Economy, Business And Markets

Three Barricades to Foreign Business

Three Barricades to Foreign BusinessThree Barricades to Foreign Business

Iran has entered a new era, people say. Sanctions have been lifted, after a decade-long dispute over Tehran’s nuclear program, paving the way for normalized relations with the world.

However, businesspeople are wary. They gripe that the deal has not brought the swaths of foreign investors and wealth it promised. So much for patience.

Bear in mind the deal was implemented just four months ago. That is too short a time for the effects of sanctions relief to materialize. It is too short a time for foreign companies to get a good picture of the investment opportunity that is Iran.

“Iran needs courageous decision-makers to grow its economy and attract foreign investment,” President of Tehran’s Chamber of Commerce, Industries, Mines and Agriculture Masoud Khansari recently wrote for our sister publication Donya-e-Eqtesad.

“We have yet to pass the first obstacle to growth. Our business environment falls short of our needs. More importantly, our managers continue to lack the courage to take big decisions,” wrote Khansari in his opinion piece.

Iran is emerging from a deep recession. It needs sustainable long-term growth between 6-8%. According to top presidential advisor, Masoud Nili, it will take three years of over 6% growth for income levels to recover to pre-recession levels.

The economy is projected to grow 5% in the current fiscal year (March 2016-17). If the economy is to stabilize and benefit from sanctions relief, there are three sticking points needing immediate solution.

First comes the banking system. Banks are far behind on standards. This regulatory rift between them and their foreign counterparties is a big sticking point for foreign firms.

Add to that the hazard of running afoul of the Office of Foreign Assets Control—a US body monitoring compliance with sanctions—and you understand the hesitation of foreign companies for dealing with Iran’s financial system.

Also, the opaque ownership structures of quasi-state and state companies makes it hard to tell who you are actually dealing with.

Iran’s foreign exchange is the next obstacle to connecting with the business world. The country is using a multiple exchange rate regime. The US dollar for example is worth 34,400 rials in the open market.

The government maintains the official rate of 30,360 per dollar for authorized purchases of items deemed essential. However, the central bank never shies away from heavily controlling the open market rates either. This has to change.

“The most important factor on economic resiliency currency management,” wrote Khansari, who believes the government should unify foreign exchange rates and end the corruption that plagues the multiple exchange rate regime.

Last but not least is the ease of doing business. Bureaucracy is killing the Iranian economy.

Right now, it takes over six months to register a company in Iran. Iran ranks 118th out of 189 countries worldwide on the World Bank’s ease-of-doing-business index.

The government’s overbearing influence on the economy and its complex and slow bureaucratic system need a complete overhaul.