CBI Throwing Auto Industry Lifeline Worth $612 Million

EghtesadOnline: The Central Bank of Iran has allocated 150 trillion rials ($612.24 million) in aid packages and loans to the auto sector to help bolster productivity and localization efforts, the CBI chief said.

News ID: ۷۸۵۹۰۴

04 February 2021

Abdolnasser Hemmati added that of the total sum, CBI’s Money and Credit Council, Iran’s top monetary decision-making body, has earmarked 50 trillion rials ($204 million) to be directly lent to automakers from bank reserves, IRIB reported.

He said the remaining would be 100 trillion rials ($408.16 million) worth of Murabahah bonds—an Islamic financing structure in which the seller provides the cost and profit margin of a commodity—and Productive Credit Certificate, also known by its Persian acronym Gam.

Gam is a financial instrument newly developed by CBI to help meet the funding needs of credible and productive manufacturing units and businesses. The instrument is described by the bank as a “market-oriented instrument that can be traded in money and capital markets.”

During a visit to IKCO on Sunday, Hemmati said the aid package can support auto production from raw materials to sale.

Mohammad Reza Najafi-Manesh, the head of Iranian Automotive Parts Manufacturers Association, told reporters that the Gam certificates seem to be a workable substitute for other ways of credit-based purchases, as they are more easily cashed and transferred in the local banking system compared to regular bonds. He called on automakers to use the opportunity for a positive change.

Soheil Memarbashi, the head of Transportation Office at the Industries Ministry, said the auto sector is in dire need of financial help.

“The credit certificates can be a sustainable source of finance and simultaneously help boost parts and vehicle production,” he added.

He said the new type of financial instrument is aimed at contributing to developing other industrial sectors in the near future.

The efforts are in line with the government policies to minimize the industries’ dependency on foreign resources to bypass US sanctions.

In the past few years, the auto industry has taken measures to indigenize their products with the help of state coffers, private investors and the growing technology ecosystem.

Tech Ecosystem Steps In

Last week, a tech center specialized in auto parts production was launched to speed up localization efforts in the automotive industry.

The center is established with an investment of €3 million by the Vice Presidential Office for Science and Technology and Iran’s auto parts maker Crouse Company.

Based near Tehran and spread over 2,500 square meters, the center has absorbed 250 professionals and 30 university students of different majors who are working on over 120 tech projects related to automotive and parts industry.

Tech units at the center have designed three types of central control units, an airbag system and numerous electronic components. Work is also on track for the design of radar and navigation systems.

In July 2020, a knowledge-based company produced several high-tech auto parts that meet global standards, which has been hailed by industry insiders as a step toward localization goals.

Iran Spare Parts Company, a major manufacturer of auto components, announced that it has produced crankshaft pulley, rubber bush, plastic bush, engine handle, hydro mount and balance shaft using state-of-the-art technologies.

The components used in the production of several car models are in high demand.

Reza Aryana, the CEO of ISPC, said the company’s products are compatible with foreign counterparts.

“The mass production of tech-based auto parts can curb the sector’s dependency on foreign resources and prevent capital flight,” he added.

Slashing Capital Flight

In December 2020, Farshad Moqimi, CEO of IKCO, said his company has curbed capital flight to the tune of $138 million through the localization of vehicle parts in the first eight months of the current Iranian year (March 20–Nov. 20, 2020). He maintained that this is achievable, thanks to the support of industrial units affiliated with the Defense Ministry and knowledge-based companies.

“Several projects have been launched to gradually slash capital flight caused by auto parts imports, which amount can reach $248 million per year,” he added.

Moqimi noted that the projects are curbing production costs and reducing IKCO’s annual import bill by $180 million while the company used to spend $360 million on the import of parts every year.

He called on the banks to extend support to domestic parts makers for upgrading their machinery and asked authorities to cut their tax rates.

“Encouraging local parts makers for manufacturing high-tech imported components is on IKCO’s agenda,” he said.

Moqimi signed an agreement with Shiraz Electronic Industries Organization and its partners in late December, to develop electronic components for IKCO vehicles.

According to Mohammad Mehdi Izadi, the head of the organization, the agreement envisages the design and production of automobile electromechanical modules.

The automaker says the organization will soon become one of its largest auto part suppliers.

SAIPA’s Attempts

In late November 2020, SAIPA announced that it is implementing 81 projects to localize high-tech auto parts, hoping to curb the sector’s dependency on foreign resources.

Based on the automaker’s website Saipanews.com, the projects have been established in collaboration with the Defense Ministry, Aerospace Force of the Islamic Revolution Guards Corps and the Iranian Army’s Air Force.

Daryoush Golmohammadi, SAIPA’s deputy for strategic planning, said 28 joint ventures are being implemented along with industrial units, affiliated to Defense Ministry.

“So far, seven sophisticated electronic car components have been localized and are ready for mass production,” he said.

Golmohammadi noted that SAIPA is producing 26 hi-tech parts with the help of IRGC’s Aerospace Force.

“The production of these items is undergoing tests and will enter the production line, as soon as the prototypes are tested and verified,” he said.

The army’s Air Force is also cooperating with the automaker in 27 other localization projects, which the official said are in the design phase.

The targeted auto parts, which used to be imported, include Engine Control Unit, modulator, injector, airbag, multimedia system, DC engines, electric sensors and digital ammeter.

“With the local production of these components, SAIPA can curb capital flight by up to €94 million annually,” Golmohammadi `said.

The automaker is also negotiating with the ministry for the joint production of GPS and radar systems for electric vehicles.