Tehran, Asharq Al-Awsat- Unless one sees it with his own eyes, it is difficult to imagine the volume of foreign goods in Iran and the diversity of brands that are available such as Sony, Panasonic, Hitachi, Nokia, Philips, LG and Aqua.
Jomhouri Islami is the main street where electronic goods are sold in Iran. The entire street is allocated to the selling of electronics and in the middle of the street there stands the largest multi-floored commercial centre that sells food, clothes, cosmetics and furniture. Shops are designed in a modern fashion that tempts people to buy anything that catches their eyes. Those who visit the street are mostly young people who come to check on the latest commodities, especially mobile phones without necessarily intending to buy.
There are fears however amongst Iranian traders owing to the decrease in buying and selling rates and recession. However, other traders say that it is only natural that the market fluctuates, asserting that recession is something that affects all markets in the world and that it does end at some point. “The market is bad. Prices go down every day and people do not buy because of unemployment and inflation. The power to purchase has decreased over the years because people do not have enough money to buy products despite the decrease in prices,” complained Hussein Kayanen who currently works in a store selling televisions and video players made by brands such as Sony and Samsung. Hussein is a young man in his early twenties who fears that his economic conditions would be affected by the current situation in the country. He told Asharq Al-Awsat, “In Iran, there are only two factories that produce devices and spare parts for television sets, videos and radios. There is not much diversity in the commodities that they offer; accordingly they cannot compete with foreign commodities. Electronic devices are imported from Dubai, Malaysia and Singapore.”
Whilst the Iranian market succumbed to the invasion of imported electrical goods, the Iranian cotton and textile industry are trying to remain in the market. “We have some Chinese goods, but the majority of available products in the market are Iranian since many Chinese products are poorly manufactured. Iranian blankets and bed sets sell better, whereas Chinese shoes are more popular products,” said Qambiz Izhakian, another seller of Jomhouri Islami Street. Izhakian specializes in household furnishing and textiles. Izhakian told Asharq Al-Awsat newspaper, “The market has been down for five years now. The situation gets worse year after year as inflation and the weak purchasing power of government employees greatly affect us. Also the threat to impose different sanctions on Iran affect the market, therefore people stop buying. I come to the shop in the morning and wait for customers then I return home. This is the case every day. Even if I wanted to sell my shop and start another business, I would not be able to find somebody who would want to buy the shop. I don’t like my job but I cannot change it.”
Perhaps the only shops that are able to gain any kind of profit in Jomhouri Islami Street are those that sell mobile phones. Samadi, the owner of one shop that sells mobile phones and cameras, imports these goods from Gulf States, South Korea, China and Finland. He told Asharq Al-Awsat, “Generally, the market is good and the volume of our sales is good. But the only problem is that some new laws have caused the situation to deteriorate to a degree that costs of importing foreign goods are increased. The majority of our sales are mobile phones and cameras.”
In the side streets of downtown Tehran, the numerous vendors, the majority of whom are young men, sell fake Chinese goods such as jeans, trousers and shirts. These street sellers do not suffer like those who sell in shops because they do not pay rent, electricity bills or salaries for other employees. They only buy contraband goods in bulk and display them on the street. They find buyers easily, since not all Iranians can afford imported foreign goods due to high prices. Iranians know where to find fake goods and where to find original goods. For example, ‘Waly Qasr’ and ‘Jomhouri Islami’ that are both located in central Tehran sell fake clothes that are imported from China, India, Malaysia and Dubai. If one wanted to buy genuine clothing items then modern Iranian stores that are built based on Britain’s John Lewis store or US Macy’s then the north [of the city] would be the place to go.
There are those who attribute the economic situation of the market to the decisions adopted by Iranian President Mahmoud Ahmadinejad. An Iranian journalist who spoke to Asharq Al Awsat on condition of anonymity cited an example of the method adopted by Ahmadinejad when making decisions. He explained that when Ahmadinejad was elected, one of his first decisions was to change the working hours in banks to start at nine o’clock instead of eight o’clock. His decision led to many problems with banks, thus Ahmadinejad decided to retract the decision. In addition, what raised concern amongst many traders and businessmen is that Ahmadinejad had endorsed this resolution and withdrew it without consulting or discussing the matter with them. Many of the conservatives in Iranian parliament headed by Ahmad Tavakoli, the economic official in parliament, criticised Ahmadinejad’s management of the economy. The head of the Expediency Discernment Council of the System, Hashemi Rafsanjani criticized Ahmadinejad’s government causing the budget of fiscal year 2007-2008 to be dependant on the oil sector. After receiving permission from the Supreme Guide of the Republic, Ayatollah Ali Khamenei, 150 members of parliament (out of a total of 290) wrote an open letter criticizing the economic policies of Ahmadinejad, his delay in completing the budget and his tour of Latin America. Also 54 established university professors wrote an open letter criticizing agricultural policies and the increasing reliance upon imported foods from abroad, especially rice.
