the early 1990s when the first Five-Year Development Plan (1991-1996) was prepared, but not until the third FYDP was it considered seriously.

A major step forward towards privatization was in July 2006 when the Leader approved and decreed a new interpretation of Article 44, calling on the government to accelerate the process of implementing the general guidelines of Article 44, “to support the targets envisioned by the 20-Year National Vision Plan (2005-2025) and promote economic development, social justice and poverty alleviation.”

The main objectives of the privatization program include reducing the government’s role and promoting the private sector in economic activities to accelerate economic, reducing the financial burden on the government encumbered as a result of its controlling share in economic activities and enhancing efficiency and productivity in large enterprises.

The decree obliged the government to transfer 80% shares of the companies subject to Article 44 of the Constitution to public ownership. These companies included downstream oil and gas industries, large mines, government banks, post and telecommunications, aviation and shipping organizations, insurance companies, power provision companies and all government companies except those in which the government has a monopoly.

While efforts have been made over the past nine years to implement the law’s provisions, experts believe full implementation of the law has not yet been realized and has, at times, even deviated from its main objectives.

Lack of trust in the competence of private companies and transfer of state-owned companies to quasi-government organizations, challenges in pricing stocks of the listed government organizations and the private sector’s inability to purchase stocks of listed companies are some of the main challenges in implementing the law.

Critics of privatization also point out that some of the companies listed for privatization were never actually privatized as they were transferred to pension funds and foundations as part of the government’s huge debts to such organizations.

Ever since President Hassan Rouhani assumed office in August 2013, the privatization pace has slowed down. “It could be a sign that the government intends to implement real privatization rather than transferring ownership to quasi-government organizations,” economic expert, Morteza Delkhosh told ISNA.

In any case, future privatization steps will need to focus more on promoting the real private sector and increasing efficiency and productivity.