Iran’s business environment score has plummeted to the worst level in the past three years, new data released by Iran Chamber of Commerce, Industries, Mines and Agriculture indicate.
The country’s National Business Environment Index stood at 6.07 in the first quarter of the current fiscal year (March 21-June 21) to register a 0.24 percentage point or 4.12% increase compared with the preceding quarter and a 0.17 percentage point or 2.88% increase compared with the corresponding quarter of last year, the chamber reported on its website.
The index calculated by ICCIMA measures business friendliness of Iran’s economy, with 10 indicating the worst grade. In other words, the decline in index is indicative of an improving business environment.
The ICCIMA index is fashioned after World Bank’s “Ease of Doing Business” index, a tool for countries seeking to measure costs of doing business.
Iran’s National Business Environment index stood at 5.83 in Q4 (Dec. 22-March 20) and 5.94 in Q3 (Sept. 23-Dec. 21).
“Unpredictability and fluctuations in the prices of raw materials and products”, “instability in policies, regulations and executive procedures related to businesses” and “difficulties associated with funding from banks” affected Iran’s business environment during the period under review, according to the findings of the 23rd round of this report.
The chamber also measures the index for each of the 31 Iranian provinces. The report names Qom, Kerman and Bushehr as the provinces with the worst environments to do business in and West Azerbaijan, Markazi and East Azerbaijan as the best ones.
The average real production capacity of economic enterprises participating in this survey stood at 39.51% in Q1, indicating a decrease of 3.63 percentage points compared with the preceding quarter.
Worst Business Environment for Services
The services sector had the worst business environment in Q1 with 6.12 points followed by agriculture (5.94) and industry (5.91).
According to the Statistics Center of Iran, the average Producer Price Index for the services sector in the four-quarter period ending June 21, which marks the end of the first quarter of the current Iranian year and spring, increased by 47.3% compared with the same period of the year before. The overall PPI for the sector stood at 482 in Q1 (March 21-June 21), indicating a 13.8% increase compared with the preceding quarter.
The index indicates a 49.4% increase year-on-year.
SCI’s latest report on Iran’s labor market said the services sector employed 51.2% of the Iranian employed population (12.08 million) in Q1, 2.4% higher than the corresponding period of last year, whereas industrial and agricultural sectors provided 32.7% and 16% of jobs respectively.
Over 7.71 million were employed in the industrial sector, indicating an increase of 0.5% year-on-year and 3.78 million worked in agriculture, posting a 1.9% year-on-year decrease.
The services sector consists of wholesale and retail trade; restaurants and hotels; transport, storage and communications; financing, insurance, real-estate and business services; as well as community, social, education, health and personal services.
The sector employed 9.86 million men and 2.21 million women in the three-month period, such that 6.85 million men and 857,655 women were working in the industrial sector and 3.18 million men and 606,817 women worked in the agriculture sector.
Services accounted for 59.6% or 10.55 million of all jobs in urban areas and 26% or 1.53 million of jobs in rural areas. The industrial sector made up 34.2% or 6.05 million of the jobs in urban areas and comprised 28.2% or 1.66 million of employment in rural areas.
This is while 6.1% or 1.08 of the total jobs in urban areas and 45.8% or 2.7 million of the jobs in rural areas were in the agriculture sector.
As for 21 fields of business, the worst three business environments were posted for “real-estate services” and “water supply, waste management, sewage and refinery activities” and the top tier included “finance and insurance”, “information and technology” and “human health and social work”.
Enterprises with more than 200 employees had the best business environment with a score of 5.86 while those with less than five employees had the worst business environment with a score of 6.18.
Businesses operating for less than two years indicated the best business environment (5.37) while those operating for 11-15 years had the worst business environment (6.13).
World Bank’s Ease of Doing Business Index
The ICCIMA index is fashioned after World Bank’s “Ease of Doing Business” index, a tool for countries seeking to measure costs of doing business.
In September 2021, the World Bank announced it was “discontinuing” its “Doing Business” report, which ranks countries on the ease of opening and operating a company.
It cited the outcome of an investigation that found the World Bank had changed the rankings under pressure of funding. This wasn’t the first time the rankings had come in for criticism.
A 2008 internal evaluation report highlighted their lack of transparency, while in 2018 the bank’s chief economist, Paul Romer, resigned decrying data manipulation.
According to Ian Richards, UNCTAD economist, the Doing Business had become too politicized. It was originally intended as a way to measure improvements in countries’ business environments. It used an index score based on the number of procedures and time to, for example, start a business or get a construction permit; there were 10 indicators.
However, the bank also used it to rank countries, feting top scorers and reformers. Governments soon saw a good ranking as an end in itself, regardless of how it impacted their development. A slip in rank could be politically damaging.
“After data irregularities on Doing Business 2018 and 2020 were reported internally in June 2020, World Bank management paused the next Doing Business report and initiated a series of reviews and audits of the report and its methodology. In addition, because the internal reports raised ethical matters, including the conduct of former board officials as well as current and/or former bank staff, management reported the allegations to the bank’s appropriate internal accountability mechanisms.
After reviewing all the information available to date on Doing Business, including the findings of past reviews, audits and the report the bank released on behalf of the Board of Executive Directors, World Bank Group management has taken the decision to discontinue the Doing Business report.
“The World Bank Group remains firmly committed to advancing the role of the private sector in development and providing support to governments to design the regulatory environment that supports this. Going forward, we will be working on a new approach to assessing the business and investment climate. We are deeply grateful to the efforts of the many staff members who have worked diligently to advance the business climate agenda, and we look forward to harnessing their energies and abilities in new ways,” the World Bank said in a statement.
According to Doing Business 2020 published in October 2019, Iran’s Ease of Doing Business ranking improved by one place to stand at 127th among 190 economies.
The report shows the country’s distance to frontier score saw a decline of 0.1 percentage point, from last year’s 58.6 to 58.5 in the new report.
New Zealand topped the list of 190 countries in the Ease of Doing Business with a score of 86.8, followed by Singapore with 86.2 and Hong Kong with 85.3, while Somalia was in last place with a score of 20.
