COVID-19 Outbreak Worsens Iran’s Business Conditions

EghtesadOnline: The recent outbreak of coronavirus (COVID-19) has taken a heavy toll on a wide range of Iranian businesses.

News ID: ۷۴۹۷۸۵

07 March 2020

From restaurants, catering services and cafés to travel agencies, airlines and cinemas, many have been pushed to the brink. This is especially so, when taking into account the damaging effects of sanctions on Iran's business environment, Financial Tribune reported.

"Medical doctors say coronavirus is deadly for people with other underlying medical conditions. The sanctions regime is the same underlying disease that has made coronavirus even more horrendous," presidential advisor, Hesameddin Ashena, has been quoted as saying by IRNA.

According to Zahra Karimi, university professor and economist, the outbreak has aggravated the recession that was initially brought on by US sanctions in the fiscal 2018-19.

“Industrial countries with their booming economies are facing a significant decline in gross domestic product following the coronavirus outbreak. This is while the impact of the epidemic has been doubly destructive for the Iranian economy, which has been already enfeebled by US sanctions,” she added.

“The country’s financially-troubled businesses have to cut down their spending under the conditions. However, the hardest-hit will be those with payday jobs.”

Karimi noted that workers with unofficial jobs who account for a significant share of the labor market are suffering more than those engaged in the state economy.

“With fewer people on streets, the demand for taxis and ride-hailing services has declined as well. Independent business owners who have rented their commercial spaces can’t even afford to pay their utility bills," she was quoted as saying by the Persian-language daily Iran.

New Year Boom Gives Way to Slump

Noting that the last month of the Iranian year has always represented growth in business activity, Karimi said, “Such a growth has now turned into recession. Service industry workers, like those in restaurants, retail and the gig economy, are much less likely to have paid sick days, the ability to work remotely or employer-provided health insurance. A day off work means a day without pay.”

The economist further said the viral outbreak has resulted in limited demand for migrant workers who offer home cleaning services temporarily.

Economic activities that have greater in-person communication are more vulnerable. Suppliers of food like restaurants which, according to the latest statistics, account for 240 trillion rials ($1.56 billion) of Iran’s economy are arguably the primary victims of the virus.

Last week, Hamid Mohammadi, the head of carpet cleaners union, said the demand for carpet-washing services, part of the “spring cleaning” that Iranian households traditionally undertake in advance of the Norouz holiday was down by 40% this year.

“Fearing coronavirus, no one risks letting people into their homes these days,” he said.

The effects of the epidemic on the tourism industry have aroused considerable concerns.

“Hoteliers who were anticipating the advent of spring and New Year holidays are now facing an unwelcome guest,” Mohammad Ali Farrokh-Mehr, the chairman of Tehran Hotels and Hotel Apartments Union, was quoted as saying last week.

Farrokh-Mehr added that with the recession in full swing, there are concerns over a downsizing of labor force.

“Iranian hotels had planned to offer a 50% discount on Chinese tours during the Lunar New Year holidays. But the coronavirus wreaked havoc on all travel plans. Had it not happened, a revolution would have taken place in the country’s hospitality industry,” he was quoted as saying by ILNA.

Bankruptcy Filings on the Horizon

If the current trend persists, Karimi said, bankruptcy filings are bound to increase.

“Official statistics show a 0.3% decline in the number of insurees in the fiscal ending March 2019, which suggest that the number of jobs offering insurance has decreased and instead unofficial, temporary jobs have increased. The outbreak of coronavirus will raise unofficial employment and the government has little maneuvering room to tackle the negative effects of this crisis due to the financial constraints created by sanctions and the FATF blacklisting.

“As per the budget bill for the next fiscal year (March 2020-21), 17% of the government’s total budget will be spent on keeping pension funds afloat. The government which is struggling to pay pensioners and provide the country’s operating expenses has virtually nothing to compensate for the losses caused by the spread of coronavirus.”

Karimi concluded that under the circumstances, if it opts to pay cash subsidies to people, the growth of spending beyond growth of productive capacity is bound to increase the inflation rate.

In a letter to Vice President for Economic Affairs Mohammad Nahavandian, Deputy Industries Minister Hossein Modarres Khiyabani has proposed measures to support small- and medium-size enterprises in the wake of coronavirus that have weighed heavily on their economic activities.

The proposed measures include tax and insurance premium waivers in the last month of the Iranian year (ending March 19), extended repayment plans and offering loans to SMEs dealing with the fallout of the coronavirus outbreak, IRNA reported.