In light of sanctions on Iran, some parties fear that importation will become a more expensive process especially as it is not guaranteed that people will maintain their current consumption patterns and this could paralyze the ability of traders and businessmen to work. Iranian importers feel the pressure more than others as they have to pay in advance for the value of goods that they buy. This is no longer easy especially considering the fact that a growing number of international banks are slowly severing ties with Iranian companies due to the American campaign to pressure Iran economically and isolate it from the international financial system, external to the framework of the United Nations sanctions. Nowadays, many banks in Europe and Asia have responded to American calls. UBS, HSBC, and the Standard Chartered and Commerce Bank stated that they decreased the level of financial ties with Iranian banks and companies. In the past few months, the US Department of the Treasury has sought to warn global financial institutions against investing in Iran particularly the Iranian oil and gas sectors. In December 2006, Iranian Oil Minister Kazem Vaziri Hamaneh said that Tehran is facing difficulties in developing its oil fields. According to Shana News Agency that is affiliated to the Iranian Ministry of Oil, “Currently, international banks and investors have lowered their cooperation with us.” However, an Iranian official stated that the impact of sanctions on the Iranian economy has been exaggerated. From his office, he told Asharq Al Awsat, “Sanctions would only lead to a rise in prices since our borders with Iraq and Afghanistan are lengthy. Therefore, smuggling anything and everything would be possible. It is not true that we receive fake goods only, there are authentic goods that are smuggled to Iran from Europe.” He added, “All kinds of commodities are admitted to the Iranian market. All kinds of publications such as The Times, Newsweek, Fortune and others are admitted into the Iranian market except those that use the phrase ‘the Arab Gulf’.
Whilst some traders sensed the impact of the current economic crisis, it was the Iranian stock market that paid the higher price as it lost approximately a third of its value over the past few months. Trading in the stock market is still a new concept for the majority of Iranians however this is changing. It is easy to see social and cultural differences within Tehran’s stock market as those who have money do not hide it. There are at least three million traders in the stock market and 419 registered companies according to the chairman of the stock market, Ahmad Mir-Matahri. The problem, however, is that the Tehran Stock Exchange fails to attract foreign investors even today. The vast majority of stock exchange companies are affiliated to the government and there is a small area for private companies, which leaves the stock market vulnerable to internal and external political fluctuations. The Tehran Stock Exchange is located in a large, old building where traders watch the screens from 8am to 12:30pm. A number of young Iranians, both male and female observe closely the progress of the stock market. Ali, 26 years-old and a graduate of accounting, began investing in the stock market with his friends and gained some profit however the situation is now changing. During his participation in trading, he told Asharq Al Awsat, “I began trading in the stock market six years ago with three friends. I was interested in investing in the stock exchange due to its stability and the stability of the overall economy during Mohammed Khatami’s term. When we started, we were gaining profit for four years, however, the past few years have seen the prices plummet therefore, we have lost money.” According to Ali, there are two reasons behind the fall in the stock exchange; firstly, many of the shares were overvalued and secondly, due to the policies of Ahmadinejad’s government. “There are no clear fiscal policies, besides that the government does not support the stock market. Most of the financial liquidity is directed at the real estate sector. The government should adopt policies that provide stability to the market and encourage foreign investments.”
Mohammadi Jalian, another trader in the stock market who suffered from financial losses blamed his experience on the overvaluing of stock prices. Jalian told Asharq Al Awsat, “I managed a factory before I retired. Before the 1979 Iranian revolution, I had some shares in the stock market. Since 2003 when I retired, I started looking into the stock market to see whether I could invest in it. When I first started, prices were at the highest point. Unfortunately, prices began to fall and I was one of those who lost out during the process. The reason for the decline is that the whole market is unstable. Also companies have overvalued the prices of their shares. For example, some companies raised the price of their share to 85,000 Toman [one Toman contains 10 Iranians Rials] and suddenly the price dropped to 30,000 Toman. Why did the government allow this to happen? People like me are paying the price and we lose because of instability of the market.” However, neither Ali nor Mohammadi Jalian specified the number of companies that were greatly affected by the current plummet in the stock market. One trader, who spoke to Asharq Al Awsat on condition of anonymity said, “In the stock market, there are approximately 430 companies but only 10 of them currently maintain their financial dealings. Others have frozen financial transactions and we cannot buy or sell. I think that many people have left the stock market and headed either abroad or to the real estate market in Iran.”
