Events | Number 5, June 2004 |Iran’s Economic Policies

Iran’s Economic Policies

The question of regional cooperation among certain Asian and African countries that have common cultural and social characteristics and long-standing political, social and economic relations became far more serious late 2003-early 2004.

These countries cover Caucasia, Central Asia, Southeast Asia and extend from and include Malaysia on the east to the African continent on the west. The region is vast, houses an enormous population and can become a colossal common market much like the EU when it first emerged, but vaster still. The DAVOS Conference, which was recently held in Switzerland, was very fruitful for Iran.

For example, the Iranian President met with his Egyptian counterpart and thus the first significant steps towards the resumption of relations and cooperation among the two nations were taken.

The Conference of the D8 countries, i.e. Pakistan, Turkey, Egypt, Bangladesh, Nigeria, Malaysia, Indonesia and Iran, held in Tehran, was another link consolidating economic relations between Moslem countries of Asia and Africa.

However, what was not adequately discussed in these meetings was the question of political union to follow economic and cultural cooperations. The best points of discussion in this conference were brought up by the Iranian President who discussed the possibility of the formation of a common market among the nations that are members of the two conferences. This may be a cornerstone of a vast regional union. Another good news is the decision taken by Iran and Pakistan to develop stronger relations. Yet another is the ratification of Afghanistan’s new Constitution which follows the return of peace and tranquility to this country. In the second half of 2003 Iran exported 150m dollars worth of goods to Afghanistan whereas before the return of peace almost nothing was exported from Iran to that country.

Iran’s economic relations with Turkey go back to a distant past but are becoming increasingly strong. It is hoped that soon Turkey will become the gateway to the EU for Iranian goods, as the German Chancellor, who is a prominent figure in the EU, has recently expressed his satisfaction with the improvements Turkey has made in order to join the EU.

Iran must consolidate its position among the Asian nations because, having large populations, these nations are inevitably large consumers and need enormous quantities of raw materials and finished goods.
They need gas and petrochemicals and Iran is extremely rich in gas and has a vast and rapidly expanding petrochemical industry.

Once disputes between Pakistan and India are satisfactorily resolved, the construction of a gas pipeline from Iran to India through Pakistan will easily materialize.

Presently Iran exports 23.7% of its annual oil production to Japan, 41.8% to the rest of Asia, 6.9% to Africa and 13.6% to the rest of the world. It is expected that soon export of gas from Iran to Asian countries and particularly the Far East will also be established and these nations will truly become Iran’s major clients.

So, now is the time to develop proper relations with them and some steps have already been taken. As a first step, for example, in the beginning of March 2004, Iran signed an Agreement with Japan for a joint cooperation in developing the Azadegan Plain oil field which is estimated to have 26 billion barrels of crude oil.

Iran is also making joint investments in industries with South Korea, Malaysia, China and India, on large scales. Thus Iran seems to be making room for itself in a part of the world that is home to 50% of world population. To further promote exports – in the non-oil sector as well – Iran is granting facilities, and help and support to its exporters and is also setting up export promotion agencies. Experts estimate that in 2004 Iran’s non-oil exports will exceed 8b USD.

Within ECO, Iran and Turkey have initiated a 15% reduction in tariffs which, if agreed to by the other member nations, should expand trade within ECO considerably. So far trade among these nations has been disappointingly small.

Towards the end of 2003 all Iranian ambassadors stationed abroad gathered in Tehran. In a series of meetings and seminars they were strongly urged to make their commercial bureaus more active. The Foreign Ministry emphasized to these ambassadors that Iran was eager and serious to become strongly established in all countries with regard to trade, commerce and economic cooperation.

But the Foreign Ministry – and in fact all of the country’s authorities – must be reminded that to do so requires certain steps to be taken. First we must accept that we need other nations as much as they need us. In this age of globalization we must act such as to gain the confidence, trust and respect of the other nations.

We must prepare ourselves to join the rest of the world and prepare our country to receive other nations: investments from other nations, visitors, tourists, researchers… Most importantly Iran must convince WTO that our nation should join it, although so far, even the support given to it by the EU countries has not been effective enough in this regard.

All this does not mean that relations with Iran’s older trade partners of the Persian Gulf region should be neglected; they should be much more emphasized if anything. In addition to the UAE, which is a vital trade channel for Iran, Saudi Arabia and Kuwait can be excellent markets for our foods and beverages, gas cookers, refrigerators etc.

Iran is producing more and more products that are consumed locally and may have very good markets in the region, especially in the neighboring countries. The range is diverse and covers such items as ceramic tiles, PVC pipes, decorative stones, chinaware, sanitary ware, a vast range of processed foods, home appliances, electric wiring products.

With a little more care paid to quality we can even sell these products to European countries and to countries as far away as Australia and New Zealand. But we have to remember that there is a limit to export of such products.

Our main comparative advantage lies with fossil energy, particularly natural gas. Natural gas is a cheap feedstock for petrochemical products and luckily the country has launched a huge programme for developing an efficient petrochemical industry.

We already export a large quantity of petrochemicals and the quantity is rapidly growing. But what we export is used abroad in downstream industries where much larger profits can be made. We now have to develop our own downstream industries based on petrochemicals as feedstocks to produce high quality finished products that have good markets abroad. This needs some research, and requires foreign investment, joint ventures and much hard work. But it is certain to pay back in the long run.