EghtesadOnline: Iran Chamber of Commerce, Industries, Mines and Agriculture has published a report explaining the impact of foreign exchange fluctuations on imports of raw materials, capital goods and consumer goods.
As the report declares, if a country imports large volumes of raw materials at regular intervals, it means that the national economy depends on these materials, therefore changes in foreign exchange rates will not considerably alter the volume of these imports.
ICCIMA’s research shows that if currency rates go up, domestic goods will become relatively cheaper than imported ones and people would prefer to buy domestic products, but only if their quality can compete with foreign ones.
A large number of imported commodities cannot be produced in Iran because the technical requirements are not available. For instance, Iran used to produce high-quality, competitive products in the textile industry, but domestic producers are now struggling to find a market for their low-quality products, Financial Tribune reported.
Domestic production in Iran is highly subsidized by the state, which is borne out by the fact that the country is not a member of World Trade Organization and slaps significantly high tariffs on imports.
However, overshadowing the country’s protectionist policies is the practice of allocating cheap, subsidized foreign exchange to imports, which runs counter to the spirit of boosting domestic industries.
The report deems it urgent to improve the quality of domestic products in order to reduce the country’s dependency on imported raw materials, consumer and capital goods.
It is important to reduce the finished cost of goods while improving their quality to encourage buyers to show a higher tendency toward domestic products.
As cited in the report, if quasi-state agencies keep smuggling goods into the country, the quality of domestic products will continue to decline, the finished cost of domestic goods will remain high and higher foreign exchange rates will not help Iranian production sector.
In fact, the determination to fight smuggling should start from the top authorities since economic reform would not be possible if there is corruption in the system.
According to Iran’s Customs Administration, the value of illegal imports was estimated to be $25 billion during the year to March 2014, but after IRICA implemented information technology, the figure dropped to $12 billion last year (March 2016-17).