January 2007, No. 42

Endeavor

Alireza Tahmasebi, Minister of Industries and Mines

In the past year, the new government’s Ministry of Industries and Mines has undertaken a number of major initiatives. These include amending the industrial development strategy and the L-90 contract, reversing the downward trend in tariffs, building automobile plants in four continents of the world, replacing foreign financing with 3 billion dollars in state foreign exchange reserves, and increasing cell-phone tariffs. Although these decisions have been hailed as achievements by the ministry, a careful analysis of each step reveals a different story. For example, reviewing the industrial development document shows that the new document was simply a recompilation of the previous document and provided no new argument.

The ministry has also done nothing definitive with regard to the L-90 contract. Moreover, the government’s tariff policy and plans to manufacture cell-phone sets inside the country have not been economically feasible.

A turnaround on some industrial policies, such as changing the tariffs of industrial imports such as cellphones, along with changes in the industrial development strategy and the relative stagnation in production of some industrial goods, have made observers and activists in the industry and mine sectors concerned about the ministry’s policies. Perhaps the ministry’s performance on cement, lack of logical interaction with active organizations in the said sector and reduced production of some major industrial products can be seen as other failures of the Ministry. The following is a concise report on the performance of the Ministry of Industries and Mines under the new government.

Industrial Development Strategy: The fate of the L-90 contract and amendments made to it by the Ministry of Industries and Mines as well as changes made to the industrial development strategy have drawn a lot of attention since the arrival of the new government. The new Minister of Industries and Mines has announced amending the industrial development strategy as one of his priorities and as soon as he took office, a committee was established to review the said strategy. The final strategy was officially announced by the Minister, after nearly a whole year of review, on August 6, 2006. The Minister’s deputy for planning, development and technology noted that 40-50 percent of the previous document has been changed after the review.

The L-90 Contract: Alireza Tahmasebi had already called for changes to the L-90 contract when he was working as an MP at the research center of the Islamic Consultative Assembly (Majlis). The previous government did not take action in this regard; but Tahmasebi, as the new Minister of Industries and Mines warned the French Renault that if the contract is not amended to meet the viewpoints of the Islamic Consultative Assembly, its implementation will be stopped. Tahmasebi finally ordered the implementation of L90 project to be stopped by Iran Khodro and Pars Khodro and said re-production of the sedan would be only possible after amending the contract.

Renault accepted the changes after long deliberations and the L-90 contract was finalized after four amendments were signed between Iran’s Ministry of Industries and Mines and the French Renault which met the viewpoints of the Iranian side. Test production of L-90 started at Pars Khodro Company on June 23, 2006.

Tariffs: The general trend of most industrial import tariffs was reversed by the new Minister. The previous policy outlined a gradual reduction of most industrial import tariffs according to a five-year plan. Yet, the new administration took an opposite course which reflected its belief that reduced production of some industrial commodities was a result of wrong policies aimed at reducing tariffs. Therefore, the new minister supported higher tariffs which resulted in the severe fluctuation of industrial import tariffs. While this policy was welcomed by domestic production units, it was seen as negative step by economists advocating a competitive economy.

Cement: A constant point of contention between the Ministry of Industries and Mines and Ministry of Commerce under previous governments was the management of the domestic cement market. Finally, the Ministry of Industries and Mines convinced the government to leave all affairs related to production, sales and organizing the cement market to that ministry and take cement out of the governments’ protection basket. However, Ministry of Industries and Mines under the former government could not make a decisive decision about the product and the problem with cement market remained unsolved. The new ministry was also unable to use its powers in the correct direction. Initially, the new cabinet was convinced by the Ministry of Industries and Mines to put cement in protection basket again. However, criticism by economic experts, protests by production units and sharp decline in the stocks of cement companies at the stock exchange that threatened the industry’s development plans, forced the government to change its mind.

Marine Industries: Under the previous government, the Ministry of Industries and Mines felt a strong urge to develop marine transport, both for commercial uses and for the export of oil and liquefied natural gas. It presented a bill to develop and support marine industries to the Sixth Majlis, which was welcomed by Majlis deputies. The bill was discussed for a long time, but the Sixth Majlis’ term ended before the bill was ratified and final ratification of the bill was left for the Seventh Majlis.

The seventh Majlis decided that one paragraph of the bill was against the Fourth Economic Development Plan and the bill was returned to a specialized commission of the Majlis. However, despite the fact that the bill has been approved by all parliamentary commissions, it has not yet been discussed on the Majlis floor. The important point is that the Ministry of Industries and Mines, as the main patron of production industries and domestic manufacturing, should be more serious for the ratification of such bills.

Foreign Exchange Facilities: In the current year’s Budget Act, for the first time, 3 billion dollars have been allocated to funding major industrial projects inside and outside the country as a good substitute for foreign finance in the industry and mine sector. Also, Clause Z of Note 2 of the government’s proposed budget aims to re-activate the Bank of Industry and Mine as well as the Export Development Bank of Iran as the main developmental banks of the country.

To achieve that goal and to finance major industrial projects of the country and expand exports of technical and engineering goods and services, the current year’s budget has allocated a maximum of 3 billion dollars for deposition at the Bank of Industry and Mine as well as the Export Development Bank of Iran. This action aims to assist domestic companies with the implementation of major industrial projects both inside and outside the country. This step by the government, which was supported by the Ministry of Industries and Mines, has been considered as a major stride toward financing major industrial projects in the private sector, which has always been short of liquidity in the preceding years.

Establishing Automobile Companies: Establishing automobile companies on four continents is a strategic policy of the Ministry of Industries and Mines under the new government and the Ministry, in cooperation with subsidiary automobile manufacturing companies, has opened branches of Iranian carmakers in such countries as Syria (Asia), Belarus (Eastern Europe), and the Republic of Azarbaijan (Asia).

This cursory examination of the performance of the Ministry of Industries and Mines reflects a mixed record of activity. While some steps have been taken towards greater economic development and expansion of the country’s industrial capacity, other steps have been flawed in both their preparation and implementation.