Sanctions drive Iran industry to standstill

Sanctions drive Iran industry to standstill

Azerbaijan, Baku, Nov. 12 / Trend /

Ellada Khankishiyeva, Trend Analytical Center Head

International sanctions, which made it impossible to import equipment and components put manufacturing sector of Iran in a difficult position. Deputy Minister of Industry Mohsen Salehiani said the manufacturing sector of Iran in the current Iranian calendar year, which ends on March 20, 2013, needs 800 trillion rials (about $65 billion) to meet the needs. Last year, the figure was around 500 trillion rials.

Today, according to various estimates, the volume of industrial production in Iran is 30-35 percent of GDP, and with the fall of imports of raw materials, machinery and other technologies that affect most of the country's industry, the production rate can fall even lower. Thus, due to the inability of component parts import from Europe, car factories are under the threat of closure. According to the Ministry of Industry of Iran, the decline in the first half of the year by 42 percent was observed at the second most important sector of the Iranian industry after oil - automobile.

Prohibition of the West to carry out banking transactions with Tehran deprived local companies from technical ability to pay for imported goods from abroad. In addition, the Iranian producers have enormous difficulties with the consequences of the unprecedented high price of foreign currency in the country and galloping inflation (25 percent), resulting in a significant increase in production costs.

For example, Iranian textile industry is on the verge of bankruptcy due to the above mentioned reasons, in particular because of the rise in price of raw materials in the country, as well as the increase of the price of any yarn and cotton from abroad. Food industry of Iran is operating at half of its capacity due to the high cost of agricultural raw materials. Production of medicines, however, as the production of detergents and cosmetics, is also in a state of crisis.

According to the information of the of Iranian workers Association in July, the country had 1230 companies with 100,000 of workers during that period, but in the aggregate, these companies had a debt of $7 billion, and was forced to cut production and staff, or just shut down. If for example, the automobile factories are fully closed in Iran, more than 700 thousand workers will remain unemployed.

It should be noted that even before the sanctions Iran industrial sector had a low share of GDP, which was a consequence of the fact that half of the industry was working on older equipment, which need to be upgraded. In addition, the situation was complicated by the high level of taxation, low productivity, poor management, difficulties in obtaining credit and high interest rates. The program of privatization of large enterprises hampered due to lack of investors who held back due to a difficult political situation in the country, and heavy investment conditions. All of these long-standing problems, coupled with toughening sanctions of the West paralyze Iran's industrial production.

Positive in all of this cycle of events is the fact that Iran is seeking to establish local production of the products (equipment and components), which it imported earlier. According to official data of the country, the industry and the agricultural sector haven't not only increased the level of production to replace imports, but did so with less reliance on mediation.

Thus, whereas until recently Iran imported boards for control of compressors needed by National Iranian Gas Company (NIGC) for gas pressure control, now the Iranian experts themselves produce the equipment, unavailable because of international sanctions and needed to control pressure in pipelines. Production technologies of pipes designed for pumping acid gas and meeting all modern requirements have been utilized in this area. The line for the production of such pipes was commissioned three months ago, and there is no need in imports of these products any more.

About two months ago, Iran has mastered the technology of reactor manufacturing for producing hydrogen with purity of 99.8 per cent, resulting in Iran ranking second in the world after Italy in production of such reactors in the domestic market.

Next year, Iran will not need to import steel products, as new projects on the production of steel in the country will be running at full capacity. According to official statistics, Iran has produced more than 6.25 million tons of steel in the first five months of the current Iranian year, showing an increase of 8.8 percent year on year.

Most of the equipment necessary for the Iranian oil industry is provided by domestic manufacturers. In recent years, Iran has made great achievements in defense sector and attained self-sufficiency in production of essential military equipment and systems. To mitigate the impact of Western sanctions country is ready to start its own production 290 species of medicinal drugs.

However Iranian specialists and experts believe that the industrial, agricultural and energy sector of the country are not at the level allowing to increase the production. The industry needs modern equipment that would meet not only current technical parameters, but also would be consistent with the requirements of environmental safety. Due to non-compliance with international standards, performance indicators of final production are far behind the world level.

For support of domestic producers Iranian government should introduce incentives, both reducing tax rates and embedding large-scale investments. Iran's National Development Fund (NDF) has allocated three billion dollars of its assets in loans to support the development of agriculture and industry. In general, Iran plans to send ten percent of the NDF assets to support domestic production. Iran has also temporarily banned the import of some 'luxury', most of which is produced in the country and there is no need for their import.

Holding the country's industrial sector on the rise with all might, even without existing sanctions, is correct for Iran, and should be considered as a positive change.

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