Economy, Business And Markets

Gov’t-Private Sector Interaction

Gov’t-Private Sector InteractionGov’t-Private Sector Interaction

During his visit to Baku earlier this week, President Hassan Rouhani was accompanied by a private sector delegation whose members have already had trade with the Azerbaijan Republic. The president’s agenda included, though not limited to, discussing the customs problems Iranian traders face in business with Azerbaijanis.  

Also in September, a delegation of around 100 Iranian private sector merchants and industrialists accompanied Rouhani on his trip to Kazakhstan, an event that helped boost trade between the two nations and paved the way for Iranian traders to have a share from the Kazakh market, according to officials from the Iranian chamber of commerce.

Getting closer to Azerbaijan’s and Kazakhstan’s markets are considered as efforts by the Rouhani administration to get the private sector more involved in trans-border businesses. Since his election in June 2013, the president has opted to work with long-known private sector figures like Mohammad Nahavandian as his chief of staff.

The private sector is not only considered a requirement for the country to achieve sustainable economic development but it can also serve as a major means to help the economy recover. Even though the government says the economy has come out of recession in recent months, high inflation is still biting a majority.

On the other hand, the oil price in global markets has drastically dropped in the past weeks to three-year lows, cutting Iran’s oil revenue which accounts for around a half of the government’s budget. According to government officials, the next fiscal year’s budget (March 2015-March 2016) is going to be contractionary. Given the circumstances the government tends to rely more on the private sector.

“The economic problems are to be solved with the help of entrepreneurs and the private sector,” President Rouhani said in an October speech in Tehran. “The government and the private sector must work in tandem.”

Paying attention to the private sector can also be traced in the government’s draft budget for the next fiscal year. The document carries parts showing that the government is to prepare the ground for the private sector’s greater role in the economy, particularly in supplying public services. The draft budget seeks to enhance business environment and reduce the already high unemployment rate through providing technical and credit support for the private sector.

In return, the government needs capital contribution from the private sector to implement civil construction projects, among other national projects.

The government has, for now, stopped launching new projects unless they are financed by private companies by up to 50 percent in capital.

Despite Rouhani’s efforts to make better use of the private sector, a question still persists as to how an already weakened private sector can play a role in the economy, which is deeply controlled by the government.

The private sector has already gone through a tough time and seems to be diluted. On the one hand, the government is planning to collect more taxes from businesses in the coming year, as its revenue from oil export is declining. Meanwhile, the prices of utilities are to increase as part of a controversial subsidy reform plan, which would add pressure to private firms.

While many private companies still struggle to shore up their cash flow, they seem to need more support from the government rather than just being taken to regional countries to expand trade ties. At home, the government needs to deregulate economic sectors in a bid to encourage the private sector to be further involved in domestic projects.

Mohammad Saleh Farazi is a PhD researcher in Business Administration at Universidad Pablo de Olavide, Spain.