MRC Surveys Iran's Business Climate

EghtesadOnline: The investment climate worsened in last spring, which marks the first fiscal quarter (March 20-June 20, 2020), largely due to the adverse impact of the coronavirus pandemic, the latest report of the Majlis Research Center, the research arm of the Iran’s parliament, said.

News ID: ۷۸۶۰۰۰

15 February 2021

Combining data released by official sources and the results of surveys of 6,884 business owner across the country, the center has presented the outcome in the form of a general investment security index.

The index of investment and business security in Iran stood at 6.16 points in spring out of 10 (10 being the riskiest), a big plunge compared to the winter season when the index stood at 5.84 points, according to a seasonal study conducted by MRC.

The decline in business security index shows that key factors contributing to a secure business environment took a turn for the worse last spring.

MRC attributes the downgrade mostly to the Covid-19 outbreak in Iran, which forced the large-scale closure of businesses and furlough of workers.

The deadly virus has hit a wide range of businesses in Iran since its outbreak almost a year ago. The list of businesses hit harder by the coronavirus is lengthy, mainly affecting those preparing and selling meals, businesses active in tourism and hospitality sector, transport companies, travel agencies, apparel manufacturers and distributors, confectionaries, gyms and leisure centers, among others.

Citing the Statistical Center of Iran’s data, the research arm of the parliament said the Iranian economy experienced a 7% contraction in the fiscal 2019-20. Excluding oil production, GDP shrank by -0.6%.

The fiscal 2018-19 saw inflation in consumer prices reaching 35% in the 12-month period ending March 2019.

A combination of these factors had created an atmosphere of uncertainly about the future for many businesses during the period.

The influential think tank defines stability and security of investment as conditions where macroeconomic variables (such as inflation and foreign exchange rates) are stable, or at least predictable.

In a safe business environment, “regulations, decisions and procedures must be consistent, transparent and easy to implement”. If and when there are changes, those concerned should be notified within a reasonable timeframe before implementation.

Also, a secure investment climate demands that lives and property of all citizens are protected and ownership rights guaranteed in unambiguous terms.

Likewise, the judiciary and supervisory bodies should function in a manner that renders encroachment on people’s intellectual and physical properties costly.

Crucial Factors

Seeking the opinion of business owners, MRC singled out 21 factors that contributed the most to the decline in business environment. Three were seen to be the most harmful:

- Irresponsibility of top government officials regarding pledges and nonfulfillment of their obligations

- Unaccountability of provincial officials with regard to pledges given to improve business condition

- Collusion and unwarranted intervention of the government in managing businesses.

Smuggling goods, theft, including cash, goods and machinery, as well as the unauthorized use of trademarks or violation of intellectual properties were rated as the least influential factors undermining business and investment environment.

Government performance regarding fulfilling pledges also rated among the worst aspects that undermined the security of business environment in earlier studies.

MRC said pushing through unforeseen and unpredictable policies will pose a big danger to the economy and undermine future growth.

Provincial Ranking

In terms of the most and least suitable provinces for business and investment, data indicate that Yazd Province (5.29), South Khorasan (5.55) and Golestan Province (5.83) had the best environment for businesses.

On the flip side, Tehran topped the list of worst provinces in terms of business climate and safety of investment at 6.74 points. It was followed by Alborz Province (6.66) and Isfahan Province (6.47)

MRC categorized nine businesses and sought the opinion of people active in each business regarding the degree of investment security.

As per the results, communication and distribution sector (transportation, warehouse management, wholesale and retail) had the worst rating (6.72) followed by energy-related industries, including crude oil, water, gas and power distribution and industrial sector jointly at 6.70 points.