Economy, Domestic Economy

Services Exports: A Force to Reckon With

Services Exports:  A Force to Reckon WithServices Exports:  A Force to Reckon With

Algeria is considering using the engineering prowess of Iranian firms to help the North African country build 23,000 kilometers of roads and highways.

This was announced by Algeria’s Minister of Transport Boudjemaa Talai in a meeting with his Iranian counterpart, Abbas Akhoundi, in Algiers on December 17.

Algeria’s announcement has put Iran’s technical and engineering services companies on their toes, as they are seeking export markets beyond their current portfolio in Iraq and Venezuela.

Iran’s technical and engineering services companies are going through a period of waning domestic demand and grapple with liquidity shortages. Furthermore, attacks by the self-styled IS militant group in Iraq—the largest export destination for Iran’s services exports and the consequent economic implications—have limited the activities of Iranian engineering companies in Iraq, Tejarat-e Farda reported.

According to Mohammad Reza Ansari, the head of the Association of Iranian Exporters of Technical and Engineering Services, the prospective lifting of western sanctions imposed on Iran over its nuclear energy program can create a “golden opportunity” for Iran’s technical and engineering services to find new export markets and shine overseas.

The removal of sanctions is expected to ease financial transactions and help Iranian service providers implement international projects.

Ansari says unlike oil or mineral commodities, services never run out and in fact grow in quality and quantity over time.

“The export potential of Iran’s technical and engineering services companies is estimated to be about $25 billion per year,” he said, adding that Turkish engineers, with the support of their government, exported close to $28 billion worth of services in 2014.

Ansari emphasized that the true potential of Iran’s services sector can be realized through governmental support, especially export incentives.

Recently, the government said it is planning to grant loans worth $200 million to support the export of technical and engineering services to Iraq.

“Such exports to Iraq constitute 80% of Iran’s total exports to the neighboring country,” he said.

Iran’s services exports had a steady growth of 12% for the 1994-2002 period, which jumped to 45% during 2002-11 when an 8% export incentive was first introduced, resulting in export of services worth $4.2 billion in 2011. However, exports dropped after 2011 when the incentives were scrapped.

Facilitating the process of getting loans from the National Development Fund of Iran is another approach by which the government can lend a helping hand to domestic technical and engineering services firms.

Back in late October, the Central Bank of Iran allocated $100 million to NDFI to support the services exporters in covering their losses in the turbulent Iraqi market.

According to Ansari, however, the firms have not received the loan yet and obstacles continue to hinder the process.