July 20, 2015
Following the nuclear deal, the nation needs to get to grips with bureaucracy, writes Rouzbeh Pirouz. The past decade has seen the privatization of many large state-owned enterprises and the emergence of a much more diversified stock market.
As the investment group that I chair accumulated blocks in these companies, we quickly realised that the shareholders who had bought the largest stakes were semi-governmental institutions, particularly pension funds.Following the nuclear deal, the nation needs to get to grips with bureaucracy, writes Rouzbeh Pirouz.
As a businessman and financier, I share the exhilaration of millions of Iranians at the nuclear deal struck between Tehran and the world’s big powers last week. Ours is a country that has always wanted to do business with the rest of the world; now we will get our chance.
But I also know from experience that sanctions are far from the only frustration to burden the lives of those who want to help Iran’s economy to move ahead. In my time as an investor, I have taken the opportunities the country offers but also wrestled with state-dominated institutions, heavy handed bureaucracy and a banking sector plagued with problems. To take full advantage of the nuclear agreement, Iran’s government now needs to get to grips with such self-imposed sanctions.
The past decade has seen the privatisation of many large state-owned enterprises and the emergence of a much more diversified stock market. As the investment group that I chair accumulated blocks in these companies, we quickly realised that the shareholders who had bought the largest stakes were semi-governmental institutions, particularly pension funds.
I spent three long years as a board director of a large, supposedly privatised, financial services company only to give up in frustration at our inability to improve the company’s performance because the majority of the board were appointed by the same government ministry as before privatisation.
On the one occasion where we acquired management control of a previously state-controlled holding group we were able to thin down its portfolio from around 50 to about 12 companies and give its long-suffering shareholders their largest dividends to date. Unfortunately the group remains Iran’s only example of a formerly state controlled company under the management of the real private sector rather than the semi-governmental sector.
If Iran is to escape the trap of poor management and inefficiency, the government of President Hassan Rouhani must ensure that privatisation is the real deal. Meanwhile, bureaucratic inefficiency is a continual headache. It can take months to get a new company registered. Too many sectors of the Iranian economy are held back by price controls, import tariffs or other interventions that are a sure recipe for economic failure. The country also needs to update its archaic Napoleonic commercial code. Our attempts at basic corporate structuring, including attempted company mergers, have been regularly frustrated by its outdated provisions.
Then there is the banking sector, shut out for years from much of the international system by sanctions, but also hobbled by problems of its own. The proportion of non-performing loans can be alarmingly high, in some instances more than 20 per cent of total portfolios. There is nowhere near enough liquidity. If Iranian business is to take advantage of the new opportunities of the post-sanctions world, this needs to change. What better use of the more than $100bn Iran is set to regain access to through the nuclear deal than to recapitalise a restructured banking sector?
In short, the agreement is necessary but far from sufficient to reintegrate Tehran with the rest of the global economy. During his 2013 election campaign Mr Rouhani spelt out much of what needed to be done, a welcome change from some of the counter-productive policies of the past. But in office, understandably, he has to date focused on foreign policy, not economics. Now, he and his team should start considering what is necessary to become a player in the world economy.
Mr Rouhani can already be compared with Zhou Enlai, the statesman who steered China to a new understanding with the west. Now he needs to become Deng Xiaoping, the visionary who paved the way for his country’s economic resurgence.
The writer is chairman of the investment management group Turquoise Partners