Iran Gov’t Outlines Projects to Expand Digital Economy

EghtesadOnline: A five-year plan for developing Iran’s digital economy and its details were discussed in a meeting of the High Council of Cyberspace held in Tehran on Saturday.

News ID: ۷۴۹۶۰۰

03 February 2020

The results of the meeting, presided over by President Hassan Rouhani, were later shared by ICT Minister Mohammad Javad Azari Jahromi on his Twitter account, Financial Tribune reported.

Jahromi noted that the digital economy is set to comprise 10% of the domestic economy by 2025, which can only materialize by replacing the oil-based approach to the economy with a startup-oriented mindset.

“To this end, numerous changes should be made; problems in the 21st century require 21st-century solutions,” he added.

The ICT minister emphasized that the gradual transition from a conventional mode to smart ways of doing things in enterprises and industries is the most viable strategy to achieve the goal.

"The total value of venture capital investment should reach €200 million per year, which is currently estimated to be 15 trillion rials [€100 million],” he said.

Venture capital is a type of financing provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth (in terms of the number of employees, annual revenue, or both).

VC funding is growing among private and state-backed investors who tend to back fledgling startups and knowledge-based companies.

"The rules of attracting investors and capital should be eased to boost the domestic economy," the minister said.

The establishment of three data centers and promotion of cloud services were among the other targets set by the council for 2025.

Jahromi also noted that domestically-produced mobile phones should constitute 20% of the domestic market.

In early January, the Central Bank of Iran and Post Bank of Iran, affiliated to the ICT Ministry, were planning to invest 2 trillion rials ($14.8 million) in the domestic production of smartphones to curb dependence on foreign suppliers.

Jahromi said work is underway to designate the project area at the Tehran-based Research Institute for Information and Communications Technologies, Sajjad Park—ICT Ministry's specialized tech park, and Payam Special Economic Zone adjacent to Payam International Airport in Karaj, Alborz Province.

The council also set a target to increase the speed of home-based broadband internet connection to 25Mbit/s and that of mobile phones to at least 10Mbit/s.

The ICT minister noted that internet-based shopping should grow to 10% of the e-commerce transactions.

Pointing to the key role of technology ecosystem in helping the country achieve these goals, Jahromi said despite the economic hardships and financial shortcomings, the younger generation holds a treasure of talent that can boost employment and develop the domestic economy, in case it receives adequate support.

E-Commerce Status

According to a report by the E-Commerce Development Center of Iran released in September 2019, in the fiscal year that ended in March 2019, the nominal value of Iran’s e-commerce market grows 30.5% to reach 2.08 quadrillion rials ($15.4 billion) from 1.59 quadrillion rials ($11.77 billion) in the fiscal 2017-18.

The report further states that the market’s real value stood at 6.1 quadrillion rials ($45.18 billion) for the fiscal 2018-19, down 13% compared with the same period of a year earlier.

Behnam Amiri, a deputy at the center, says the difference between the true and nominal value of the market is due to the sharp surge in prices and the raging inflation over the fiscal 2018-19.

“The gap indicates that people’s purchasing power has been slashed, which took a toll on the e-commerce market,” he said.

According to the report, during the fiscal 2018-19, the e-commerce sector’s share in Iran’s gross domestic product observed a 5.28% year-on-year decline.

Iran’s GDP (excluding oil revenues) reached 20.014 quadrillion rials ($166.78 billion) in the fiscal 2018-19 and 14.5 quadrillion rials ($148.25 billion) in the year before.

E-Commerce Firms

Iran has 270,000 e-commerce businesses with an operating website, of which 49,000 had received the “Trust Seal” issued by the center by March 2019.

Close to 64% of these businesses are classified as online stores, while 15% offer educational services and 10% are labeled as content producers.

Of the 270,000 internet-based businesses, 22,694—or 8.4%— are based in Tehran Province. It is followed by Khorasan Razavi Province with 3,751 e-commerce firms and a 1.4% share of the sector.

Unlike most developed countries, most e-commerce firms are registered by natural persons in Iran, accounting for 76% of the businesses compared to 24% registered by legal persons.

Furthermore, 91% of the investments in e-commerce firms were made by natural persons during the fiscal 2018-19, 5% by startup accelerators, 2% by the government and 2% via crowdfunding.