Hope: An Economic Asset

Despite the hopes and early optimism inspired by the Geneva accord, Iran’s economy may be too damaged to make the speedy recovery the country needs. High inflation, a depleted treasury and ongoing tough sanctions mean the Iranian government’s power to engineer such an overhaul is severely limited.

Over the last week, Iranian citizens have celebrated the agreement reached between Iran and major world powers, and the decision to scale down Iran’s nuclear programme. Iran’s business community also celebrated, congratulating the government on its diplomacy, then turning quickly to remind President Rouhani that its is now Iran’s economy that needs a similar historic transformation.  

In an editorial for Donya ye Eghtesad daily newspaper, Alinaghi Mashayekhi, founder and former dean of the Sharif University of Technology Graduate School of Management and Economics, called the Geneva accord a “historic success” and called on the government to start the “necessary economic reforms that empower our economy to take advantage of this opportunity”. Another editorial published in the same paper and written by Professor Abbas Maleki, stated: “Now we have moved away from war and destruction” towards a “development phase” and urged the government to launch a “rebranding” campaign for the economy.  In an interview with Eghtesad Online, Ali Fazeli, head of Tehran’s Assembly of Service and Manufacturing Syndicates, demanded that the government “put on its executive overalls” and “take on the market challenges” immediately, adding that rethinking Iran’s trade strategy at this point in time is crucial.

Reality on the Ground

On the ground, however, only a few markets responded immediately to the announcement of the Geneva agreement. It came as no surprise that Iran’s gold and precious metals exchange, as well as that of the currency exchange, rallied sooner than other markets.

The Geneva accord will allow Iran to access US$4.2 billion of its oil revenues and to sell 1.5 billion dollars’ worth of petrochemical products. Sanctions on gold, precious metal and vehicle manufacturing have also been lifted, causing gold prices to fall by 6% on 25 November, the day after the agreement in Geneva was reached. The impact on the currency market reaction was less dramatic. Still, the Iranian rial has been growing in value steadily – if modestly – since the announcement.

But many Iranians who converted their savings into hard currency are worried. A retired teacher told Iranwire, “I bought dollars when the rate was 34,000 rials per dollar”. He is worried that, if the dollar continues to lose its value, his savings will depreciate. Eghtesad Online reports that no one is willing to purchase hard currency at the moment. In Tehran’s currency exchange market, many are looking to sell sums ranging from US$500 to U$10,000. But there are no buyers. In another editorial in Donya ye Eghtesad, economist Ali Dadpay advised readers not to sell. “The increase in Iran’s access to its oil revenues is modest,” he wrote. “Any increase in supply of hard currency will be compensated by an increase in demand for it by importers”. This uncertainty has prompted many to wait before making a decision.

No change: Cars and Property Prices Unaffected

But the price of cars and other vehicles has not changed. A recently-published cartoon depicts ordinary people expressing frustration over the rising price of cars and the struggles they face as a result, a trend that has not altered since the Geneva agreement. In the cartoon, people cry, “You benefited most from Geneva, come down please.”

“The real estate and housing market has come to a halt,” Gholi Khosravi, head of Iran’s Realtors Association, told Fars news outlet. “No one is moving; many are waiting for the future”. He predicted that the real estate market would begin responding to events in Geneva in 10 days’ time.

Zahra, a 27-year-old Iranian business analyst, is sceptical. “Prices never go down in Iran that easily,” she says. She predicts that a relaxing of sanctions will mean “more opportunities for Iranians in the diaspora to buy real estate in Iran”. In the past, Zahra has worked with Iranians living in North America and Europe. Now she is contacting her former clients to see if they are considering re-entering Iran’s housing market.

Any real optimism for a fast economic recovery was dashed by President Rouhani’s recent report reviewing his first 100 days in office.  Rouhani addressed an attentive national audience, telling them that the previous government had wiped the treasury of every last penny the country had.

“What happened to the oil money?”

His sober analysis reminded Iranians that they will continue to live with former president Mahmoud Ahmadinejad’s legacy for many years. The Iranian government owes US$60 billion to banks, the private sector, contractors and others in the economic sector. Only four months ago, Ahmadinejad claimed that his government had paid all of its debt.  What has been called Ahmadinejad’s “creative accounting” concealed the truth of Iran’s desperate economic situation.

During his speech on 26 November, President Rouhani reminded Iranians that when his government started work, the country’s “reserves of basic necessities were running so low that in some cities we had grain only for a few days”. He admitted that the situation is a“terrifying” one.

Alireza, a 38-year old IT businessman, is deeply concerned. “We knew it was bad during Ahmadinejad,” he says. “But,” he adds, “if this was a company it would have filed for bankruptcy a long time ago”.  

Nazanian, a 53-year-old housewife from central Tehran, asks: “What happened to the oil money? We had US$750 billion in oil money, where is it? No one could have wasted so much money”.  

But the money was wasted. Public coffers are empty and the government is in debt. Alireza believes that this is the time for Iran to “pull itself up by its bootstraps”.

A professor from the University of Tehran told me simply, “The situation is bad, it is really bad”.

Because of the country’s extreme financial crisis, the benefits of the Geneva agreement will be limited for Iran.  Still, there is hope. One academic I know asserts that “the important thing is Ahmadinejad is gone, we are talking to western countries and people are determined to get out of this mess.” Everywhere, analysts and businessmen alike believe President Rouhani’s popular support is the country’s only asset for the time being. The challenge is to translate this support and the government’s diplomatic success into jobs, economic growth and improvements in public welfare. It seems the public believe this will be successful. The Tehran Stock Exchange Market index has increased significantly. People are betting on a brighter future already. And that is a good omen in these difficult times.