A particularly fascinating detail lay hidden in the abundance of reports describing the demonstrations in Iran. The Khorasan-Razavi district excelled in exports this year, raking in more than half a billion dollars in revenues from exporting saffron. The red gold, as this spice is called, is sold for thousands of dollars per kilogram around the world, and 80 percent of Iranian exports of this spice originate in this province. Half a billion dollars is but a drop in the total Iranian exports, which will reach $104 billion this year, but it is emblematic of the intense efforts Iran is making in promoting its exports.
When city streets are filled with people waving banners calling for a reduction in the cost of living, cancellation of taxes and continuation of subsidies for petroleum products and other basic commodities, every dollar or euro coming in is like oxygen for a country suffering from a budgetary deficit of $5.3 billion.
Last month the Iranian government decided on a special plan devised to encourage successful exporters. The plan will allow them to receive loans at interest rates that are 0.5 percent lower than standard rates. Applications will be dealt with in less than 10 days, in contrast to the many weeks it usually takes for loans to be approved. Exporters will have the benefit of bank counseling and guidance in export matters, and the government will place at their disposal a pool of special loans totaling $4.5 billion.
Encouraging exports is but one part of a sixth five-year plan, which begins in March. Iran registered a 7.8 percent growth in exports this year, excluding petroleum and related products, but imports spiked by 18 percent, mainly from Turkey, the United Arab Emirates (which paradoxically is partner to Saudi Arabia in its plans to oppose Iran) and Germany, as well as from other countries such as China and South Korea. The gap between imports and exports, which has grown by more than 400 percent and brought the country to a trade deficit of $4 billion, in comparison to a surplus of more than $30 billion in 2016, stems partly from imports needed for manufacturing. A worrying portion of these imports was created by the influx of luxury items, which soared due to the optimism engendered by the signing of the nuclear accords. This is the portion the government is trying to drastically reduce, in order to restore a trade balance and curb the flow of foreign currency overseas.
One area which sucks up foreign currency is the import of cars, which will now be taxed at 45-65 percent, depending on engine volume. According to new ordinances published by the Iranian Ministry of Transportation, starting this year this tax will also include the transport of these cars to Iran. The import of Lexus and Mercedes models will be banned and importers will have to produce agreements with manufacturers in which the latter commit to providing services after the sale is completed, such as supplying original spare parts, establishing authorized garages under the supervision of the manufacturer, and providing professional instruction.
Ostensibly, this is a self-evident condition which needs no explanation, but many car manufacturers are not interested in expanding their business in Iran beyond the selling of cars. Thus, importers will find it difficult to produce the documents required by the state. These difficulties, the government hopes, will reduce car imports and increase the sale of locally made models. Added to these difficulties is a tax on registering cars, which can reach as high as 10 percent of a car’s value, and a 1 percent surcharge that importers have to “contribute” to the Red Crescent. Thus, a car that should cost $50,000 can end up costing the customer $72,000. The burden on importers is but one example in a more extensive plan designed to increase the portion of import taxes to 30 percent of all indirect taxes collected by the government.
Anyone buying a car, imported or local, can expect to part with yet more of his income, since the government decided to raise fuel prices from 23 cents a liter to 35 cents. Most of this burden will fall on the middle class, which now has a pretext for joining the thousands of people demonstrating against the regime. It was reported this week that the government was considering canceling the decision to raise gasoline prices in order to placate demonstrators, but even if this comes about, and affects the entire five-year plan along with the rate of recovery of the Iranian economy, this will be a step which is too small and too late, since the biggest and most oppressing problem facing the regime is the rate of unemployment, which officially stands at 12.4 percent.
The labor market will see 800,000 new people seeking employment this year. They will join more than 6 million unemployed people, most of them university graduates. The state has decided to allocate billions of dollars for creating new workplaces for them and for training university graduates based on market demands, but foreign investments will be required for opening new factories and for establishing new infrastructure that can supply employment for the unemployed. Such investments have been blocked recently due to the intent of U.S. President Donald Trump and Congress to impose additional sanctions on Iran, a plan that scares off investors from Europe or Asia who do not wish to get into a conflict with the American administration.
A further effort will go into preparing soldiers doing their compulsory military service for working in civilian jobs when they demobilize. Soldiers wishing to do so can ask to work or receive training in high-tech companies. Military service is compulsory for every 18-year-old, and lasts 21 months. It is a prerequisite for leaving the country or for being employed by a government ministry. According to the new plan, soldiers will be able to exchange one year of military service for work in companies designated by the government, or to receive training by these companies, thereby guaranteeing employment after demobilization. The first phase includes 1,000 soldiers (out of 400,000 enlisted) but the expectation is that at least 200,000 will join the program in the coming years.
Such plans cannot assuage demonstrators, who have been waiting for years for suitable employment, but they attest to the Iranian regime’s deep awareness of the threat of this unemployment to its stability, to the extent that it is willing to bite into the scale of its military readiness for the sake of reducing unemployment. One may assume that in the coming days the government will announce further steps as part of its policy of “listening to the demonstrators and addressing public demands and settling problems,” in the words of Interior Minister Abdolreza Rahmani Fazli.
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