Iran’s business community hopeful on economy, but sees little progress so far


A street vendor sells red beet at his stand in Tehran on Dec. 10. (ABEDIN TAHERKENAREH/EPA)
December 12, 2013

The interim deal struck last month between Iran and world powers over the Islamic republic’s contested nuclear activities should brighten prospects for the business community here, but so far entrepreneurs say they’ve seen little sign of economic improvement, although they remain hopeful.

Merchants in Tehran are struggling from a series of interconnected financial problems that threaten the survival of many businesses. But although Iranian President Hassan Rouhani’s cautiously optimistic economic outlook is buoying the mood, it’s also increasing expectations.

The current Iranian year is proving to be the most economically trying one since Iran’s eight-year war with Iran ended in 1988, with economic growth at a reported negative-5.8 percent and an inflation rate of 40 percent. The nation is also struggling with joblessness, with a unemployment at 12.4 percent.

Though Rouhani’s budget plan for the coming year does not forecast much improvement in the jobs market, the president has indicated that job creation is a priority. But he has also acknowledged that inflation is a challenge that he must address immediately. His proposed budget, which he submitted to parliament Sunday, predicts a big jump in economic growth — rising to a rate of 3 percent — and a big drop in inflation — falling to 25 percent — in the next Iranian calendar year, which begins March 21.

Whether Iran can achieve the projected rebounds will depend on its ability to sell oil at current rates and to access foreign currency, and that assumes a lasting nuclear accord that would ease the sanctions on Iran’s battered economy.

The six-month interim nuclear deal, which will go into effect Jan. 15 and expire in July, will make about $7 billion of Iran’s own currency available to the Islamic republic — a small fraction of the country’s assets that are currently frozen abroad. But even modest economic improvement and the reversal of years of punitive measures taken against Tehran by other nations will likely open up political space for Rouhani to broker a more lasting nuclear agreement.

Analysts here are mixed in their assessment of Rouhani’s progress report and how he plans to heal Iran’s ailing economy. But they tend to agree that Rouhani is likely to use more experienced managers and craft a sounder economic policy than his predecessor, Mahmoud Ahmadinejad, who is widely blamed for Iran’s current woes.

“Three percent growth by next year will be difficult to reach, but I believe that Rouhani’s foreign policy outreach can definitely impact economic programs in positive ways,” said economic analyst Seyed Hossein Ghasemi, who warned that any positive economic trends being seen so far were purely “psychological.”

The proposed budget, which earmarks more funds for the private sector, promises to “create more opportunities for businesses, factories, construction and agriculture,” said economist Saeed Laylaz. “And it also means more domestic products and more people employed to do these jobs.”

Retail businesses with high inventory turnover, including food vendors, are among the few industries already reporting a better situation since Rouhani’s inauguration. They attribute their success to reduced volatility in the value of Iran’s currency, the rial, after two years of fluctuations that destabilized the price of many imported products. The cost of chicken, for example, doubled in a matter of days in 2012, but such uncertainty in food prices no longer hinders sellers.

“In the past, we were not sure whether to buy a certain item or not, but now as the prices are almost fixed and we don’t expect any increases, we order from suppliers with peace of mind,” said Ali Aghaie, a manager of a supermarket in central Tehran.

But other key sectors, including Iran’s once-booming real estate market, continue to struggle.

On Sunday a spokesman for Iran’s real estate agents’ union said that the number of daily real estate transactions since Rouhani took office has more than doubled. Realtors here, however, report the opposite.

“There hasn’t been any tangible improvement in the market,” said Parviz Mahdani, a realtor on Tehran’s main thoroughfare, Valiasr Street. “Real estate already had its growth in terms of investment, and even those who were reliable land developers are now investing in the stock market instead.”

The slowdown in real estate sales is affecting other sectors, including home furnishings.

“All my materials are imported, and because the exchange of the dollar was so high last year, we were forced to raise prices,” complained Hossein Moshfegh, who manages his family’s wood composite business. “But our costs haven’t come down, even though the value of the dollar is 20 percent less than it was when Rouhani took office.”

Domestically produced goods, meanwhile, face hurdles such as trade embargoes and even image problems in reaching foreign consumers.

“We’re all just trying to survive this period,” Hossein Hosseiny, a rug merchant in Tehran’s bazaar, said. “The rug business has everything to do with our relationship with the world. It’s completely psychological, and if people have a good view of Iran, our rugs will sell.”

One bright spot: Internet-based businesses and pioneers of Iran’s e-commerce sector are reporting major gains despite continued problems with Internet connectivity and sanctions that block consumers from making international online transactions.

As the number of Iranians using the Internet grows by the day, so, too, does online shopping. And while other domestic industries may take years to rebound, e-commerce is set to take off, Internet retailers say.

“The government can play a vital role in creating an ecosystem of bringing in foreign investors and giving incentives for people to stay in the industry and encourage others to enter it. There’s a huge potential, and our industry will create a lot of jobs,” Ehsan Golabgir, chief executive of Albasco.com, one of Iran’s most visited online stores, said.

Jason Rezaian has been The Post’s correspondent in Tehran since 2012. He was previously a freelance writer based in Tehran.
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