Call to Stop Supporting Uncompetitive Industries

Iranian economist, Mohammad Mehdi Behkish, believes Iranian industries do not need a 400-page list of plans to become competitive, as goals and objectives can be stated in a single page.

“The new government needs to specify, once and for all, what type of economy it wants for the country. Does it care for a trade protectionist economy or a competitive one?” he told the Persian weekly Tejarat-e Farda in an interview. Excerpts follow:

Following World War II, countries understood that they should pursue economic competitiveness to achieve greater wellbeing. In a competitive economic environment, a country cannot produce everything on its own. Imports and exports are equal in a balanced economy and the exchange rate is almost steady.

Iran took a few steps toward free market and single-rate currency during Akbar Hashemi Rafsanjani’s presidency but abandoned the move after a sudden jump in foreign currency rates. The stratospheric rate of foreign currencies prohibited officials from taking any further action to liberalize currency rates.

Domestic industries never came up for review over the past years to see whether they possess any economic advantage in the new era.

We don’t know how to renovate old industrial machines. In the past, we were either engaged in war or hit by sanctions. Why no one undertakes more internal reflection about industries now that the better part of the sanctions has been lifted?

Not a single day goes by without the news of a factory shutdown. Some industrial sectors don’t possess competitive advantage and should be closed, but the government insists on keeping them in a vegetative state just because their workshops have some people on the payroll.

According to the Central Bank of Iran, industrial exports reduced by 15% in the last fiscal year (March 2016-17) compared with the year before, which shows that factories capable of exports are failing and jobs are being lost.  

The government needs to identify industries that are competitive and have economic advantage and support them. This support does not mean distributing money among their manufacturing units or imposing tariffs on imports.

Instead, the government should create export markets for competitive industries, negotiate with other countries and convince them to allow the import of Iranian products, or clear the political hurdles in the way of foreign trade.

The government needs to think twice about any industry that fails to stand on its own after the removal of tariffs and liberalization of imports.