Economy, Business And Markets

Domestic Furniture Industry Awaits Better Times

Domestic Furniture Industry Awaits Better TimesDomestic Furniture Industry Awaits Better Times

The Iranian furniture industry has over the past years experienced tangible growth, however experts believe adverse government policies have prevented the industry from unleashing its full potential.

Hassan Ahmadian, head of Iran Furniture Manufacturers and Exporters Union (IFMEU), argues that furniture industry contributes to about seven percent of total national employment and generates a total of 300 trillion rials ($9.4 billion) in tax revenues every year, according to ISNA news agency.

This combination of labor intensity and high profitability could prove truly useful at a time of economic slump and high unemployment.

Since 2012, the domestic furniture industry has been hard hit by extended sanctions (imposed on Iran by the West over the country’s nuclear energy program), which severely reduced the number of foreign producers in the market, leading to less competitiveness.

 “Domestic producers face many challenges, including the import of cheap products, a new preferential agreement with Turkey and limited credit facilities,” Ahmadian said.

The furniture industry is one of Iran’s oldest industries, but experts believe recent government policies have caused an array of problems for the producers.

The head of the IFMEU cites high tariffs on primary goods as one reason why Iranian manufactures have a hard time competing with foreign firms, mostly Turkish ones. MDF and other imported materials account for 60 percent of the cost of finished goods, he stated in a recent interview with the Persian daily Ta’aadol.

Additionally, taxes are blamed for being too high. Abdolhossein Abbasi, vice-president of IFMEU, told Ta’aadol that “[furniture producers] are forced to pay a 9 percent tax rate, which, if added to other costs […], does not make economic sense.”

Nevertheless, Ahmadian argues that domestic companies cannot substitute imported goods because “the components produced in Iran cannot satisfy the needs of domestic producers both in terms of quality and quantity.” Apart from MDF, timber is another case in point. Due to limited forestry, Iran is forced to import much of its wood from neighboring countries.

Ali Ziay’ee, who works as a director at the IFMEU, complains that timber is often smuggled into Iran. “The amount of timber smuggled is 7 times higher than the limits proscribed by the government, Ziay’ee added.

In early 2015, the government decided to lower tariffs on finished furniture by 40 percent. Although intended to liberalize the Iranian market and increase the international competitiveness of domestic firms, some market participants condemn this measure for being unfairly advantageous to foreign firms.

The vice-president of IFMEU says importing furniture is now “as easy as rolling off a log.”

According to Abbasi, most imports come from China, Malaysia, Turkey, Indonesia and Vietnam, while 15 to 20 percent of domestic production is exported to countries like the UAE and South Africa.

Over the past 15 years, Iran’s furniture industry has grown significantly, “but necessary government support has not been significant,” Ziay’ee stated. He says Iranian producers have found a large export market in Iraq. Amid an armed conflict in the neighboring country, Iranian exports plummeted, although they reached $24 million in the past Iranian year.  

Predicting the development of the domestic furniture industry over the next few years would be hard.

Ahmadian summed up “lack of support for domestic producers and the high cost of primary goods” as among the main challenges facing the furniture producers in Iran. Once these challenges are tackled, the industry will be on track to experience a major boom.