In 2007, Supreme Leader Ayatollah Khamenei requested that government officials speed up implementation of the policies outlined in the amendment of Article 44, and move towards economic privatization. Khamenei also suggested that ownership rights should be protected in courts set up by the Justice Ministry; the hope was that this new protection would give an additional measure of security and encourage private investment. Despite these statements, true official backing for privatization remains very slow due to political reasons.
It is widely believed that if current governmental organizations are privatized they will need to become more efficient. At present many are not profitable due to the large numbers of unnecessary employees that have been hired by the government in order to reduce unemployment. Furthermore, many of these companies are subsidized by oil revenues. True privatization will inevitably lead to many unpopular job cuts and large scale lay offs.
The current privatization effort calls for an initial public offering (IPO) of five percent of the firms being privatized. Once the five percent is public, it will establish a market price which further offerings can be based on. According to a study conducted by the IMF in 18 countries, privatization adds 2 percent to the government’s GDP per annum.
A strict interpretation of the above has never been enforced in the Islamic Republic and the private sector has been able to play a much larger role than is outlined in the Constitution. In recent years, the role of the private sector has been further on the increase. Furthermore, an amendment of the article in 2004 has allowed 80 percent of state assets to be privatized (ref: Note C, article 44 of Constitution).
Immediately following Iranian Revolution in 1979 and the outbreak of the Iran-Iraq war over 80% of Iran's economy came under the control of the government. This created numerous problems for Iran as previously internationally competitive companies, such as Iran Air or Iran Khodro, degraded into basic domestic companies that could barely function without massive government subsidies - primarily derived from oil revenues.
After the Iran-Iraq war in 1988, the Iranian government declared its intention to privatize most state industries in an effort to stimulate the ailing economy. The sale of state-owned factories and companies proceeded slowly, however (mostly because of the opposition in Majlis), and most industries remained state-owned in the early 21st century (70% of the economy as of 2006). The majority of heavy industry —including steel, petrochemicals, copper, automobiles, and machine tools— was in the public sector, while most light industry was privately owned.
In 2004, under the presidency of reformist Mohammad Khatami a number of efforts were made to eliminate the role of the government: The Tehran Stock Exchange was re-launched allowing a mechanism by which to sell shares of government companies, elements of the constitution (article 44) which decreed that core-infrastructure should remain state run was eliminated, and private banks were launched.
Despite plans to sell billions worth of state assets to the private sector, uptake was very slow. A common criticism of the privatisation effort by investors was the only local Iranian organisations that are capable of buying the large share blocks are themselves government owned. Also analysts have blamed international fears about the Iranian nuclear programme and an absence of transparency and information reporting for the lack of enthusiasm for state assets. In 2005, Iran tried to sell $2.5bn of government assets but only managed to offload less than 30 per cent.
The Central Bank of Iran indicate that 70 percent of the Iranians own homes , with huge amounts of idle money entering the housing market. However, if the stock market grows stronger, it will undoubtedly attract idle capital.
In July 2006, Supreme Leader Ayatollah Khamenei decreed a renewed effort to privatise the economy and said in his order that “ceding 80 per cent of the shares of large companies will serve to bring about economic development, social justice and the elimination of poverty”. The decree is also an effort to revive Iran’s stalled privatization programme and kick-start the country’s many uncompetitive industries, which are heavily protected by subsidies.
In February 2008, Iran announced that 3 newly formed Investment Banks (Amin, Novin and Pasargad) will take share subscriptions and act as an intermediary between the Privatization Organization and the stock exchange, helping Iran divest state-owned enterprises.
The government has approved a plan to offer shares to low-income families, starting with the poorest. Under the “Justice Shares“ plan, millions of Iranian families will receive shares in state-owned firms, the value of which will be reimbursed in 20 years from the dividends generated by those shares. The holding period for those shares is a minimum of 2 years. The project is in line with President Mahmoud Ahmadinejad’s election promise to improve the condition of Iran’s poor. Ahmadinejad in July 2005 promised to distribute shares to Iranian families, adding that these shares would be from state-run companies that must be privatized.
The poorest strata of society shall receive justice shares at a 50 percent discount and will pay the said amount in 10-year installments. Villagers and nomads shall have priority in this respect.
Those covered by charity services rendered by the Imam Khomeini Relief Committee and the State Welfare Organizations as well as the jobless war veterans are prioritized in the first phase of the justice shares initiative. In the second phase, rural population and tribesmen will receive the shares.
