Gordian Knot of Iran’s Economy

Iran is ranked 120th among 190 economies in the World Bank’s Ease of Doing Business ranking, down three notches from its 117th place last year.

One major factor placing the country so low in the list of countries suitable for investing in is the labyrinth of rules and regulations weighing heavily on the business environment.

According to World Bank’s annual ranking report, which analyzes countries’ business environments by breaking them down into 10 broad categories in accordance with the business life cycle from start to closure, Iran received 57.26 points in total.

The report checks legal and administrative rules and practices, as well as feedback from experts and businessmen from related fields and is designed to provide the best practice benchmarks that can be followed by developing countries.

Vice President for Strategic Planning and Supervision Mohammad Baqer Nobakht, who is also the government spokesman, said earlier that the number of business regulations in Iran are many more than that in developed countries.

Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh has also repeatedly called for the removal of unnecessary and hampering regulations, the Persian daily Shahrvand reported.

 Contradictory Nature

Economist, Mehdi Pazouki, believes that the problem with the plethora of business regulations is not only their obstructive nature but also that downstream regulations more often than not contradict upstream ones.

“Ministries and related organizations need to eliminate the outdated rules as well as ones that are in contrast with upstream regulations and it is only under such rectifying measures that we can improve the business environment and attract investment in different sectors of our economy,” he said.

Broken down by sector, Iran moved up the World Bank rating ladder in two sectors, lost ground in seven areas and remained unchanged in one category.

In terms of “protecting minority investors” and “trading across borders”, Iran improved one step to rank 165 and 170 respectively.

On the downside, however, Tehran’s ranking in “starting a business” stood at 102 of all countries surveyed, down five steps compared to 2016. The country also slid from 90th place to 94th in “getting electricity”, from 85th to 86th in registering property, from 97th to 101st in “getting credit” and from 99th to 100th in “paying taxes”.

The country’s ranking dropped in “enforcing contracts” from 69th in 2016 to 70th this year and in “resolving insolvency” from 155th to 156th.

Iran’s place remained unchanged in “dealing with construction permits” from last year’s 27th.

The highest-ranked country for ease of doing business in World Bank’s recent report titled “Doing Business 2017: Equal Opportunity for All” was New Zealand, while Somalia was at the bottom of the list.

 Lax Enforcement

Kazem Farajollahi, a specialist in work relations, said the number of regulations per se is not the problem, since each one has been ratified to defend the rights of a certain group of people.

“The main problem is that officials from the public and private sectors are not answerable to people when these regulations are not obeyed at all or are not entirely carried out,” he said.

He said state regulations have turned into a loophole for opportunists to circumvent the upstream rules.

“Most of the time the upstream rules are themselves vague in that making decisions about the details of the regulation is relegated to the bylaws of the Cabinet or related organizations. What happens next is that each ministry or organization writes bylaws that would work to its own advantage.”

In the latest Doing Business report, Iran shows an improvement of 0.18 percentage points in distance to frontier score, as it scored 57.26% compared to the previous year’s 57.08%.

DTF measures the distance of each economy to the “frontier”, which represents the best performance observed on each of the indicators across all economies.

 Abundance of Exceptions

Mohammad Sharif, jurist and lawyer, also believes that the numerous regulations do not work towards a single, coordinated end.

“One big downside to the law is the recurring issue of regulations that are made for rare cases, whereas the law must inherently be made for general situations. Making exceptions thwarts development. For instance, it is clear that exceptions made in tax regulations are in abundance,” he said.

This, he added, causes an even bigger problem in that the obligatory nature and indispensability of the law and regulations come under question.

“The society needs to know that the law views everyone and their activities equally. If people suspect the law as being arbitrary, then their trust and psychological security would be at risk,” he said.

Sharif explains that the executive bodies are often at the mercy of decrees and orders made from above and that this encourages them to make regulations that would in some way support exceptions.

“Hence, we have the manifold and confusing regulations that undermine the comprehensiveness of the law and threaten the economic security of the society,” he concluded.