July 2009, Nos. 52&53

Mines & Metals

The Case of Khuzestan Steel Mill and Privatization

Stocked goods in the world constitute 2.2 percent of all goods, but the figure for Iran is 7.3 percent and in some years, it has even soared to about 18 percent.

The Fourth Economic Development Plan is coming to an end. A backward glance will demonstrate that the situation of infrastructures is so-so, economic growth rate has remained unchanged at 5 percent and business environment is not suitable. Statistics show that the average economic growth rate stood at 7.5 percent in the First Economic Development Plan, 3.3. percent in the Second Economic Development Plan, 5.5 percent in the Third Economic Development Plan, and 6.2 percent in the first three years of the Fourth Economic Development Plan while average performance of the plan has been estimated at 5.6 percent.

Industrial growth under those plans respectively stood at 9.5 percent, 6.8 percent, 11.2 percent, and 8.7 percent with the average industrial growth for four plans standing at 9 percent. In the agriculture sector, the same trend has been in force and the sector’s growth figures under the said plans have respectively stood at 6.4 percent, 2.2 percent, 4.4 percent, and 6.7 percent with the average growth rate amounting to 4.9 percent.

The figures indicate the economic situation in various economic sectors which cannot be considered optimal in view of existing capacities. According to the 20-Year Vision Plan, Iran should achieve an economic growth rate of 8 percent in order to top the region, but the current trend in investment does not depict a promising outlook. This is due to the government’s control of the economy and high share of stocked goods in gross domestic product.

Investment in information technology in Iran and the world is noteworthy. Per capita investment in the sector is 76 dollars in Iran, 338 dollars in Malaysia, 1,201 dollars in the United Arab Emirates and 3,846 dollars in the United States. To find the reason behind the current situation, we must not solely rely on investments, but attention should be also paid to other factors. For example, the ratio of investment to gross domestic product shows that it has stood at 34 percent from 2000 to 2006.

Performance in terms of economic growth rate has stood at 5.6 percent in the same period. For India, the ratio has been 34 percent with an economic growth rate of 7.4 percent. Another cause of low economic growth rate in Iran is low productivity which is due to state control and stocked goods. Stocked goods are not used by private or public sectors, nor are they exported. High stocks indicate economic inefficiency. Stocked goods in the world constitute 2.2 percent of all goods, but the figure for Iran is 7.3 percent and in some years, it has even soared to about 18 percent.

To remedy this, state control should be transferred to the private sector. However, institutional, macro, and infrastructural factors are involved in privatization. Institutional factors include transparent regulations, suitable business atmosphere, encouraging tax and judicial systems, efficient financial sector, as well as skilled and resilient labor force.

Macroeconomic factors include political and economic stability, financial stability for the government, reduced debts of the government, enforcement of actual foreign exchange rate, as well as low inflation and bank profit rates. Infrastructural factors include energy production, transportation, communications, information technology and water. Khuzestan Steel Mill is an example of institutional factors. Last year, 20 percent of its stocks were sold to the private sector and that private investor has not been accepted as member of board of directors yet. We must not wait until that private entity takes legal action before judiciary pays due attention to that case. Otherwise, nobody can expect more participation from private investors.