Economy, Business And Markets

Small Industries Main Contributor to Employment

Small Industries Main  Contributor to EmploymentSmall Industries Main  Contributor to Employment

Small industries now account for 45 percent of total employment in the country, according to the deputy head of the Iranian Small Industries and Industrial Parks Organization (ISIPO).

Small industries contribute by 17 percent to the total production value, by 10 percent to exports, and by 16.8 to the added value in the manufacturing sector, said Gholamreza Soleimani addressing a conference held Wednesday in Tehran to honor small industries' exporters.

In the event, top government and private sector officials discussed the export barriers against small industries.  

 Adverse Effect of Sanctions

Prices of Iranian exports have relatively decreased as a result of economic sanctions imposed by the West on the country’s economy, said Valiollah Afkhami-Rad, head of Iran’s Trade Promotion Organization (TPO).

To curb repercussions of sanctions, major macroeconomic plans have been devised like the 5th Five-Year Economic Development Plan, the resistance economy program, and the government’s recent plan of action to exit recession, Afkhami-Rad noted.  

To boost exports, said the official, “it is necessary to enhance capacity in building different industries and at the same time to diversify our products.”

Both the government and the private sector need to closely cooperate with each other to enhance exports, according to Afkhami-Rad.

“The government should also help facilitate exports and build the necessary platforms through developing border posts, equipping export terminals, eliminating the cumbersome regulations, and reducing the number of required export documents to accelerate future trade,” said the official.  

 The private sector, on the other hand, will need to increase the quality of manufactured products, he said, if the sector is to have a long-term presence in the market.

“Unfortunately, due to frequent breaking of promises and sometimes the low quality of manufactured goods, the sector had a short-term presence in the global markets,” said the official, adding that this could bring irreversible damage that might never be compensated for.

He said that as a result of not living up to their initial promises, and poor quality, prices are not competitive, adding that exporters need to plan for a long-term presence in the global market.

“The manufacturers should not only consider domestic needs, but they should also have an eye on exports,” said Afkhami-Rad, adding that the situation in the manufacturing sector is now different  from the past, as “previously, manufacturers were worried about developing the required machineries and the raw material when they wanted to establish a production line.”

However, the manufacturers’ concern has now shifted towards whether to focus on domestic or foreign customers.

 Need to Relax Price Controls

The economy needs to get rid of government control over prices, if competitive pricing for export products is to be maintained, said Afkhami-Rad.

“Price control is poison for the economy, which in many cases results in the overproduction of unwanted goods,” he said, hoping that the current price control over goods like cement is removed in the near future.

The experience has already proven to be unsuccessful and brought unfavorable results to the economy, said the official, adding that price control needs to be avoided at present.

 Export Obstacles

The Ministry of Industry, Mine and Trade has came up with a report on the status and problems of small and medium industries, which is to be submitted to the president in the near future, said the deputy minister.

“The unsuccessful experience with early-return enterprises has made the banks reluctant to grant loans to small industries,” said Mohammad Ali Abrishami, adding that as a result, now the industries have difficulty with having access to banking resources.  

Small industries can be used to help exit recession, said the deputy minister, who asserted that authorities must raise awareness about the issue.

According to the deputy head of Iran Small Industries and Industrial Parks Organization, “early-return enterprises was a good idea that was unfortunately implemented by the previous government”.

All around the world, small industries help economies in different ways such as creating job opportunities, said the official.

However, in Iran a negative approach has been developed in the banking system towards small industries, so that the banks think that awarding loans to these industries would be a waste of their resources.  

Gholamreza Soleimani attributed the weakness of small industries to lack of required skills in specialized fields, use of inferior technologies, low value-added activities, lack of research and development (R&D) departments in small industries among other issues.

Elsewhere in the conference, CEO of Export Guarantee Fund of Iran (EGFI) said that while advanced countries around the world provide their exporters with 60 percent of the value of exported goods, the percentage is only 10 percent in Iran.

The reason can be traced back in high interest rate of export facilities, according to Taher Shah-Hamed, who went on to say that “the 26 percent interest rate has made the situation difficult for our manufacturers and exporters.”

The official also called for the banking system to provide exporters with line of credit payment (LOC), to help them in the process of exporting their goods.

“More than 70 percent of Iran’s exports is sent to 5 countries,” he said, adding that that we need to diversify our export targets.

 Ways to Enhance Export

Making use of export consultants can be a good strategy for small industries to enter the market, according to Afkhami-Rad.

“As small industries are mostly not familiar with export processes, we advise them to make use of export specialized consortiums and export companies so that they can deliver their own products,” he said, adding that otherwise they might not be able to compete with large companies in the market. He also called for establishing a fund and creating a specialized export association for small industries.

 Some Figures at a Glance

Presently, the establishment of 943 industrial parks has been approved by Iranian Small Industries and Industrial Parks Organization, according to the deputy head of ISIPO, of which 733 parks have been transferred to private ownership.  

“Small industries contribute to 92 percent of the whole industry sector in developed countries,” said Soleimani, who added that they support larger industries and contribute to the economy as a whole.

There are also 388 recognized industrial clusters in the country, said the official, while 85 other industrial clusters and consortiums are currently being developed.

Alireza Soleymani, CEO of the industrial parks of Tehran said that there is no classification for small industries by the Iranian Statistics Organization.    He said that we expect the statistical organization to open a new file for small industries.

As for the problems of small industries, the official said that their strength included variability and innovation but their weaknesses include managerial problems, traditional thinking and inattention to market requirements.

 Gov’t Possesses 70 percent of Economy

Seventy percent of Iran’s economy is in the hands of the government, according to the secretary-general of the chamber of commerce. However, the government is determined to transfer its ownership into private hands, Hossein Noghreh-Kar said.

“The government is planning to boost the role of the private sector in the field of exports,” he said, adding that it will be necessary for small industries to enter new markets.