Nearly a year after rightwing conservatives swept February’s parliamentary elections in Iran, political deadlock has emerged as the reformist government of Mohammad Khatami soldiers on until the end of its term next June.
The rhetoric of many new deputies, combined with the prospect of a conservative president taking office next summer, has spread caution in the Iranian private sector and among would-be foreign investors.
“We have to wait and see before moving to a serious feasibility stage,” says one international company interested in a sector Mr Khatami’s government had earmarked for privatisation.
When state company shares valued at $570m were offered on the Tehran stock exchange in October, only $17m-worth were sold and the buyers were finance companies affiliated to state banks. No foreign companies applied for permission to bid.
Slow progress
The power struggle between a reformist government and a conservative parliament is no recipe for change, says Heydar Pourian, the deputy general secretary of the Tehran metals exchange and an advocate of deregulation. “Ordinary Iranians sense this,” he says. “They feel no benefit from an increase in per capita income from $850 to $1800 over the past eight years because so much has been absorbed by the state.”
In late September, parliament asserted its right to vet contracts the government signs with international companies, passing a bill Mr Khatami said would lead to “interference by the legislative branch in the responsibilities of the executive” and “inflict billions of dollars of losses on the country”.
Conservative deputies made no secret they were targeting deals with two Turkish companies – Turkcell, chosen to operate Iran’s second mobile phone network, and TAV (Tepe-Akfen-Vie, a Turkish-Austrian consortium), authorised to run Tehran’s new airport.
The Turkcell contract, agreed in February but not signed, was to bring in $7.5bn in revenue over 15 years, says Farhad Sepahram, the head of public relations at the ministry of communications and technology. But the fate of the project remains uncertain.
TAV’s role at the Imam Khomeini International Airport was challenged on the airport’s opening day in May when Revolutionary Guards rolled tanks on to its runways after the first aeroplane arrived. The commanders argued that the involvement of Turks threatened national security and the airport has remained closed.
Parliamentary scepticism
Iran’s privatisation plan has made limited progress under Mr Khatami and has been dogged by claims surrounding the involvement of politicians in companies bidding for assets. The programme now faces close scrutiny from a sceptical or hostile parliament.
The new conservatives have not been explicit in their economic aims but their chosen direction is clear. “Iran’s economic policy-makers for the past 15 years have been very interested in the International Monetary Fund and World Bank methods of handling the economy and they accepted those methods easily – we don’t believe in them,” says Ahmad Tavakoli, a deputy influential in economic affairs.
Mr Tavakoli says Iran’s economic policies should be “designed around the particular national features of the country” not “liberal-capitalist methods”. He argues the priorities for privatisation should be sectors where “fair competition” already existed and stresses that privatisation should “reinforce social justice and decrease the gap between social classes”.
“Bank privatisation would lead to a fast wealth accumulation, so we don't agree with it yet,” he adds. “Banks, unlike other firms, can generate money and quasi-money and this gives them economic power. At least in the current situation we do not agree with privatising banks, although in the future we may make a different decision.”
Iran’s fiscal situation has improved with high oil prices. This has eased pressure – even in the face of high unemployment (11% in 2003-2004, down from 14.7 % in 2001-2002, according to the IMF) – for an urgent shake-up in an economy that is 60% state-run and 10%-20% owned by Islamic foundations linked to Iran’s supreme leader.
Farshid Simbor, a deputy in the parliament’s energy committee, said in November, that projected oil income for the current Iranian year (March 2004-March 2005) was now $35bn, more than double the previous estimate of $16.5bn. With Iran pumping four million barrels of oil a day – around 13% of Opec’s total – there is every chance that the economy can build on 2003’s growth rate of 6.7%. However, foreign investment is limited by state controls and sanctions introduced by the US after the 1979 Islamic revolution and strengthened by the 1996 Iran-Libya Sanctions Act.
