Why Does Iran Lack a Suitable Position in International Trade?

One of the latest reports from the Statistical Center of Iran indicates that in the spring of this year, the amount of exports in agriculture, hunting, and forestry decreased by 17%, mining by 44%, fisheries by 52%, and industry by 5%. The decline in Iran's non-oil exports is not limited to these items and has continued even after the spring. As reported by the Iranian Customs, in the first four months of this year, Iran's exports decreased by 15.2% compared to the same period last year. The meaning of this trend is a contraction of Iran's foreign trade, a shrinking economy, and its international isolation. Naturally, the consequences of this process are negative on important variables such as economic growth, domestic production levels, efficiency of economic units, international payment balances, the value of the national currency, and employment. In an era described by globalization, a country's foreign trade symbolizes its economic position in the world and serves as a criterion for optimal resource utilization and competitive ability. The share of trade in developed countries relative to their gross domestic product (GDP) is high, while the share of countries that cannot positively compete and interact with the world is limited. Iran belongs to this second group, as its foreign trade share relative to its GDP is limited to about 20%, which is not comparable to advanced countries or even relatively stable countries in the region like the UAE, Turkey, and Jordan. The factors behind the decline in Iran's non-oil exports are a chain of short-term, long-term, and structural factors. This article only addresses the most important long-term factors, such as the lack of a comprehensive and effective strategy, an unsuitable business environment, high political risk, and the non-competitive nature of the Iranian economy. Although the role of international sanctions in this process cannot be ignored, it seems that other factors besides sanctions have played a more significant role in this decline. Considering that Iran's foreign trade has become regionally Asian during the sanctions, and its largest trading partners are located alongside its borders, it has been less affected by sanctions. The lack of a comprehensive and effective strategy is among these factors, which is not hidden and is acknowledged by both government economic officials and the private sector. For example, the head of the Chamber of Commerce recently stated, 'Sustainable development requires the formulation of a strategic development strategy... For years, the discussion of exports has been a topic of our meetings, yet we have still not been able to formulate a strategic strategy for this area.' This official also mentioned, 'Acquiring markets in neighboring countries was not based on a predetermined plan, but rather we obtained these markets due to a series of events, and in fact, it has been a windfall market for us... We do not have a documented plan for export development and have lost the markets of neighboring countries.' The disorder in macro management and the lack of a comprehensive and effective strategy in export policy is something that Iranian businesses and investors experience daily and is, of course, part of the problem. However, more importantly, is the interference of the government and quasi-governmental entities in matters related to the private sector. The best action the government can take is to leave the affairs of the private sector to them and focus only on managing infrastructure and macro affairs. The government can reduce obstacles by deregulating and minimizing bureaucracy and making the oversight process more effective. Reducing inflation and stabilizing foreign currency prices could also be among the positive actions of the government. The condition for formulating an effective export strategy is the practical participation of entrepreneurs, the private sector, managers, and investors of economic and export units; otherwise, issuing a government directive in this matter is ineffective. Academic work is, of course, a complement to practical participation and the active presence of Iranian managers on a global scale. The lack of strategy symbolizes managerial inefficiency and is observable in other aspects of society as well. However, the problem is not limited to this; the business environment in the country is also unsuitable for non-oil exports. Iran's global trade index, one of the ten variables of the country's business environment, which includes the customs procedures for exports and imports, is also not in good shape. Variables such as the time spent on export and import processes, the number of required documents, and the costs incurred for these processes are part of this index. According to the report from the Deputy Office of Exports and Imports of the Trade Development Organization, Iran's global ranking in this index has declined over the past nine years. Based on trade with Iran, it is time-consuming and costly, which naturally makes Iranian export and import goods more expensive and reduces the incentive for other countries to cooperate with Iran. If the government wants to revive Iran's foreign trade and bring it out of isolation, it must reconsider its foreign policy and choose positive interaction with other countries instead of international isolation and eliminating opportunities. It is no coincidence that the Minister of Industry, Mine, and Trade announced, 'Clarifying trade and commerce in the country and deregulation were among the other matters we have worked on. Our licensing process is clear, and even the timing of these licenses is specified, and this is considered one of the operational programs of the resistance economy.' Furthermore, Iran's foreign trade policy is, of course, not separate from the government's foreign policy. If the government wants to revive Iran's foreign trade and bring it out of isolation, it must reconsider its foreign policy and choose positive interaction with other countries instead of international isolation and eliminating opportunities. The high political risk means that the Iranian government has not yet defined its position in the global political arena, which is why Iran's relations with countries are always subject to tension and conflict. Given the multiplicity in foreign policy, one cannot speak of a long-term and stable export strategy. Because foreign trade relations are ultimately defined within the framework of foreign policy. For example, while negotiations with global powers are ongoing, some are working to undermine these negotiations. These multiple voices in the realm of global trade signify political risk and danger, and in an unstable and risky environment, an effective export strategy is fundamentally unfeasible. Therefore, it is not surprising that Iranian exporters have lost their limited market amid international tensions and sanctions. Thus, without a clear and stable long-term foreign policy, any effort to expand the market in the global arena is at risk. International economic actors, including importers and exporters of goods and services, usually refer to international risk rating agencies or insurance companies to assess Iran's economic credibility, investment, and trade. These agencies have not yet lowered the risk rating for economic cooperation with Iran. Some of these agencies consider Iran's rating to be very low, while others refrain from announcing Iran's rating due to the uncertainty of conditions in Iran. Insurance companies for exports to Iran also do not yet guarantee transactions with Iran. According to the latest report from the World Economic Forum, Iran is not in a good position regarding the global competitiveness index. The competitiveness index symbolizes the governing management's ability over Iran's economy in organizing and directing the economic process and efficiently utilizing resources, including financial, natural, human, and managerial resources. The manifestations of these low rankings can be seen in high prices, bribery, management corruption, evasion of responsibility and work, rent-seeking, and discrimination. Naturally, as these indices decrease, Iran's economic capacity to participate in international markets diminishes, becoming less capable and less externally oriented, and failing to manage its affairs. Competitiveness in various fields, whether financial, technological, or organizational, means creating the groundwork for economic growth. One of the consequences of Iran's non-competitive economy is that Iranian-made goods do not have a price advantage. Because the production structure in Iran, due to its governmental and rent-seeking nature, lacks the necessary flexibility and efficiency, the cost of Iranian goods is higher than similar products. One reason for the importation of Iran's economy is this. As a result, merely the presence of competitors in the regional market causes Iranian institutions to lose their market. This experience has been repeated in Central Asian countries, Azerbaijan, and finally Iraq and Afghanistan. Entering the markets of neighboring countries usually happens easily in the absence of competitors and often for political reasons, but as soon as competitors enter, the position of Iranian traders becomes weak and fragile. Because the private sector in Iran, which should lead non-oil exports, does not have a significant position in Iran's economy, and Iranian export goods and services still lack the necessary diversity, innovation, and quality. However, Iranian goods also face other problems such as a lack of diversity and innovation, quality issues, and the disarray of government policy and management. The policies that have been applied so far have mainly been products of distributing rents and cheap energy resources or financial resources and cheap capital to Iranian enterprises, rather than international competitiveness. Sustainable and endogenous growth, on the other hand, is the result of improving competitiveness indices, which also leads to a reduction in unemployment and inflation. Economic competitiveness is not a goal that can be achieved in the short term; therefore, one cannot expect the government to suddenly improve the competitiveness index.