Surviving Small Businesses in Iran

Writing 8 
Final Essay (Problem and Solution) – Second Edition

Surviving Small Businesses in Iran

            Private sectors play an important role in the economy of each country. There is a logical link between the participation rate of non-governmental businesses in GDP (Gross Domestic Product) and economic growth in poor and developing countries (Leturgue et al., 2010). Developed countries support small and micro businesses in order to guarantee their own economy growth. In contrary to developed and developing countries, small businesses started up by young and educated Iranian entrepreneurs have increasingly been impacted by economic, political, and cultural problems. According to the annual economic statistics issued by the World Bank in 2013, the time required to start-up a business in Iran is 16 days which is 4 times longer than the USA, and this country is ranked 152^nd among 181 countries in the world for time required to start a business while the USA is 4^th in this ranking. Although more than 20% of financial bills which cost more than $15 billion never passed in 2012, the beneficiaries were not supported legally by the government (the Central Bank of Iran, 2013). As an obvious result, more than 80% of newly established small businesses in Iran fail in the first three years and almost 10% can’t survive more than 5 years (donye-e-eqtesad.com). These circumstances have affected the survival of small businesses in this country, and as a result, young entrepreneurs are not interested in investing and starting-up new small businesses in their motherland.

            The influential factors on the small businesses’ life-curve in Iran can be categorized into three groups: economic, political, and cultural factors (Mashayekhi, 2012).  Although these factors are closely related to each other, each one can exploit a small enterprise. Unbelievable growth of the inflation rate and the dramatic rise of the exchange rate of the rial (national currency of Iran) in comparison to foreign currencies are two main economic factors. According to the World Bank, the annual inflation rates in the last three years ending in 2013 were 21.6%, 27.4%, and 39.3%. In addition, as figure 1 illustrates, the exchange rate of the rial against the US dollar has increased from 13,000 in 2011 to 39,000. These two unstable rates not only strongly impact the worth of these enterprises’ assets but also inevitably increase the price of merchandise. In addition, according to the CBI, the minimum interest rate for commercial loans in government and private banks has raised from 16% in 2008 to 22% in 2013. It is noticeable that the interest rates in Japan, USA, Canada, and South Korea are between 1.4% and 5.4% (the World Bank).

Furthermore, some serious political and illegal issues influence economic activities. According to the Ministry of Economic Affairs and Finance (MEAF), the government’s share in the internal and external economy of Iran has increased to almost 90% in 2013. It means that 90% of cash flow in Iran’s economy is managed by the government. Consequently, official corruption has increased incredibly. For example, most governmental buying and selling are assigned to particular companies unfairly. Meanwhile, special permissions for importing and exporting significant merchandise are given to limited enterprises. In this unfair atmosphere, small businesses can’t compete against strong corporations. According to the Transparency International website (A non-profit international organization against corruption) Iran is the 144^th country among 177 countries in corruption ranking in 2013. In addition to national political troubles that Iranian small enterprises are involved in, some serious international limitations affect their activities. The main limitations are the international sanctions that have been enforced since 1978, the year that Iran’s revolution occurred. Although targeting the government, these financial and political sanctions, started by the USA and Europe, have affected the Iranian people’s public lives and also domestic and international trade. According to MEAF, the economy growth of Iran has declined from 8.1% in 1978 to -5.6% in 2012.

Besides economic and political causes, some traditional and cultural issues have been concerning business experts. The first and most effective issue is that, despite some rudimentary and incomplete laws related to copy rights, almost always nobody respects this essential right of authors, inventors, and entrepreneurs. For instance, when a musician publishes a new album, less than 5000 original copies are usually sold. Meanwhile, more than 5 to 7 million illegal copies are distributed in just one or two months (www.systemgroup.net). Another personal characteristic, indirectly impacts Iran’s economy, is that most Iranians are not diligent enough to run the troubles and difficulties. For example, when a young entrepreneur faces financial trouble, he/she prefers to leave the business instead of being patient and solving it. In recent decades, young people have approached to find governmental jobs with secure salaries instead of starting up new challenging and risky careers. Unfortunately, while Japanese are known as diligent people, Iranians have usually been known as luxurious and lazy people during these centuries. Other painful characteristics of Iranians, which they clearly confess, are lying and non-commitment. Iranians usually lie easily and sometimes use fraud for financial profits. If they find out that their commitment may have some difficulty for themselves, they will revoke it illegally or might act in a false way. Although there is no clear statistics about these factors, according to Edward Granvile Brown’s historic itinerary, “A Year Among the Persians”, most Iranians used to lie as an easy solution for their troubles (Brown, 1893).

