Sunday, December 3, 2023

Sanctions and COVID: Iranian small businesses survive tough year | Business and economic news

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Tehran, Iran – Like many Iranian small business owners, Ehsan could never have imagined the challenges 2020 would throw at him.

The 41-year-old makes shirts, pants, tops and accessories in his workshop just outside Tehran which he then sells in a wholesale store he owns in the Grand Bazaar in the Iranian capital. .

Between the two establishments, it employs around 50 people.

In February, after the first cases of COVID-19 in Iran were confirmed, the country’s neighbors began closing their land and air borders. This has raised the price of goods imported to Iran, including the fabrics Ehsan needs to produce his clothing line.

More economic hardship followed in March after President Hassan Rouhani’s government ordered nationwide restrictions to contain the spread of the disease, further hammering business activity and slashing household budgets.

By April, Ehsan’s customer base had been emptied.

“Our old customers didn’t come any more because they couldn’t sell their old stock and would have to sell it later when the merchandise season was over,” he told Al Jazeera, asking for his name family is retained. protect his privacy.

But market dynamics quickly adjusted in Ehsan’s favor, he said, as the void left by old customers was filled with new retailers who had themselves switched to new trades in the face of the pandemic. .

“They were replaced by others, like the one that sold Turkish products to Iran and could no longer import them at that dollar rate,” Ehsan said. “So we haven’t really felt all the price hikes, at least at the start of the pandemic. Smaller retailers have taken the hard hit. “

Ehsan Garment Factory on the outskirts of Tehran [File: Al Jazeera]

Survival instincts forged in sanctions

The 2020 COVID-19 pandemic was not Ehsan’s first contact with a potentially destructive business disruption.

After US President Donald Trump reneged on Iran’s nuclear deal with world powers in 2018, Washington embarked on a campaign of “maximum pressure” of relentless sanctions aimed at squeezing the Iranian economy.

The damage inflicted is evident in the value of Iranian currency. The rial fell from around $ 40,000 to $ 1 before the Trump administration’s sanctions, to a low of 320,000 in mid-October – when Washington effectively blacklisted Iran’s entire financial sector.

The rial has since recovered to 250,000 against the US dollar. But Ehsan, who was traveling to Turkey, the United Arab Emirates and Thailand to buy some of the fabrics he needed, had to learn to live in conditions that quickly turned against him.

“We used to buy the best French lining for our coats at 12,000 tomans (120,000 rials or $ 0.48) per meter, but two months later when we ordered it again it was 22,000. A box of wires was suddenly worth 10 times, ”he says.

Thanks to a government crackdown on smugglers to protect local manufacturers, Ehsan was able to keep his business afloat in the face of sanctions. Now, he says, he’s toughened up in battle.

“We’ve worked in the worst of markets and I’ve seen all the ups and downs in the 21 years I’ve been working, so we keep going and we’re not scared.”

Newly initiated to the crisis

Not all small business owners were forged in the crucible of previous economic challenges.

For the past four years, Sara Farnad has run a small bakery in her mother’s basement in Tehran.

Before the pandemic, she employed two people to help her produce cookies and cakes for sale in cafes in the capital. But she had to let her employees go after the pandemic tore the restaurant industry apart, wiping out demand for her products.

“I used to work with five cafes but now there are only two. Their orders are now only a third of what they were, ”the 36-year-old told Al Jazeera.

“I have sent samples of artwork to several other cafes, but they say they can’t afford it.”

Farnad also has private clients. But they don’t book as many orders from him either, thanks to the belt tightening and social distancing guidelines.

The challenges facing Farnad this year have been immense.

Iran has experienced the worst COVID-19 outbreak in the Middle East. The government first acknowledged that the coronavirus had found its way into the country at the end of February by suddenly announcing the death of two people in Qom, south of Tehran.

It was the first of three waves this year that infected at least 1.1 million people in Iran and killed more than 52,000 people according to government figures. Health officials believe the actual rate, including unconfirmed infections, could be nearly double.

Iran has imposed two extended lockdowns since the COVID-19 strike. The first round of restrictions ordered in March closed most of the country, including the store in Farnad.

Restaurants and cafes were allowed to reopen in May, but Farnad kept his bakery closed until June for the sake of his and his family’s well-being.

When it reopened, it found a profoundly changed business landscape.

Before the pandemic, Sara Farnad employed two people in her small bakery to make cookies and cakes [File/
Al Jazeera]

“By this time, the dollar had become more expensive, causing commodity prices to rise,” she said.

Furnad has adjusted by purchasing fewer ingredients and reducing production while trying to gauge demand. The disruption shattered the stability she had worked so hard to build.

“It takes years to get to some stability and get a feel for the price ranges, but that instability, and then the virus, continues to challenge you.”

It suffered another setback in November when it had to shut down again after Tehran and hundreds of cities across the country reinstated partial closures in a bid to curb an alarming rise in infections.

“If I had had to pay rent in the past few months, I definitely would have had to shut down my business,” she said, adding that she is committed to keeping her business alive despite the uncertain outlook. , the responsibility and the pressure of not having a regular paycheck.

‘Just to keep the lights on’

Ali has two small businesses located next to each other in western Tehran.

One is a real estate brokerage firm, which he runs personally. The other sells single-use plastic cutlery and other party supplies.

The latter case has just reached the breakeven point, Ali said, asking Al Jazeera to withhold his last name to protect his privacy.

“Basically all we put in there is just to barely keep the lights on and pay the one person who works there,” said the 44-year-old. “He’s not making any profit.”

“Whenever there is no price stability, there is no profit. It’s just a little money coming in and out of your pocket so you don’t sit idle. “

The real estate industry is not getting better, he says. Some days go by with barely a phone call from potential clients, thanks to astronomically rising house prices and competition from real estate websites that have grown in popularity.

“We had five consultants working with us here, but now we’re down to two,” he says. “Most of the consultants are educated unemployed young people who need work.”

Sara Farnad’s artisan bakery in her mother’s basement in Tehran [File: Al Jazeera]

Ali said the government had not given him any help and he was tracked down by tax authorities who say he earns more than he discloses.

“The country right now is in such a way that the government people just want to take something out of the pockets of the people,” he said.

At the start of the pandemic, President Rouhani’s administration announced loans for the roughly three million businesses reportedly affected by the coronavirus.

According to the latest figures, the cash-strapped administration had approved around 73 trillion rials ($ 292 million) in business loans by the end of November, and it predicts that more than 116 trillion rials ($ 464 million) will be paid before the end of the pandemic.

Loans amount to 160 million rials ($ 640) per employee for companies directly and indirectly affected by the pandemic and whose interest rate is 12%, about 40% less than the average market rate. .

But getting guarantors and collateral for loans can be very difficult, and not everyone can afford more debt right now.

“I thought about a loan of 10 million toman ($ 400) this summer to buy new boxes and a better electric mixer, but that number is getting smaller and smaller,” said Farnad. “I wasn’t sure I could repay it.”


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