Economy, Business And Markets

From Zenith to Nadir

From Zenith to NadirFrom Zenith to Nadir

Government control has been rife in the history of Iran’s economy after the nationalization of major industries over the past few decades, a lecturer at the Economics Department of Tehran University said.  

“The immediate result of this nationalization was a decrease in productivity and competitiveness of the products. By and by, these factories faced an increase in expenses and lost their markets, which left them with lower income and profits, rendering them inefficient altogether,” Teymour Rahmani added.

Naturally, under such circumstances, says the economist, these firms attempted to save themselves by drawing on heavy loans and subsidized banking facilities.

“Yet they were unable to repay their debts to banks since their business had already been maimed beyond cure and this is how banks took over the ownership of many businesses in the country.”

This is what Rahmani believes to be the story behind the decline of many industrial firms in Iran. He points out what he believes to be the reasons for the recent existential threat facing Arj Company–Iran’s oldest household appliance manufacturer–and other businesses of the sort in an opinion piece published in Donya-e-Eqtesad.

Basically, he says, the household appliance industry has been crippled due to the erroneous policies imposed on the business over many years.

“On the one hand, unrestrained banking facilities as well as direct and indirect subsidies were granted to these firms. On the other, the mismanagement of these businesses by state affiliated bodies has rendered them ineffectual and unproductive,” he said.

“Moreover, the government’s forced propping up of the rial against the dollar makes imports profitable,” he said, adding that smuggled products continue to inundate the domestic market much to the chagrin of Iranian producers.

Rahmani wonders how domestic producers of household appliances can be expected to continue production under such dire circumstances.

“Extensive government interference is the main problem behind Arj’s demise. The company has gone bust and neither the management nor Bank Melli, which currently owns the company, is to blame.”

He said the stage must be set for Bank Melli to gradually hand over or liquidate Arj to get rid of its business ownership, which has nothing to do with the responsibilities of a bank.

  CEO’s Narrative

As the CEO of Arj, Mohammad Reza Hosseini said the company has not been closed down but has entered a major overhaul phase.

He admits there are problems and impediments in the way of production but says these are not confined to Arj per se, explaining that other production units in the sector are also dealing with similar issues.

According to the Arj CEO, mismanagement, capital deficiency, lack of market research and unsound exports and imports regulations are the main factors contributing to the company’s sad state of affairs.

Hosseini said two years ago, the company had 317 workers and produced approximately 22,000 household appliances.

Last year (March 2015-16), with 266 workers, production decreased to around 13,700. At present, he says, the company has nearly 200 workers.

“Rumors that say Arj has been shut down come from our rivals or people pursuing ulterior motives. Many companies have applied to take over Arj. Yet our condition is that production must continue under the brand of Arj. This is mostly the reason why the process is taking so long,” he was quoted as saying by IRNA.

  Broader Picture

In a recent open letter to President Hassan Rouhani, the head of Tehran Home Appliances Manufacturers Union, Mohammad Reza Diani, pointed out the challenges and impediments facing all domestic household appliance producers.

In a part of the letter, the official draws attention to what he calls the “mafia of household appliance importers”, ISNA reported.

According to Diani, importers take advantage of local assembly lines and loopholes in the regulations and trick the officials into believing that they are local producers, but introduce themselves as foreign brands in the market and to customers.

The unfortunate point, he says, is that what they call production is mere assembly and there is no technology transfer involved.

“There are no research and expansion units and no sustainable employment is created,” he said.

Diani believes foreign investment is beneficial, provided domestic producers play an active role in the process of production, knowhow is transferred and the two sides cooperate in exports.

“The situation needs the urgent attention of authorities, or else other firms will suffer the same fate,” the letter reads.