Added by U.S. sanctions, Iran finds a lifeline in the national economy

The governor of Iran’s central bank in December said the country’s economy grew by 1.3% from March to mid-September, driven mainly by domestic manufacturing.

“Even if the sanctions disrupt all Iran’s oil exports, the country’s economy could continue to survive,” said Mohsen Tavakol, a sanctions expert at the Atlantic Council.

A strengthened national economy gives Iran some leeway before the arrival of the Biden administration, which has said it would lift some sanctions if the United States returned to a 2015 agreement limiting Iran’s nuclear program and if Iran reverses breaches of the agreement. The country has intensified nuclear enrichment and earlier this month passed a law restricting access to nuclear inspectors. Iranian Foreign Minister Javad Zarif has urged the US to fulfill its previous commitments under the nuclear deal before negotiations can be held on the country’s return to the deal.

The United States has long used the power of the dollar and access to the global system of bank transfers, which it effectively controls, as a tool to achieve foreign policy goals in countries like North Korea. In Iran, the Trump administration has imposed what is called a maximum pressure campaign to stifle its economy and force Tehran to renegotiate the 2015 nuclear deal. However, in some quarters, the Iranian economy it is adapting to the separation of much of international trade.

For example, after US sanctions prompted French cosmetics company L’Oréal in 2018 to abandon acquisition talks with Zarsima Nami Rasa, the Iranian firm launched its own product line that has since they have replaced their suitor’s brand in many of Tehran’s hairdressing salons.

“The sanctions were the right reason for us,” said Hassan Oskoui, CEO of Zarsima Nami Rasa, an Iranian beauty care company. The company said its domestic focus allowed it to retain about 450 workers.

Iranian home appliance manufacturer Pakshoma Co. it also took advantage of the output of much larger South Korean competitors, LG Electronics and Samsung.

He developed the first nationally produced dishwasher, called Josephine, after the American inventor of the machine Josephine Cochrane.

Its sales of dishwashers and washing machines have increased by 40% and 55% in the last two years, which has allowed the company to hire 600 workers, according to Mehrdad Nikzad, the Iranian manufacturer’s head of marketing.

At Tehran’s Iran Mall, which opened in 2018, foreign brands such as Adidas, Benetton and Mango have been replaced by local brands, many new from foreign counterparts.

Agile small and medium enterprises are driving the growth of Iranian manufacturing. Some 1,000 such companies have created or re-established 17,000 jobs, the deputy director of the Iranian Organization of Small Industries and Industrial Parks told state news agency IRNA last week. According to the organization, they account for 92% of Iran’s manufacturing companies and 45% of industrial jobs. According to government statistics, Iran’s unemployment over the last decade has fallen to 9.5%, from 12.3%.

The Trump administration has used sanctions as a weapon to make changes in Iran, Venezuela and Russia. However, with governments refusing to bend to Washington’s demands, the Biden administration must decide whether to extend them.

In recent months, Iran has improved by avoiding US sanctions on its crude oil exports. Most shipping companies and oil buyers stopped doing business with Iran after Washington imposed a embargo on Iran’s crude shipments, following the Trump administration’s 2018 decision to withdraw from an Obama-era nuclear pact with Tehran. But Iran has been offering strong discounts to lure buyers who feel comfortable skirting them, traders say. New customers have also emerged for Iranian crude, especially as Asian economies, including China, recover.

U.S. Secretary of State Mike Pompeo said last month that the sanctions are effective and added that Iran has been deprived of $ 70 billion in oil revenues since the spring of 2018. Treasury Department declined to comment.

U.S. officials have said they believe Tehran is only surviving, pointing to low foreign exchange reserves and a plummeting exchange rate. They also say they consider Tehran’s statistics unreliable and that the government hides the true degree of economic damage it suffers during the pressure campaign. However, foreign economists and institutions such as the World Bank and the International Monetary Fund use Iranian statistics as a basis for analyzing the country’s economy.

The Iranian currency has fallen 85% since early 2018, while inflation above 30% has made daily necessities more expensive for Iranians. Demonstrations erupted last year to protest austerity measures, in which hundreds died.

The proportion of Iranian people now living below $ 5.50 a day, the World Bank’s poverty line for middle- and high-income economies, rose to 13% in 2019, from 8% in 2011, according to the World Bank.

“The increase in employment does not translate into higher incomes,” said Djavad Salehi-Isfahani, a professor of economics at Virginia Tech. “Poverty is on the rise and I’m sure the government is aware of it and is concerned.”

The Covid-19 pandemic has sealed Iran’s borders with neighboring Iraq and reduced trade with China, Iran’s two main exporting destinations. This has led to a 25% drop in non-oil exports over the previous fiscal year, according to data from Iran’s Customs Administration.

Some of Iran’s largest manufacturers, which depend on imported raw materials and do not export, have suffered more difficult times. Iran’s large automobile industry, for example, has reduced production from 1.4 million cars in 2017 to 770,000 in 2019, according to the International Motor Vehicle Manufacturers Organization.

But while families in times of crisis are unlikely to damage their cars, consumption of everyday products has remained constant, said Omid Gholamifar, founder of Swedish investment company Serkland Invest, which specializes in investments in Iran. . “The overall demand is healthy and needs to be covered by someone,” he said.

Mr Gholamifar has invested in four Iranian companies that produce consumer goods: a pharmaceutical company, a food retailer, an industrial packaging company and a home care company. They have all increased their sales volume by between 25% and 30% annually since 2018, he said.

While some parts of the Iranian economy have withstood the country’s stormy relationship with the United States so far, many face problems. As long as foreign investors avoid Iran, the capital-restricted manufacturing and technology-restricted manufacturing sector will struggle to grow, economists say.

“In the last three or four years, infrastructure and technology have not been updated or modernized in the way they should have been,” said Mohammad Taheri, editor-in-chief of the Iranian economic weekly Tejarat Farda. “If the supply of cheap fuel to factories is stopped and they can’t fix the low efficiency that is governing the industry now, this situation cannot continue.”

Any effort to address the lack of cash by printing money will fuel inflation, further exacerbating the grief of Iranian families, according to Adnan Mazaeri, a non-resident fellow at the Peterson Institute for International Economics in Washington.

“Iran can withstand maybe another year,” he said. “People’s pain absorption also has limits.”

Write to Sune Engel Rasmussen to [email protected]