‘Made in Iran’: Islamic Republic Sets Ambitious Goals to Battle Foreign Imports
AP Photo / Office of the Iranian Supreme Leader Business16:05 23.05.2018(updated 16:06 23.05.2018) Get short URL380
Supreme Leader of the Islamic Republic Ayatollah Ali Khamenei has announced a new development course for the country – this year has been declared in Iran “Year of Iranian Manufacturers’ Support.” He has stated that an increase in domestic production will help to solve an array of the nation’s economic and social issues.
In line with Khamenei’s recommendation, Vice President Eskhak Jahangiri has said that the government would from now on be prohibited from buying foreign goods in the current year.
Saeed Mosavi Madani, economic adviser at the Strategic Research Center of the Iranian Parliament, and Iranian economist Mehdi Halili have shared their views in an interview with Sputnik on how successful the program will be, and whether Iranians themselves are ready to shift to domestic brands and buy solely Iranian goods.
According to Madani, Iran is currently prioritizing exports of domestic products.
“We should export out goods to all neighboring countries. It is critical not due to globalization, because the domestic market for major Iranian industries, except foodstuffs and leather goods, is small. The industrial scale in Iran is not sufficient to compete with a massive flow of cheap goods from China. Our industry can follow either one of two paths – go on competing with Chinese and Indian companies in the domestic and international markets, or develop its own brands.”
The expert went on to say that to create the Iranian brand “Made in Iran” it is necessary to lay the ground for it, including the development of a skilled labor force, increase product quality, and dealing with marketing and logistics. According to Madani, a majority of Iranians can afford only cheap Chinese and infringing goods and avoid buying domestically manufactured goods, which is due to the existing “gap between the rich and the poor,” caused in turn by uneven income distribution in a country with oil-based economy.
READ MORE: Iran Considers ‘Other Options’ If US Sanctions Threaten Its Interests — Diplomat
Madani believes that Iranian goods are consumed predominantly by the middle class:
“From the economic point of view, the purchasing capacity of Iranian goods stands at 5,6,7 deciles, which is something that we call middle class demand. Consumer behavior of people with an equal income may vary. People virtually compare themselves to others, which affects their consumption, their place among other people and social groups. When a family’s income decreases, people find it hard to start consuming less.”
According to the adviser, for the program to be fulfilled, domestically manufactured goods need to be of better quality:
“The quality is essentially about a correspondence between characteristics of goods and services, and buyers’ needs. So, any goods that may best satisfy customers’ needs at the lowest price are the best quality goods. The quality goes up as competition increases between various manufactures, striving to meet customers’ needs.”
He continued by saying that for such a manufacturer to come along, there needs to be private property, and customers’ needs should determine profits. “Profitability is naturally essential for a manufacturer. When production capacity is high, manufacturers produce more competitive goods of better quality at a lower cost,” he added.
Even if, however, the amount of domestic products equals that of foreign goods, rise in currency rates may nullify Iranian manufactures’ efforts due to increasing inflation:
“Another import factor is the foreign currency rate. When it is regulated by the state, domestic products can no longer compete with foreign ones.”
Madani says that over time, inflation leads to an increase in production costs, and a domestic manufacturer has to boost prices.
“Now, if the currency rate doesn’t change in accordance with inflation rates and is kept low by the government, in a year, these two goods of the same quality will be traded at different prices, and customers will probably opt for a foreign product,” the expert concluded.
Elaborating on how successful the announced program might be Iranian economist Mehdi Halili said that first and foremost, it is necessary to understand if Iranian manufacturers are prepared to satisfy customers’ needs at a good value for money.
“It stands to reason that to date we have had no experience in manufacturing key products of even the poorest quality. In many industries, which demand use of some specific technologies, we have managed just to copy third-rate foreign products.”
He said that in actual fact, Iranians are ready to buy anything that is competitive in terms of quality and price. According to the economist, Iran is currently able to compete in the handicraft industry. Besides, the country may sell farm produce and goods that demand no complicated technology to be produced. Halili said that to fulfill the program and to prevent “the black market” from growing, domestic products should be competitive with foreign goods.
“If the economic policy triggers monopolization, if Iranians, for instance, are made to purchase only home produced goods, say, mobile phones, we will ourselves cause counterfeit goods to flood the market. This will also spark rise in illegal import, smuggling, etc.”
He remarked though that if domestic manufacturers are supported in competition with foreign ones, with the latter remaining in the market, “this support may be productive, at least in the long run.”
The US has already imposed three rounds of sanctions on the Islamic Republic since Donald Trump announced the country’s pullout from the Iranian P5+1 nuclear deal (JCPOA) in early May. In the most recent limitations, the United States targeted five members of Iran’s elite Islamic Revolutionary Guard Corps (IRGC) over their alleged efforts to provide missile support to Yemen’s Houthi militants.
Separately, last week, the US Treasury sanctioned another six Iranian individuals and Iraq-based Al-Bilad Islamic Bank over alleged connection with IRGC and the Hezbollah movement, deemed terrorist by Washington. The punitive moves are in line with Trump’s “aggressive campaign” against the IRGS.
On May 8, US President Donald Trump announced Washington was withdrawing from the 2015 Joint Comprehensive Plan of Action (JCPOA), which was meant to ensure the peaceful nature of Iranian nuclear program, and restoring wide-ranging sanctions on the Islamic country.