Iran’s Business Environment Shows Improvement in 3rd Fiscal Quarter

EghtesadOnline: Iran’s business environment improved in the third fiscal quarter of the current year (Sept. 22-Dec. 20, 2020), Iran Chamber of Commerce, Industries, Mines and Agriculture reported.

News ID: ۷۸۵۹۰۶

04 February 2021

Iran’s National Business Environment Index stood at 5.93 in Q3 to register a 1.98% and 1.66% decline compared with the preceding quarter and the corresponding quarter of last year, the chamber said in a new report published on its website.

The index calculated by ICCIMA measures business friendliness of Iran’s economy, with 10 indicating the worst grade. In other words, the decline in the index is indicative of an improving business environment.

Iran’s National Business Environment Index stood at 6.05 in Q2 of the current fiscal year (June 21-Sept. 21, 2020) and 6.03 in Q3 of last fiscal year (Sept. 23-Dec. 21, 2019)

“Unpredictability and fluctuations in the prices of raw materials and products”, “uncertainties about policies, rules, regulations and business formalities” and “difficulties associated with getting bank credit” remained the most undesirable factors affecting Iran’s business environment during the period under review, according to the findings of ICCIMA’s 17th report.

The chamber also measures the index for each of the 31 Iranian provinces, naming Chaharmahal-Bakhtiari Province, Sistan-Baluchestan and Golestan as provinces with the least favorable environments for business and Semnan, Zanjan and West Azarbaijan as the best.

The average real production capacity of economic enterprises participating in this survey stood at 40.8% in Q3, indicating an increase of three percentage points compared with the preceding quarter.

The impact of coronavirus disease on the business environment in Q3 was measured to be 6.49 points, indicating a slight improvement compared with Q2 when it stood at 6.62 points.

The services sector had the worst business environment in Q3 with 5.92 points, followed by industry (5.86) and agriculture (5.83).

As for 21 fields of business, the worst three business environments were posted by “art, entertainment and leisure businesses”, “accommodation and food” and “information and communications” while the top tier included “finance and insurance”, “health and social work” and “other services”.

Enterprises with 200 and more employees had the best business environment with a score of 5.75 while those with six to 10 employees had the worst business environment with a score of 5.96.

Businesses operating for three to five years indicated the worst business environment (5.97) while those operating for more than 16 years had the best business environment (5.75).

World Bank’s ‘Ease of Doing Business’ Report

The ICCIMA index is fashioned after World Bank’s “Ease of Doing Business” index, “a valued tool for countries seeking to measure costs of doing business.”

In August 2020, the World Bank Group issued a statement saying irregularities were reported in the data used in the report.

The World Bank said it had found some data irregularities in the Doing Business 2018 and Doing Business 2020 reports.

“A number of irregularities have been reported regarding changes to the data in the Doing Business 2018 and Doing Business 2020 reports, published in October 2017 and 2019. The changes in the data were inconsistent with the Doing Business methodology," it said.

The Doing Business report 2020, published in October 2019, captured 294 regulatory reforms implemented between May 2018 and May 2019. A Wall Street Journal report said the data of China, Azerbaijan, the UAE and Saudi Arabia have been inappropriately altered.

The World Bank added that the board of executive directors have been briefed on the situation, as have the authorities of the countries that were most affected by the data irregularities. The publication of the Doing Business report will be paused until assessments are conducted by the bank.

According to Doing Business 2020 published in October 2019, Iran’s ease of doing business ranking improved by one place to stand at 127th among 190 world economies.

The report shows the country’s distance to frontier score saw a decline of 0.1 percentage point, from last year’s 58.6 to 58.5 in the new report.

New Zealand topped the list of 190 countries in the ease of doing business with a score of 86.8, followed by Singapore with 86.2 and Hong Kong with 85.3, while Somalia was at last place with a score of 20.

Government’s Covid-19 Aid

More than 80,960 billion rials ($332 million) worth of loans have been paid to the applicants of the government’s coronavirus relief package for businesses hurt by the outbreak of coronavirus, Hossein Mahmoudi, an official with the Ministry of Cooperatives, Labor and Social Welfare, said in January.

“Banks have registered 522,533 loan applications, which included loans worth 133,130 billion rials [$532 million] for 977,181 people so far,” he was quoted as saying by IRNA.