            The above mentioned economic, political, and cultural reasons have dramatically been affecting businesses, especially small businesses in Iran. The continuously increasing rate of financial bankruptcies directly impacts the Iranians’ public lives and job careers. According to the Global Finance Magazine, the unemployment rate has increased from 10.3% in 2004 to 14.1% in 2012. Although real statistics are often concealed by Iranian governors, one member of Iran’s parliament has recently revealed that the real unemployment rate was almost 30% in 2013 (www.insideofiran.org). Consequently, poverty has been dramatically pervading people lives. As one member of the parliament has pointed out, more than 15 million Iranians live under the poverty line (www.alef.ir). Brain drain is another consequence of the failure of the small businesses in Iran. Because a huge number of educated and smart entrepreneurs can’t easily start-up their own jobs in their motherland, they prefer leaving their own country and immigrating to a foreign territory to implement their ideas. In 2006, the International Monetary Fund (IMF) ranked Iran the highest in brain drain among 90 countries (both in developed and less developed countries), “with over 180,000 people leaving each year due to a poor job market and oppressive social conditions”. Although these statistics were issued more than 6 years ago, the Minister of Science, Research and Technology of Iran confirms that the economic disadvantage of these emigrations is more than $150 billion annually. In addition to human resources, a huge amount of capital investments exit the country each year. A survey, conducted by Parsian Bank (a non-governmental commercial bank in Iran) shows that, the outgoing capital of Iran is almost 85 times more than incoming capital. According to this study, more than $200 billion have been invested by Iranian entrepreneurs in the United Arab Emirates during 5 years ending in 2012.

            While the impact of marginalizing small businesses has dramatically increased in Iran, some national and international economists have been trying to find the solutions to help these vital parts of micro economy survive.  The government has a significant role in facilitating some initial foundations. Enforcing the copy right rules and establishing related organizations to follow the rights of inventors, writers, entrepreneurs, researchers, singers, film producers, and all other fields of revenue, especially individual businesses, can be the first step. According to Donyaie-e-Eghtesad magazine, almost $180 billion will be added to the total GDP of Iran if people respect copy right rules. Another step is that the government should approach capitalism, meaning Iran has to respect personal investment, either national or international. Most Iranians, who have considerable economic activities out of Iran, tend to come back to their motherland and help their country develop. Furthermore, Iranian governors should change their international policies and extend political and economic relationships with developed and developing countries. In internal policies, one of the best solutions to decrease corruption would be to let all media be free. According to Amartya Sen (the Indian economist awarded the 1998 Nobel Prize in economics), the moderate incidence of corruption in democratic countries is meaningfully lower than countries with authoritarian regimes (www.articles.economictimes.indiatimes.com). Furthermore, monetary policies should be modified to lead the economy toward a low and stable inflation rate. A reasonable and constant inflation rate would help entrepreneurs start-up more confidently and accomplish their plans successfully. One of the most important steps for small businesses surviving is job training. Despite having increased the portion of graduates in recent decades, practical job trainings related to start-ups or managing micro enterprises haven’t been developed. Finally, beside the government, people should change some their unpleasant behavior, like easily lying. Iranians, who had been known as truthful people before Islam dominated the country (Histories of Herodotus, Herodotus (c. 484 - 425 BCE); Translated by George Rawlinson, 1858), should retrieve their admired characteristics and traditions. In addition, they should teach the new generation to be hardworking, liable, punctual, and patient.

            Summing up, the undeniable evidence shows that Iranian small enterprises are struggling in a stressful environment. Many strong financial, political and cultural issues, which are fed by government and society, have impacted these economic pioneers. Consequently, poverty, brain drain, and other significant problems have dramatically been increasing because of this failure and it seems that a non-returnable disaster will occur soon. Although most Iranians are discouraged by the future of the national economy, some well-known economists believe that the survival of small businesses in the country will lead to the survival of the economy of Iran. In addition, the government should change its national and international policies, and the people should modify their own behaviors, retrieve admired traditions, and approach being more diligent.