ICCIMA Scrutinizes National Business Environment in Q2

Iran’s National Business Environment Index stood at 5.91 in Q2 (summer) of the current fiscal year to register a 0.01 percentage point or 0.16% increase compared with the preceding quarter (spring) but a 0.14 percentage point or 2.31% decrease compared with the corresponding quarter of last year, the chamber said in a report published on its website.

The index calculated by ICCIMA measures the business friendliness of Iran’s economy, with 10 indicating the worst grade. In other words, the decline in the index is indicative of an improving business environment.

Iran’s National Business Environment Index stood at 5.9 in Q1 (March 21-June 21) and 5.80 in Q4 (Dec. 21, 2020-March 20).

“Unpredictability and fluctuations of prices of raw materials and products”, “uncertainties about policies, rules, regulations and business formalities” and “difficulties associated with getting credit from banks” remained the most undesirable factors affecting Iran’s business environment during the period under review, according to the findings of the 19th round of this report. 

The chamber also measures the index for each of the 31 Iranian provinces. The report names Ardabil, Kerman and Kermanshah as the provinces with the least favorable environments to do business in and Markazi, West Azarbaijan and Khorasan Razavi as the best. 

The average real production capacity of economic enterprises participating in this survey stood at 40.32% in Q2, indicating an increase of 1.68 percentage points compared with the preceding quarter. 

Worst Business Environment in Services

The services sector had the worst business environment in Q2 with 5.88 points followed by industry (5.84) and agriculture (5.72).

Reports by the Statistical Center of Iran show the overall PPI for the services sector stood at 358.7 in Q2 of the current fiscal year (June 22-Sept. 22), indicating a 11.1% increase compared with the preceding quarter. 

The index measured for Q2 producer inflation in the services sector indicates a 47.8% increase compared with the same quarter of the year before, the Statistical Center of Iran reported.

The average PPI for the services sector in the four-quarter period ending Sept. 22 increased by 45.1% compared with the same period of the year before, which is the highest annual inflation since winter 2013 (the earliest available data on services producers' inflation on SCI’s website). 

The services sector employed 48.8% of the Iranian employed population (11.43 million) in Q2, 0.7% higher than the corresponding period of last year, whereas industrial and agricultural sectors provided 33.8% and 17.4% of jobs respectively. 

Over 7.9 million were employed in the industrial sector, indicating an increase of 0.4% compared with the same period of the year before and 4.06 million worked in agriculture, posting a 1.1% decrease YOY. 

The services sector consists of wholesale and retail trade; restaurants and hotels; transport, storage and communications; financing, insurance, real estate and business services; as well as community, social, education, health and personal services.

The services sector employed 9.44 million men and 1.99 million women in the three-month period; over 7.07 million men and 835,726 women were active in the industrial sector and 3.39 million men and 665,660 women worked in the agriculture sector in Q2. 

Services sector accounted for 57.5% or 10.04 million of all jobs in urban areas and 23.3% or 1.38 million of jobs in rural areas. The industrial sector made up 35.4% or 6.18 million of the jobs in urban areas and comprised 29.1% or 1.72 million of employment in rural areas. This is while 7.1% or 1.24 million of the total jobs in urban areas and 47.6% or 2.82 million of the jobs in rural areas were in the agriculture sector. 

Businesses With Worst, Best Environments 

As for 21 business fields, the worst three business environments were posted for “construction”, “transportation and warehouse services” and “real-estate services” and the top tier included “finance and insurance”, “art, entertainment and leisure” and “agriculture, forestry and fishing”.  

Enterprises with 50-100 employees had the best business environment with a score of 5.71 while those with fewer than five employees had the worst business environment with a score of 5.91. 

Businesses operating for more than 16 years indicated the best business environment (5. 80) while those operating for less than two years had the worst business environment (6.12). 

World Bank’s ‘Ease of Doing Business’ Report

The ICCIMA index is fashioned after World Bank’s “Ease of Doing Business” index, a valued tool for countries seeking to measure costs of doing business.

In August 2020, the World Bank Group issued a statement saying irregularities were reported regarding changes to the data used in the report. The World Bank said it had found some data irregularities in the Doing Business 2018 and Doing Business 2020 reports.

“A number of irregularities have been reported regarding changes to the data in the Doing Business 2018 and Doing Business 2020 reports, published in October 2017 and 2019. The changes in the data were inconsistent with the Doing Business methodology," it said.

The Doing Business report 2020, published in October 2019, captured 294 regulatory reforms implemented between May 2018 and May 2019. A Wall Street Journal report said the data of China, Azerbaijan, the UAE and Saudi Arabia have been inappropriately altered.

The World Bank added that the board of executive directors have been briefed on the situation, as have the authorities of the countries that were most affected by the data irregularities. The publication of the Doing Business report will be paused until assessments are conducted by the bank.

According to Doing Business 2020 published in October 2019, Iran’s ease of doing business ranking improved by one place to stand at 127th among 190 world economies.

The report shows the country’s distance to frontier score saw a decline of 0.1 percentage point, from last year’s 58.6 to 58.5 in the new report.

New Zealand topped the list of 190 countries in the ease of doing business with a score of 86.8, followed by Singapore with 86.2 and Hong Kong with 85.3, while Somalia was in last place with a score of 20.