Enabling business environment stimulate economic growth
In the recent economic stimulus package unveiled by President Rouhani’s administration it has been emphasized that there aren’t adequate resources to be utilized in order to facilitate the exit from stagnation and recession. As a result exploiting the existing resources is the key solution to the current problems of Iran’s economy.
In the recent economic stimulus package unveiled by President Rouhani's administration it has been emphasized that there aren't adequate resources to be utilized in order to facilitate the exit from stagnation and recession. As a result exploiting the existing resources is the key solution to the current problems of Iran's economy. The subject of "resource productivity" can be discussed in both macro and micro levels. From a macro perspective; stabilizing the economy would help investors and the business community to get out of limbo, the blurry spots will be wiped out and minimizing degree of uncertainty and ambiguity in decision-making process would help them to effectively choose a course of action. On the other hand from a micro perspective; in President's economic team's assumption "enabling business environment" is a key factor in stimulating the economy. On the other hand "catalysts" are of crucial importance in government's economic policies.
According to 11th administration report improper orientation of financial resources is rooted in not only the imposed sanctions and the events of 2012 and 2013 but also rampant inflation, the exchange rate regime, monopolies and government intervention in the market, regulations and red tape. First part of the report is mainly focused on macro-level policies and measures. Pricing policies, government regulations and "business environment" are discussed in the second part of the report. As stated in the report the current issues have a long history and with mismanagements and the wrong government mentality between the years of 1385(2006) and 1390(2011) and the events of 2012 and 2013, things went from bad to worse. The leading role of business environment is to reduce transaction costs and enhance competitiveness.
32 Enabling business environment indicators
As stated in the report; costs of government intervention in the economy (state interventionism) outweigh the benefits and will reduce productivity. Besides the issue of "government intervention", trade facilitation, starting up new ventures and supporting existing enterprises play a major role in exit from recession. Despite the long-term nature of enabling business environment policies they have short-term effects and create competitiveness at micro-level which leads to effective orientation of existing financial resources.
Based on the report; timing and efficiency are of crucial importance in adopting policies. One of the government's key plans is to reduce state's role in the economy and pricing policies. It has been stated in the report that "With signs that inflation is being tamed and government's determination to keep its downward trend, independent pricing (monopolies and basic commodities are the exception) will give the supply-side a positive shock and as a result it will exert downward pressure on prices in the basket of consumer goods ". The government plans to adopt independent pricing policy by the end of 2014 (with the exception of basic commodities and monopolies).
A list of 32 indicators related to business environment in various government organizations which can be improved in 1393(2014) has been compiled. This makes it possible to trace the process of improvements in business environment. Enabling business environment policies are related to the supply side of the economy, thus are of crucial importance in government measures to encounter recession. Iran ranked low by the World Bank (152nd in 2013 - ease of doing business index) among more than 180 countries. Overcoming the obstacles of doing business in Iran is absolutely vital not only to bottom up the recession but also to attract foreign investors. Iran is one the world's largest consumer markets and its energy resources, human capital and geostrategic features are attractive to global investors.
Reform of financing methods and developing financial instruments
Third chapter of the report covers methods of financing and improvement of financial sector of Iran's economy. "Reforms" are mainly focused on the banking system and the financial market. On the other hand, regarding capital markets instruments need to be developed to finance projects across the country.
Non-performing loans, capital increase, sale of surplus properties, clearance of government debts and direct engagement in commercial activities are some of the issues of Iran's banking system to be tackled by authorities.
Iran's capital market needs to be developed by establishing investment funds and innovative financial instruments to raise capital.
The report adds that decline in banks "lending power" is rooted in "improper adjustments of interest rate and poor function of banks as financial intermediaries", "rise of non-performing assets (NPA) between the years of 2011 and 2013 and credit risk", " sanctions against Iranian financial institutions" and "2011 Iranian embezzlement scandal" .
According to the report small and medium sized enterprises have suffered the most from the consequences of economic downturn and are a high priority in government's banking policies, on the other hand, larger enterprises are directed towards capital markets (stock market) in order to raise capital.