Has Iran's Foreign Trade Improved?

Hassan Rouhani, the President of Iran, stated at a meeting of senior managers of the Ministry of Communications and Information Technology, "In 2015, for the first time in history after the revolution, non-oil exports surpassed non-oil imports, with Iran having $42 billion in non-oil exports and $41 billion in non-oil imports last year." Although the President considers this "surpassing" of exports over imports as positive, there are reasons to suggest that this positive trade balance is a kind of unintended success resulting from factors such as the pressure of sanctions during the year, the government's contractionary foreign trade policy, and finally, domestic economic recession. In other words, this positive balance is not a sign of economic growth and improvement of Iran's position in global trade, but rather an indication of the shrinking of Iran's global trade. Therefore, it is better to say that Iran's foreign trade balance is mainly the result of a sharp decline in imports last year. Ahmad Alavi, an economics professor in Stockholm, noted that the main reason for the current foreign trade trend was the previous government's wasteful spending of oil dollars due to declining oil revenues and also crippling sanctions. In a sense, it can be said that this structure of Iran's foreign trade is a product of an increased sense of risk and danger from the government, contraction and isolation of foreign trade, and a defensive reaction for survival. A positive foreign trade balance in Iran would be desirable if it were based on sustainable export growth, market expansion, and diversification of the export basket. As statistics show, Iran's non-oil exports have also seen a significant decline alongside imports compared to previous years. This positive balance is the product of reduced import activities in Iran, which is accompanied by a severe decline in oil revenues and an import contractionary policy, resulting from recession rather than an increase in domestic production and self-sufficiency from foreign imports, as most economic units are operating below capacity. Therefore, it cannot be considered a positive sign. Various criteria exist for evaluating the size and structure of Iran's foreign trade. The simplest is Iran's per capita foreign trade, which has decreased in recent years, indicating that the foreign trade per citizen has diminished. Furthermore, the share and percentage of Iran's foreign trade compared to global trade also show no signs of increase. The total share of Iran's non-oil exports in global trade has not exceeded half a percent since the revolution and has sharply decreased in the last five years. However, more important than quantity is the quality of these exports. If we disregard petroleum derivatives—such as gas condensates—these exports are mostly composed of traditional goods like handwoven carpets and dried fruits, which have limited relevance in modern life and thus limited demand. The industrial sector of Iran's export goods, which mainly serves regional markets, includes foodstuffs and vehicles, and Iran does not have advantages in quality, price, or related services. This is not surprising, as entering international markets requires prerequisites that do not exist in Iran. Simultaneously, Iran's share in foreign trade with developed countries has also decreased. Therefore, the share of each Iranian in participating in the global economy, especially in developed sectors, has diminished. Various reasons explain Iran's inability to expand foreign trade. First, Iranian-made goods lack price advantages. Due to the state-controlled and rent-seeking nature of production in Iran, the necessary flexibility and efficiency are lacking, resulting in higher production costs for Iranian goods compared to similar products. One reason for the importation of the Iranian 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. However, Iranian goods also face other issues such as lack of diversity and innovation, quality, and disarray in government policy and management. Additionally, the disarray in macro-management and export policy is something that Iranian enterprises and investors experience daily and is, of course, part of the problem. However, more importantly, is the interference of the government and semi-governmental entities in matters related to the private sector. The best action the government can take is to leave private sector affairs to them and focus only on managing infrastructure and macro issues. The government can reduce obstacles by deregulating, cutting red tape, and making the oversight process more effective. Reducing inflation and stabilizing foreign currency prices could also be positive actions for Iran's foreign trade risk. Iran's foreign policy is another major obstacle that, by emphasizing conspiracy delusions and enemy-making, has deprived Iranian trade of many opportunities to establish connections with other cultures and societies. Aside from international de-escalation, political and economic stability, the most important prerequisite for reducing the government's share in the economic sphere and entrusting matters to private sector entrepreneurs rather than semi-governmental entities is crucial. Militarizing and securitizing the economy in a general sense and foreign trade in a specific sense has been one of the obstacles to expanding Iran's foreign trade. Ahmad Alavi emphasizes that the first step must be to remove this cultural and political bottleneck, as without it, the effectiveness of other measures will not be significant. Trade always expands on the basis of stability, calmness, and economic cooperation, and this is the prerequisite for the development of foreign trade, which is not a priority for some government officials, especially the military. On the other hand, according to international institutions' indicators, the lack of a suitable business environment and low technology and innovation indices have also been among the obstacles that have further confronted Iran's foreign trade with recession.