Directives on identifying those eligible to receive justice shares (in the second phase) have been issued and the shares will be distributed (among the rural residents and the tribesmen) after receiving their national code number. Up to 6.5 million rural residents who qualify for the shares have been identified and that 1.2 million more people are yet to complete their documents. The Government is promoting the shareholding culture in Iran. The total number of shareholders has reached 700,000 people and this figure is expected to reach 24-25 million. In December 2006, the Government informed that some 4.6 million low-income Iranians had received Justice shares worth $2.5 billion as part of the privatization scheme. Each person received around $550 in shares with a maximum of 5 payments for each family.
In February 2008 the Iranian Economic Ministry announced that some 15 million rural people out of 23 million are entitled to justice shares by the next Iranian year (to start March 20, 2008).
Privatization drive will gain momentum once Iranian expatriates begin to invest in their motherland. Iranian nationals residing abroad are holding significant assets. Many have invested their capital in other countries, following the 1979 Islamic Revolution and the 1980-1988 war. Statistics at hand suggest that close to $10 billion (of goods) were re-exported into Iran last year. Multinational companies, particularly Iranian firms, are involved in export of goods into the country from Dubai. There are differing estimates of the expatriates’ total capital (1.3 trillion dollars ), but what is clear is that it is so huge that it will be enough to buy shares of all state companies. In Dubai alone, Iranian expatriates are estimated to have invested up to $200 billion. If 10 percent of this capital arrives, things will change drastically in Iran.
A subsidiary of Iran's largest bank, Melli Investment Bank with branches in Dubai (UAE) and London, plans to launch a fund of up to $300 million to invest in the Tehran Stock Exchange, providing an alternative venue for foreigners to invest in the Iranian economy. The market, with a capitalisation of $37 billion, is trading at a fraction of the earnings multiples enjoyed by Iran's neighbours, while average earnings continue to grow at about 25 per cent a year. The fund will be composed of blue chip companies like Iran Khodro and will be based in the Cayman Island and managed from Iran.
According to the same survey, while 67 percent of the firms have experienced a decline in profit margin, car manufacturers, cement factories, investment institutions and banks have had an increase in the same index. The Iranian year March 2005-06 was a good year for these industries.
Meanwhile, the Persian daily Ettelaat named the top five corporations as follows: Industrial Development and Renovation Organization (IDRO) ranking first with an asset of 112,658 billion rials followed by Iran Khodro Industrial Group with an asset of 65,971 billion rials, Iran Mining Industries Development and Renovation Organization with 52,184 billion rials, Saipa car factory with 40,528 billion rials and National Iranian Petrochemical Company with 32,024 billion rials. They were followed by SAPCO, Bank Melli Iran, Bank Saderat Iran, Mobarakeh Steel Co. and Bank Mellat taking the sixth to tenth positions.
Latest statistics show that the number of companies worth over one billion dollars in Tehran Stock Exchange has reached 12. Among them are National Iranian Copper Industries Company (NICIC shares are worth $5.2 billion), Kharg, Ghadir petrochemical companies, Khuzestan Steel Company, Power Plant Projects Management Company (MAPNA), Retirement Investment Firm, Metal and Mine Investment Companies, Gol-Gohar Iron Ore Company($2.1 billion), and Chadormalou Mining and Industrial Company.
The assets of the top 100 Iranian corporations add up to $86 billion which is less than that of a corporation such as Microsoft. But this does not account for goodwill (accounting) that should increase the real assets value to more than a trillion dollar.
As planned, all airline companies except for Civil Aviation Organisation as well as Ports and Shipping Organisation should be ceded to the people. This covers flag carrier Iran Air and its affiliate Iran Aseman Airlines. The fast-growing Islamic Republic of Iran Shipping Lines has also been lobbying for more independence.
In 2006, the Ministry of Communications and Information Technology announced that it will float the shares of affiliated companies such as Mobile Telecommunications Company in the stock market.
Under the general policies of Article 44, telecom companies are categorized in four groups as follows:
In March 2007, TCI and its provincial affiliated companies received the Government's permission to be privatized. TCI's Infrastructure Telecom Company will be detached from it and it would continue its activities as a part of the ICT Ministry. 33 companies in the telecom sector are to be privatized by September 2007. This happened simultanisouly with the launch of MTN Irancell, a private second carrier with foreign ownership. The privatization and introduction of a second operator has created a significantly more competitive environment which has led to significant cost reductions for mobile owners and service benefits.