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Iran To Spend $1 Billion From Reserves To Prop Up Its Ailing Automakers

Iran's Saipa automaker is one of the largest manufacturers headquartered in Tehran, Iran. FILE PHOTO
Iran's Saipa automaker is one of the largest manufacturers headquartered in Tehran, Iran. FILE PHOTO

Iran has decided to channel one billion dollars from its national reserves to prop up its ailing automakers amid a deep economic crisis gripping the country since 2018.

Iran’s National Development Fund (NDF) is a foreign currency reserve meant to insure the economic well-being and progress of future generations. But the Islamic Republic has been forced to withdraw from the fund in recent years to finance certain needs, as its oil exports have dried up under U.S. sanctions, depriving the country of foreign currency income.

Iran’s auto industry, essentially government-owned, has been mired in inefficiency and corruption and was also hit badly by U.S. sanctions in the past two years.

The sector heavily relied on close cooperation with foreign automakers who supplied parts to vehicles modeled mainly on French cars. But Iran’s foreign trade partners pulled out once the United States imposed banking sanctions.

The head of NDF Morteza Shahidzadeh announced on June 2 that diverting one billion dollars to the auto industry is meant to boost domestic production. Apparently, this means financing domestic auto parts manufacturing to compensate for lack of imports.

Iran’s automakers had incurred more than $3 billion in losses until 2019; with around $2 billion dollars of this since the imposition of U.S. sanctions. This is despite the fact that foreign car imports are restricted and highly taxed.

There have been major corruption cases surrounding Iran’s auto industry, involving senior managers and members of parliament. Last week judicial officials jailed a lawmaker to serve a 61-month prison sentence for involvement in price fixing schemes in the car market.

Government control over the auto industry relieves executives of any accountability to shareholders and restrictions on foreign imports leaves these companies without any meaningful competition.