Iran is launching a dramatic restructuring of its economy, ending the dominance of the state sector with a massive privatisation programme, which includes the sell-off of most of the state-owned banking sector. Described as an “economic renaissance in Iran” by Davood Danesh Jafari, the minister of economic affairs and finance – in an exclusive interview with The Banker in Singapore – the minister plans to significantly reduce the role of government in the Iranian economy, which he estimates is 50% state-owned at present.
Private sector
Under new legislation, the government plans to reduce its stake in existing state-owned enterprises, with a few exceptions, from 100% to a maximum of 20%, and this includes the petrochemical and refineries sectors.
“We want to strengthen our economy and engage the private sector to achieve more growth,” Mr Jafari explained. Referring to an old Persian proverb, he added: “A bird cannot fly with one wing,” indicating that the government wants to have more private sector involvement, from both domestic and foreign investors, to boost economic efficiency.
Under Article 44, foreigners will be able to control 100% of their investments. While Mr Jafari said the state would maintain 100% ownership of the oil sector and two banks – the large Bank Melli Iran, which has a significant international network, and Bank Sepah – he stressed the plan to reduce the government holding in all the other state-owned enterprises to 20%, including the steel plants and large mining interests.
Mr Jafari, who has had extensive economic experience, has been the architect behind the new ‘renaissance’ policy over the past few years, which has the full approval of the country’s leadership. Under the new policy, banks such as Bank Saderat Iran, Bank Mellat, Bank Tejarat and Bank Refah will be privatised and the banking sector will be the first to be sold. “We are preparing the privatisation process to start by the end of this year and banks will first have to go to the stock exchange,” he explained.
“The process of getting listed on the exchange will take six to 12 months,” he said, suggesting that the completion of the privatisation process is still some way off. Nevertheless, the steel firms are understood to be ready to be privatised and progress is expected in the next six months.
Insisting that the government share in the economy will not increase and that privatisations will be comprehensive, Mr Jafari explained that 300 companies, presently 100% state-owned, would be reduced to a 20% state holding.
He added that while Iran was benefiting from strong oil revenues, the key driver behind the privatisation policy was not revenues but greater economic efficiency and improved growth.
Besides domestic investors, Mr Jafari says many investors from Arab countries are looking at the possibilities in Iran. But concerned over the perception that Iran is dominated by state monopolies, the minister wants the reforms and the transition from state to private ownership to proceed as smoothly as possible.
Given the huge liquidity available in the Arab Gulf states at present, Iranian companies could represent interesting regional opportunities for Arab investors if financial structures and adequate corporate governance could be assured.
Meanwhile, as Iran launches its privatisation drive, it is coming under increasing international pressure, not just from its much publicised stance on its nuclear programme but also from allegations over its role in terrorist funding. In September, Bank Saderat Iran, the country’s second-largest bank, was designated as a terrorist financier by the US Treasury.
The US claimed Saderat was a key funding institution for Lebanon’s Hizbollah group, which was reported to have used large amounts of Iranian weaponry in its recent war with Israel.
US sanctions
What form of sanctions the US may apply on Saderat following the designation is not yet clear, but US sanctions imposed last year on North Korean banks operating through Macau are understood to have had a significant impact.
The new US Treasury Secretary, Hank Paulson, said at the IMF/World Bank meeting in Singapore there is a need to be vigilant from specific threats from North Korea and Iran.
Reacting to the US action against Saderat, the governor of the Central Bank of Iran, Ebrahim Sheibany, said that Tehran was looking at all available forms of recourse, including legal action and an accelerated move out of the dollar, to counter the US’s designation of the Iranian bank.
