Domestic Economy

Gov’t Wakes Up to the Great Potential of SMEs

Gov’t Wakes Up to the Great Potential of SMEsGov’t Wakes Up to the Great Potential of SMEs

As part of its policy to promote and empower small and medium enterprises, the government plans to allocate 20 trillion rials ($600 million) to such industries from the Investment Guarantee Fund for SMEs during the current Iranian year which started March 21.

The fund, which will be provided in collaboration with the Bank of Industry and Mine, is expected to double in size within two years, Mehr News Agency quoted deputy minister of cooperatives, labor and social welfare, Mohammad Ali Seyyed-Abrishami as saying.

The move aims to address a pressing need by SMEs for funding, which was aggravated over the past years due to unavailability of sufficient financial support by the government and the banks' inability to lend to small-scale industries, said the official.

The Investment Guarantee Fund for SMEs was established in 2004 under the supervision of the Ministry of Industries, Mining and Trade to provide funding and working capital for the establishment of new SMEs as well as development and upgrading the existing SMEs. But according to Seyyed-Abrishami, until 2013 the fund only provided 210 billion rials ($6 million) for this purpose.

This is while a recent study by the Parliament's Research Center indicates that nearly 40% of the difficulties faced by small and medium enterprises are finance-related, Persian daily Donya-e Eghtesad reported.

The report also shows that over the past years, 72% of loans have been granted to 10% of companies with largest assets, while only less than 1% was given to 10% companies with smallest assets.

Ever since President Hassan Rouhani's administration came to power in 2013, Minister of Cooperatives, Labor and Social Welfare Ali Rabei has emphasized the need to empower SMEs as drivers of growth and a remedy to the unemployment problems. He adopted the motto 'Small-Scale Enterprises, Large-Scale Employment' to underscore this policy.

The Ministry of Industries, Mining and Trade recently announced plans to establish 21 new industrial parks and areas by 2017, further highlighting the need for financial assistance to the small companies.

> Major Challenges

Seyyed-Abrishami believes the smaller industries face with crucial problems as a result of excessive imports as well as the economic sanctions (imposed by the West over Iran's nuclear energy program), which limited their access to modern technology, thereby reducing competitiveness.

The Parliament report lists the major obstacles facing small, medium and large enterprises. These obstacles include, among others: lack of financing, high inflation, obsolete laws and regulations, instable policies, corruption, as well as infrastructural and legal issues.

The economy is to a very large extent dominated by large public and quasi-public enterprises that control up to 80% of the economy. This is especially true with regards to the businesses engaged in exploiting, processing and trading crude oil, petroleum products and natural gas, which provide some 80% of Iran’s export earnings and around 40-50% of the government budget. As a result, the overall economy has grown heavily dependent on oil and the mainly state-owned large enterprises, in spite of the fact that the majority of businesses belong to the category of micro, small and medium-sized enterprises.

A report by the United Nations Industrial Development Organization published in 2003, put the number of formally registered small and medium-sized industrial SMEs in Iran at around 345,000, of which 96.1% belong to the category of micro-enterprises, defined as those with 1-9 employees, 3.3% to the category of small enterprises with 10-49 employees, 0.3% to medium-sized enterprises with 50-99 employees, and 0.4% to businesses larger than 100 employees. The Parliament study suggested that the industrial SME sector has tremendous scope for growth, and by that token has great potential for generating new jobs.