Economic troubles loom over Iran presidential election

As Iran prepares to elect a new president, the country’s economy is in its worst state for decades, with high inflation, soaring unemployment and negative growth. The issue appears to be on every voter’s mind ahead of polling day.

Kamran was away from Iran for only three months, but he says the difference was striking.

“The supermarkets will soon look like they did in the war years. The colour of the shelves is fading. Foreign products are disappearing,” the 43-year old businessman says over the telephone from Tehran.

The value of Iran’s currency, the rial, has more than halved in a year, after a collapse blamed on government mismanagement and sanctions against Iran’s energy and banking sectors imposed by the United States and the European Union.

The fall of the rial has led to a sharp cut in imports and raised Iran’s inflation to its highest level in 18 years.

A middle-class Iranian who divides his time between Tehran and Toronto, Canada, Kamran feels the pinch both personally and in his business.

“In Tehran, the prices of some staples like beef are catching up with those in Toronto,” says the businessman, who prefers his surname not to be published. “Now, even I check the price-tags. I cannot imagine how it could be for my cleaner.”


The official inflation rate – the Consumer Price Index (CPI) – stands at 32.3%, but independent experts say it is higher. A cost-of-living survey recently carried out by Atieh Group, a group of strategy consulting firms in Iran, suggested inflation was higher than 40%.

“The main losers are the lower and middle-classes. Their priority now is economic survival,” says Bijan Khajehpour, a managing partner at Atieh International, the Vienna-based international arm of the group.

To help the poor survive and sustain their allegiance to the regime, Iran may have to reverse many of its economic policies.

During the 1980-1988 war with Iraq, a sharp fall in Iran’s oil exports and lagging domestic production meant that imported staples such as meat, rice and sugar had to be rationed and coupons issued by the authorities.

Iran’s parliament is now toying with the idea of bringing coupons back, this time as smart electronic cards instead of paper vouchers.

Manufacturing collapse

Kamran used to represent a European quality certification firm in Iran, but the company decided to leave the Iranian market due to dwindling business. Fewer local manufacturers and service companies have been applying for international quality certification.

A sharp fall in imports in any country is good news for local producers. It should have been for Iran too. But manufacturing is crippled in Iran.

Production costs have sky-rocketed because of President Mahmoud Ahmadinejad’s subsidy reform, which saw millions of dollars of fuel and food subsidies removed.

While ordinary citizens received cash hand-outs from the government to compensate for the increased costs, factories and manufacturers are left with energy bills two to three times higher.

Some have shut down; others halved production output.

Recession deepens

The combination of dwindling oil exports and a crippled manufacturing base has led Iran into recession.

According to the International Monetary Fund, Iran’s gross domestic product (GDP) shrunk by 1.3% in 2013, making it the only country in the Middle East and North Africa that has had negative growth for a second year running.

“Sanctions have become more intense and have exerted more downward pressure on Iran’s trade and industrial activities,” says Nader Habibi, an Iranian economist at Brandeis University, in the US state of Massachusetts.

“But the inconsistency and irrationality of economic policies have also had an adverse effect on business climate for private investors.”

Some voters think a change of guard may result in a change of policies, but the eight presidential candidates have so far offered little more than slogans, expressing only their wishes to reduce inflation and create jobs.

Kamran is not convinced and has been negotiating with his European headquarters to open an office in neighbouring Azerbaijan.

“The key to fixing the economy is resolving the nuclear stand-off and having sanctions lifted,” he says.

“It could take ages, but ‘time and tide wait for no man’. I am moving my business to Baku.”



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