Iran Negotiating With Iraqi, Afghan Banks to Maintain Rising Trade

EghtesadfOnline: Negotiations are underway with banks in Iraq and Afghanistan for enabling Iranian private sector players to repatriate their export yields as per the law and maintain trade, a senior private sector representative said.

News ID: ۷۸۴۲۷۲

29 October 2018

"In Iraq, banking channels have been created for export currencies to return to the country while in Afghanistan negotiations have been held with Arian Bank, which will hopefully yield results," Hossein Salimi, a member of Tehran Chamber of Commerce, Industries, Mines and Agriculture and co-chair of Iran-Afghanistan Chamber of Commerce, said.

"If they don't, it will lead to decreased exports to these destinations," Salimi, also a board member of the private Middle East Bank, told IBENA on Saturday.

The issue of securing an avenue to repatriate export currency yields is very important since the very survival of Iran's exports to Iraq and Afghanistan may depend on it, Financial Tribune reported.

Iran's rial has devalued significantly in recent months due to the prospects of returning US sanctions after US President Donald Trump unilaterally withdrew from Iran's nuclear deal with world powers in May.

In an attempt to halt the decline of national currency, President Hassan Rouhani's administration in April fixed the rate of the rial against the US dollar. But also significantly, it revived a currency repatriation scheme to prevent further capital flight.

Based on current regulations, exporters are obligated to return 95% of their currency yields—by accepting imported goods, reimbursing currency debts, selling foreign currencies to banks and exchanges, or making deposits in banks—within three months of receiving their customs export permit. The repatriation period was initially set at six months, but was later reduced.

Iraq and Afghanistan were exempt from currency repatriation before, providing exports with room to grow. The exemption, coupled with a declining rial, could have meant that Iraq may soon become Iran's top non-oil export destination. Exports to Afghanistan have also grown significantly.

However, Gholamreza Panahi, the new head of the Central Bank of Iran's Foreign Exchange Department, in mid-October informed Mojtaba Khosrotaj, the head of Trade Promotion Organization, in a letter that exporters to Iraq and Afghanistan are no longer exempt from currency repatriation rules.

The letter further said "all commodity exchanges in border marketplaces" are also subject to currency repatriation.

This will especially hurt Iran's trade expansion through markets bordering Iraq, which have been the main factor contributing to the growth of exports.

The fact that exports to the two neighboring nations are no longer exempt from currency repatriation rules directly threatens trade. A majority of trade is conducted in national currencies with these countries and therefore cannot be repatriated in the main traded foreign currencies, coupled with high costs of operating outside the banking system.

On Saturday, Salimi said exporters and private sector officials are committed to repatriating their export yields, but he said authorities must understand that the process takes time and room must be given for infrastructures to develop.

"Afghanistan has been working with Iran using the rial for years and has no banking channels capable of repatriating US dollars to Iran," he explained, adding that concerns related to regulations devised by the Financial Action Task Force have made exchange through money shops more difficult.

This has prompted negotiations with banking channels that could provide Iranian exporters with main traded currencies in return for their exported goods and services.

Salimi announced that a meeting was held with Afghan representatives recently to think of ways of repatriating export yields.

"It has been decreed that one bank will be designated in Afghanistan and another in Iran to conduct business," he said.

Two of Iran's Major Export Destinations

According to the Islamic Republic of Iran's Customs Administration, during the first half of the current Iranian year that ended on Sept. 22, Iran’s non-oil exports to Iraq stood at around 9.61 million tons worth more than $4.56 billion, up 45.32% and 44.58% in volume and value respectively year-on-year.

This makes Iraq the second major export destination for Iran after China, which imported $4.63 billion worth of Iranian non-oil goods during the same period, up 12% YOY.

Iran mainly exported liquefied gas, hydrocarbons, mineral products, fresh or frozen tomatoes and evaporative coolers to Iraq during the six-month period.

Afghanistan’s Chamber of Commerce and Industries says Iran was Afghanistan’s biggest trade partner in the last fiscal year (March 2017-18) and exported goods worth $1.98 billion to the neighboring country.

ACCI said trade volume was $1.2 billion between Afghanistan and Pakistan and $1 billion with China in the same period.

“Now Iran is our biggest [trade] partner,” ACCI deputy chief, Khan Jan Alokozay, told TOLOnews.

“Iran has overtaken Pakistan, which means we have more than $2 billion in imports and exports with Iran. Imports are high but exports are a lot less. Transit is also good through that route [Iran].”

According to ACCI, Afghanistan’s trade volume with all countries for the year totals $7 billion.

Afghanistan’s main imports from Iran are construction materials, food and fuel.

ACCI’s statistics show Afghanistan exported at least 1 million tons of goods last year, particularly to Pakistan.

According to Afghanistan’s commercial attaché to Iran, Jaber Ansar, Iran holds a 22% share ($2.5 billion) of Afghanistan’s $11.5 billion consumer market.