Rise in Oil Revenues Harms Private Sector

When oil revenues rise, the private sector’s power to compete is diminished, since it renders the government self-sufficient.

Mohsen Jalalpour, the former head of Iran Chamber of Commerce, Industries, Mines and Trade, also wrote in his Telegram channel that this leads to the neglect of the private sector.

ICCIMA represents the Iranian private sector community.

“When oil revenues increase, as they have many times over the past decades, the message conveyed to investors is that there is no longer a need for their investments and that the government is capable of providing the required capital through these revenues,” he said.

“The track record shows that with an increase in the amount of foreign exchange gained from oil sales, less attention is paid to non-oil exports, which will again create difficulties for the private sector.”

Fluctuations in oil prices and consequently revenues earned by the sector are a perennial and unsettling issue for the oil-dependent Iranian economy. Revenues gained from oil exports follow a seesaw trend, which make the projections in annual budgets unpredictable.

An average oil price of $50 a barrel has been assumed in the budget bill for the 2017-18 fiscal year (beginning in March), which is up from $40 in the current budget.

The budget bill was submitted by President Hassan Rouhani to parliament on December 4.

As things stand, says the seasoned businessman, the private sector is at a disadvantage, regardless of whether oil revenues grow or shrink.

“The solution is to reduce the share of petrodollars in financing the budget. The best thing to do might be to fix government revenues from oil in rial terms in the budget and save the rest in sovereign wealth funds such as the National Development Fund of Iran, which could help provide for the future and in times of austerity,” he said.

The NDFI, Jalalpour added, can then issue guarantees in support of Iranian businesspeople so they can use cheap foreign resources in their investments.

The measure, if taken, will help local and foreign investors place their trust in a more stable economy.  

The parliament voted last week to raise Iran’s sovereign wealth fund’s share of petroleum revenues to 30% for the sixth five-year development plan (2016-21), up from the previous 20%.

Based on the bill, the NDFI’s share of Iran’s crude oil, natural gas and condensate sales will increase a minimum of two percentage points each year until the end of the plan.

This annual increase was also part of the previous five-year plan, but neither former president Mahmoud Ahmadinejad nor the incumbent President Hassan Rouhani implemented it.