The Forum for Partners in Iran's Marketplace

July 2013, No. 67


Why Do Industrial Corporations
Not Grow in Iran?

"If we proceed on in the next few years with the same multi-rate foreign exchange system, we have practically moved against production and investment."

Dr. Masoud Nili

Masoud Nili, who was once in charge of formulation of the document of Iran's industrial development strategy, outlined this development document in a half-day meeting at Tehran Chamber of Commerce.

Pointing out that in formulation of the document of industrial development strategy three major issues were taken into consideration, he said: "First, we took into account what we did to codify this document in the Iranian calendar year 1382 (2003-2004); then we once again codified the document of industrial development strategy by referring to the current economic situation and finally by looking to the future."

Stressing that the low rate of industrial growth, problems of meeting financial demands of the industrial sector and impacts of foreign exchange fluctuations are among cases our industrialization is faced with, Nili said: "A large part of the present problems in the industrial sector of the country has become chronic and we need new mechanisms to solve them."

The formulator of the first document of industrial development strategy in Iran further remarked: "Industrialization manifests in social and economic fields. In the area of economy, the value added of the industrial sector increases and as a result the economic growth enhances and productivity increases."

On the other hand, he said, industrial development needs human capability and business flourishes with expansion of areas for using manpower.

Referring to social impacts of industrialization in Iran, he said: "The more social relations are turned from simple agricultural communities to complicated industrial communities, they demand more complicated managements. Therefore, a precise, specific and clear definition of the status of the government and its role in economic administration of the country are included in these definitions."

Outlining the role of the government in the process of industrial development, he said: "Government's non-interference in the process of industrialization has been replaced by how to play the role; and therefore it should be defined what role the government is expected to play in the process of industrialization?"

According to Nili, the first point which should be taken into consideration in formulation of the industrial strategy is to distinguish what issues and problems are we going to settle by codifying such a document.

He stressed that putting forward this question is the most important part of laying the foundation of this document and said: "The main point which should be definitely answered in the document for industrial development strategy is why industrial corporations in Iran do not grow and why the industry in our country is still dependent on outsourcing?"

The economic expert went on to say: "In our country, the larger our corporations become the more governmental they become and there are a few production units in the country which, despite being large, are creating the real industrial value added."

Mentioning that some 70% of the economic corporations in the country are running with 5 to 50 staff, the formulator of the first document for industrial development strategy said: "In the meantime, this 70% produce less than 8% of our value added in the industrial sector and the remaining 30% are larger corporations which are mainly state-run."

Stressing that when the government enjoys high authority but instead faces financial weakness, corruption and renting would emerge in the country, Nili said: "The role of the industry under such circumstances is non-generation of revenues and replacement of oil revenues with industry and production. Our country has four strong points to become industrialized. Other countries, however, have managed to become industrialized by possessing only one of them. Among these privileges, one is that Iran has the second largest gas reserve in the world; Qatar has achieved its target of industrialization by only possessing this same advantage."

Expressing that Iran enjoys strategic status in terms of geographical location and international accesses, he said: "By possessing this point of strength, the United Arab Emirates has been able to realize its targets."

He continued that Iran is an oil rich country with high oil revenues and has a background of 40 years of industrial investment. Turkey, however, has been able to use its industrial record while Iran has still ignored such an advantage.

The codifier of the first document for industrial development strategy in Iran stressed: "What could have been put together in Iran and help it to become a developed country has emerged individually in other countries and helped them reach a desirable status."

Regretting that Iran is now placed in a point where an immense volume of its oil revenues have been disbursed and its economy is very exhausted, Nili said: "From the 1330s (1950s) onwards, what has taken place in our economy has somehow been related to oil while it seems that in a med-term future, oil fails to play a major role in our economy anymore."

He stressed even with the ease of the sanctions, it is unlikely that the country could reach in 1393 (2014-2015) and 1394 (2015-2016) the status it held earlier in the production and selling of oil. He said: "Now that the government has no money because of not selling oil, what would be its status?"

Nili remarked: "On the other hand, price of energy would go up during the next few years and this issue would be one of the effective points in Iran's industry."

According to Nili, dependence on imports shows itself in foreign exchange rates and fluctuations in the foreign exchange rates are regarded a factor in instability of the economy.

In conclusion he said: "If we proceed on in the next few years with the same multi-rate foreign exchange system, we have practically moved against production and investment. On the other hand, if the foreign exchange rates become equal it would demand specific conditions, and the government should accept that single rate currency is similar to taking up the lower number to the higher number instead of bringing down the upper number to the lower number."


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  July 2013
No. 67