Pathology of Iran’s Exports Expansion to Central Asian Countries Within Neighborhood Policy

Neighborhood Policy is a priority of the diplomacy apparatus to help develop the region, deter against the sources of instability and counter the sanctions’ impacts.
9 February 2022
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Afshar Seifinejad

Neighborhood Policy is a priority of the diplomacy apparatus to help develop the region, deter against the sources of instability and counter the sanctions’ impacts. There is a long way to reaching the desired point of trade exchanges between Iran and Central Asian states as a part of the common civilizational sphere. The present paper tries to address the structural and non-structural obstacles of trade and economic ties’ expansion.

  • Structural Obstacles:

Insufficiency of cargo and passenger communication routes: at present, Iran’s cargo railways routes to Central Asia are through the Sarakhs, Lotfabad and Incheh Borun railways to Turkmenistan, Uzbekistan, Kirghizstan, Kazakhstan, and Tajikistan. These routes, due to insufficiency of cars, create problems for Iranian traders and economic activists. For example Iranian train cars, due to technical reasons, cannot travel to Central Asia. The land route from Turkmenistan and Uzbekistan runs into Kirghizstan, Tajikistan and Kazakhstan, which due to its extra costs compared to the rail route and lack of enough refrigerator vans for perishable goods, is not economically justifiable.

Regarding air routes, lack of direct flights to Central Asian capitals, has forced economic activists to use the Istanbul, Moscow or Dubai routes, which the stop time at the transit points and the related financial costs are more barriers.

Adoption of Anti-exports Economic Policies: Adopting anti-exports policies in the administrations and lack of a stable policy regarding export of goods cause a high rate of risk for the purchasers and exporters, the result of which is losing markets hard obtained. For example, if an exporter has one or two-year long contracts with his purchasers in the target country for supplying goods, issuance of momentary circulars for banning exports of products causes loss of the market and purchaser confidence to the Iranian exporter. This requires first to focus on decision-making then mid and long-term planning so that the exporters and purchasers can conduct economic activities with comfort.

Instability in currency rate: currency rate links a country’s macro-economy to other countries through the goods market. Increase of currency rate boosts non-oil exports and trade balance, but in the long term currency rate changes cause loss of these countries’ markets, because these fluctuations cause increase in the productions costs which are created due to the price rise of primary materials. With the real currency rate being disrupted, the savings and investments become illogical, which in turn makes optimized allocation of resources impossible. Constant fluctuations and continuous uncertainty in the real currency rates can by creating uncertainty about profits resulting from international transactions cause reduction of trade as well as slowness of capital flow, due to reduction of investment in the foreign activities, and disrupt financial assets basket. Also, continuation of the real currency rates can cause price surge in exchange goods. 

Lack of Financial and Banking Exchanges: no exaggeration, trade in the world today is virtually impossible without secure financial and banking transactions channels. Lack of financial and banking communications between our country and the target countries, lack of bank branches inside and outside the country are outstanding problems for our traders, especially in the time of sanctions, which cause reduction of exchanges and even the Iranian companies’ presence in the infrastructural projects of Central Asia. Impossibility of use of LC has led to insecure trade and use of substitute ways like currency exchange offices, which in addition to specific limitations such as the amount of transaction, has led to surplus costs for transactions and eventually the increase of the fixed price of export goods compared to the similar products of rival countries, as well as loss of the market in the long term.

Lack of government’s support for private-sector economic activists: traders and economic activists who are the economic soldiers of the country for exports and for bringing in currencies receive almost no kind of government support for exports and establishment of their companies’ representatives outside the country, in addition to the mentioned problems. Although the economic and trade sections of the embassies play the role of guider and introducer of the potentials of the residing country for any Iranian interested in carrying out trade activities and try to introduce credible traders and companies, this amount of planning and base-building is not sufficient for starting a business, especially outside the borders.

  • Non-structural Obstacles:

Lack of understanding target market: lack of understanding the economic activists of the two countries, the potentials and capacities of each other are among the most pressing non-structural obstacles. According to field studies of the Central Asian markets, most of Iranian produced goods have the qualitative and fixed price capability to compete with imported commodities from countries such as Russia, China, and Turkey. But the Central Asia markets being unknown to Iranians and the Iranian potentials being unknown to the said countries’ traders are factors in lack of sufficient growth in foreign trade with Central Asian countries.

Iranian companies’ inexperience on international activities arena: the second factor is Iranian companies’ unfamiliarity with international trade. Many Iranian companies have no specific plan for the target markets of Central Asia, and even are not familiar with the obvious basics like introducing the products in the Russian or other national languages of these countries on their websites or inserting the products info on the packages in the target country’s language. Certainly, field study of the market and setting up representatives can help make familiar the economic activists of both sides. It seems, the Iranian companies, due to easy trade with some neighboring countries such as Afghanistan and Iraq are not any longer interested in entering new and a little further markets, while according to the economic principles, mere reliance on one or two exports market bears a high risk.

Lack of qualitative supervision over exports products: unfamiliarity of traders with the subject of quality and related regulations as well as insufficient supervision over the quality of exported cases, sometimes lead to the poor quality goods entering other countries in the name of Iran, a matter which requires stricter supervision of the responsible departments. Entrance of poor quality goods results in damage to the exporting country’s brand and infamy of that country, even for quality goods. Quality and fixed price are two major factors driving exports development, which lack of balanced attention to them can cause loss of sales market in other countries.

Paying attention to the Neighborhood Policy for developing exports requires solving the attendant structural and non-structural problems. Understanding and solving these problems require examination at a Coordination Committee of Exports, a path that the Economic Deputyship of Foreign Ministry can be a pioneer of.

Afshar Seifinejad, Political Expert of School of International Relations of Ministry of Foreign Affairs

      (The opinions expressed are those of the authors and do not purport to reflect the opinions or views of the IPIS)

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