Free Trade, Special Economic Zones Account for 40% of Iranian Exports

EhtesadOnline: Exports from Iran's free trade and special economic zones account for 40% of the country’s total exports during the seven years since President Hassan Rouhani first took office in August 2013.

News ID: ۷۵۱۱۰۳

27 September 2020

According to Secretary of the High Council of Free Trade Zones and Special Economic Areas Morteza Bank, exports through FTZs and SEZs reached $169 billion during the period under review.

“Overall imports from these trade zones have hit $45 billion over the seven-year period,” he was quoted as saying by IRNA.

FTZs were first authorized in 1993 on Kish Island, Qeshm Island and Chabahar Port. Later, Aras, Arvand, Maku and Anzali were added to the list.

FTZs' Exports Rise Nearly Sixfold as Imports Decline 49%

A total of $941 million worth of commodities were exported from Iran’s free trade zones in the last fiscal year (March 2019-20), which show a 490% growth compared with 2013.

Imports from Iranian FTZs, which mainly include raw production materials and industrial machinery, decreased by 49% over the seven years to stand at $718 million last year from $1.45 billion in 2013, IRNA reported.

According to this report, the value of transit though Iran’s FTZs stood at $4.35 billion in the last fiscal year, indicating a %265.32 rise compared with $1.19 billion in 2013.

Through 2013 to 2019, a total of 62.2 trillion rials ($217 million) worth of investment were made by Iranian free trade zone organizations in construction and infrastructural projects of free trade zones, including the construction of airports and ports, roads, water and sewage systems, health facilities; preparation of plots of land for industrial or residential purposes; expansion of cultural, religious and tourism centers; rural and urban development; and establishment of energy, electricity and telecommunication facilities.

According to secretary of the High Council of Free Trade Zones, foreign investment in Iran’s FTZs hit $211 million from March 2019 to March 2020, registering a 781% upsurge compared with $27 million in 2013.

“Foreign investments in our FTZs stood at $113 million in the fiscal 2014-15, $249 million in 2015-16, $349 million in 2016-17, $448 million in 2017-18 and $307 million in 2018-19,” Morteza Bank was quoted as saying.

The official, who doubles as a presidential advisor, added that local investment over the course of these seven years rose by 397% to reach 107.59 billion rials (over $375,000).

“Local investment in Iran’s FTZs stood at 27.91 billion rials ($97,417) in fiscal 2013-14, 58.63 billion rials ($204,000 million) in 2014-15, 40.96 billion ($143,000) million in 2015-16, 58.99 billion ($206,000) in 2016-17, 50.15 billion rials ($175,000) in 2017-18 and 68.28 billion rials ($238,000) in 2018-19. The investments have also increased over the first five months of the current Iranian year (March 20-August 21) despite the outbreak of the coronavirus pandemic,” the senior official noted.

As many as 1,400 industrial units are operating in these seven FTZs, Bank said last year.

“Free zones account for 0.3% of total land area of Iran and accommodate less than one million people,” he was quoted as saying.

Debates on the merits of FTZs have been based on their impact on several elements: from social issues like labor rights, environmental protection and urban planning to macroeconomic issues related to their impact on government revenues, employment, trade and foreign exchange earnings.

The primary purpose of a free trade zone is to remove trade obstacles caused by high tariffs and complex customs regulations applied in a port, airport or border checkpoint. They are also meant to help the government increase exports at a lower cost, create employment and attract foreign investment and help develop deprived regions.

SEZ's Track Record

A total of $37.2 million worth of foreign direct investments were made in Iran’s special economic zones during the last Iranian year (March 2019-20), up by a whopping 1,760% compared with the previous year.

Based on the latest figures released by the Economy Ministry, domestic investments made in rial over the period stood at 89.84 trillion rials ($313 million) to register a 173% year-on-year rise.

Domestic investments in dollar over the period amounted to $4.9 billion, registering a 65% increase compared with the year before.

The Economy Ministry’s figures show that $13.5 billion worth of commodities were exported from the Iranian special economic zones over the year under review, which indicate a 20% YOY decline.

The report attributes the fall to financial and banking sanctions imposed on Iran.

Imports into these zones over the same period saw a 38% YOY decrease to stand at $2.86 billion with the main commodities imported being raw production materials and industrial machinery and equipment.

Over the last Iranian year, a total of 599 industrial units were active in Iran's SEZs, which created jobs for around 205,650 people. The figures show a 3% and 18% respective rise compared with the preceding year.

There are currently 30 special economic zones in Iran.

In a special economic zone, business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increased trade balance, employment, increased investment, job creation and effective administration.

To encourage companies to set up business in the zone, financial policies are introduced. These policies typically encompass investment, taxation, trading, quotas, customs and labor regulations.

Additionally, companies may be offered tax holidays and upon establishing themselves in a zone, they are granted a period of lower taxation.

The creation of special economic zones by the host country may be motivated by the desire to attract foreign direct investment. The benefits gained by a company in a special economic zone may mean that it can produce and trade goods at a lower price, aimed at being globally competitive.