“Businesses that have been hurt directly and closed down by Covid-19 will receive 160 million rials [$657] for each worker and those that were not shut down are eligible to receive 120 million rials [$492] for each of their workers. The lending rate of these loans is 12%,” he explained.

Those engaged in transportation, tourism and handicraft industries, sports, culture and arts will receive a new round of coronavirus loans worth upwards of 80,000 billion rials ($320 million), Mansouri said earlier.

“The transportation sector will receive 35,000 billion rials [$140 million], tourism and handicraft industries 20,000 billion rials [$80 million], sports 8,000 billion rials [$32.8 million] and culture and arts will receive 18,000 billion rials [$72 million] in financial support dedicated to people and businesses affected by the Covid-19 crisis,” he was quoted as saying by Mehr News Agency.

Noting that women account for 70% of people who lost their jobs to the coronavirus outbreak, the official said, “According to statistics, 62% of jobholders in recent years are not covered by insurance.”

Following the government’s approval of a 750 trillion-rial ($3 billion) package for low-income households and struggling businesses impacted by the coronavirus outbreak and its economic consequences, a total of three million workshops from 14 main groups of businesses and 850 subgroups were identified.

Of these three million workshops, 1.3 million have insurance codes and 1.7 million don’t. These workshops have 2.8 million insured employees and three million uninsured employees.

Public transportation operators, educational centers and beauty salons, women’s clothing shops, gyms, rehabilitation centers for persons with disabilities and not-for-profit schools accounted for the lion’s share of applications submitted to the Ministry of Cooperatives, Labor and Social Welfare for coronavirus loans, the ministry said in October.

“The coronavirus has hit hard an estimated 2.8 million businesses and close to six million jobs in Iran,” Alaeddin Azvaji, the director general of Policymaking and Job Department of the Cooperatives Ministry, said in August.

“By being hit hard, I mean, these businesses were either forced to close or reduce their capacity substantially,” he said.

Early projections by the ministry put the number of jobs at stake at approximately one million; these jobs were mostly in businesses whose main activities revolved around the Iranian New Year holidays and purchases of spring merchandise. But later in May, the impact of the disease on businesses went deeper and wider.

At first, getting past the coronavirus crash seemed like a V-shaped recovery but then it transformed into a W-shaped recovery, following the second wave of coronavirus in late June.  Of course, the second wave was not as severe as the first in March and April, the official said.

“The ministry had devised a few scenarios to manage the potential levels of pandemic’s impact on jobs and businesses. Between 50,000-80,000 billion rials [$200-320 million] were needed to carry out these plans. Paying a fraction of small enterprises’ remunerations in the form of “income subsidy” or insurance incentives for the workers of large companies were among our plans to prevent job losses and even help create more employment opportunities,” he told the Persian-language daily Shargh.

In April, the government announced it would allocate 50,000 billion rials ($200 million) to Unemployment Insurance Fund to support those who have lost their jobs amid the outbreak of coronavirus. Applicants were urged to fill out online forms for unemployment benefits at the newly-designed website Bimebikari.mcls.gov.ir, rather than going personally to the ministry’s bureaus.

“The government tried to stimulate minimum demand by handing out loans worth 10 million rials [$40] to households. The second measure was to grant loans to the private sector employers, the self-employed and the uninsured. The program included 14 groups, including 880 businesses. This was the first time a mechanism was provided to identify uninsured workers through executive organizations,” Azvaji said.

Studies show unofficial workers, those without health and retirement benefits, are more vulnerable to the crisis. Under the program, individuals who were working at sport clubs, education and services received the government’s coronavirus loans.

Services Hardest Hit

Fifty-nine percent of all workers who lost their jobs due to the outbreak of coronavirus were service providers, Masoud Babaie, an official with the Ministry of Cooperatives, Labor and Social Welfare, has said.

“Sixty-two percent of businesses affected by the virus were also involved in the services sector. Workers in the industrial and agricultural sectors accounted for 31% and 1% of the jobless due to coronavirus respectively. Nearly 31% and 3% of the virus-affected businesses were in industrial and agricultural sectors, respectively,” he said.

Close to 12,500-13,500 people typically file for unemployment benefits annually. However, over 871,400 applied for unemployment insurance following the outbreak of coronavirus by July 31, of whom 730,882 were subject to the three-month relief program. Since then, 107,000 new continued unemployment claims have been registered.