Government oil deals with foreign companies have taken the form of “buybacks”, disliked by the IMF and World Bank. The scheme, designed in the 1990s to circumvent constitutional prohibition of foreign ownership, allows an oil company to finance and carry out extraction in return for payment from crude oil sales.
Oil, politics and security
In October, Thierry Desmarest, the chief executive of Total, Europe’s third biggest oil company, said prospects in Iran were not “attractive” enough. “Iran is officially open but imposes terms that are too difficult for us,” he told a conference in Paris. “On the latest contract, the risks were too high for the investment.”
For Iran, the economics of oil are tied up with politics and security. After 25 years of cold war with the US and an uncertain relationship with Europe, Iran has many reasons to do business with China. Trade with China has gone up from being worth $1.3bn in 1991 to $7bn this year, according to Hassan Rowhani, the secretary of Iran’s Supreme National Security Council. In November, the two countries signed a preliminary accord under which China would buy 10m tonnes a year of liquefied natural gas in a 25-year deal worth $100bn. It envisages the Chinese oil giant Sinopec taking the leading role in exploiting the Yadavaran oil field on a buyback basis. Bijan Namdar Zanganeh, Iran’s oil minister, said Tehran saw China replacing Japan as its biggest market for both oil and gas.
But outside the state-run extractive sector, business in Iran faces an uncomfortable, if improving, environment. Agricultural land is 98% in private ownership but only 12m of 18.5m cultivable hectares are in production, and only 8m are irrigated. The Ministry of Agricultural Jihad has encouraged consolidation and recently claimed the credit for Iran meeting all its needs for wheat. “We are self-sufficient in the main foodstuffs apart from oil, corn, sugar and rice,” said Gholam-Reza Sahraeian, the acting minister.
Tourism is another sector left in private hands by the 1979 revolution but its huge potential – Iran’s attractions include the 4000-year-old remains at Persepolis and 1500km of Gulf coastline – remains largely untapped. Government figures for visitors in 2003 give a total of one million people spending $900m but private operators say there were no more than 300,000 tourists.
“We need better facilities and more effective procedures for issuing visas,” says Ali Hashemi, the deputy head of the state Tourism Organisation. “We have abolished the higher fees foreigners were charged for entering sites.”
Tour operators readily complain that Iran’s poor banking facilities are a practical problem. Credit cards are not widely used and there is no ATM access to overseas accounts, so tourists lack cashflow. Schemes enabling travellers to acquire temporary debit cards on arrival at the airport have had limited success because retailers and hotels lack the means to process them.
Image is another issue. “Most countries have recovered from the downturn after September 11 but, unfortunately for us, there was the war in Afghanistan and now Iraq,” says Ebrahim Pourfaraj, the manager of the Tehran-based Pasargad Tours. “People still confuse Iran with Iraq.”
Greater stability in the international political situation is slow in coming. Negotiations with Britain, France and Germany over Iran’s nuclear programme have been far from easy, while continuing pressure and a barrage of propaganda from Washington has strengthened those in Tehran preaching vigilance rather than dialogue.
Domestic concerns
There are already signs of disquiet at the rightward drift in Iranian politics, with moderate conservatives, as well as reformists, showing signs of unease. Tehran’s chattering classes suggest Akbar Hashemi Rafsanjani, the 70-year-old head of the Expediency Council, may stand for president.
“Mr Rafsanjani believes there are two sorts of people who can damage the Islamic Republic,” says an official close to the influential former president. “First there is the US and our clear enemies. Second are those who are mentally close to the Taliban – and they have a hard-line, socialist approach to the economy. To stop them, Mr Rafsanjani will be willing to run if he is offered clear support from sufficient political forces.”
Many reformists have already rallied to Mr Rafsanjani, raising the prospect of a coalition that would seek to liberalise the economy, engage Europe and maintain the social relaxation of the reformist era. So, while the coming battle for the presidency will lack the popular excitement of Mr Khatami’s two election wins, it will be as important for Iran’s future as any in the Islamic Republic’s 25-year history.
