Fiscal 2021-22 Foreign Trade Registers 38% Rise to $100b

EghtesadOnline: Iran’s foreign trade, excluding crude oil exports, stood at 162 million tons worth $100 billion in the fiscal 2021-22, registering a 38% rise in value compared with the year before, according to the head of the Islamic Republic of Iran Customs Administration.

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03 April 2022

“Exports stood at 122 million tons worth $48 billion, registering a 41% increase in value compared with the previous year. Iran’s top five export destinations were China, Iraq, Turkey, the UAE and Afghanistan,” Alireza Moqaddesi was also quoted as saying by IRNA.

Imports hit 40 million tons worth $52 billion during the same period, registering a 21% and 36% growth in weight and value respectively.

The UAE, China, Turkey, Germany and Russia were the main exporters.

Essential Goods Imports

The imports mainly included essential goods, raw materials and production line machinery, the IRICA chief said.

Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels.

Iran’s essential goods’ imports in the fiscal 2021-22 included corn, unrefined vegetable oil, pharmaceuticals and medical equipment, wheat, oilseeds, soymeal, barley, rice, sugar, heavy vehicle tires, fertilizer, pesticide and insecticide, veterinarian medicine, red meat, chicken, eggs, pulses and tea.

These imports are entitled to subsidized foreign currency gained from oil exports.

The fiscal 2021-22 saw heated debate about whether or not the controversial practice should continue.

In the end, the fate of subsidized import remained elusive as members of parliament delegated the responsibility for its removal or continuation to the government.

They decided that should the government opt to end the costly allocation as part of the upcoming fiscal year’s budget (March 2022-23), it has to spend the equivalent resources on distributing electronic coupons among consumers to compensate for the losses they may suffer as a result of the removal of subsidies.

The coupon system was first used in Iran in the 1980s during the Iraq-imposed war.

From the Iranian year ending March 1985 to March 1989, the then government instituted a coupon system to ensure that everyone had equal access to essential food items.

While successive Iranian governments have subsidized food imports, cheap currency in its current format was first given after the steep rise in foreign exchange rates in the spring of 2018 soon after the United States abandoned the Iran nuclear deal and imposed tough economic sanctions.

Flaws in the apparently ill-advised policy emerged in the first few months after inception and the government under pressure was compelled to slash the list of goods eligible for subsidized currency.

In the fiscal 2021-22 budget, the government was not allowed to pay more than $8 billion in subsidized currency for importing food and medicine. The Central Bank of Iran has said before that it has paid over and above the ceiling set in the budget.

Prominent economists, academia and socioeconomic experts hold the strong opinion that the forex subsidy policy never achieved its intended goal of supporting the downtrodden and greedy middlemen and cronies in the distribution chain benefited the most.

On many occasions, consumers of imported essential goods must buy their needs at prices that equal open market forex rates, thanks to the gross mismanagement, inefficient distribution system and absence of viable government oversight.

In short, a significant portion of the cheap forex is pocketed by big importers and the distribution chain instead of end customers, which ostensibly means the millions of Iranians at the lower-end of the economic ladder.

It is often said in Tehran’s politico-economic circles that in the past three years, billions in subsidized currency were given to selected companies to import food and medicine yet some of these companies simply did not bring anything into the country.

It later turned out that some of the firms who took the scarce forex resources were shell companies. Few, if any, have paid for the thefts, or faced the full force of the law.

Notably, a recent survey of by the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture indicated that mismanagement in subsidy allocations is one of the main problems facing local businesses.

“There is no supervision over the government’s method of paying subsidies to some goods such as food and pharmaceuticals. The subsidy is either exported via customs or smuggled out,” the survey found, which was part of the Purchasing Managers’ Index report for the last Iranian year’s 10th month (Dec. 22-Jan. 20).

Nonetheless, many economists and experts have warned about the inflationary effect of the removal of subsidies under the current circumstances.

Vahid Shaqaqi-Shahri, an economist and university professor, says before the introduction of forex reform policy, certain preconditions must be met.

“First and foremost, the economy must see a period of stability. Secondly, the exchange rate and inflationary expectations should show a downward trend. The third condition is that the government should have adequate resources in local currency to manage this surgery; no shortage of local-source currency should be felt in this regard. The fourth condition is that the government should have an adequate sum of foreign exchange resources to control supply and demand in the forex market at any time. The fifth and final condition is that it must be determined whether the country has reached a nuclear agreement with the P4+1 group of countries and the United States,” he said.

“If these five conditions are met, the government can get rid of subsidized forex policy for the remaining seven items. Until these conditions have been fulfilled, the government needs to continue the allocation of forex subsidies.”

In an article he wrote for Ta’adol newspaper, Shaqaqi-Shahri said, “In addition, after meeting these preconditions, the subsidy removal process should be carried out gradually over a specified period of time, meaning that the government should not go cold turkey and suddenly announce that the distribution of subsidized dollar has ended. The cessation of forex subsidy must happen over one to two years and under appropriate conditions.”

Transit Volume at 7-Year High

Moqaddesi noted that 12.5 million tons of foreign goods were transited through Iran during the same period to register a 68% rise compared with the year before a seven-year high.

IRICA says during the two years ending fiscal 2021-22, only around 7.5 million tons of goods were transited annually through the country, adding that the reasons for the significant increase are the lifting of most restrictions over Covid-19, the government’s establishment of stronger political and economic ties with neighboring countries and the better cooperation of different bodies.

Iran reportedly earns $150 and $50 for each ton of transit goods via road and rail respectively.

Iran’s top 10 busiest transit borders in the last Iranian year (March 2020-21) were Shahid Rajaee Special Economic Zone in the southern Hormozgan Province with more than 3.3 million tons, Bazargan in West Azarbaijan Province with 703,000 tons, Bashmaq in Kurdestan Province with 687,000 tons, Sarakhs in Khorasan Razavi Province with 457,000 tons, Imam Khomeini Port’s checkpoint in Khuzestan Province with 447,000 tons, Bileh Savar in Ardabil Province with 337,000 tons, Jolfa in East Azarbaijan Province 312,000 tons, Razi in East Azarbaijan Province with 188,000 tons, Astara in Gilan Province with 156,000 tons and Bandar Lengeh in Hormozgan Province with 139,000 tons.

These 10 border crossings accounted for 89% of Iran’s overall transit volume (7.5 million tons) during the period under review.

With 12 wharfs, Shahid Rajaee is Iran’s biggest container port, accounting for 90% of the country’s total container throughput.

Over half of Iran’s commercial trading is carried out at Shahid Rajaee, which is located 23 kilometers west of the port city of Bandar Abbas, the capital of Hormozgan Province.