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Iran Economy Update
Issue 81/2017
WEDNESDAY SEPTEMBER 6TH
Iran’s government initiates measures to support garment manufacturing industry On Monday, the minister of Industry, Mine &
Trade attended a ceremony to sign an agreement on “Developing rural employment within the framework of the plan to produce apparel in rural areas”. In a speech he delivered during the ceremony, Mohammad Shariatmadari expressed dissatisfaction with the decay of clothing manufacturing industry in Iran and said the value of apparel smuggled into the country is $2.5 billion, which should be added to the
$12bn worth clothing that is imported to the country annually through legal gates in free zones without paying customs duties.
“We’ve made our clothing market available to foreign brands free of charge,” the minister objected.
Government Spokesman Mohammad- Bagher Nobakht was another speaker to the signing ceremony on Monday who said that in line with the objectives stipulated in the 6th Development Plan in creating 955,000 jobs annually and achieving an annual economic growth rate of 8%, the plan for manufacturing garment in rural areas is pursued by the government. He said the government has been allowed to withdraw
$1.5 billion from the National Development Fund (NDF) to be allocated to this scheme.
The same amount should be provided by the banking system in loan so as a total of
$3 billion be available to boost the country‟s garment industry, Nobakht added.
NDF is Iran‟s sovereign wealth fund in which governments are obliged to deposit at least 20% of oil export revenues annually, and the deposited sums are spent on construction/development projects in the form of low-interest loan to the non- government sectors.
Ali Yazdani, the deputy minister of Industry, Mine & Trade was another senior official attending the ceremony. He said the loan facilities devoted for garment manufacturing in rural areas are paid at the subsidized interest rate of 9% and the repayment period is five years. As another speaker to the ceremony, Sombat Hacoupian, the head of the Iranian Clothing Association said the future of Iran‟s clothing industry is very promising with this initiative, and promised that this sector will witness a boom in less than three years. He said that even exports to Europe are not out of picture provided that the government takes measure to counter clothing smuggling.
The daily Donyay-e Eghtesad wrote that in line with the objective of supporting the country‟s clothing industry, the government of Hassan Rouhani has so far initiated three measures to address the slump in clothing manufacturing. According to the newspaper, the measures include: (1) Initiating the Plan of Re-organizing Foreign Clothing Brands1 to eliminate unlicensed foreign brands, (2) launching garment manufacturing parks and (3) initiating a plan on developing rural
1 In Dec 2016, the Ministry of Industry, Mine & Trade released the instruction for issuing Activity Certificate for agent (representative) and branch offices of foreign clothing producers working in the Iranian market. The instruction comprised eight articles, and generally, it requires the foreign clothing manufacturer or their representative offices to install production lines in Iran either independently or in partnership with an Iranian investor, and export part of the products. For selling foreign clothing brands, the sellers are required to obtain Activity Certificate from the Ministry of Industry and obtain business license according to the Iranian Guild System Act. Under this instruction, the holder of the Certificate of Activity should establish a clothing [supply] system in which all the supply chain from importing stage to final sale at retail stores be trackable by the Iranian authorities.
2 employment through the plan of garment manufacturing in rural areas of the country.
On the reasons for the long-lasting slump in garment manufacturing industry in Iran, renowned Iranian economist Dr.
Mohammad-Mehdi Behkish told Donyay-e Eghtesad that four reasons should be cited:
(1) Improper business environment that has increased production;
(2) The high cost of borrowing from the banking system which is due to the high interest rate on loan facilities that in some cases amounts to 30%;
(3) The emerging misleading mindset among Iranians that the quality of foreign products is higher than that made domestically;
(4) Domestic producers‟ disregarding the interest of Iranians towards fashion designing.
TCCIMA held seminar on impediments to foreign investment in Iran
The Tehran Chamber of Commerce, Industry, Mine, Trade & Agriculture (TCCIMA) invited representative from the Fraser Institute to discuss impediments to foreign investment in Iran, the daily Donyay- e Eghtesad reported on Tuesday. Dr.
Michael Walker, the founder and former executive director of the Fraser Institute was among the speakers who referring to the Iranian poor ranking in economic freedom index, which is 150 out of 159 countries, underscored that the main problem in attracting foreign investment in this country is the improper economic policies implemented by the government, and the coutnry‟s poor business environment.
Donyay-ye Eghtesad wrote that in the session held by the TCCIMA, representatives from the business community of Oman were also present.
According to this leading Iranian economic newspaper, Oman was representing a country that with promoting reforms in the country‟s economy has managing to attract huge amounts of foreign investment.
“Some may cite sanctions as the main reason for Iran’s poor ranking in economic
freedom but the fact is that it is the wrong economic policies that have caused this problem. The policies that not only have resulted in poor ranking, but also are the main impediment in maintaining and attracting foreign investment,” Mr. Walker said during the seminar.
