Regarding the production of digital goods, there is a significant decrease in production in 2017 and 2018, and the import ban policy has not been able to prevent it
According to Iran digital economy annotation, Rahnaman Institute published a research report titled “Evaluation of the Effects of the Import Ban Policy on Iran’s Economy”. In this report, “community”, “businesses” and “governance” are considered as target groups and audience. This report is a warning about the decrease in the welfare level of households; A warning that informs the society about the effects of policies such as banning the import of goods and shows that such decisions are not in the interest of the public.
In short, this report answers the question of whether the policy of banning imports on household appliances, clothing, digital goods, and cosmetics has improved the country’s economic indicators in recent years or not?
Tithes that have not benefited from the import ban policy
Applying restrictions on the import of goods is one of the measures used by regulators with the aim of controlling the market and supporting domestic production. The degree of realization of the expected goals of this policy and the effects and consequences of its application on the components of the country’s economy, such as increasing social welfare and reducing consumer prices, helping production and employment, and controlling the foreign exchange market in the short and long term, have always been doubted from a theoretical and empirical point of view.
Of course, the mentality and non-discriminatory approach of the policy maker towards domestic actors has an effect on the overall performance of such policies, and it is expected that the goal of the policy is to strengthen Iran’s companies and not to bias and support local, biased and limited to a few companies.
This is while the overall assessment of the import ban policy shows that the general public of Iran, especially the lower and middle deciles, have not benefited from the implementation of the import ban policy in recent years. Also, there are no signs of significant profit in the corporate sector of Iran as a whole.
On the other hand, studies show that a limited number of companies have been the main beneficiaries of these policies and by imposing import bans on imported products, they have achieved monopoly power in the domestic market, which has provided a special opportunity to increase the price of their products.
Why was the import ban policy established?
In order to examine the effects of this policy on the lives of Iranian people and their economic situation, we must first examine what this plan is and the reasons that caused Iran to move towards this policy.
The withdrawal of the US government from the JCPOA in 2017 and the return of sanctions caused the foreign exchange resources available to the government to decrease significantly. With the decrease in oil sales, the country’s foreign exchange earnings decreased. On the one hand, it was not possible to access the same amount of foreign exchange earnings, and on the other hand, parts of the government’s foreign exchange resources were blocked in Iran’s trading partner countries.
As a result of the reduction of foreign exchange resources and the acceleration of expectations, the price of the currency experienced unprecedented jumps, and as a result, with the worsening of the government budget deficit, inflation was on the way to increase; Therefore, the prices of imported goods and domestically produced goods increased rapidly since the beginning of 2017.
In response to this situation, the government took various measures and policies, each of which had certain side effects. Among them, we can mention the policy of setting the currency at 4200 Tomans and banning the buying and selling of currency at different prices, the effects and consequences of which have been discussed a lot. Finally, due to numerous negative effects and the occurrence of many corruptions, the government withdrew from these policies in 2023.
Another goal of this policy was to control the currency market by not importing unnecessary goods. Therefore, some prohibited items were considered luxury or unnecessary according to the interpretation of the legislators and their import was prohibited.
The main channel of currency outflow from the country is capital outflow
Restrictions on formal economic activities are not limited to banning imports. The approach that led to the approval and implementation of this policy, by setting mandatory prices for businesses, limiting competition and creating rents for non-governmental government sectors and other things, inflames the economic atmosphere and discourages the country’s official and legal economic actors.
The effects of this approach can be seen in the increase of capital outflow from the country and the currency jumps of the last few years, and the import ban has not been able to reduce the country’s currency problems.
The research of this study shows that the ratio of the foreign currency taken out for official and unofficial imports to the foreign currency imported through the export of goods and services did not have a significant difference from before this policy; Therefore, the import ban could not lead to a better management of the foreign exchange market.
According to surveys, the main channel of foreign currency outflow from the country is not the import of goods needed by the people, but the outflow of capital, and the correct approach in managing the currency market is to allocate resources based on the price mechanism instead of allocating a quantity as the main basis for decision making. An important point is that limiting the activities of companies that have been active in the official trade of goods such as household appliances, clothing, digital goods, and cosmetics increases the motivation of these businesses to withdraw capital.
High growth of prices and decrease in consumer welfare
Although one of the key goals of this policy has been to support domestic production and employment, production statistics show that import ban policies have not been successful in achieving this goal. For example, checking the statistics of production (added value) in the clothing sector shows that there has been no significant change in clothing production since 2017.
This issue could be due to the fact that in the case of clothing, it was possible to continue importing through informal methods, and therefore household consumption was not significantly replaced by domestic production. But regarding computer and electronic products (digital goods), there is a significant decrease in production in 2017 and 2018, and the policy of banning imports has not been able to prevent it. Therefore, the import ban policy has not had significant positive effects on the production of computer and electronic products.
Regarding the production of household appliances, the smuggling of which is naturally associated with more restrictions and risks, the effect of the import ban on the increase in production is quite evident. From the early 90s to 2017, the domestic production of household appliances has a completely downward trend, but from this year to the year 2022, which was the peak of economic sanctions, the production of all kinds of household appliances goes through an upward trend.
Therefore, it seems that creating a monopoly for domestic producers, although at the cost of losing consumer welfare, has led to an increase in production. However, it is important to mention that employment in the production of audio, visual and household appliances did not change significantly between 2017 and 2018.
Of course, the number of employees of one of the home appliance companies increased by more than 10,000 people between 2021 and 2022, while employment in the entire home appliance manufacturing industry has not changed significantly; Therefore, the employment result shows that the entire industry and economy have not benefited from this policy and the main effect of this policy has been the destruction of competition and the creation of monopoly power for a limited number of companies, the effects of which we saw in the high growth of prices and the reduction of consumer welfare.
A similar trend can be seen regarding digital goods; This means that the percentage of households that have purchased digital items such as mobile phones or cameras has been declining during the 90s, and in 2017 and 2018, this downward trend intensified. Of course, during the Corona epidemic and the need of more households for these goods, especially the smartphone for educational purposes, the demand increased a bit.
If a company can increase its production level and market share in competition with other companies, it indicates the higher quality or more appropriate price of the goods and services of that company, which has been able to attract the demand of households for its products in competition with other players. In this case, consumer welfare increases through access to higher quality or cheaper goods.
But if the increase in production and market share of one or more companies has occurred by removing the main competitors and creating a monopoly, it is certainly not considered a positive development for the economy and society; Because in this case, the welfare of consumers is reduced by limiting the right to choose and not having access to diverse goods, as well as paying higher prices, even for low-quality goods.
In such a situation, part of the consumers’ welfare is transferred to one or more monopoly producers through purchases at higher prices. On the other hand, due to the higher prices of exclusive products, the demand and access for some other households decreases; This means that a part of the welfare of consumers will be completely destroyed due to the import ban on production and employment.
The most obvious example of such a restriction is the ban on the import of iPhone 14 and 15 in the last two years; An incident whose roots can be clearly seen even today in the case of “Korush Company” fraud. This is a key question: “If the iPhone import ban was not implemented, would people look at this product as a capital product and line up to buy it cheaper?” According to “Jalal Rashidi Kochaki”, a member of parliament, the culprits of this incident are those who banned the import of iPhones into the country; A comment that deserves reflection.
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