The level of production in Iran has hit the lowest point in recent years due to an increase in energy prices and the devaluation of the national currency rial – in addition to the cumulative impact of US sanctions.
According to the latest report released by the Research Center of Iran Chamber of Commerce in early-February, growing unemployment as well as internet shutdowns or restrictions also contributed to the unprecedented crisis in the production sector.
The report is based on the Purchasing Managers Index (PMI), which is a measure of the prevailing direction of economic trends in the manufacturing and service sectors. The purpose of the index is to summarize whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. It is supposed to provide information and useful insight about current and future business conditions to the decision makers, analysts, and investors. The PMI is derived from a monthly survey of supply chain managers across many industries, covering both upstream and downstream activities.
The latest report on this indicator of overall economic activity proves that the country’s production sector has been contracting to an alarming level, with the index dropping to below 40, while a number less than 50 means economic contraction.
The report added that a survey of economic enterprises indicates that this record-breaking fall in the entire economy is caused by factors such as a rise in production costs due to inflation and instability in the exchange rates, which had already put pressure on economic enterprises. However, the new issue that has been added to the equation is the challenge to supply energy to producers.
Iran is facing a serious natural gas shortage in winter months as output at its gas fields gradually declines due to lack of investments and Western technology. To keep homes warm, the government reduces gas supplies to steel makers, refineries and a host of medium-sized enterprises.
Another index that factored in the report pertained to “the extent of business activities,” indicating that in all three main sectors of the economy, i.e. industry, services and agriculture, activity has dramatically decreased.
The index of "inventory of raw materials or purchased supplies" in the previous Iranian month (which ended on January 20) saw the sharpest decrease rate in the past 27 months. The significant devaluation of the rial and the resulting price inflation have disturbed the supply chains for producers who cannot secure their required raw materials.
Some of the other indices that contributed to a drop in PMI are growing unemployment, fewer customer orders, and less exports of goods and services, as well as sales in general.
Head of the Research Center of Iran Chamber of Commerce Mohammad Ghasemi told Donya-e-Eqtesad daily that the new report shows the Islamic Republic “has been removed from the map of international trade,” warning that “apart from its consequences for our economic growth, this has risks for our national security."
"The most painful result of these studies...is that the 'existence and absence of Iran's economy' does not have much effect on the international economy," he added, noting that it becomes very easy for the international community to inflict damage on the country’s economy. This means that sanctions and embargoes on Iran are irrelevant to the global supply chain and economy.
Emphasizing that "Foreign trade is one of the instruments of continuous economic growth," Ghasemi said that no country has ever prospered since the end of World War II without benefitting from the international trade.
The so-called ‘privatization’ plan announced earlier this week to be carried out over the next two years is meant to augment the country’s budget. It involves the liquidation of billions of dollars of assets belonging to the government and its affiliated entities including banks under the supervision of a seven-man team with extraordinary powers and immunity from prosecution.
The country’s ruler Ali Khamenei has approved the plan, which is not a real privatization scheme. Well-connected and powerful buyers who are often secretive funds and endowments run by powerful officials are lined up to gobble up the prize.
First Vice President Mohammad Mokhber who is one of the members of the supervision team claimed Thursday that the “immunity” of the team has been misunderstood. “Immunity applies to decisions, not infringement of the law,” he said. His explanation, however, has done very little to reassure the public.
Many former officials and the media have expressed deep concerns over the plan. Mohammad Reza Salehi, a logistics chief of former President Hassan Rouhani’s office, in a speech at a meeting of former officials earlier this week argued that the so-called privatization would give rise to massive corruption, degenerate the regime from within and eventually cause its collapse.
Reza Gheibi, an economic journalist told Iran International that the liquidation of assets would not help the government to overcome the economic crisis it is grappling with. “In the best-case scenario, it may balance some of the budget deficit,” he said, adding that transferring these assets to individuals and entities and companies connected with Khamenei’s office, who would be the likely beneficiaries, would give them control over the economy.
The new owners will use these assets to preserve the regime but if the regime is toppled, they will form a class of oligarchs with the power to control the economy, Gheibi said. “It’s a win-win game for the leader’s office and those close to its circle of power.”
In a tweet Wednesday, Iran's exiled prince, Reza Pahlavi, accused Khamenei of plundering the country’s national wealth “greedily” with the so-called privatization plan. “Plunderers should be aware that legal immunity will not help them, and the plundered assets of the Iranian nation should [one day] be restored to the treasury of the nation,” he wrote.
Right before the ‘privatization’ was announced, Mokhber misleadingly claimed that the former royal family had “stolen” the crown jewels when the Shah and his family left before the Islamic Revolution in 1979. The monarchy’s crowns and other crown jewels have been held in the Treasury of National Jewels in Tehran in the past four decades but have not been seen by the public for two years and his accusation worried many that these had been sold or stolen.
The claim, however, was disproved when minister of cultural heritage Ezzatollah Zarghami, published photos of his visit to the treasury with the crowns on display.
In a speech Thursday, head of the Mostazafan Foundation (Bonyad Mostazafan), Parviz Fattah, referred to other invaluable properties of the royals , including expensive art, a 500,000-piece stamp collection, bejeweled swords and daggers, and a unique vehicle collection including a gold-adorned vehicles belonging the to the Shah’s father, King Reza Pahlavi. Fattah’s mention of these assets, which have also remained in Iran, has worried some over the possibility that these invaluable national assets are also going under the hammer under the plan.