Economy, Domestic Economy

Tile Industry Not Living Up to Vast Potential

Tile Industry Not Living Up to Vast Potential
Tile Industry Not Living Up to Vast Potential

Iran’s tile industry has all it takes to excel, from cheap and abundant energy and raw material resources to tile-making expertise rooted in history.

However, the industry is not living up to its vast potential. Production and exports have both followed a downward trend for the past three years and growth in domestic demand has been feeble.

About 130 tile manufacturing plants are currently operating at half their 700 million-square-meter production capacity, ILNA reported.

Iranian producers manufactured 400 million square meters of tiles and exported 54 million square meters in the last Iranian year (March 2015-16), registering a 16% and 17% decline in volume and value respectively compared to the preceding year.

Domestic tile consumption shrank by 15% and stood at 335 million square meters last year.

Iran was the world’s sixth largest producer and fourth major exporter of tiles in 2014.

For the past few years, local tile producers have been hit by a double whammy of stagnant demand in the construction sector and obstacles hindering international banking transactions and consequently exports. The situation was further exacerbated when the government cut down import tariffs on foreign tiles from 90% to 55% last year.

Before the ongoing slump hit the tile industry, Iranian producers experienced a seven-year boom owing to the so-called Mehr Housing Scheme–a large-scale construction program initiated in 2007 by the previous administration to provide two million low-income people with housing units through free land and cheap credit. The plan, however, slowed down due to lack of funding, which dragged down domestic demand for construction materials.

In the face of the slump in the domestic market, producers have turned to exports. The lifting of economic sanctions, imposed on Iran over its nuclear energy program in January, as part of the deal made between Iran and world powers back in 2015, was widely expected to reintegrate the Iranian industries into global markets and provide them with fresh export destinations. The prospect waned, however, as remaining US sanctions have caused major international banks to shy away from working with Iran, in turn limiting exporters’ reach to global markets.

Iraq was the biggest export destination for Iranian tiles in 2014, as it accounted for 76% of total exports and attracted 84.6 million square meters of the commodity worth more than $320 million. Afghanistan, Pakistan, Turkmenistan, Georgia, the UAE, Tajikistan, Armenia, Uzbekistan and Azerbaijan were other buyers of Iranian tiles.

Even if international banks resume working with Iran, tile producers will still have to compete with foreign producers, especially the Chinese, with much lower production costs and considerably higher economies of scale. The optimal way forward for Iranian producers is to cut down production costs by using more efficient technology and diversifying their portfolio to enter niche and unsaturated markets.