Wednesday, November 30, 2011

Iranians ignore sanctions pinch; Tehran's bazaars full of keen shoppers...

Iranians ignore sanctions pinch; Tehran's bazaars full of shoppers keen to buy the latest....

By Jason Rezaian

TEHRAN - As the Iranian economy struggles under international sanctions intended to halt its nuclear programme, one unofficial indicator that has yet to be rattled is the Islamic Republic's robust consumer confidence.

Last March, during his annual nationally televised Persian New Year's address, Iran's Supreme Leader, Ali Khamenei, dubbed 1390 the year of the "economic jihad", declaring that, "These sanctions that the enemies of the Iranian nation have planned or implemented are intended to strike a blow to the progress of our country, or impede its accelerating progress."

Indeed, the sanctions, coupled with high unemployment and inflation, as well as a massive banking scandal, have the populace angered and nervous about what lies ahead, and foreign analysts convinced that Iran will erupt in protest any moment. Iran's currency, the rial, is trading at all-time lows against all major global currencies and is likely to continue in free-fall in the coming months.

For most countries the succession of bad financial news would have been disastrous, but as we've learned time and again, Iran is not most countries. Adjusting spending habits is seemingly out of the question for nearly all Iranians, as commerce is an integral part of their identity and traditions.

An example that may seem trivial to a non-Iranian but remains deeply ingrained in this ancient culture is the importance of gift giving. It is unacceptable in most instances to arrive at someone's home empty-handed. Thus, florists and confectionaries are thriving, even as even as local dentists struggle to make a living.

Furthermore, as prices on most goods and services have increased more rapidly in the year since subsidy reforms were first implemented, the average Iranian is nowhere near going to bed hungry - a fact that shows just how far off US hawks may be in their assessment of contemporary Iranian life is.

Senator Mark Kirk's plan to "economically cripple" Iran and his prediction that sanctioning it would make the rial "become like little more than like North Korea's currency" seem like wishful thinking at this point.

To compensate for the increase in prices on formerly subsidized goods and utilities, the government has been making direct cash deposits into the bank accounts of any Iranian who signed up for the program. According to Kevan Harris, a researcher at Johns Hopkins University and frequent visitor to Iran, these monthly deposits are "adding cash flows to everyone's lives, not just the wealthy".

Not only does this make bread riots very unlikely, it has brought Iranians' already well-known tendency toward conspicuous consumption to new levels in recent months.

Shopping in one of Tehran's major bazaars, 27-year-old accountant Golnaz hardly flinched at spending US$6 of her $500 monthly salary for a half pound of dried fruit. "This is the price," she remarked, "We're used to things getting more expensive. It's been like this for my generation."

The proliferation of retail ventures opening in urban centers, especially restaurants, is staggering. For a country supposedly on the verge of bankruptcy, the long cues in front of many urban eateries - where a meal, without alcoholic beverages, can often cost much more than a similar meal in the US or Europe - paint a very different picture than the one circulating in Western capitals.

Restaurants serving everything from sushi to burritos are cropping up throughout the capital, and their clientele don't seem overly concerned about spending whatever remains in their pockets despite the uncertain future. In this land where bars and clubs don't exist, a $7 cappuccino is commonplace, and the increasingly trendy cafes serving them are prospering more than ever before.

One phenomenon that seems to have made its way into the new Iran is the concept of going Dutch.

"At first I didn't like doing this because I thought it was stingy," admits 30-year-old computer engineer, Javid, "But now I realize this makes a lot more sense. Why fight over the bill? It's silly. We should have been doing this a long time ago."

With the cost for 10 diners at many of Tehran's restaurants often equaling a month's salary for younger members of the workforce, it is easy to see why they would split the bill.

Regardless of who pays, someone is still paying, and no belt tightening seems to be on anyone's mind.

"There are two things Iranians won't stop spending on," says Shabnam, a local journalist. "One is food and the other is luxury items. New clothes, new cell phones, new cars if they can afford it. It may not be wise, but we're very concerned with what other people think of us."

A growing problem, however, is that many of the goods fueling the boom in consumption are not produced domestically. Reliance on imports is increasing. Locally grown meat, for example, costs nearly $20 per kilo, while frozen meat imported from South America (either Brazil or Uruguay) is closer to $6.

Contrast this with neighboring Turkey which, unlike Iran, has worked hard to develop domestic production, simultaneously providing its economy with enough goods to satisfy local needs, as well as creating millions of jobs in export industries.

With a reciprocal visa-free policy, Iranian consumers have been flocking to Turkey to take advantage of the lower prices and often higher-quality goods. Turkish exports are also claiming a growing market share in Iran at the expense of domestic producers.

Similarly, China has become Iran's chief supplier of imported goods, and many Chinese businesses are quietly opening branches within the Islamic Republic.

As Harris points out, "The problem in Iran's case is not a lack of money, but too much money that is undirected towards productive efforts."

Along with its exports, the number of Chinese travelers in Iran has risen sharply in recent months. While much of the world has agreed to stop doing business with Iran, China seems eager to fill the void with whatever the voracious market might desire.

The one industry where Iran has had some recent success is automobile manufacturing. Iran is the top producer and exporter of cars in the region.

But that's not the impression one gets driving in Tehran, where the number of foreign luxury cars has skyrocketed, even in the face of import taxes than can exceed 100%. Maseratis, Porsches, BMWs and Mercedes are now common sights in Tehran, where just a few years ago one would have been hard-pressed to find any vehicle that was not locally manufactured or assembled.

Despite the nearly four-fold hike in petrol prices since the subsidy reform, Tehran's legendary traffic jams are as bad as ever.

Given Iran's millennia-long commercial legacy and the necessity of survival despite the international ostracism it has experienced virtually since its birth, the Islamic Republic has become adept at withstanding punitive measures.

From using third parties to purchase goods it can't import directly, to paying for airline fuel with suitcases full of cash, the regime has applied the often-byzantine style of doing business preferred inside the country to get what it needs from the outside, diminishing - or at least delaying - the effects of ZIOCONNED foreign efforts to weaken it.

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