Iran’s New Industrial Policy to “Transform Political Economy”

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

New Industrial Policy Poised to Transform Iran’s Political Economy

This past summer, the Industrial Development and Renovation Organization of Iran (IDRO) concluded landmark agreements with French automaker Renault and transportation giant Alstom as well as Russian logistics company Transmashholding.

Under each of these new deals, a foreign multinational corporation has agreed to establish a new joint-venture company in Iran in which it will be the majority shareholder. In the cases of Renault and Alstom, each will control 60% of their respective joint ventures. Russia’s Transmashholding will own 80% of its new partnership; its higher shareholding perhaps explained by the fact that it is itself a state-owned enterprise.

In all of these deals, IDRO — which was established under the Shah in 1967 — will act as a relatively passive shareholder. This is because it is not an industrial company, but rather a holding company formed under the auspices of the Ministry of Industry, Mine and Trade.

This means that for the first time in post-revolutionary Iran, major industrial contracts are being concluded in which the foreign party not only enjoys control of its local entity but also avoids necessarily needing to partner with an Iranian firm from an operational standpoint.

This shift, in which state ownership in Iran is transitioning from an emphasis on industrial operation to financial shareholding, is highly significant. It represents a dramatic innovation in the Iranian political economy and may act as one of the single most significant catalysts for Iran’s ability to attract foreign direct investment in a world of globalized capital.

While Iran has long allowed foreign companies or investors to own up to 100% of an Iranian entity, in practice the provision did not extend to “national industries” outlined in Article 44 of the Islamic Republic Constitution, which include the energy sector, the automotive industry, mining and aviation, among others. Yet President Hassan Rouhani’s administration has used its strong mandate for economic reform to interpret Article 44 more liberally.

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