Iran: Against all odds

Iran wants a more active role in international markets. But will its goals of relaxing established trade regulations come to fruition?

Pick up any major newspaper and chances are Iran is headlined, in not so pleasant terms, on the front page. With so much negative press about the Islamic republic’s ‘ambitions’ it is often difficult to decipher
any substantive, unbiased information on the country. Yet as one of the world’s oldest civilisations, most experts agree that Iran remains largely untapped potential. So what gives? Well, self imposed regulatory hurdles and crippling western sanctions aren’t doing its economy any favours, while the looming threat of war assuredly wards off any potential investors.

And while possessing 10 per cent of the world’s proven oil reserves, and 15 per cent of natural gas reserves, Iran’s economy remains predominantly government administered, though a more liberalised approach remains the topic of much debate.

Iran’s main port is Bandar-Abbas on the Strait of Hormuz. Other major ports include Bandar Anzali and Bandar e-Torkeman on the Caspian Sea and Korramshahr and Bandar e-Khomeyni on the the Persian Gulf

Consider that today, with a population of 70 million, more than two-thirds of Iranians are under the age of 30, and boast an 80 per cent literacy rate. But with the average salary just US$2,700 a year, many young Iranians are leaving for greater opportunities abroad. The subsequent ‘brain drain’ is not going unnoticed by the government. According to Manouchehir Kabiri, the Director General of Iran’s Management and Planning Organisation’s Commerce Department, Iran’s current Five-Year Economic Development Plan (2005-2010) hopes to create more opportunities for its youth, while opening up Iran to outside investment.

“The focus will be on expanding trade interaction with the global community and pursuing an active presence in international markets,” says Kabiri. “To achieve this would require raising exports substantially.”

Iran’s major trade partners include China, Germany, South Korea, Japan, France, Russia and Italy. From 1950 until 1978, the US was Iran’s foremost economic and military partner; thus participating greatly in the modernisation of its infrastructure and industry. After the Iranian Revolution in 1979, however, the US ended its economic and diplomatic ties, banned Iranian oil imports and froze US$12 billion of Iranian assets. In 1996, the US government passed the Iran and Libya Sanctions Act (ILSA) which prohibited US companies from investing and trading with Iran, with the exception of pharmaceuticals, medical equipment, caviar and persian rugs.

So just what is Iran producing for export these days? Petroleum and petroleum chemicals, automobiles, agricultural, utilities, pharmaceuticals, textiles, construction materials, metallurgy, armaments and electronics are recognised as the largest industries.

In 2007, Iran’s GDP was estimated at US$206.7 billion. In 2008, about 55 per cent of the government’s budget is expected to come from oil and natural gas revenues, and 31 per cent from taxes and fees. The service sector contributes the largest percentage of the GDP, followed by industry (mining and manufacturing) and agriculture.

“Pistachio and saffron are traditionally the main agricultural products sold overseas,” says Kabiri. “Also in recent years, Iran has secured a foothold in fruits, vegetables and flower markets.”

Determined to increase exports, Iran is seeking to better utilise its free trade zones. Approved by Iranian Parliament in September 1993, Kish Island, Qeshm Island and the Port of Chabahar are the only designated free trade zones, though many liberalised economic zones currently exist as well.

“So far, free trade zones have acted as import channels,” says Kabiri. “The Economic Plan tries to change that status and make their activities export-based and to aim for global industrial production.”

Pistachios and saffron are Iran’s main agricultural exports

With the abundance of free trade zones springing up throughout the Middle East, Kabiri acknowledges that competition for investment will be stiff.

“One has to admit that Iran’s free zones are not able to rival those in the nearby states,” he says.

“Performance of Iran’s free trade zones has an impact on social, political and economic parametres, which is not the case on the other side of the border. What the government has tried to do within the Economic Plan is to continue eliminating import incentives and push for trade liberalisation policies.”

On the domestic front, Kabiri says the priority is on improving the overall situation; i.e. regulating the domestic market on the one hand, and maintaining a well functioning supply of basic commodities on the other. The latter would need improving the subsidy distribution system to relieve the government of the huge financial burden on subsidy payments. Another obligation the plan places on the government is to provide economic justification for the pricing of basic commodities and public services.

“By offering modern trade services, the government hopes to win the confidence of foreign investors and open the way for foreign banks and insurance companies to set up branches in the free trade zones,” says Kabiri.

One central issue when debating Iran’s trade sector these days is joining the World Trade Organisation (WTO). Since 2005, Iran has faced resistance from the United States, consistently blocking any Iranian attempt to join the WTO, citing among other things, copyright infringements.

“Discussions about joining the World Trade Organisation are high on the agenda,” says Kabiri. “Officials and experts continue to advise against protectionist production policies which they say contradicts principles and guidelines of the World Trade Organisation.”

Yet, if Iran does eventually gain membership status in the WTO, copyright laws will have to be obeyed. This would require a major overhaul of business and trade operations in Iran, a change which many experts believe would be a price too heavy for Iran’s economy to pay at the present time. Still, Iran is hoping to attract billions of dollars worth of foreign investment while creating a more favourable investment climate, such as reduced restrictions and duties on imports and the creation of free trade zones like Qeshm, Chabahar and Kish Island. Time will tell whether Iran gets its wish.

