Economy, Business And Markets

Calls for Removing Private Sector Constraints

Calls for Removing Private Sector ConstraintsCalls for Removing Private Sector Constraints

Pundits are concerned that privatization in Iran, in the way it has been carried out, will actually damage the private sector, as quasi-state organizations continue to gain a stronger hold over the economy.

The debate over how ownership of Iran’s vastly government-owned economy should be transferred to the public heated up again recently.

Partly because of President Hassan Rouhani’s recent order, urging his administration to diminish its role in the economy for the sake of the private sector.

“The controlling powers in Iran’s economy are stopping privatization from happening,” Mohammad Lahouti, the head of Iran’s Export Confederation, was quoted as saying by the Persian daily Forsat-e Emrooz reported.

“Government organizations create numerous problems and undermine the real private sector at every turn, during privatization process,” says Feryal Mostofi, a senior member of Iran Chamber of Commerce, Industries, Mines and Agriculture.

The issue is that the infrastructure for proper privatization is lacking in Iran. Even with the bitter decade-long experience of privatization, regulations have not managed to stave off quasi–state enterprises from grabbing company ownerships.

“The government should provide a clearer definition of privatizations. It should set conditions to keep quasi-state entities out,” Mostofi said.

Under current conditions, experts believe the 120 to 130 companies that are yet to be privatized will end up in the hands of “those with power and money”.

Privatization of Iran’s heavily state-controlled economy started in the mid-2000s following a new interpretation of Article 44 of the Iranian Constitution by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei.

Since 2001, a total of 1.37 quadrillion rials (about $40 billion) of government property were privatized.

Around 44% of the shares were given to Social Security Organization, Armed Forces Social Security Organization, Civil Servants Pension Organization and others in return for money owed by the government to them.

Most of these “privatized” companies were already in trouble. The new owners, of course, did not have any experience running them, further worsening the situation. As a result, most of the major pension funds are currently in financial distress.

As for the 770 trillion rials ($22.4 billion) worth of shares sold to the public, large controlling stakes were again held by state players and their financial holdings, leaving management almost unchanged and bringing profits to quasi-state buyers. This drew much criticism from economists.

The decision-making process in these companies and the volume of shares sold to state enterprises are unknown today, but economists say between 3% and 40% of Iran’s economy are now in quasi-state hands.

The ambiguous governance of these organizations not only damages their profitability, but also threatens trust in the markets and endangers minority stakeholders as well as the wider economy.

“As long as healthy and equal economic conditions are not created and the government holds its grip on the economy, the private sector will not have the strength to grow,” Lahouti concluded.