Interview: Iran Working to Narrow Trade Deficit With Russia

EghtesadOnline: As one of Iran’s 15 neighboring states, Russia is expected to become one of the country’s biggest export destinations, especially because agro products in high demand in Russia are amply produced in Iran.

News ID: ۷۷۸۶۱۸

20 August 2017

The proximity of the two countries and their vast sea border can help reduce transportation costs. Yet, much to its chagrin, Iran has been facing a huge trade deficit with Russia since 2015, before which bilateral trade stood at around $2 billion with Iran’s exports accounting for half of the sum.

In 2015 and 2016, Iran exported between $400 million and $500 million worth of goods and imported $1.5-1.6 billion in return.

During the first four months of the current fiscal year (March 21-July 22), Iran-Russia trade experienced a 20% fall compared with the corresponding period of last year to stand at $980 million, Chairman of Iran-Russia Chamber of Commerce Asadollah Asgaroladi told Financial Tribune.

“Iran’s exports to Russia over the period stood at $180 million while imports amounted to $800 million,” he said.

Our main exported goods, Asgaroladi said, are agricultural products, including dairy, livestock and horticultural products, cans and conserves such as pickles and jams, chocolates and biscuits, flowers, petrochemicals and some raw materials.

Imports include wood, machinery, agro machinery spare parts, paper (reexported from Finland and Sweden), iron and reinforcement bars (reexported from Belarus) and sugar (reexported from Cuba).

The seasoned businessman said political, cultural and social relations between Russia and Iran are mutually agreeable, yet Iran has not been able to gain a foothold in the Russian market and is losing the game to its rivals, namely Turkey. He said bilateral trade has the potential to be much higher than the current level.

Hurdles in the Way

“I believe both sides are responsible in this respect. We need cheap and easily accessible transportation. In the Caspian Sea, we have small ships with a capacity to carry 1,000 tons of cargo. They are always full and even if they’re not, they are too small to meet our freight transport needs,” he said.

“With trucks, we have problems with the drivers’ visa issuance. Russian truck drivers are granted visas much easily by the Iranian side, but it is not that easy the other way round.”

Another problem with marine and road transportation, according to Asgaroladi, is that the Iranian side does not have enough refrigerated ships and trucks, and since most Iranian exports to Russia are perishable, lack of such equipment damages the products and impacts their quality, which leads to the dissatisfaction of customers.

To make matters worse, he said, Iran has no flights to southern Russian cities such as Astrakhan, Kaliningrad, Saratov and Volgograd, which happen to be the main customers of our products.

“We only have flights to Moscow few times a week. Merchants, whose consumer markets are the southern cities of Russia, have to take their cargo to Moscow and are detained there for at least 7 to 8 hours until they find a flight to their final destination. So it takes about 15 to 16 hours to get the goods to one of the export destinations, whereas a direct flight would take an hour or so.”

On top of all this, he said, Iran has not been successful in developing its packaging industry on par with international standards.

“The Russians want labels on the packaging to be in Russian but we have failed to meet this demand,” he said.

Green Corridor

The chief of the joint chamber said the goods Iran exports to Russia are detained at the border for 5 to 10 days before they are cleared.

“The ‘Green Corridor’ was set up in order for the exported goods to go straight to the buyers’ warehouses under the supervision of the customs administration instead of staying at the border. Customs officials can then go to the buyers’ warehouses to carry out the relevant procedures,” he said.

“This facility is provided reciprocally and is being offered to reputable merchants only. The aim is to speed up customs processes, given the nature of Iran’s exported products in particular.”

The Iran-Russia Green Corridor was piloted in January after the first shipment of Iranian agro products was exported to Russia from Abbasabad Export Terminal in Mazandaran Province.

Banking Issues Persist

Asgaroladi noted that although Iran’s banking relations with Europe are being gradually normalized, Russia has yet to take measures in this regard and has not established correspondent banking relations with Iran.

He lamented the fact that Iranian merchants cannot transfer their money easily and even if they can, they have to pay a 5-6% in commission, which is very expensive.

“The Russian side does not buy our products in dollars due to the sanctions they are facing. We trade in euro, or so it has to be. What the Russians do is that they exchange the euro and pay us in ruble. The Iranians then have to exchange the ruble to rial where they have to pay another 5-6% in commission,” he said.

“In these exchanges, Iranian merchants incur losses. This is why our economic players and merchants are reluctant to embark upon exports because it is not as profitable for them as it should be. As such, our trade deficit is widening.”

Prospects

Asgaroladi said visa problems for merchants were solved on Monday.

“In a meeting with the Russian envoy to Iran, Levan Dzhagaryan, it was decided that Iranian merchants and businesspeople introduced to the Russian Embassy by Iran-Russia Chamber of Commerce will be granted six months to one year visas,” he said.

The official added that the joint chamber is currently in talks with the Iran-Russia Economic Commission to sign a preferential trade agreement with Russia, the framework of which was agreed during Russian President Vladimir Putin’s one-day visit to Tehran in November 2015.

At present, electronic certificates of origin are now being issued, which have solved a lot of problems facing bilateral trade.

“We are attending an international food exhibition, also known as WorldFood Moscow 2017, from September 11-14. The 40-member delegation from Iran will be doing its best to introduce Iran’s capabilities in different food and agricultural fields. This could be a good opportunity, especially since September is our harvest season,” he said.

Asgaroladi concluded by saying that he is hopeful that bilateral trade will rise in the second half of the current Iranian year and as recent talks and measures bear fruit, Iran can decrease its trade deficit with the neighboring country.