Iranian Government Introduces Rescue Package for Auto Industry

EghtesadOnline: A plan worked out by the administration of President Hassan Rouhani to mitigate the impact of US sanctions on Iran's economy is to provide the country's beleaguered auto sector with tax exemptions, reduced bureaucracy, and in the event of layoffs, the immediate payment of unemployment benefits.

News ID: ۷۴۵۹۴۹

02 September 2018

The government's rescue package for Iran's industries has in large parts addressed the volatile auto market, putting forward suggestions that can assist the troubled sector, reported local automotive website Asbe Bokhar.

The rescue plan drawn up by the Industries Ministry has provided for the foreign currency necessary for the sector so as to bring raw materials and parts into Iran, the degree of localization vital for the survival of the industry and certain contingency plans in case of the sector's downfall.

According to the ministry's estimations, the automotive industry is in need of $2 billion in the form of hard currencies which can be reduced by $1.4 billion if factories were to localize auto parts, Financial Tribune reported.

While the provision of the hard currencies at a reasonable exchange rate is more close to a pipe dream than a pragmatic plan, the remainder of the package is more in touch with the reality on the ground.

>Incentives, Exemptions

The government is to increase the car manufacturers' credit in the banking system by 50%, compared to the year before, to help raise the producers' liquidity.

The administration will also offer incentives to the industry in the form of working capital loans, with the precondition that the manufacturers maintain the current level of output and employment.

The precondition can throw stones in the way of the industry receiving the loans as factories are already downsizing to cut down on costs.

Moreover, authorities will offer the sector tax relief. The details and the extent of the exemptions have not been disclosed to the public.

>Cutting Red Tape

When it comes to auto parts imports, the government has demanded the cooperation of the Central Bank of Iran and the customs authority to expedite the release of the goods.

Following US President Donald Trump's pullout from the 2015 multination Iran nuclear deal, the USD rate hit unprecedented highs and prompted the government of President Hassan Rouhani to establish a system that overregulated imports, in a bid to preserve the country's foreign currency reserves.

The overregulation proved disastrous especially for the auto sector which was counting on the few months until they were targeted by US sanctions to import as much auto parts as they possibly could to survive the sanctions.

While the sanctions took effect in August before authorities deregulated the system, the government's realization that mitigating bureaucracy can help the key sector might be still useful to the troubled industry.

As a contingency plan, the package has prepared for likely layoffs and has requested securing necessary funding for the immediate payment of unemployment insurance to workers who would be dismissed.

The Industries Ministry's scheme to support local production has been delivered to the private sector to be further scrutinized and revised.