Privatization system in Iran reduces efficiency of business

Azerbaijan, Baku, April 29 /Trend, T.Konyayeva/

Iran's system of privatization of state companies, transforming them into state-supported companies, factually takes a nominal character, which adversely affects the economic indicators of countries, experts say.

"Despite the intention and pronouncements by the government, the fact is that very little real privatization has taken place, Professor at U.S. Northeastern University Kamran Dadkhah wrote in an-email to Trend. Most of the government owned companies have been sold to government supported foundations, public funds, and other government entities and companies.

As a result privatization has been mostly in name rather than substance."
Over the last month, the Privatization Organization of Iran sold 833 million shares worth $1.3 billion on the stock exchange to the private sector, IRNA news agency reported.

Dadkhah said for many years, the Iranian government has declared its intention and plan to privatize government owned companies.

"Indeed, the Expediency Council has interpreted article 44 of Iran's constitution in a way to allow extensive privatization of companies and businesses owned by the government," he said.

Plans for large-scale privatization of state enterprises have been announced by the government of Iran after the Iran-Iraq war in 1988 as a means of stimulation of the dilapidated economy. But the privatization process has gone slowly mainly because of opposition by parliamentary majority.

Under the article 44 of Iranian Constitution, which regulates the issues of economics and finance in the country, the Iranian economy is divided into three sectors: public, private and cooperative.

The state owns the main sectors of the economy such as heavy industries (petrochemical, ferrous and nonferrous metallurgy, machinery), foreign trade, banking, insurance, communications, transport, whereas light industry, construction, agriculture and service sector have almost been entirely privatized.

In 2004, this article has been revised so that now allows to sell up to 80 percent of the state assets of large companies.

In 2007 when 70 percent of industrial production was owned by state, the Supreme Leader Ayatollah Ali Khamenei ordered that government officials to speed up implementation of the policies outlined in the amendment of Article 44, and move towards economic privatization.

According to estimates by the head of the Privatization Organization of Iran, state assets worth $63 billion have been sold to the private sector from 2005 to 2010 (total value of state assets in Iran is estimated at $120 billion).

Nevertheless, Dadkhah believes that the benefits and importance of privatization do not stem solely from the private ownership (part or whole) of productive assets. He said more importantly, they stem from the fact that in a private company decisions are made by private decision makers who are motivated by profit and loss incentives.

"Furthermore, they have to assess the risk of their decisions and balance it against potential profits, said Dadkhah. - None of these will come true if a company is sold from one government entity to another even if some of the shares are owned by private individuals.
Former Iranian MP Ali Mazrouei said the process of privatization is one of disputable topics in Iran.

"In Iran, privatization of state companies is, as a matter of fact, their transformation into semi-state ones. Usually, the state, which is in debt to public companies, which are not considered state ones, repays its debt in the form of issuing shares, but according to the law, this can not be regarded as the full privatization," economic expert Mazrouei told Trend by telephone.

In Iran, inefficient work of state and semi-state structures hinders economic growth and the real privatization process, he said. Mazrouei believes that one of the problems in state companies' administration is the absence of calculation of profits and losses of these organizations.

"The management of these companies is not eager to receive profit and minimize losses so they work ineffectively and cause damage. Under privatization, administration and ownership are handed over to the private sector, which works to receive profit on the basis of economic laws as it is really eager to obtain profit," he said.

According to statistical data, more than 20 percent of the number of state companies put for sale in Iran work with losses. The pace of growth of profit of the rest companies does not exceed 5.5 percent a year, excluding numerous state political and economic injections.
Experts believe that in order to privatize the existing state organizations in a usual manner, it is necessary to increase their efficiency.

At the moment, many of them do not bring profit because of a large number of employees hired by the Government for the reasons of reduction of unemployment rate. In addition, many companies are financed at the price of oil export revenues. The real privatization will inevitably lead to cut of jobs.

Mazrouei believes that private owners' eagerness in profit causes an increase of the efficiency of work of private structures, which undoubtedly will contribute to overall economic indicators.

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