Domestic Economy

Private Sector Gears Up for Post-Sanctions Role

Private Sector Gears Up for Post-Sanctions RolePrivate Sector Gears Up for Post-Sanctions Role

As nuclear talks between Iran and P5+1 approach a final conclusion, the Iranian private sector and market analysts are preparing for a new chapter of economic activities, seeking to sketch a roadmap for the post-sanctions era.

Iran and six world powers—Britain, China, France, Germany, Russia and the United States—have given themselves until Monday to reach an agreement to end a more than 12-year dispute over Iran’s nuclear energy program by negotiating limits on Iran’s nuclear activities in exchange for sanctions relief.

Not to be caught unprepared, the Iranian private sector is analyzing opportunities and challenges facing Iran’s economy after the possible lifting of sanctions.

In the third meeting of Tehran Chamber of Commerce, Industries, Mines and Agriculture’s board members on Tuesday, participants discussed the significance of a comprehensive nuclear deal for Iran’s economy, the Persian newspaper Donya-e-Eqtesad reported.

  Reestablishment of Banking Relations

Member of TCCIMA’s board of directors, Mehdi Jahangiri, believes that reestablishment of interactions between Iranian and foreign banks and freeing up Iran’s frozen assets are two major positive outcomes of a nuclear deal.

“With international banking relations back to normal, business owners will be relieved of the heavy money transaction charges they are currently forced to pay. Moreover, sanctions relief would enable Iranian banks to extend lines of credit to overseas financial institutions, which is essential for boosting non-oil exports,” said Jahangiri.

  Foreign Investment Inflow

Attracting foreign investments is another positive outcome the Iranian business community could expect to benefit from. This is while some experts warn that if not well managed, foreign investments can be directed toward sectors that do not contribute to boosting production.

TCCIM member, Mohamamd Reza Najafimanesh, believes sectors suitable for absorbing foreign investments should be prioritized and measures taken to direct foreign investors toward joint ventures with these sectors.

Board member, Fatemeh Daneshvar, emphasized the need to support small- and medium-sized businesses in absorbing foreign investments, warning that otherwise, “large quasi-governmental companies could grab all lucrative projects in the post-sanctions period, employing smaller firms as contractors for these projects.”

  Increased Oil Revenues

Experts, however, warn that a sudden inflow of liquidity as a result of increased oil revenues could give rise to high inflation and excessive imports.

“Increase in oil exports would result in higher inflow of foreign currency. In the past, this has often led to an increase in the level of imports, posing serious threats to domestic production,” said TCCIM member, Mehdi Pour-Qazi.

Head of Trade Promotion Organization, Valiollah Afkhamirad, believes avoiding such a scenario requires prudent policies by the government at the macroeconomic level.

“The government should create an atmosphere in the country where production is preferred over foreign imports. Resorting to legal barriers such as imposing high import tariffs is another measure to control imports,” he suggested.

  Emotional Reactions

While some experts are also concerned about sudden and emotional fluctuations in the capital markets, senior economic expert Mousa Ghaninejad believes public expectations about the post-sanctions period have become more realistic than in the past.

“As the lifting of sanctions is a gradual process, significant improvement in the economy should not be expected before the end of the current Iranian year [March 19, 2016]. While market expectations could generate positive vibes in the country’s overall economic atmosphere, these expectations have become more realistic over the past two years in view of the government’s satisfactory performance. Therefore, sudden and emotional reactions are not expected in the capital, currency and stock markets,” he observed.

Ghaninejad believes the government should focus its short-term objectives on improving the business environment, “which has nothing to do with the sanctions.”

“Moving toward a free market mechanism, removing legal barriers to trade, implementing a single exchange rate, devising a mechanism for the government to repay its huge debts to various entities and empowering small- and medium-sized enterprises” are some of the objectives the expert suggests the government should pursue to prepare the economy for the post-sanctions era.