66% Share of Contraband in $3.3b Home Appliance Market

EghtesadOnline: Iranian home appliance market had a turnover of $3.3 billion in the last fiscal year (March 2018-19), the head of Home Appliance Sellers and Producers Union said.

News ID: ۷۴۹۷۰۷

16 February 2020

Morteza Miri added that contraband products accounted for $2.2 billion (66.66%) of the sum, Fars News Agency reported.

“Two out of three home appliances in the domestic market are contraband,” he said, citing data provided by the Headquarters to Combat Smuggling of Goods and Foreign Exchange.

According to Financial Tribune, he noted that efforts are underway to supplant contraband home appliances with domestic products to fulfill domestic demand.

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.

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

Hamidreza Ghaznavi, spokesperson of Home Appliances Manufacturers Union, said some 80,000 home appliance production units are active in Iran, 3,000 of which have created more than 100 jobs each.

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

Nearly 560,000 washing machines were produced whereas the market demand amounts to around 900,000 annually.

This gap in supply and demand, according to officials, was filled with contraband home appliances.

“The government banned the import 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 smuggled products, since import tax is not paid for them, they are sold at unreal and cheaper prices in the domestic market,” Iran's Home Appliances Association Secretary-General Habibollah Ansari said.

According to the official, production has fallen due to many hurdles facing domestic manufacturers.

“Factories are facing problems of providing working capital, increasing raw material prices and the subsequent rise in end prices, as well as problems related to the provision of foreign currency required for importing raw materials,” he added.

Ghaznavi said 75% of Iranians purchase foreign home appliances and the rest use products manufactured in Iranian factories, which also mainly use foreign spare parts.

“Though foreign companies active in Iran have left the country due to the reimposition of sanctions, yet, the transition of consumption from foreign brands to domestic ones has not taken place. The main reason for this is that smuggling of these items has not only failed to subside, but has also increased,” he said.

Ghaznavi believes an opportunity has been created 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, foreign brands used to assemble their goods here in the country and almost everyone could use a commercial card to import home appliances. Today none of these problems exist,” he said.

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

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

Indian Home Appliance Maker to Invest to Qazvin

An Indian manufacturing company of various brands of home appliances is planning to invest in Qazvin Province for the establishment of a production line.

Representatives of the Indian company met and held talks with provincial officials in Qazvin last year, Mehr News Agency reported, without mentioning the name of the Indian company.

As for the reason behind choosing Qazvin Province from among other Iranian provinces for investment, the Indian side said, “as compared to Tehran, Qazvin enjoys high potentials and capacities for investment activities.”

“Our company will start its production in Qazvin in 2020 and all state-of-the-art technologies for manufacturing home appliances will be transferred to this province over a period of five years,” he said.

Given the US sanctions and in the absence of two famous South Korean brands of home appliances in the Iranian market, i.e. Samsung and LG, a suitable opportunity has been created in Iran for investment, the Indian side said.

The two South Korean brands for long dominated Iran's home appliance market prior to the latest round of US sanctions.

The Indian company started manufacturing home appliance parts and equipment in 2004 for two South Korean companies i.e. Samsung and LG, but the company embarked on producing these parts itself in 2012.

Once sanctions imposed on Iran are lifted, Iran will get the lion’s share of the whole Central Asian markets, according to the Indian side, adding that in the first phase of this project,t the company will manufacture refrigerators, LCD TVs and washing machines in Qazvin Province.