Domestic Economy

Smuggling Down 40%

Smuggling Down 40%Smuggling Down 40%

Efforts to keep rampant smuggling in check are bearing fruit.

The Headquarters to Combat Smuggling of Goods and Foreign Exchange announced that the estimated value of goods smuggled in and out of the country in the last fiscal year (March 2015-16) stood at $15 billion, indicating a $10-billion decline compared to the years before President Hassan Rouhani took office in August 2013.

In an interview with IRNA, Qasem Khorshidi, spokesperson of the headquarters, described the decline as “an achievement, though the $15 billion are still alarming”, considering that the figure is nearly one-third of the total value of commodities imported through official channels during the period.

Smugglers make profit by bringing in a variety of goods. Cigarettes, cellphones, apparel, cosmetics and medicine currently top the list of contraband in the domestic market.

This is while fuel, which used to be the most favored commodity smuggled out of the country due to its cheap prices, no longer features on the list.

According to Khorshidi, 60% of the $10-billion drop in illegal trade owe to efforts to curb fuel smuggling, which stood at below $1 billion last year from $3.8 billion and $7 billion in the two years preceding the incumbency of President Rouhani.

The rising price of fuel is a major contributing factor. In recent years, the government reduced subsidies on fuel in addition to imposing quotas, which in turn made fuel less attractive for smugglers and helped narrow the difference between the price of the commodity inside the country and abroad.

Data on fuel consumption testify the fall in smuggling. Consumption of fuel, including gasoline, diesel, liquefied natural gas, kerosene and heavy oil, stood at 196 million liters last year, showing a 20% drop compared to the two preceding years.

As for diesel alone, consumption dropped by 12 million liters per day. “Estimates show that 9 million liters of this drop came after the policy of allocating gasoline quotas based on mileage was implemented. In fact this amount used to be smuggled,” Khorshidi said.

  Macroeconomic Policies

Apart from preventive measures, the government’s macroeconomic policies, including taming the runaway inflation and stabilizing foreign exchange rates, have also contributed to the reduction of illegal trade, according to the spokesperson.

By adopting disciplinary monetary policies, the government has been able to reduce the raging inflation rate of 46% when Rouhani was elected to around 10% these days.

Foreign exchange rates have also experienced little fluctuation in the past three years. Exchange rates saw about a threefold surge during the former administration as western sanctions imposed against Iran over its nuclear program tightened the noose around the domestic economy.

The situation turned the country into a breeding ground for profiteers who took advantage of the depreciating rial by smuggling goods and trading foreign exchange in the black market.

Rising inflation, on the other hand, pushed the prices of raw materials up, which led to the hike in the prices of domestically-manufactured commodities. Demand for smuggled products, which were cheaper in price in the absence of tax, tariffs or customs duties, grew, making illegal trade more lucrative.

Lower tariffs in recent years have played a major role in reducing smuggling.

According to Khorshidi, average import tariffs were lowered to 18% last year from 27% two years before.

Tariffs, and at times import bans, have been among the prime causes of smuggling in Iran.

“Import bans on certain commodities have now been lifted, meaning their smuggling is no longer viable,” he said.

By implementing electronic systems in customs affairs as opposed to paperwork, the government facilitated trade, lowered costs and reduced bureaucracy to a great extent.

Many businesses usually opt for illegal trade only to avoid cumbersome customs regulations, time-consuming procedures and excessive logistical costs. This is while electronic systems, experts believe, have helped bring 100-day customs procedures down to 15 days.

The government has also been using a tracking system to trace commodities throughout the production and distribution stages. The system has been used in case of medicine and is set to become operational for cigarettes and clothes, which made up a sizable share of the annual $15-billion price tag.