Iran Economy Update
Issue 99/2017 TUESDAY NOVEMBER 21ST
Iranian reformist daily discusses the “Empire of semi-state organizations” in Iran
The 21st November edition of the reformist daily Shargh has published a very interesting article on the dominance of the semi-state organizations in Iran. The article titled “the empire of semi- state organizations,” focuses of several state companies that in the past two decades and under the guise of the privatization program, have been transferred to the semi-state organizations.
Shargh has named the „Executive Imam Khomeini Order‟ (a.k.a. EIKO or Setad), The Mostaz‟afan Bonyad (The Foundation for the Oppressed), the Armed Forces Pension Fund, the holdings affiliate with the ministry of Labor, Cooperative & Social Welfare, the IRGC Cooperative Foundation (Bonyad Ta‟avon Sepah), the national companies affiliate with the Ministry of Petroleum, and the state banks as the main owners of the big Iranian companies that play crucial roles in the Iranian economy. In this report, Shargh underscores that it is difficult to figure out the real owners of many Iranian big companies, because their owners are somehow affiliated with or are the “executive arms” of semi-state institutes. Sometimes, in searching the main stockholders of a company, you find the name of another company which itself is operated by a network of stakeholders. The companies that are such “interwoven” with each other that you can barely figure out by whom they are operated and controlled. Shargh argues that sometimes, conducting due-diligences draws you to discover that the companies that were considered as private are indeed controlled either by the government or are in the ownership of the semi-state institutes.
In the end of this article, Shargh argues that its due-diligence shows that among the 100 top Iranian companies, there are only 13 firms you can say with some degree of certainty that are private, while 43 companies are affiliate with the government, and 44 others are controlled by the semi-state institutes.
Of note, the initial steps for privatization of large state organizations were taken in the context of the 1st Five-Year Development Plan in early 1990s (the Rafsanjani presidency) in line with the objective of reducing state economic dominance and getting the government out of un- necessary functions, and enhancing economic dynamic and efficiency. In practice, however, this program was implemented haphazardly and grappled with fragrant corruption, especially under the Ahmadinejad era (2005-2013) when shares of many state companies were transferred to selected semi-state non-responsive groups under no-bid processes and at below-market prices.
During this time, most of the state companies were transferred to the military-affiliate and semi- state organizations such as the Bonyads, EIKO, pension funds as a debt cancellation mechanism. When the Rouhani government assumed office in 2013, this trend was reversed and the Economy ministry halted the process of transferring government companies.
Reliable official figures are not available about the exact value of the state companies that under the privatization companies were ceded to the private sector and semi-state organizations but former economy minister Ali Tayyebnia said in July 2017 that only 18 percent of the shares of the state organizations were transferred to the genuine private sector, while 56 percent of what was transferred was done to clear the debts owed by the government to such semi state institutes. Minister of Road & Urban Development Abbas Akhundi said on 15 July that it is
regrettable that $100 billion worth of Iranian industrial capital was ceded overnight under the privatization scheme by the former government (Ahmadinejad).
Dr, Jahangir Amuzegar, a veteran Iranian economist wrote in his book titled “The Islamic Republic of Iran, Reflections on an Emerging Economy” explains that the reason for the non- engagement of the Iranian “orphan and small” private sector in the privatization program was that this sector had neither the technical nor managerial capabilities for absorbing the bulk of privatized businesses.
Mehr news: as govt. failed to find financier, the planes were sold by Airbus to other int’l airliners
The semi-state Mehr news agency wrote on Friday that as the ministry of Road & Urban Development failed to find international financers to finance its purchase of aircrafts, the A320 planes it had planned to purchase have been sold by Airbus to other international airliners. Air Asia (Malaysia), Air India, Saudi Arabia Airliners, and a Brazilian airliner are among the foreign airliners that according to the Mehr report, have received the planes initially scheduled to be sold to Iran. So far Iran has received three Airbus jets from 100 planes it has planned to buy according to a deal with this French airplane manufacturer.
Meanwhile, a key US House panel approved a bill titled the Access to Finance Act on November 9, that could dismantle the agreements and deals Iran has reached on purchasing commercial planes from Boeing plane manufacturer. Al-monitor wrote last week that the House Financial Services Committee voted to advance the bill 38-21. The bill does not outright ban the sale of commercial aircraft to Iran. But it imposes reporting and certification requirements that could well prompt the Treasury Department to cease issuing licenses allowing for such sales, according to the Al-monitor.
In an interview with the daily Shargh on Monday, Asghar Fakhrieh-Kashan, the vice minister of Road & Urban Development denied all the assertions on cancellation of the deals Iran has reached with Boeing and Airbus, saying the sale of the planes by Airbus to other int‟l airliners is rumor and that Iran is at the stage of finalizing fining deals with the financiers. He said that as scheduled, the next airbus will be delivered to Iran in July 2018. He also said that representatives from American Boeing will visit Tehran next week “for the completion of the deal”.
Of note, Fakhrieh-Kashan had announced in May 2017 that a tender would be held in a month to select international financers for financing the new airplanes Iran is going to buy. He said the ministry is facing a rush of interest from international companies to finance the contracts between Iran Air and Boeing and Iran Air and Airbus. In the upcoming tender, said Fakhrieh- Kashan, financers from Japan, Norway, Denmark, China, Ireland, and UK are participating. He did not give any figure about the finance amount but said it is as much as the sum required for purchasing 100 aircrafts. “Currently, financing for the purchase of 97 aircrafts out of the 200 planes planned for purchase has been finalized and the fate of financing the 100 remainder will be known in a month,” he added.