According to Donyay-e Eghtesad, since two years ago, the TCCIMA has established the Investment Services Center to facilitate conditions for entrance of foreign investors in Iran and according to a MoU signed with the OIETAI, the TCCIMA has been in charge of carrying out some missions and objectives the OIETAI pursues and is responsible for. TCCIMA and the Fraser Institute have reached an agreement to find ways for improving Iran‟s ranking in major international reports. The TCCIMA‟s seminar with participation of Fraser Institute‟s guests was published on the front page of the Tuesday issue of Donyay-e Eghtesad newspaper. “The Secret of Omani‟s investment attraction” was the headline of the article.
Environment Organization’s Head warns about devastating effects of water crisis During his first press conference since being appointed as head of the Environment Protection Organization, Eessa Kalantari said the issue of water [shortage] is beyond merely a jeopardy to the Islamic Republic‟s ruling establishment, but a threat to the country‟s 7,000-year history. “The issue of water should not be dwarfed by less important issues like some Iranian cheetahs.” “I will spend 80 percent of my time and efforts on the issue of water because I know that the [current] trend of water consumption will overthrow this country. If water consumption in Iran is not controlled, this country will be destroyed.”
According to Donyay-e Eghtesad newspaper, Kalantari criticized what he described as misallocation of budget within the organization and insufficient attention to the water issue by his predecessor. He said more than 70 percent of Iran‟s environment
3 problem today is water [crisis] and added that Iran is the only country in the world that has exploited 110 percent of its renewable water resources, while even the MENA countries don‟t exploit more than 60% of their renewable water resources.
1st Vice President Eshagh Jahangiri on Tuesday reiterated the importance of addressing water shortage crisis in Iran. He said water [crisis] is the “most important issue” in Iran and that “water limitation is a serious issue that is not specified to the president time and will go into the future and hence we need to spend time to resolve it.”
Jahangiri said transferring water from the Persian Gulf and the Sea of Oman to the central areas of the country and seawater desalination are among the options the country should take into consideration.
OIETAI President says $30 billion worth new finance deals to be signed soon Deputy Minister of Economic Affairs &
Finance and OIETAI‟s President Mohammad Khazaie said that after protracted and intense negotiations, Iran expects signing contracts to receive a total of $29-30bn worth finance from a number of Asian and European banks in the next month, Tasnim news agency reported on August 29. This will happen if no complicating problem occurs for Iran in the international level, he added.
“This does not imply that the country will be owed to those countries. Rather, it means that our country has inked line of credit contracts with Korean Exim Bank or Austrian Oberbank or Italian banks, for example, and necessary guarantees have been secured for this purpose,” Khazaie said during a speech at a local conference last week in Tehran. He however emphasized on the necessity of the coutnry‟s banking system to have collaboration with the international banks.
Khazaie‟s remarks indicate that Iran is seriously concerned about the future of its banking system cooperation with the
international banks and worries about negative effects if its relations with 1st tier international banks are not reestablished.
On September 5th, Hossein Salimi, a member of the OIETAI‟s foreign investment board announced that the pace of Iran‟s negotiations with major European banks have slowed after news emerged from SWIFT that some companies who‟ve worked with Iran have been fined.
According to Mehr news agency, Salimi said compared with the sanctions era, Iran‟s international banking relations have improved and the JCPOA has greatly helped reestablishing such relations but still there are no relations with major international banks.
Salimi however expressed optimism about the emerging rift between the EU and the US on JCPOA implementation. He cited France and the UK as two typical example of the countries that have either resumed business in Iran (France) or will soon commence operations (UK).
CBI governor says Iranian banks are struggling with NPL
CBI Governor Valiollah Seif said one of the important problems plaguing Iran‟s banking system is the high rate of non-performing loans (NPL) which although under the Rouhani administration has declined to 11%
from 15.1%, it is still alarming and too far from global standards which are limited to 3- 4 percent, the daily Donyay-e Eghtesad reported on September 1st. Seif said the current value of NPL or bad loans to the banking system is 110 trillion tomans (about
$33 billion at the official exchange rate) and that this huge sum has caused the banking system o face financial difficulty and problem in extending new loans.
President Rouhani to visit South Africa CBI Governor Valiollah Seif said President Rouhani is scheduled to visit South Africa, and added the officials of the two countries will hold talks on developing banking relations, Tasnim news agency reported on Sept 4th. The CBI official declared the news
4 after meeting with the South African Speaker of Parliament Ms. Baleka Mbete in Tehran. “The two countries’ economic capacities demand developing bilateral banking relations,” said Seif.
Iran and Brazil discussed petroleum sector cooperation
Petroleum Minister Bijan Zangeneh met on Monday with Brazil‟s Minister of Mines and Energy Fernando Coelho Filho in Tehran and discussed (1) construction of a 600,000 bpd-capacity refinery in Brazil by Iranian companies and supplying the required oil by Iran (2) cooperation for manufacturing oil equipment in Iran for exports to the regional countries (3) cooperation in the Caspian Sea exploration operations as well as the involvement of Brazilian Petrobras in developing South Pars oil layer, the daily Donyay-e Eghtesad reported on Wednesday.
Of note, building refineries in foreign countries and supplying the crude oil for processing there has been one of the strategies Iranian Petroleum ministry pursues to secure more oil customers, especially in Latin America.
