Iran sets new conditions for foreign car making firms

/By Azernews/

By Aynur Karimova

Iran, which is ambitious to become a car production hub in the Middle East region and regards the car making industry as the biggest field of non-oil sector, has set new conditions for foreign car making companies operating in the country.

In a bid to support national auto parts making industry, the country's Industry, Mines and Trade Ministry has obliged foreign carmakers to allocate a 20-percent share for Iranian-made car parts if they want to operate in the country's market, Arash Mohebbinejad said.

The ministry has also obliged the Iranian car makers to purchase 40 percent of the parts used in production from domestic market, ILNA news agency reported on April 25.

In accordance with Iran's major economic development plan, the country has set a goal to boost car output to three million per year by 2025. Furthermore, Iranian car part makers are obliged to produce $6 billion worth of car parts by 2025.

Earlier, Mohammad Baqer Rejal, the Head of the Iranian Car Parts Manufacturers Association, said that the country's auto manufacturers owe $2.3 billion to the factories that manufacture car parts.

A great part of the debt was accumulated in the past few months as only four months ago the debt stood at $1.6 billion.

Today, only 15-20 percent of car parts cannot be produced in Iran, and this is due to the fact that launching their production lines is not economically beneficial - they mostly include electronic parts.

Iran's car output during the last fiscal year (ended on March 20) decreased by 13.7 percent compared to the same period of the preceding year, and stood at 976,836.

Iran produced 989,110 cars in 2012, which made the country Asia's eighth largest car manufacturer. Iran also stood at the world's 18th place in the mentioned year. The Islamic Republic's car output faced a 40-percent decrease in 2012 following sanctions.

Now after the removal of international sanctions, the Islamic Republic plans to revive the car making industry as cooperation between Iranian carmakers and foreign car manufacturers has revived.

Today, the race has tightened for access to Iran’s auto market. European automakers, which were forced to leave the Iranian market after international sanctions on the Islamic Republic for its nuclear program, are now attempting to restore their previous shares of Iran’s vast car market.

Deputy Minister of Industry, Mines and Trade Mohsen Salehinia earlier noted that the country plans to manufacture 1.35 million cars in current fiscal year (started on March 20), and to boost its auto export. Also, the Iranian market will be supplied with joint venture products from early 2017.

Experts believe that the Islamic Republic is capable of turning into a car making hub in the region given the country’s geopolitical situation and its high security.

James Dorsey, a senior fellow at Nanyang Technological University's S. Rajaratnam School of International Studies, earlier told Azernews that initially, the car industry is likely to focus on the country's domestic market.

"Beyond the fact that Iran has a substantial domestic market in its own right and a long-standing industry with local models, the car industry needs significant upgrading to erase the effects of years of international sanctions," he said.

Iranian President Hassan Rouhani has already urged international companies to cooperate with Iran to develop the country’s auto making industry. He said Iran welcomes foreign carmakers to come, do research and produce as Rouhani believes that Iran "cannot close the doors and make people buy home-made cars."

Meanwhile, economists claim that Iran's car making industry needs modernization after years of sanctions, while its car part manufacturing industry needs to absorb $8 billion worth of foreign investment in a long-term period.

The government sees fully privatization of the car industry as a tool for achieving its development. Officials say privatization, being a key strategy for rehabilitation of the Iranian economy, will facilitate upgrading the Iranian car industry, as well as its growth.