Iran negotiates increasing oil supplies to Europe: vice minister
The vice minister of Petroleum announced that negotiations are underway for the sale of crude oil to new customers, specifically to the European markets, Tasnim news reported on Tuesday.
Ms. Marzieh Shah-Daie implicitly confirmed the decline in imports of crude oil by the existing Asian customers but underscored that this does not imply the Iranian oil market is facing a tumble. “We’re negotiating with new customers for oil sale and our most-favored approach is
increasing supplies to Europe,” she said. “With the negotiations with the European countries bearing fruits, the share of oil supplies to Europe will increase” she added.
A report published recently by Reuters shows a 9% and 39% decrease in importing Iranian crude oil by the Asian and European customers, respectively, in October 2017, compared with September. Saeed Khoshroo, NIOC‟s director of international affairs had said in Singapore in September that Iran has a target to export around 2.6 million barrels per day of crude oil and condensate for the rest of the year. Crude exports are expected to stabilize at about 2.1 million to 2.3 million bpd through the end of the year, he added. The following table, reported by Reuters shows Iran‟s crude oil and condensates combined in Oct amounted to less than 2.1 million bpd, down from above 2.5 million bpd in one month earlier.
October 2017
September 2017
m/o/m change %
Asia
China 640,000 625,000 2
Korea 238,000 456,000 5
Japan 218,000 119,000 83
India 377,000 360,000 -48
Taiwan 0 65,000 -100
Total Asia 1,437,000 1,625,000 -9
Middle East UAE 111,000 112,000 -1
Europe
Belarus 26,000 0
Greece 97,000 71,000 37
Italy 129,000 178,000 -28
Spain 32,000 137,000 -77
Turkey 97,000 277,000 -65
other 129,000 173,000 -25
Total Europe 510,000 837,000 -39 Total crude & condensate exports 2,094,000 2,573,000 -19
Foreign trade relations in brief
Iran-Korea
Korean retailer opens 1st
convenience store in Iran
Tasnim news published a story today on the opening of a Korean supermarket in Tehran. "The Korean largest retailer chains announced the launch of its first store in Tehran", wrote Tasnim. The Tasnim report has just been a translation of what Korean Yonhap published earlier this morning on the launch of the overseas store of Korean CU chains. “The launch of the store in Tehran came about four months after the company signed an agreement with an Iranian firm Entekhab Investment Development Group to tap into the Middle Eastern country,” wrote Yonhap. "Iran is the largest market in the Middle East with over 80 million people," said Hong Jung-kuk, vice president of BGF Retail. "We will accelerate our global expansion after making a successful landing in the Iranian market." So far, no Iranian media outlet has prepared an independent news story on this issue. On 15 July, Tasnim had published the translation of Yonhap‟s story on a deal signed between an Iranian home appliance company and Korean BGF Retail Co.
Iran-Austria
Iran and Austria willing to enhance bilateral trade to pre-sanctions levels
In a joint trade session of Vienna and Tehran chambers of commerce, attended by Iranian businesspeople, the vice president of the Vienna Chamber of commerce said he is hopeful that the bilateral trade volume reaches the pre-sanctions annual level of €400 million, the official website of the TCCIMA reported. “Our purpose in holding this joint session is making the previous agreements work out,” said the Vienna Commerce Chamber‟s vice president.
Iran-Europe
Iran-Europe’s nine- month trade shows 62% rise
The latest statistics on the Iran-Europe trade in 2017 shows that the value of the European imports of Iranian goods during the first nine months of 2017 registered a 107% growth compared with the last year‟s figures, and reached €7.252 billion, Tasnim news reported. The original figures have been published by the Eurostat, and the rise in Iran‟s crude oil exports to this continent is seen as one of the reasons for the surge in trade volume.
Jan-Sep 2017
Jan – Sep 2016
y-o-y change EU imports from Iran (billion euros) 7.252 3.498 107%
EU exports to Iran (billion euros) 7.530 5.603 34%
trade volume (billion euros) 14.782 9.101 62%
Iran- regional countries
Regional tensions have affected Iranian foreign trade
The director general of the Iran-Iraq joint commerce chamber said that more than the international atmosphere, the Iranian economy has been hurt by the regional developments and in relations with Qatar, Oman and Kuwait. According to ILNA, Hamid Hosseini said that on the one hand, Iran is reliant on the Emirati companies and banking services, and on the other, a major portion of our petrochemical products are exported to China the banks of which are not cooperating with us. The Chinese companies are not willing to cooperate with us and don‟t open lines of credit for us. Hosseini explained that along with the US pressures, implementing anti-money laundering policies and the Know-Your- Customer (KYC) rules is another reason that the Chinese companies hang tough on Iran. “The Chinese banks don’t cite sanctions as the excuse. Rather, they say who is this company that receives the money?
To whom it is affiliated? Is it in the sanctions list?”
Iran- Malaysia
Iran to discuss banking issues with Malaysian officials
ICT Minister Mohammad-Javad Azari-Jahromi led a delegation comprising officials from the Iranian CBI and a number of banks and businesspeople in his trip to Kuala Laupur, Tasnim news wrote on Monday. Jahromi is the head of the Iran-Malaysia Joint Economic Commission, and said on the sidelines of the Global Islamic Economy Entrepreneurship Convention that he attends, negotiations will be held on establishing direct banking relations.
