Economy, Business And Markets

Challenges of Privatizing Customs Affairs

Challenges of Privatizing Customs Affairs
Challenges of Privatizing Customs Affairs

More than nine years after the declaration of general policies of Article 44 of Iran’s Constitution by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei, which calls for privatization of major state-owned companies, the road to full privatization remains bumpy.

Experts and analysts have attributed the slow and inefficient process to various factors, such as incompetent private sector, government’s reluctance to change the traditional roles, neglecting priority-setting and lack of transparency in the process.

Since its election in 2013, the administration of President Hassan Rouhani has paid special attention to the private sector, generating new hopes that the process of privatization will be accelerated. But the proper timing, procedures and types of companies listed for privatization need to be thoroughly examined in advance.

Article 44 divides the economic system into three main sectors, namely public, cooperative and private sectors. In 2006, the Leader decreed a new interpretation of the article obliging the government to bestow all but certain affairs singled out by it to non-state, private and cooperative sectors.

The law has provisioned three groups of state-owned enterprises; the government has been prevented from ownership, investment and managerial rights in group I organizations; the government is obliged to transfer 80% of the total value of group II organizations to private, cooperative and public nongovernmental organizations, while ownership, investment and managerial affairs of group III organizations are exclusive to the government.

Privatization of the Islamic Republic of Iran Customs Administration, in line with the general policies of Article 44, has been a matter of debate over the past years. While the law obliges the government to transfer part of customs affairs to the private sector, experts believe the activities and responsibilities of IRICA must be prioritized for privatization and their ownership transferred in due time, according to an article by Persian daily Forsat-e Emrooz.

Head of the High Council of Imports at Iran’s Chamber of Commerce, Industries, Mines and Agriculture, Mohammad Hossein Barkhordar, believes that certain responsibilities of IRICA must remain in government hands and that the government must maintain its supervisory role in affairs transferred to the private sector. He suggests that the private sector can be involved in all areas, except those involving direct income for the government.

  Partial Privatization Endorsed

Privatization of customs affairs has previously been implemented in several customs warehouses across the country. Mohammad Lahouti, the head of Iran Export Confederation points out that while privatizing the customs warehouses resulted in improved quality of services, it eventually led to increased cost of import and export.

He suggests leaving the transfer of export and import activities to the private sector for the last stage of privatization, pointing out that “as long as the economic conditions for private, public and quasi-government sectors are not equal, privatization will lead to increased costs for consumers.”

Keyvan Kashefi, a board member at ICCIMA, joins the other two experts in endorsing partial privatization of customs affairs. He suggests that the supervisory affairs can be eventually transferred to the private sector through establishing organizations and agencies tasked with coordinating policy between ICCIMA and the private sector.

The expert also suggested the private sector be invited to participate in development of infrastructure and facilities required at customs terminals across the country.

He pointed out that while privatization could increase the costs of customs services, it should be partly compensated by higher efficiency.

“The private sector can handle a task that may take 25 days for the public sector in less than 10 days. This would increase business turnover,” he noted.

  Smuggling Not Affected by Privatization

Addressing concerns that privatization could give rise to smuggling, the experts point out that smuggling is, above all, fueled by high import tariffs and cultural issues, and will not be affected by privatization.

“As long as import tariffs are high, smuggling is profitable,” said Lahouti, adding that smuggling costs the government a huge part of its revenues annually.

The process of transferring state-owned companies to the private sector started about six years ago—three years after the general guidelines of Article 44 were approved by the Expediency Council. However, some of the companies listed for privatization were never actually privatized as they were transferred to government-owned entities and organizations as part of the government’s huge debts to those entities. Of the 1,100 state-owned companies subject to Article 44, only 50% were ceded to the private sector by the end of last Iranian year (March 20, 2015), according to deputy economy minister and head of the Iranian Privatization Organization, Ashraf Abdollahpour Hosseini.