Economy, Domestic Economy

Trade Surplus Figures Not So Impressive

Trade Surplus Figures Not So ImpressiveTrade Surplus Figures Not So Impressive

Exports exceeded imports in the last Iranian year (March 2015-16) by $916 million, marking the first-ever positive trade balance for the country since the 1979 Islamic Revolution.

According to the latest report by the Islamic Republic of Iran Customs Administration, a total of $42.41 billion worth of goods were exported during the period, posting a 16.11% decline compared with the previous year’s corresponding data.

Imports stood at $41.49 billion, registering a 22.53% decrease compared to two years ago.

Top government officials, including President Hassan Rouhani and his government spokesman, Mohammad Baqer Nobakht, hailed the development as an achievement, but notable economists and business figures were unimpressed by the news.

Mohammad Mehdi Behkish, a prominent economist, believes that the $910-million trade surplus for the past year is the result of counting in the revenues of the export of oil-derived goods such as gas condensates. “Oil Minister Bijan Namdar Zanganeh is right when he presents figures about the export of oil and gas condensates together, since that’s the correct classification,” Behkish says.

“Once these revenues are kept off the books, the country’s trade balance would land in the negative territory, which is $5.7 billion in trade deficit. Exports registered for last year (excluding gas condensates) stand at $36 billion and imports hover around $41 billion,” Donya-e-Eqtesad quoted him as saying.

Veteran Iranian businessman Asadollah Askaroladi believes that the decline in imports should not be regarded as good news.

“We won’t be able to address the country’s needs if we don’t import. Instead, a solution needs to be worked out in order to push down imports of consumer goods and increase imports of machinery. In other words, bringing in raw materials and machinery required for production should be encouraged; otherwise smugglers will shoulder that responsibility. The decline in exports can be viewed as a warning as well. We need to aim for higher exports,” Eghtesad News quoted him as saying.

Mohammad Lahouti, the head of Iran Export Confederation, believes that a positive trade balance is good only when foreign trade has not declined.

“That exports have outweighed imports might seem positive on the surface but the point is that Iran’s foreign trade took a plunge last year, which means trade volume shrank,” he said.

During 2006-10, Iran’s foreign trade registered an eye-catching average annual increase of 20%. Later, however, there were two years of decline in 2011 and 2012 due to a deep recession. But after President Hassan Rouhani took office in 2012, the economy gradually got back on its feet.

Foreign trade picked up in 2013 and 2014. The upward trend was expected by many experts to not only continue in 2015, but to record new highs as the nuclear deal reached in July between Tehran and world powers paved the way for western sanctions to unwind. However, the forecasts did not come true.

Many experts believe that the decline in trade amid record low global oil prices is no coincidence, as many commodities categorized by the government as “non-oil goods” are derived from oil. Lahouti thinks otherwise.

“Despite the fact that falling oil prices led to a 40% decline in exports of gas condensates, we need to take note of the fact that exports in the industrial sector also had a 20% fall and exports of agricultural products followed suit. Even the mining sector, which has nothing to do with oil prices, saw a 40% drop in exports,” IRNA quoted him as saying.

  Declining Prices

Lahouti blames inconsistency in policymakings of the mining sector and says, “Exports in the mining sector were banned for a period of time and then were curtailed by taxes and duties, and then the duties were lifted. All these translated into exporters failing to keep their customers.”

Also, in recent years, prices of many essential goods declined. Essential goods such as wheat, barley, corn and nuts account for a considerable portion of Iran’s imports.

Contrary to many experts who blame Iran’s lackluster foreign trade figures on the considerable drop in global prices of these products, Lahouti says it is true that the decline in global prices affected the prices but the base prices of exports in the customs bureau were the same as the preceding year (ended March 20, 2015), therefore trade statistics did not reflect the reduced prices of goods.

“Trade Promotion Organization of Iran, which is the body responsible for the country’s foreign trade, needs to weigh the reasons behind the decrease in foreign transactions with the help of the private sector,” he said.

“Those who are pleased at reduced imports need to bear in mind that 85% of the country’s imports are intermediate goods that are used in the production of other goods or staple crops such as wheat, barley and the raw materials of production lines.”

Lahouti noted that the decline in imports implies that industrial machines were not imported and the manufacturing facilities did not import raw materials and consequently production reduced.

“So did employment and exports. All these give way to illegal imports or smuggling,” he warned.

“The government needs to accept the fact that the real exchange rate won’t come to pace with petrodollars. In order to spur production and exports and curb smuggling, the dollar should find its real value based on economic factors.”

Lahouti concluded that achieving growth in foreign trade depends on the government’s management and the policies it employs in the new Iranian year.

Echoing the same remarks, the head of Iran’s Textile and Clothing Production and Export Union, Saeed Hosseinzadeh, disagreed about the positive trade balance being an achievement and described it as an aftermath of recession and sanctions.

“We can’t claim that we did well in the industry, since most of our factories are operating at 20% of their capacity. We faced a recession and were unable to export our products.”

Nonetheless, the head of Export Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture, Seyyed Razi Haji-Aghamiri, says a positive trade balance is always a good news.

“Trade deficit means that we have spent more than our income,” he said.

Referring to the decline in exports and imports last year, Haji-Aghamiri says two reasons may be behind the decline in imports, first, restriction imposed on permits and order registrations and second, recession in the domestic market as importers piled up on unsold goods and stopped new imports.