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Competition Essential

The private sector should be given an opportunity to invest in auto industry and compete with the existing companies

Born in Abadan in 1956, Behrooz Rezvani studied mechanical engineering at Amir Kabir University in Tehran. Since 1981, Rezvani has held different positions in the Iranian automobile industry including production manager and managing director. As the country’s auto manufacturers were categorized under the two main groups of Iran Khodro and Saipa, Rezvani took charge of Iran Khodro Diesel Co., which is a producer of heavy and semi-heavy vehicles.
In the following interview, Rezvani comments on the necessity of competition in the Iranian auto industry, as well as the role that private investments can play in this regard. Excerpts:
Iranian auto industry has undoubtedly undergone some remarkable changes within the recent years. The quantity has certainly grown, but how do you comment on the quality of products?

The technology used in various sectors of the Iranian auto industry has shown a notable progress recently and is not at all comparable with the technology that was applied 5 or 6 years ago. Also the contracts that are being signed in the year 2000 for the growth of this industry are not comparable with the past. We have held negotiations with international manufacturers of automotive parts for joint ventures with Iranians to make equipment both for the Iranian market and international markets. This will not only benefit the domestic market of auto parts and quality of Iranian vehicles, but also will help promote our country’s exports and bring in revenues.

What measures must be taken to enable the Iranian auto industry compete with foreign car brands in terms of quality?

When there is no competition, monopoly will emerge and this is detrimental for the product quality. Companies will surely lose their dynamism when they see a lack of competition. But not all developments can be hindered and pressures will increase until the time that monopoly breaks down. Monopoly is not a lasting phenomenon. Nevertheless, “monopoly” should be differentiated with “preserving the market” for oneself.
We should not forget that monopoly should not be broken down by increasing imports, but it should be eliminated by encouraging production on the domestic scene. Because liberating imports would be only a transient solution to fight monopoly. I believe that encouraging competition will be highly instrumental in improving the quality of domestic automobiles.

Manufacturing of automobiles and automotive parts is a fast-growing part of the Iranian industry and economy, and our country’s economy cannot live in isolation from the global economy. How do you comment on the necessity of working within an international partnership?

In order to integrate into the global economy a number of measures must be taken: One of the steps is changing the import system into a tariff system. We have offered suggestions in this regard for the auto industry. Since the present tariffs for cars and other industrial commodities are calculated based on 1,750 rial exchange rate, the tariff would be one-fifth of the real one. With this in mind, a 15% tariff will be really 3-4% in effect. That’s why in the past years, other mechanisms have been applied to prevent imports. Similar mechanisms are applied in other countries, like Argentina and Brazil.
Iran is an economy dependent on oil. So oil prices have a direct impact on the economic growth of our country. At the same time, it is predicted that oil prices are to fall in the future years due to investments which have been made – both inside and outside OPEC – in the oil sector and the increase in the production. When the oil price declines because of high production level, some of resources would become non-feasible and this would lead to a decrease in production and the prices will go up again. These developments have always been based on a sinus curve.
Therefore, it is advisable for Iran to encourage investment in order to improve the quality of products. Merely importing foreign commodities is not a working solution to deal with substandard qualities. As a main solution, the private sector should be given an opportunity to invest in auto industry and compete with the existing companies.