Economy, Domestic Economy

What Future for Justice Shares?

What Future for Justice Shares?What Future for Justice Shares?

It is not time yet to allow the Justice Shares to be traded in stock exchanges, Pouri Hosseini, head of Iranian Privatization Organization, said earlier this month, adding that this situation will probably remain the same until mid 2016. He also said that it is possible to free Justice Shares trade earlier than 2016 only if the parliament passes the new bill proposed by the government.

The story goes back to 2007, when Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei ordered government officials to implement the policies outlined in the amendment of Article 44, in the Islamic Republic’s Constitution, and move towards economic privatization. Based on his order, some 80 percent of the companies subject to Article 44 of the Constitution would be transferred to public and private ownership, 40 percent of which will be conducted through the Justice Shares Scheme and the rest through the stock exchange system.

The government will keep the remaining 20 percent.

The Leader also suggested that ownership rights should be protected in courts set up by the justice ministry. The hope was that this new protection system would give an additional measure of security and encourage private investment.

Despite these statements, true official backing for privatization remains very slow due to political reasons.

On the other hand, among experts it is widely believed that if current governmental organizations are privatized they will need to become more efficient. At present, many are not profitable due to large numbers of unnecessary employees hired by the government in a bid to reduce unemployment. Furthermore, many of these companies are subsidized by oil revenues. Thus, true privatization might lead to many unpopular job cuts and large scale layoffs.

The government has approved a plan to offer shares to low-income families, starting with the poorest. Under the Justice Shares plan, millions of Iranian households will receive shares in state-owned firms, the value of which will be reimbursed in 20 years from the dividends generated by those shares.

The project is in line with former president Mahmoud Ahmadinejad’s election promise to improve the condition of low income households. Ahmadinejad, in July 2005, promised to distribute shares to Iranian households, adding that these shares would be from state-run companies that must be privatized. Analysts believe that Justice Shares are valued at $30.5 billion (based on official exchange rate) in total as of 2014.

The poorest strata of society shall receive Justice Shares at a 50 percent discount and will pay the said amount in 10-year installments. The government gave the priority to villagers and nomads in this respect. The holding period for those shares was supposed to be a minimum of 2 years.

The governments’ directives on identifying those eligible to receive Justice Shares (in the second phase) have been issued and the shares will be distributed after receiving their national code number. Up to 6.5 million rural residents who qualify for the shares have been identified.

The government was trying to promote the shareholding culture in Iran. In December 2006, the government announced that some 4.6 million low-income Iranians had received Justice Shares worth $2.5 billion as part of the privatization scheme. Each person received around $550 in shares.

In November 2008, the Ahmadinejad administration announced that some 22.5 million people had received Justice Shares. However, in 2009 labor leaders complained that workers had hardly received any of those shares. More than seven million people have been categorized in the lowest-income bracket.

By mid-June 2009, it was reported that almost 40 million people had received Justice Shares. The exact number of shareholders has remained unclear to date. The Rouhani administration says the number increased to 42 million by the end of 2014 and it is expected to increase to 51.4 million.  

The wave of privatizations in Iran has been criticized by both labor and business leaders for different reasons. Some observers have argued that it is modeled on the voucher distribution programs in Russia and Czechoslovakia in the 1990s, which, at least in the case of Russia, led to the rise of the oligarchs.

The Rouhani administration was also pessimistic about the implications and benefits of Justice Shares. Last year, the ministry of economic affairs and finance announced that it was forming a special committee to facilitate the process of making Justice Shares tradable in the stock exchange.

After months of challenges, the government hopes to increase the credibility of Justice Shares (and the companies these shares are representing) by allowing them to be traded in the market.

At the end of the day, there are several ambiguities about Justice Shares including the undisclosed number of shareholders, unclear composition of the stocks’ basket, the profitability and real value of the companies, among others.