Since last year’s historic nuclear deal signed between Iran and the world major powers, international bodies have observed a surge in interest among multinational companies in investing in the Islamic Republic’s largest non-oil sector, the automotive industry.
In the meantime, the country’s policymakers have made efforts aimed at getting foreigners to invest in Iran’s automotive sector which lagged behind its rivals due to the crippling sanctions.
Iran’s automotive industry seems very lucrative as it forms the second biggest sub-sector of the economy behind oil and gas, accounting for about 10 percent of GDP and employing about 4 percent of the labor force.
There are, however, risks threatening investment in Iran’s car industry including lack of transparency, differences between involved parties as well as absence of a proper private sector.
Lack of transparency
"Government’s involvement in Iran’s automotive industry may pose serious threats against attracting foreigners," an Iranian automaker told Trend.
The vice-chairman of the board of directors at Iran's Rakhsh Khodro Diesel Company, Akbar Mirza-Hosseini, believes that lack of transparent policies as well as government’s involvement in the car industry are considered as major obstacles to attracting foreign investment.
"Foreign investors need to make sure that transparent policies and regulations exist in the country. However, there are no transparent and clear procedures in Iran, even, for appointing the heads of leading car manufacturing companies," the vice-chairman of the private auto making
The Iranian car market is dominated by Iran Khodro (IKCO) and SAIPA, which are subsidiaries of the state-owned Industrial Development and Renovation Organization (IDRO).
In addition to assembling European and Asian cars under license, the giant carmakers produce their own brands.
This is while, neither the ministry of industry nor IDRO take responsibility regarding the performance of the leading car makers operating in the country. That is a serious obstacle against attracting foreign investment.
Differences between involved parties
Many analysts are concerned over conflicts of interests between different parties involved in Iran’s automotive industry, suggesting such gaps would worsen the situation even more. For instance, there are differences in place between auto part makers and carmakers over the outstanding debts, as the automakers, reportedly, have to pay about $557.2 million to settle their
debts to auto-parts makers.
On the other hand, some experts believe that such differences would not pose serious risks to foreign investors.
Commenting on the issue, Jafar Sarghini, an Iranian deputy industry minister, told Trend that the gaps between auto-part makers and automakers have considerably narrowed over the past couple of years.
Akbar Mirza-Hosseini also says that the sides hold regular talks through trade unions aimed at resolving the differences but certain problems still exist.
When privatization fails
Several efforts regarding the privatization of automotive industry have been made over the past several years in Iran, but the state still controls roughly half of the country’s auto industry.
Lack of reliable and niche investors in Iran’s auto industry is believed to be among main obstacles to full-scale privatization of the industry.
Representatives of the private sector do not seem to be satisfied with the measures taken by the government aimed at paving the way for the privatization of the car industry, as it has not been received in a positive way in the country.
Although the privatization of Iran’s car industry has been a key mission on the country’s economic agenda, it has suffered as a result of politicized approaches.
Current automotive output
The carmakers output over the first half of the current Iranian calendar year (started March 20) stood at 579,776 indicating 15.6 percent rise year-on-year.
Sedans counted for 534,402 of the output with a production growth rate of 16.1, while pickups output grew by 11.5 percent to hit 38,815. In the meantime, the country’s bus output increased by 21.2 percent to reach 435 vehicles.
The Iranian car manufacturers also produced 388 minibuses (17.6 percent increase) and 5,736 trucks (1.5 percent increase) during the six-month period.
Iran was the world’s 20th biggest car manufacturer by end of 2015, while the country stood at the 18th place in the first half of 2015 as it manufactured 884,866 sedans and 97,471 commercial vehicles in 2015.
In addition to domestic sales, Iranian carmakers have found their way to international markets and they export cars to several countries including Azerbaijan, Algeria, Cameroon, Ghana, Egypt, Iraq, Pakistan, Senegal, Syria, Sudan and Venezuela.
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