Impact of Volatile Forex Market on Iranian Tech Firms

EghtesadOnline: Vice President for Science and Technology Sorena Sattari says compared to other sectors, the recent volatility in the forex market has had a “slight” impact on knowledge-based firms. But businesses argue that the economic headwinds have led to a significant decline in demand for services, and when paired with increased overhead, have put companies under the cosh.

News ID: ۷۴۶۱۱۶

16 October 2018

“No one can say that the recent volatility in the forex market has created a favorable condition for the growth of knowledge-based firms. However, compared to other sectors these companies have been less affected by the situation,” he said.

Stabilizing currency policies will do much to alleviate the problems such firms have been facing, news website WEBNA quoted him as saying.

Sattari’s comments triggered a heated criticism on social media platforms with business owners censuring the official for disregarding their woes and many saying that the economic hardships have indeed undermined their business and margins, according to Financial Tribune.

Since the beginning of the current fiscal in March, the national currency has lost more than 75% of its value against the US dollar. On Sunday, the greenback was traded at 143,000 rials in the gray market.

In addition to the unstable forex rates that change by the hour, the introduction/cancellation of monetary and currency policies overnight have made a bad situation worse.

Facing unprecedented capital flight, the government in April decided to unify foreign exchange rates and introduced a “multi-tier scheme”, according to which importers bought currency at different rates. Based on a priority list of imported goods prepared by the government, unessential and luxurious items were banned until further notice.

Electronics and computer hardware imports are not banned but are down below on the priority list.

> Private Sector Dilemma

Chairman of Tehran’s Information Technology Union Ali Azarkar says that in the information and communications sector “importers of electronics and computer hardware bear the brunt of the recent currency crisis.

“Companies that do not need to buy electronic hardware on a regular basis have been less hurt by the economic situation. However, even these firms need to renovate their [technological] infrastructure,” and this is something many will not be able to afford, he rued.

Following the steep decline in the value of the national currency, most imported goods have almost vanished and prices gone through the roof. Prices of electronics and computer hardware have more than tripled.

But according to Azarkar, the price hikes have not been limited to hardware and purchasing computer programs or renewing subscriptions with foreign providers have become significantly costlier.

For instance, many firms need to purchase domain names from foreign hosting services or have subscriptions with international cloud computing service providers. Azarkar says, “Costs of such services have increased in leaps and bounds.”

Spokesperson of Iran’s E-Commerce Union Reza Olfatnasab says, “We want to know how Mr. Sattari defines slight impact. A ‘slight’ price hike for someone with vast financial resources might mean negligible, but for someone else the same amount is tantamount to a fortune.”

He adds, “Overheads of digital businesses have skyrocketed. For instance, renewing a domain name currently costs more than 12 million rials ($85). Six months back it barely would cost 2 million rials ($14).”

The steep rise is due partly to the fact that for renewing such services Iranian firms need to go through intermediaries. Given the bottom line, this is sound of music for the army of avaricious middlemen.

Olfatnasab pointed out that the people’s, in particular fixed-wage earners, purchasing power has diminished to a great extent in the past few months. What this means is “sharp decline in overall demand for services and a blow to e-commerce firms.”