Rouhani Banks on Small Businesses to Generate Big Growth

By Arash Karami, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

To achieve its target of 5% economic growth this year, the administration of President Hassan Rouhani is seeking to revive small- and medium-sized enterprises (SMEs) by continuing to focus on attracting foreign direct investment into slumbering industrial estates.

Yet, in spite of the injection of $1.8 billion worth of foreign direct investment into SMEs in the three years since Rouhani took office, the reality is that almost two-thirds of small- and medium-sized enterprises in Iran have reportedly been shuttered.

he importance of reviving SMEs should not be underestimated. In developed economies, they are among the major drivers of economic growth, greatly contributing to both gross domestic product and job creation. Indeed, in high-income countries, SMEs on average generate more than half of GDP and account for over 60% of employment.

According to a report authored by Iran’s Islamic Parliament Research Center, previous Iranian administrations have never paid sufficient attention to the development of SMEs. As such, SMEs in Iran account for a mere 14.7% of GDP and less than 30% of employment — even though they constitute more than 85% of enterprises in the country.

Iran has long suffered from what is termed the “missing middle” phenomenon, meaning that there is a myriad of obstacles involved in doing business.

According to Ali Yazdani, CEO of the Iran Small Industries and Industrial Parks Organization, Iranian SMEs are categorized into four groups: inactive industries, those operating at less than 50% capacity, those using 50%-70% of their potential and unfinished industrial projects. Thus, moving forward, the key question is which fundamental factors have brought about this dilemma for the Iranian economy.

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