Economy, Business And Markets

Raw Material Exports: Causes and Consequences

Raw Material Exports: Causes and ConsequencesRaw Material Exports: Causes and Consequences

Norwegian economist, Erik Steenfeldt Reinert, is not only well known in his home country for introducing controversial ideas on the theory of uneven development, he has also been widely noticed internationally after writing his 2007 book titled “How Rich Countries Got Rich …  and Why Poor Countries Stay Poor”, which stirred the growing worldwide movement against neo-classical economic theory.

In his book, Reinert claims that rich countries got rich through the realization that selling finished products was more worthwhile than selling raw materials, unlike underdeveloped nations that sell their natural resources to developed states with advanced manufacturing technologies. Therefore, rich nations create jobs and increase their revenues by producing finished commodities, using resources from those countries that lack the technological knowhow. Iran could be categorized in the latter group.

A member of the Parliament’s Industries and Mines Commission, Mohammad Bayatian, wrote in the Persian daily Forsat-e Emrooz that export of raw materials is like a “cancerous disease” that has inflicted Iran’s manufacturing, industrial and labor sectors for years.

“This problem stems from the fact that the government failed to invest the revenues generated from export of oil, agricultural products and minerals to develop the manufacturing sector and create value-added industries and jobs,” wrote the expert.

The issue of curbing raw exports has been a key concern for every government that has assumed office in the past three decades. Bayatian, however, believes that tackling the issue requires comprehensive and long-term planning beyond the short-term remedies offered by every administration during its term.

The main reason behind high raw exports by mine-owners, according to many experts, is linked to mismanagement of logistics that renders mineral processing unfeasible.

Mining expert Hassan Hadian believes that the long distance between mineral deposits and processing plants leads to a surge in transportation costs that considerably narrow the profit margin.

“In some cases, the transportation cost is even higher than the production cost,” he said, citing Khaf iron ore deposit in northeastern Khorasan Razavi Province as one such example.

“While the government was expecting to produce more than 10 million tons of steel from Khaf’s iron ore annually, extraction from the mine stopped soon after it began operation. This was because the iron ore had to be transported hundreds of kilometers to steel manufacturing plants in the central Isfahan Province, which was not economically feasible,” he said.

Bayatian, however, disagrees with this being the main cause for raw exports, arguing that similar transportation costs are incurred for shipping the raw material overseas.

Albert Boghzian, economic expert and professor in the University of Tehran believes that part of the issue is resulting from lack of proper marketing for domestic products. “This could be the reason why customers overseas turn to Iran for purchasing raw materials alone,” he said.

According to Boghzian, even if the country shifts entirely from raw material exports to producing finished goods, the government will still face problems finding customers for these products without proper international marketing strategies.

The Ministry of Industries, Mining and Trade last week outlined general guidelines and quantitative objectives of the 20-Year National Vision Plan for industrial and mining sectors up until 2025, which envisions increasing the share of industrial value-added in gross domestic product and increasing the share of national industrial value-added in global value-addition in the industrial, mining and trade sectors.

Establishing mineral processing and refining units, along with exploring the international markets for export of finished products, is necessary for the government to achieve this goal.