Subsidized Imports Spur Smuggling of Essential Goods From Iran

EghtesadOnline: S ugar cubes, tomato paste, rice, fish, eggs and many other products categorized by the government as “essential goods”, importers of which get subsidized foreign currency, are now popping up in shops of neighboring countries.

News ID: ۷۴۶۵۰۴

16 January 2019

Countries that were once sources of smuggled goods to Iran are now the destinations of large volumes of products, a majority of which were imported to Iran in the first place.

Iranian products are in demand in Iraq. Residents of the neighboring country are flocking to the southern Iranian cities of Abadan and Khorramshahr.

The Persian daily Iran reports that Iraqis are buying large quantities of rice, fish and chicken to the point that the increasing scarcity of some of these products has led to inflationary pressure inside Iran, according to Financial Tribune.

Recent data show Iraqis accounted for the highest number of foreigners visiting Iran during the seven months to Oct. 22. A total of 1,926,310 Iraqis visited Iran in the seven-month period, followed by 989,836 Azerbaijanis, 557,579 Afghans, 483,302 Turks and 159,728 Pakistanis.

This is while the number of travelers from Iraq stood at 1,356,185 in the last Iranian year (March 2017-18) and 1,398,201 in the year before (March 2016-17).

Import Grouping

In August, the government named 25 categories of products, for which importers would get subsidized foreign currency in a bid to ward off any probable shortage. Importers of these items, known as Group I, could enjoy subsidized foreign currency at the rate of 42,000 rials per dollar.

Initially, rice, wheat, poultry, eggs, fertilizers, seeds, raw sugar, oil, soybean, heavy-vehicle tires, publication paper, tea, pharmaceuticals and essential medical equipment as well as machinery used for the production of essential goods were categorized as subsidized import items.

Later, the Ministry of Industries, Mining and Trade added 75 items to the list of essential goods, including raw materials of paper, rubber, pencil lead, butter and baby formula, industrial machinery for the production of dairy and packaging. This week, the ministry also put day-old chicken on the list of essential goods.

Importers of raw materials, intermediate and capital goods, included in Group II, are required to provide their foreign currency from the export earnings of non-oil products (petrochemicals, steels and minerals) traded through the so-called secondary FX market, known by its Persian name Nima.

Imports of products, mostly consumer goods, categorized under Group III, are be sourced by earnings from the export of commodities whose exporters are not required to offer their foreign currency on Nima.

Traders are banned from the import of commodities categorized within Group IV, i.e. non-essential goods with domestic counterparts.

Fuel is the main commodity smuggled out of Iran, followed by government-subsidized pharmaceuticals, particularly cancer drugs, and tomato paste.

"Deadly Poison" for the Economy

"The 4,200-rial dollar is the deadly poison for the economy," Qasem Ali-Hassani, the secretary of Iran Foodstuff Wholesalers Union, said.

“We have time and again told the government to stop the allocation of cheap foreign currency but the government prefers this policy to control prices.”

He noted that domestic consumption of tea is around 120,000 tons annually, but the figure has doubled this year, adding that when each kilogram of tea is sold at 160,000 to 200,000 rials ($1.4-$1.7) in the country compared with 1,200,000 to 1,600,000 rials ($10.5-$14) in neighboring countries, it is crystal clear that loads of tea would be smuggled from Iran to countries like Turkey.

“Sugar cubes are priced at 50,000 rials [43 cents] per kilogram in Iran. In neighboring countries, they are valued at 350,000 rials [about $3], suggesting that by outbound smuggling, their profits will increase sevenfold," he said.

"Iran’s sugar cubes are currently smuggled into Azerbaijan. Or, take the example of cigarettes: domestically-made cigarettes are smuggled to Turkey, Armenia, Georgia and Azerbaijan. A packet of Iranian cigarettes is sold for 70,000 rials [61 cents, on average] whereas in other countries they [the same packet] go for 210,000 rials ($1.8). Prices of essential goods in neighboring countries are three times more than in Iran.”

Ali-Hassani said Iraq, Afghanistan, Turkey, Azerbaijan, Armenia, Georgia and Pakistan are top destinations of essential goods smuggled out of Iran.

“This large amount of smuggling would force the government to increase by 5.2 and 2 times the budget it allocates to food and essential goods, respectively. Smuggling by passengers and border couriers account for the lion’s share of outbound smuggling of food. It is as if the government is importing essential goods for 130 million people instead of 80 million [Iranians],” he noted.

The government needs to discontinue the allotment of cheap foreign currency instead of patrolling the borders, an informed source at Iran Chamber of Guilds, who wished to remain anonymous, told the Persian daily.

“Saved resources can be spent on low-income households’ subsidies. The current policy is bound to promote outbound smuggling. Smuggling would not go away unless the prices become real,” Ali-Hassani said.

"As per the budget bill proposed for the next fiscal, the government will allocate $14 billion for the provision of essential goods at the foreign exchange rate of 42,000 rials per dollar," Mohammad Baqer Nobakht, the head of Plan and Budget Organization, has been quoted as saying.