Domestic Economy

Home Appliance Sector Mulls Capacity Expansion

Production below capacity is widely attributed to low domestic demand and limited exports
Close to one-third of all home appliances in the Iranian market is smuggled.Close to one-third of all home appliances in the Iranian market is smuggled.

According to a recent report by the Ministry of Industries, Mining and Trade, plans are underway to increase the production capacity of home appliance sector. 

This is while production is presently way blow the current capacity. As a case in point, it is planned that TV production capacity be increased by 1.5 million from the current 4 million units per year. However, TV production for the 11 months of last Iranian year (March 21, 2015-February 21 2016) stood at 1.11 million units, with only 30% of nominal capacity utilized.

As for refrigerator, washing machine and evaporative cooler manufacturers, they are using 11%, 9% and 18% of their operating capacity respectively, according to Tehran Chamber of Commerce, Industries, Mines and Agriculture’s monthly publication Ayandenegar.

Below-capacity production is widely attributed to low domestic demand and limited exports. Other factors, according to the ministry’s report, include outdated production machinery and equipment, high production costs, lack of research and development, the multitude of domestic producers and inadequate after-sales services.

With Iraq being the largest market for Iranian products, the Islamic Republic is not a major player when it comes to home appliance exports. 

On the other hand, Iran itself is considered a sizable market for foreign brands. It is in fact the world’s 17th largest importer of washing machines, 23rd largest importer of refrigerators and 28th largest importer of TVs. South Korea and the UAE are the biggest exporters of home appliances to Iran. 

As for evaporative coolers, heaters and wall-mounted water heaters, imports are close to zero, however.

The home appliance market in Iran is worth 200 trillion rials (more than $4.95 billion at market exchange rate). Domestic production accounts for only a quarter of this sum and the rest is dominated by foreign brands, according to the Association of Household Appliances Industries of Iran. 

According to Habibollah Ansari, the head of Iran’s Home Appliances Industry Association, the main impediments to the sector’s growth include failure to take advantage of economies of scale, high banking interest rates and smuggling.

“Home appliance manufacturers will not be able to offer high quality and competitive prices unless they produce in higher quantities,” he said, adding that taking advantage of economies of scale leads to higher revenues, and in turn the chance to benefit from more advanced technology.

Ansari noted that the high rate of smuggling is slowly driving local producers out of business.

“Close to one-third of all home appliances in the Iranian market is smuggled,” Abbas Hashemi, an official with the Ministry of Industries, Mining and Trade, said.

About $485 million worth of home appliances were legally imported to Iran while exports stood at $170 million during the eight months to November 20, 2016.

“Smuggled home appliances meet 30-40% of the domestic demand,” Hashemi said.

“Iran’s old home appliance factories have not been refurbished over the past decades. They have been using the same technologies since the day they were launched.” 

The bankruptcy of Arj, Iran’s oldest home appliance manufacturer, recently grabbed the headlines in local media.

Being a state-owned firm with most of its shares belonging to Bank Melli Iran, companies like Arj faced an increase in expenses over the years following their nationalization after the Islamic Revolution of 1979, which left them with lower income and profits. 

Under the circumstances, these firms attempted to save themselves by drawing on heavy loans and subsidized banking facilities, which accumulated their debt and led them to bankruptcy.

Hashemi announced earlier this month that Iran is in talks with American home appliance makers General Electric and Whirlpool, as well as Italy’s Ariston, to revive bankrupt domestic manufacturers, including Arj.

“The ministry has initiated talks to sell Arj and similar [bankrupt] companies to the private sector, so that they can start joint ventures with credible foreign brands,” he said.

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