Today, because of the Iranian market’s need for hard currency, the government decided to take a major step towards the liberation of the Iranian economy in an effort to revive it. The head of the legislation department in the Iranian stock exchange, Saleh Abadi, told Asharq Al Awsat that the privatization process will be in accordance with Article 44 of the Iranian constitution. Abadi said, “The sizes of the projects that we aim to privatize reach $100 US billion dollars… it is the largest privatization plan in Iran. Some of the sectors that will be privatized are new and were not included in the privatization process before such as telecommunication companies, banks, petrochemicals, insurance companies, mining as well as the iron and steel industry. It is not yet clear how the decision to impose sanctions against Iran by the United Nations would affect Iran’s projects for privatization or cause capital to leave Iran. However, Abadi did not show concern regarding this issue. He emphasized, “The claim that most companies trading in the stock market had frozen their transactions is absolutely untrue. Most companies are still active and there is a lot of exaggeration in reflecting the size of losses in the Iranian stock market. All stock markets in the entire region have suffered losses recently. Iran is no exception. There is also an exaggeration regarding the size of the funds that left Iran for Dubai and the Gulf.”
Although the government of former Iranian President Hashemi Rafsanjani began an ambitious program of privatization following the end of the Iran-Iraq war, many of the projects were postponed due to objection of the Shura Council (parliament) on the privatization of some projects. Nowadays, 70% of the Iranian economy is in the hands of the government including all heavy industries such as mining, steel and copper, petrochemicals and the automobile industry.
In 2005, Iranian authorities attempted to sell the equivalent of 2.5 billion dollars of state-owned enterprises but only succeeded in selling 30% of this value. Article 44 of the Iranian constitution states that there are three economic sectors: the public sector, the cooperative sector and the private sector. Despite the fact that the constitution gives the state the right to possess critical economic projects, on the practical level, the private sector succeeded in playing an increasing role in the Iranian economy. There are plans to privatize 80% of state enterprises. Recently, Iran’s Supreme Leader Ali Khamenei stated that based on Article 44 of the constitution, more Iranian companies, including banks and petrochemical companies, will be privatized. What is noticeable from the Iranian economy is the significant growth of the tertiary sector that outdoes the other sectors. In comparison, agriculture occupies 11.2% of the Gross Domestic Product (GDP), whereas industrialization occupies 41.7% and the tertiary sector occupies 47.1% of the GDP. Growth in the service sector is reflected in the division of labor; currently 45% of the labor force in Iran (approximately 26 million people) works as part of the tertiary sector compared to 30% in the agricultural sector and 25% in the industrial sector. Due to these transformations, agricultural production in Iran has declined whereby Tehran has become one of the largest importers of foodstuffs. Iran’s annual imports amount to $63.18 US billion whereas its annual exports amount to $45.48 US billion. Iranian economists increasingly criticize the state’s reliance upon imports of rice. With the growth of the tertiary sector, the state budget mainly depends on the oil sector. 45% of the national budget comes from oil and natural gas sales, as well as 31% of taxes and customs duties. The rest of its budget is through petrochemicals, automobiles, textiles, carpets, and pharmaceutical industries, food industries, including sugar refining, the oil industry and agriculture. The annual growth rate reached 5% and annual growth rates should remain at 5% in order to provide 900,000 jobs annually. There is an unemployment crisis and official figures estimate unemployment at a rate of 11%. However, experts assert that the percentage is much higher. Because of unemployment, the gap between rich and poor increased and so has the rate of poverty. In his study on poverty in Iran, Dr. Saeed Madani, a sociologist at the Shaheed Beheshti University stated that there are three levels of poverty; those living on less than one dollar a day (estimated at 3.5 million to 4.45 million Iranians), those who live on between $1 to $2 a day (estimated at about eight million Iranians) and lastly, those who live on between $2 to $3 a day (estimated at 11 million people).
These conditions cause frustration amongst young Iranians. One young Iranian man said, “It is not difficult to be as rich as long as there is no governing system and this is the situation in Iran. We are the freest country in the world because we do not have a governing system. I can be very rich in a legal way benefiting from the freedom of transactions because of the lack of rules in the country. This is exactly what affluent people have done. For example the absence of clear laws on taxes in Iran enables people to evade paying taxes. A person who owns a Mercedes vehicle could go and pay taxes for a Khodro car.”