Meanwhile, the deputy Petroleum Minister for International & Commercial Affairs said Iranian and Brazilian banks have initiated talks in re-establishing relations. Amir- Hossein Zamani-Nia also confirmed that Brazilian Petrobras has proposed developing the oil layer of South Pars field.
Iran’s imports exceeded non-oil exports in 1stt four months of 1396
The foreign trade (non-oil) statistics released by the Iranian Customs Administration for the 1st four months of the current Persian year (21 March – 22 July 2017) indicate that the value of imports exceeded non-oil exports by about $2.3 billion.
Table 1 – Iran‟s imports and non-oil exports in 1st four months of 1396 (21 March – 22 July 2017)
March-July 2017
March-July 2016
y-o-y change imports 15.81 12.57 23.97% ↑ exports 13.45 14.87 -9.54% ↓ trade
balance
-2.36 +2.3
Figures are in billion US dollar unless specified Source: Customs administration
The major (non-oil) export items during this time period were gas condensates, other type of light oil excluding gasoline, film grade poly ethylene, liquefied propane, and methanol (Yes! Even many of Iranian manor non-oil export items are oil-based.)
As you see in Table 2, Iran‟s top five export destinations in the mentioned time period were China, Iraq, the UAE, Korea and India.
Table 2
Country 21 March – 22 July 2017 value (billion$) Share in total
China 2.84 21.11%
Iraq 2.052 15.25%
The UAE 2.037 15.14%
Korea 1.400 10.40%
India 0.926 6.88%
other 4.20 27.77%
As you see in Table 2, the share of Korea in Iran‟s total non-oil exports in this time period is 10.4%, which shows an increase compared with 8.11% in the same period last year. See the Table 3.
Table 3– share of top five export destinations in 1396 and 1395
Country 1st four months of 1396 (%)
1st four months of 1395 (%)
China 21.11 19.62
Iraq 15.25 12.95
The UAE 15.14 16.22
Korea 10.40 8.11
India 6.88 7.05
The major import items during this period were rice, livestock corn, vehicles, soybeans, and auto parts. The top five
5 countries of origins for imports to Iran were China, the UAE, Korea, Turkey and India.
See the following table for more details:
Table 4 – top 5 countries of origins for Iran‟s imports from 21 March to 22 July 2017
March-July 2017 value (billion$) share in total
China 3.49 22.10%
UAE 2.99 18.92%
Korea 1.07 6.79%
Turkey 0.958 6.06%
India 0.891 5.64%
other 6.40 40.49%
total 15.81 100
The statistics show that the share of Korea in Iran‟s total imports during the first four months of this Persian year has slightly declined and reached 6.79%, from 7.32% in the same period last year. See Table 5:
Table 5 - Share of top five countries of origins for Iran‟s imports in 1396 and 1395
March-July 2017 (%)
March – July 2016 (%) China 22.10 23.06
UAE 18.92 16.49
Korea 6.79 7.32
Turkey 6.06 6.76
India 5.64 6.37
other 40.49 40.00
total 100 100
The 4th September issue of the economic daily Jahan-e Sanat has published an article titled “We Move towards Nowhere” in which referring to the country‟s negative trade balance during the first four months of the current Persian year, the author expresses concerns about the “deteriorating” status of non-oil exports. In an interview with Jahan-e Sanat, Ebrahim Jamili, the head of the
„Iranian Association of Exemplary Exporters‟
complained about the 18-percent loan interest rate that Iranian exporters and producers face, which is not comparable, for example, to the rate in neighboring Turkey which is 3%. Jamali also expressed concerns about the less diversified
composition of Iranian trade partners, and explained that out of about $13.4 billion worth of Iranian exports in the first four months of this year, about $12bn worth of goods were exported to just 15 countries.
On the reasons for the decline in the value of non-oil exports, Jahan-e Sanat cites high interest rates for loan facilities, improper money transfer mechanisms, and low profit margins of Iranian export products.
Govt. to authorize ministries this week to issue guarantees for Korean €8bn finance ILNA has published an update about the status of the line of credit Iran‟s OIETAI has signed with Korean Exim Bank. According to the news agency, the 12 Iranian banks of Export Development, Parsian, Eghtesad Novin, Pasargad, Refah, Saman, Sepah, Industry & Mine, Mellat, Melli, Tejarat and Karafarin have been introduced as agent banks. “The next step is acquiring ratification of the government to authorize relevant ministries to issue guarantees in favor of Korean Exim Bank. The draft of this ratification has already been prepared and will be sent to the government early next week for being ratified,” wrote ILNA.
Economy minister says foreign investment to receive special attention Minister of Economic Affairs & Finance Massoud Karbasian said promoting the status of foreign investment and encouraging foreign investors would be among the major policies his ministry pursues, ILNA reported. Speaking at a session attended by the OIETAI officials, Karbasian encouraged this organization to bolster efforts to attract more investment in the free trade zones. He also emphasized on attracting human and investment capital of the Iranian Diaspora, enhancing the economic diplomacy, utilizing the foreign exchange bond instrument, collaboration between the OIETAI and chamber commerce, and boosting cooperation between the government and private sector as other solution to attract more foreign investment.
