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

The comments appeared in the monthly’s July 22-Aug. 21 edition. “A major transfer of ownership of public companies happened under the previous administration [of Ahmadinejad] but all in an unfavorable way,” he said. “The distributional impact of privatization was what the then-government was vying for and now I am certain that the intended target was never hit.”

A further factor frequently cited as an explanation for the meager size of the Iranian private sector is the lack of ease of doing business in the country, as shown by international rankings, according to data compiled by the World Bank this year. This is testimony to the low amount of foreign direct investment (FDI) as an alternative to capital scarcity in the economy in the course of the past 15 or more years of privatization policies.

It is clear that FDI has never played a constructive role in capital injection in the privatization process, which has long been suffering from low investment. Abdo Tabrizi, ”From the actual start of the privatization scheme to date, income per capita has declined continuously and the middle class in Iran has been the victim constantly being wiped out of the face of the economy,” Abdo Tabrizi said in AyandeNegar.

“This has touched a degree that the labor force participation rate has reached the worrying rate of 36%,” he stressed. The rate is the proportion of people eligible to participate in the labor force who are actually participating in it, by working or looking for work. It is usually expressed as a percentage of the total labor force-eligible population in an economy.

On a broader, structural level, the private sector only makes up roughly one-fifth of the economy. Meanwhile, 80% of fiscal spending is allocated to state-owned enterprises. Under such circumstances, it appears that hopes for further transparency and openness to induce genuine privatization in the country will likely remain unfulfilled.

(Picture credit: Merhad Watson)

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