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Iran’s mafia-controlled economy – Iran Focus

From 2019 to date, the “capital depreciation rate” has overtaken the “capital formation rate” in the Iranian economy and negative capital stock growth has been reported.

According to the Iranian regime’s economic experts, this becomes even more worrying as the regime’s weak and troubled economy has reached its worst point in four decades. This is a clear indication that even positive gains in favor of the regime during the ongoing nuclear talks will not help save it from economic collapse.

It is estimated that around $171 billion in capital left the country between 2005 and 2020. In fact, an average of about $11.4 billion per year, equivalent to about 342 trillion toman, left the Iranian economy annually.

On the other hand, the negation of the “capital formation rate” (for the third year in a row) correlates with “capital flight” from the Iranian economy.

This has created a hopeless situation for the regime. When the very few remaining foreign investors see the current state of the economy, they estimate future returns on their investments and conclude that their investments will not yield returns. They will eventually withdraw their capital from the country. The consequence of this will be a decline in the “capital accumulation rate”.

When the “capital formation rate” goes negative, there is less investment in the economy. Taking into account the depreciation of earlier investments, less capital would be available for the production of goods and services in the following year.

The result is clear: with the growth of liquidity, the production of goods and the provision of services will not grow and will turn negative, which means that inflation will peak. If the decline in the “capital formation rate” continues, the regime’s economy will gradually go downhill. A gradual death that will destroy all hopes and dreams of the regime.

Another reason for this situation is that even after four decades, the regime’s economy is still in the category of a single commodity economy.

The regime’s economy is still dependent on exports of oil, steel, petrochemicals and several mineral exports. Simply put, its economy is not yet diversified, and crude oil and general classification accounts for nearly 80 percent of Iran’s exports. For this reason, the regime’s economy can still be considered as a single commodity economy.

One of the characteristics of single-commodity economies is government control over trade in a few products. The government and certain state-related institutions control the production and export of these products. On the one hand it is much easier to impose sanctions on the country if, for example, it exports 50 products instead of 500, and on the other hand internally 50 exporters instead of 500 exporters will inject dollars into the economy, creating a quasi-mafia economy.

Since the regime is run by a few large institutions at the same time, these institutions control the exchange rate on the domestic market. When imports are profitable, they keep the exchange rate low to get the most sales, and when exports are profitable, they increase the exchange rate so these groups get the most profit.

Real private sector investors and ordinary people are actually out of the loop and have no part in this big game. This creates a specific supply chain. The result of this chaining is that instead of multiple market players, none of which can have absolute influence, the country’s economy is entrusted to only a few regime-run institutions and only a few “economic blocs” are formed.

The regime’s institutions are responsible for disasters such as “hoarding,” “smuggling,” and the like. These institutions usually take the capital out of the economy after lining their pockets with people’s money and invest it in a safe place like the banks of Switzerland or real estate in Europe and Canada.

Worse still, the regime’s legal system allows for this corruption. According to its economic and legal experts, prosecuting owners of the capital taken out of the country is almost impossible and the regime has so far prosecuted only a few small players and left the big players untouched.

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