COUNTRY FOCUS: Current Development of MSMEs in Iran

Hamid Aziz Mohammadlou

Iran Small Industries and Industrial Parks Organization (ISIPO)
Tehran, Iran
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Background

Micro, small and medium enterprises (MSMEs) are particularly important in any economy around the world. They are the source of a significant share of job creation in any modern economy. It has been reported that a large share of the unemployment reduction in many countries around the world in recent years, has been caused by MSMEs. These enterprises also contribute significantly to gross domestic product (GDP) growth around the world and also ensure that there is proper flow of money across the economy. In fact, it is MSMEs that governments rely upon to boost growth in their economies. This is true not only in Asian and African countries, but also in the United States of America (US) and several European countries. The economy of the Islamic Republic of Iran (hereafter referred to as Iran) is to a very large extent determined by large public and quasi-public enterprises, controlling up to around 80 per cent of the economy. This is especially true with regard to the businesses engaged in exploiting, processing and trading crude oil, petroleum products and natural gas, which provide some 80 per cent of Iran’s export earnings and around 40 to 50 per cent of the government budget. This has created a heavy dependency on this sector of the economy, and its mainly (publicly-owned) large enterprises, in spite of the fact that the great majority of businesses in Iran belong to the category of micro-, small- and medium-sized enterprises (MSMEs). Generating employment is an overwhelmingly important issue in Iran. According to data released by the Statistical Centre of Iran, approximately 3 million workers were officially registered as unemployed in 1379 (2000/01).This figure is growing. As has been proven in many developing, MSMEs can be instrumental in employment generation, and can help to absorb not only the natural growth of the lab our force but also manpower shed from the state owned enterprises (SOEs) as a result of their rationalization or privatization. MSMEs are regarded as the principal employment generator even in the developed economies. Best practices in all types of economies (developed, developing and transitional) have shown that a flourishing and sustainable industrial MSMEs can only be attained when two major elements of the business environment have been put in place. The first of these is an appropriate legal structure for MSMEs, which belongs in the domain of the government. The second is a suitable institutional support structure for MSMEs, which include business advisory services, information provision, training, financial services, and the like, and falls in a domain shared by the government and the private sector. The former will need to concentrate on policy formulation, which should create an enabling environment for business development, whereas the latter will need to develop and strengthen the capacity of enterprises to increase their competitiveness, which will lead to the growth of their businesses, to increased exports of their manufactured products, and to increase employment generation.

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