After years of procrastination, cooperatives look set to join the stock market, as policymakers explore ways to reinvigorate Iran’s trading floors. Although no concrete decisions have been made yet, talks have focused on technical aspects, which might indicate that earlier worries have faded.
The plan to allow cooperatives’ stocks to be traded publicly has been on the table since the former ministry of cooperatives was merged with two other ministries four years ago to establish the Ministry of Cooperatives, Labor and Social Welfare. The merger was part of the drive to downsize government.
Now negotiations on establishing an exchange market for cooperative stocks have gathered pace, as policymakers are reforming Iran’s stock market after more than a year of underperformance.
In a senior meeting between representatives of Securities and Exchange Organization, stock market and the cooperatives sector, Mashallah Azimi, head of Iran Chamber of Cooperatives, stated: “The creation of specialized capital funds and brokerages will be seriously considered for the cooperatives sector, as will employing financial instruments from the investment market,” according to Fars News Agency.
Nevertheless, the plan to create a stock market dedicated to cooperatives is still in its early stages. Azimi confirmed this by saying: “SEO and ICC should organize a joint workgroup tasked with removing obstacles facing the cooperatives sector for it to play a significant role in the capital market.”
One of the impending issues is the incompatibility of the software currently used in the stock exchange with trading cooperatives’ stock. Another is the critics’ argument that allowing cooperatives to sell their stocks could make these firms dependent on market forces.
Some politicians have also criticized the effects such a move could have on provincial cooperatives, arguing that it could potentially endanger provincial investors. So far, these voices have been effective in keeping the parliament opposed.
The political debate, however, is in stark contrast with government directives. The general policies outlined in Article 44 of the Constitution stipulate that the share of the cooperatives sector in the national economy must increase to 25 percent by the end of the Fifth Five-Year Economic Development Plan in 2016 and selling stocks publicly is one of the main ways through which this target could be achieved.
Opposed to the parliament stand bodies charged with executing the development plan, particularly the Ministry of Cooperatives, ICC, Ministry of Agricultural Jihad, Ministry of Economy and Financial Affairs, Central Bank of Iran and the Management and Planning Organization.
Article 44 mandates the privatization of up to 80 percent of most state-owned enterprises, including cooperatives.
Azimi stresses that privatization and cooperatives’ full access to the money and financial markets are among policies that have always been supported by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei.
Mohammad Fatanat, head of SEO, pointed out that “a cooperative stock exchange, which would be the fifth pillar of the investment market, can be realized by establishing the necessary infrastructure and expertise.”
The first stage of the plan would see cooperatives enter Iran Fara Bourse–an over-the-counter market for securities and other financial instruments in Tehran. If successful, a specialized exchange for cooperatives will be created.
Challenges Facing Cooperatives
Constitutionally, cooperatives are defined as functioning between the private and public sectors. Cooperatives are normally small businesses owned and operated for the benefit of those who are using its services. Hence profits should also be returned to the costumer-owners of the organization. Cooperatives normally have a one member–one vote system, which inhibits investors from accumulating power.
Iraj Nadimi, who heads the cooperatives fraction in parliament, believes badly executed privatization has negatively affected the cooperatives sector. Privatization in Iran has often implied the continued involvement of the government.
“The government has retained its own share in nominal privatization and even if it has one vote, it has all the power. Despite privatization, the government has retained its seat.”
Cooperatives have also lacked funding. According to Nadimi, during the administration of former president Mahmoud Ahmadinejad, cooperatives were temporarily cut off from the money market. Cooperative banks, such as Tose’eh Ta’avon, are also extremely underfunded. He says regular banks and credit institutions are often unwilling to lend to cooperatives, because they “don’t care about production.”
