Economy, Domestic Economy

Non-Oil Export Promotion Incentives Proposed

Non-Oil Export Promotion Incentives Proposed
Non-Oil Export Promotion Incentives Proposed

In a bid to promote non-oil exports, Trade Promotion Organization of Iran has proposed the allocation of 10,000 billion rials ($330.83 million at official exchange rate) as export incentives in the budget of the next Iranian year (to start March 20, 2016).

The Ministry of Industries, Mining and Trade has allocated cash and non-cash incentives worth 2,500 billion rials ($82.7 million) for exporters in the current Iranian year, as our sister publication Donya-e-Eqtesad reported.

TPOI has also proposed the payment of 6% of the interest rate on the loans granted to exporters in the form of subsidies to boost exports. In other words, 22% and 20% interest rates on such loans will be reduced to 16% and 14% respectively for exporters.

Data for 10 months ending January 20 show Iran’s non-oil exports reached $29.8 billion, which is way off the ministry’s start-of-the year forecast of $61.1 billion.

The non-oil export targets set by the ministry for the next two years are $72.4 billion and $91.2 billion respectively. However, these goals were set before the implementation of the nuclear deal officially known as the Joint Comprehensive Plan of Action. Now trade pundits anticipate higher figures.

“Export opportunities to Iraq and Afghanistan should not be missed. Therefore, TPOI will support those participating in the exhibitions held in these two neighboring countries by covering up to 50% of their costs,” says TPOI’s deputy head, Mohammad Reza Modoudi.

“Regular shipping services are now available between northern Iranian cities to the southern Russian city of Astrakhan to facilitate the export of agricultural products. Also, a freighter aircraft will start exporting to Russia as of February 23.”

TPOI says it will subsidize 25% of the total costs of air freight to Russia. Two cash and non-cash incentives to the tune of 2,000 billion rials ($66.16 million) have also been envisioned in the form of loan interest subsidies.

Wary of the falling global oil prices, Iran’s economic policymakers want non-oil exports to overtake crude oil as the main source of the country’s export revenues.

“In view of dipping oil prices, if we didn’t have considerable non-oil exports, currencies would appreciate [against the rial],” said chief executive of the Export Guarantee Fund of Iran, Seyyed Kamel Seyyedali, noting that the stability of the US dollar’s exchange rate against the rial is due to the growth of non-oil exports, which have provided an alternative source of foreign exchange for Iran’s economy.

In a recent report, Moody’s Investors Service said western sanctions against Iran, in an ironic twist, appear to be benefiting its economy as decades of isolation forced the nation to adapt to low oil prices more quickly than other crude exporters.

“International sanctions meant that Iran had to adapt to the reality of lower oil revenues and implement structural reforms much earlier than other oil exporters,” Atsi Sheth, an associate managing director at Moody’s, said in a statement.

Sheth added that most other oil-dependent sovereigns are only just beginning to consider structural fiscal reform.

Benchmark Brent oil prices averaged $43 a barrel in the fourth quarter of 2015, down from $76 a year earlier. The oil industry’s worst downturn in three decades is set to persist with Brent averaging around $33 per barrel in 2016 so far.