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EghtesadOnline: Smuggling continues to undermine the Iranian economy, partly because the import of many products remain banned in the country.

A wide range of figures have been quoted by officials as the volume of smuggling in Iran, but recently, the head of the Board of Directors of Iran’s Supreme Council of Imports, Alireza Manaqebi, said the volume of goods smuggled into Iran now exceeds $30 billion a year.

“Annual legal imports are in the neighborhood of $50 billion, but smuggling is now more than $30 billion a year,” he was quoted as saying by IRIB News.

However, Pour-Kazem Shayesteh, the deputy head of Iran’s Headquarters to Combat Smuggling of Goods and Foreign Exchange, says the volume of smuggling has declined by about 50% since the fiscal 2013-14 from $25 billion to $12 billion at present.

According to Shayesteh, the import of more than 2,000 types of goods is prohibited.

Home appliances are one of those products that also top the list of goods smuggled into Iran. Officials have reported a 75% rise in the volume of confiscated home appliances this year, saying more than 3.5 million homes appliances were seized in the first seven months of the current Iranian year (started March 21) before they could be smuggled into the country.

Iran’s home appliance market is worth $6 billion per annum, 40% of which are dominated by contraband, the head of Iran’s Household Appliances Industry Union said last year.

“Smuggled home appliances make up around $2.5 billion of the domestic market. The share of smaller items and kitchenware like cutlery, crockery and crystal artifacts are higher, which has created difficulties for the producers of these products,” Alireza Mohammadi Daniali was also quoted as saying by the news portal of Tehran Chamber of Commerce, Industries, Mines and Agriculture.

Auto spare parts, cigarettes, clothing and cosmetics are other favorite items of smugglers.

“Given the $2 billion share of smuggling in the $8 billion market of clothing in Iran and its upsurge in recent months, shortage of raw materials and equipment in factories as well as the sharp decline in clothing consumption and people’s purchasing power due to Covid-19, clothing and related industries have fallen into recession. Investment is going downhill despite the low cost of job creation in this economic sector,” read a letter by the Textile and Clothing Producers Union addressed to Interior Minister Ahmad Vahidi earlier this year.

Noting that local production of cosmetics only meets a small share of domestic demand, Ali Moayyedi Khorramabadi, the head of Iran’s Headquarters to Combat Smuggling of Goods and Foreign Exchange, called on the government to either allow legal imports of cosmetics or boost investment in the production of cosmetics.

“Even imports of raw materials of cosmetics have been banned by the government,” he was quoted as saying by IRNA last year.

By banning imports, Iranian governments have sought to stem the outflow of foreign currencies to keep local reserves in check, but smuggling has offset the attempt to a great extent.

There is also the issue of smuggling out of the country, especially products that are entitled to production subsidy. The heavily-subsidized fuel is a notable example. Other commodities include wheat and foodstuff made of wheat and cooking oil.

“Outgoing contraband amounts to $5.5 billion per year. The figure increased after the reimposition of economic sanctions in the fiscal 2018-19. After the government started subsidizing foreign currencies [for the import of essential goods], smuggling to neighboring countries increased significantly,” Khorramabadi said.

The government of President Ebrahim Raisi abolished the import subsidy in May. Until then subsidized foreign currencies at the rate of 42,000 rials per dollar were allocated for the import of corn, vegetable oils, pharmaceuticals, wheat, oilseeds, barley and soymeal. The market rate of the dollar now is above 360,000 rials.

While successive Iranian governments have subsidized food imports, cheap currency was first given after the steep rise in foreign exchange rates in the spring of 2018 soon after the United States abandoned the Iran nuclear deal and imposed tough economic sanctions.

Annual Incoming Annual Incoming Contraband