The Legatum Institute’s 'Iran Series
' hosted a discussion led by Mehrdad Emadi
, Senior Economic Advisor to the EU, on how to make privatisation work in Iran.
Emadi began the discussion with a brief historical comparison of GDP rankings between Iran and its neighbours in the period 1965-2015. Underlining the impact of war, revolution and economic sanctions, Emadi highlighted Iran’s slow progress when compared to Turkey or South Korea. Privatisation, he said, could be a means to improve this economic performance.
Using the example of Russian privatisation in the early 1990s as a cautionary tale, Dr. Emadi warned that privatisation should only be implemented if it enhances competition. This was particularly important to bear in mind since the lack of ownership and property rights in Iran underpins a ‘huge institutional deficit’ which acts as a disincentive to entrepreneurial activity in the country. Emadi went on to suggest that the introduction of such property rights would help ensure that privatisation would be open and competitive.
Emadi said that there is significant appetite for privatisation from the business community. However, this appetite is at odds with the political elite in Iran. Their reticence to introduce privatisation is grounded in their fear that privatisation would allow alternative centres of power to emerge. As a response to this political challenge, Emadi hypothesised that Iran could adopt an ‘Iranian Version of the Chinese programme’ for privatisation in which political control is maintained alongside a more open economy.
In his concluding remarks, Emadi underlined that privatisation in Iran will not succeed without active support from the European Union. More specifically, he argued that the “bottom-up” enthusiasm for privatisation from the business sector needs to be complemented by more “top-down” authority from Iran’s political elites. Such an alliance could be further strengthened by the active participation of the EU. For example, the European Union could fund exchange programmes to help train some of the Iranian labour force, many of whom are using out-of-date tools and machinery as a result of economic sanctions imposed on Iran. Ultimately, successful privatisation in Iran could benefit both Iranians and Europeans.
Indeed, Emadi argued that it would is in the long term interests of the EU to assist the privatisation programme since a prosperous economy in Iran could have a calming effect on the region. A more prosperous Iran could also benefit neighbouring countries in the region which in turn could reduce population movements from the region to Europe. Finally, an upgraded energy sector in Iran could help reduce European dependency on Russian supplies.
The Transitions Forum is a series of projects dedicated to the challenges and possibilities of radical political and economic change.