So Iran’s desire for liberalisation and modernisation is apparent, but what about its infrastructure? Currently, it has an extensive paved road system linking most of its towns and all of its cities. In 2007, the country had 178,152 kilometres of roads, of which 66 per cent were paved. There are 55 passenger cars for every 1,000 inhabitants. However, one statistic you won’t hear the Iranian government praising is the rate of road accidents. Iran ranks first worldwide in terms of having the largest number of road accidents claiming 38,000 deaths in 2007. In fact, road accidents account for the majority of deaths in Iran and are perhaps one reason the government is eyeing rail transport as a possible solution.

President Mahmoud Ahmadinejad is acknowledging the need to further develop public transportation systems. As the average journey length currently for both passenger and freight is approximately 600 kilometres, the country remains ideally suited for rail development. To date, passenger tariffs are heavily subsidised and budgetary allocations for rail transport for 2008-2009 are poised to double. According to the Iranian government, the objective is to double its existing 8,300 kilometres of line. At the moment, the rail network is basically single track and there is substantial capacity shortage on several main routes, accentuated by inadequate levels of signalling. Only the Tehran area lines are double track including those going from Tehran to Mashhad and from Tehran to Qom. A programme of track doubling is in hand between Bafq and Bandar Abbas (613 kilometres) and all other routes remain under consideration. The government is financing rapid development of the rail system but rolling stock provision and managerial capacity has not kept pace with the growth inhibiting overall development. Not to be overlooked remains the lack of private investment coming in, compared to the likes of Saudi Arabia or UAE.

The country’s major port of entry is Bandar-Abbas on the Strait of Hormuz. After arriving in Iran, imported goods are distributed throughout the country mostly by trucks and freight trains. The Tehran Bandar-Abbas railroad, opened in 1995, connects Bandar-Abbas to the railroad system of Central Asia via Tehran and Mashhad. Other major ports include Bandar Anzali and Bandar e-Torkeman on the Caspian Sea and Korramshahr and Bandar e-Khomeyni on the Arabian Gulf.

Dozens of cities have airports that serve passenger and cargo planes. Founded in 1962, Iran Air remains the national airline, operating domestic and international flights. All large cities have mass transit systems using buses and several private companies provide bus service between cities. Currently, Tehran, Mashhad, Shiraz, Tabriz, Ahvaz and Esfahan are in the process of constructing underground mass transit rail lines, though the dates for completion are yet to be determined.

For all of Iran’s ambition, the future will be largely determined by external forces. Most notably, war. However, Iran is determined to maintain course, regardless of the potential consequences of her actions or ‘ambitions’. Time will tell whether Iran’s position within the global marketplace will improve, or be left behind.

BY THE NUMBERS

In 2006 Iran had more than seven million vehicles, mostly manufactured or assembled domestically.

Iranian trains operate on 11,106 kilometres of railroad track, though plans call for this to be doubled.

Agriculture contributes to 11 per cent of Iran’s gross national product and employs a third of the labour force.

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UNDER PRESSURE

The United Nations has imposed three rounds of sanctions on Iran over its refusal to halt uranium enrichment, a process the U.S. and others fear it will use to produce nuclear weapons. The sanctions bar financial dealings with 35 companies and impose travel bans and other restrictions on 40 individuals. The sanctions also prohibit shipments of material to Iran that could be used for its nuclear and missile programmes.

U.S. sanctions are stronger. They bar weapons transfers and dealings with a wider range of companies particularly Iran’s top banks although they don’t seek to halt all trade with Iran. In fact, U.S. exports to Iran have increased dramatically during the Bush administration, from US$8.3 million in 2001 to US$146 million last year.

Source: US Treasury Department

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COLD STORE COMPLEX FOR GULF WAREHOUSING COMPANY IN DOHA

Client:                      Gulf Warehousing Company (GWC)
Consultant:               Gulf Engineering & Industrial Consultancy
Contractor:               Amana Contracting & Steel Buildings
Location:                  Doha Industrial Area
Completion Date:       December 2005
Duration:                  8 months
Built-Up Area:           25,000m2
Total Area:              47,300m2
Scope:                    Design-Build

Situated on 47,300 square meters of land, this 25,000 square meters distribution facility is designed to contain over 43,000 pallet positions. The complex is a high-bay facility with an internal very narrow aisle (VNA) racking system and state-of-the-art material handling equipment with a useable height of up to 13.5 meters. The entire facility was designed and constructed in less than 210 days.

The facility offers a number of storage environments including:

• 4,200 pallets of frozen storage (-30ºC to -20ºC)
• 4,200 pallets of chill storage (0ºC to 12ºC)
• 12,604 pallets of A/C storage (12ºC to 18ºC)
• 22,776 pallets of ambient storage

The complex is also equipped with a positive power air system to significantly reduce dust contamination and humidity levels and a state-of-the-art security system consisting of full CCTV coverage and card-swiped access gates.

Supplied by Amana Contracting