Upheaval in Home Appliances Market Gives Rise to Smuggling

EghtesadOnline: A total of $215 million worth of home appliances were imported into Iran during the last fiscal year (March 2018-19), down from $1.28 billion in the previous year, indicating an 83.43% plunge year-on-year, data provided by the Islamic Republic of Iran Customs Administration show.

News ID: ۷۴۷۸۳۳

10 July 2019

According to officials and businesspeople active in the industry, the domestic production of home appliances fell by 40% last year.

While domestic demand for refrigerators stands at around 1.2 million units per year, only 850,000 fridges were produced last year.

Nearly 560,000 washing machines were produced whereas the domestic market demand hovers around 900,000 annually, according to Financial Tribune.

This gap in supply and demand, according to officials, is filled by contraband home appliances.

“The government banned imports of household appliances early last year, but they continue to be smuggled into the country. These contraband items enter Iran from the western borders … Besides the issue of authenticity of the smuggled products, since import tax is not paid for them, they are sold at unreal and cheaper prices in the domestic market,” says Secretary-General of Iran's Home Appliances Association Habibollah Ansari.

According to Ansari, production has fallen due to many obstacles currently facing manufacturers.

“These include the problems faced by factories in procuring their working capital, increasing prices of raw materials and the subsequent increase in prices as well as problems related to the provision of foreign currency required for importing raw materials,” he said.

Hamidreza Ghaznavi, spokesman of Home Appliances Manufacturers Union, noted that 75% of Iranians are customers of foreign home appliance brands and the remaining 25% use products manufactured in Iranian factories, which also require foreign spare parts.

“Though foreign companies that were active here in the past have left the country due to the reimposition of sanctions against us, yet the transition of consumption from foreign brands to domestic ones has not taken place,” he said, adding that the main reason for this is that the smuggling of these items has increased.

Ghaznavi said the ground has been prepared for domestic production to thrive.

“It’s the first time in almost 10 years that we are experiencing such an opportunity. Previously, foreign brands were advertised, assemble here in the country and almost everyone could get a commercial card to import home appliances. Today, none of these problems exists,” he said

However, there are other problems, such as shortage of working capital and foreign currency, restrictive customs procedures and impediments created by the so-called secondary forex market, known by its Persian name Nima, where exporters repatriate and convert their earnings based on government rates that are set lower than the market rates.

“If production increases to reach an economic scale, prices too can decrease by around 20% for consumers,” he said.

Ghaznavi noted that at present, some 80,000 home appliance production units are active in Iran, 3,000 of which have created more than 100 jobs each.