Iranian Privatization in Retrospect

EghtesadOnline: The Economy Ministry has hit a brick wall in its seemingly untiring pursuit of privatizing the government’s industrial behemoths.

News ID: ۷۳۶۶۷۱

06 September 2016

These beat companies are deadweight on the fiscal budget and with their grip on the economy snuff out all private businesses. The ministry is having a hard time finding willing buyers for them and needs to change tack. It should liberalize regulations and be more forceful in its push to sell its companies.

“Privatization is at the center of any program of reclaiming territory for freedom,” Margret Thatcher, the former UK premier writes in her memoires.

Ali Tayyebnia’s battle for reclaiming freedom is being frustrated with terrible efficiency by other government officials. Internal government resistance to privatization topped the economy minister’s reasons for unsuccessful privatization attempts last year, he told the Privatization Organization on Sunday.

A tiring rhetoric from senior government executives ers is that they need more   time to restructure their companies. If a company is restructured properly—let’s say the legendary business magnate Carl Icahn does it—then the government could sell it at a better price. Tayyebnia says this idea is buffoonery.

“Restructuring companies before their sale is sweet talk, but not achievable. If we can restructure companies turn them around why would we sell them? Also, we have failed to manage these companies and generate profit for the past three decades, now that we are talking of privatization, some want to turn these firms around overnight,” the minister said.

The government needs to privatize these companies simply because it needs the cash. But more importantly it needs to unload their heavy financial burden. The finances of government companies make up two thirds of fiscal spending. Ministries and organizations are spending 3,354 trillion rials this year, while its companies will waft through 6,628 trillion rials before the year is out.

Tayyebnia says the appalling financial state of companies that remain on the privatization list and the persisting bearish sentiment in stock markets are the other two main reasons behind IPO’s repeatedly tried and failed attempts.

This is where a real concern lies. How, for instance, is an owner, including the government, supposed to turn these companies around with current labor laws and the myriad of bureaucratic obstacles that to many make a mockery of private enterprise? Most of these companies have armies of unskilled and unproductive workers. But layoffs are not even a minute possibility, given current laws and mind frames.

Talk about restructuring companies and slimming down businesses to increase margins to CEOs of Iranian private banks, and they will laugh at you. “Where do you think you’re living? This is Iran,” is a sentence heard from many of them.

Private investors cannot be faulted and nor can Tayyebnia. Other government departments and MPs are working against them tirelessly. There is too much to lose from changing the status quo for some, from votes to cash, reports Financial Tribune.

All privatization has done is put workers out of jobs, said the Minister of Cooperatives, Labor and Social Welfare Ali Rabiei on Sunday. “We privatized companies to reduce the burden of management… but we have only accelerated job losses for workers.” This is just one sample of the general mood among government bureaucrats about privatization.

The truth is privatization reshuffles the entire economy, from labor markets to supply and demand for goods and services. And, it can hardly be carried out without initial pain. Iranian politicians should come to terms with that  before it is too late.

Yet this is necessary pain. Privatization “was one of the central means of reversing the corrosive and corrupting effects of socialism” on the British economy, Thatcher once said. It is the same in Iran’s case. It is fundamental to improving its economic performance.

To make the transition easier and successful, Tayyebnia should also push for reforming labor laws and business regulations alongside privatization. As economist Mousa Ghaninejad says, without liberalization, the newly privatized companies will be scuttled by Iran’s business-killing regulations.