Why Iran’s Private Sector hasn’t Benefited from Privatization

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

Privatization in Iran only effectively started in 2001. Five years later, in 2006, Supreme Leader Ayatollah Ali Khamenei backed a constitutional amendment — the Law on Implementation of General Policies of Article 44 of the Constitution — to ease the sale of state-owned enterprises in an attempt to downsize government and help expand the private sector.

But this grand scheme has never hit its intended target, and genuine privatization has thus far remained slow.

Indeed, based on figures published by the Iranian Privatization Organization (IPO), total proceeds from privatization in the last 16 years were just over $108 billion, largely facilitated via local exchange markets (more than 61%).

Although the current Iranian year (ending March 20, 2017) is thought to be the final year of the Privatization law enacted in 2006, IPO Managing Director Jaafar Sobhani was quoted as saying by Hamshahri daily Nov. 1, “It might be extended for another year should parliament approve of it.”

Indeed, given that there are still over 200 companies on the IPO’s to-do list, many economic experts view the current privatization schedule as far-fetched and impractical. Furthermore, implementing the 2006 law in itself has proved to be extremely challenging, largely due to the lack of ease of doing business and complicated bureaucracy favoring state-owned companies.

For instance, vested interests within the government — according to Minister of Economic Affairs and Finance Ali Tayebnia — are prepared to block any major effort to divest public firms to the private sector. Hamshahri reported that Tayebnia apparently was tacitly referring to the minister of mining, industry and trade and the oil minister in an address to the 57th annual meeting of the Public Private Dialogue Council on March 7.

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