Silk Road Economic Belt: Opportunities and Threats for Private Sector in Iran

17.02.2021
Yasir Rashid Assistant, Economy

Silk Road Economic Belt: Opportunities and Threats for Private Sector in Iran

Shariatinia, M. (2019). “Silk Road Economic Belt: Opportunities and Threats for Private Sector in Iran”. Tehran Chamber of Commerce Industries Mines and Agriculture. Economic Research Department. Tehran, 106 pages.


The report "Silk Road Economic Belt: Opportunities and Threats for Iran's Private Sector1" has been prepared with the support of "Tehran Chamber of Commerce Industries Mines and Agriculture" (Tehran Chamber) by Mohsen Shariatinia, Assistant Professor of International Relations at Shahid Beheshti University. This 106-page report was implemented in Azar 1398 (December 2019) under the supervision of the Economic Research Department of the Tehran Chamber. Tehran Chamber, with more than 130 years of experience, is one of the major institutions supporting the private sector in Iran. 

Economic Research Department of the Tehran Chamber with the aim of informing and raising the level of awareness of private sector activists regarding the latest developments in Iran and the world in various economic fields, including money and banking’s market situation, trade, budget performance and also in the fields of industry, mining and agriculture continuously publishes reports and economic materials using data and information from reputable domestic and international official sources. Also, Economic Research Department, by conducting study and research on various economic issues, provides the necessary basis for the chamber's participation in the country's economic decision-making forums and, through the publication of research reports, tries to within the framework of the specified goals and strategies improve the position of the chamber in terms of playing the role of a comprehensive, qualitatively active organization in the country's economy. Furthermore, by supporting student dissertations, this organization tries to help the students in learning applied sciences related to the private sector. 

The report "Silk Road Economic Belt: Opportunities and Threats for Iran's Private Sector" is divided into four chapters: first, "Mega Silk Project in the context of the second phase of China's economic development"; second, "Effects of the implementation of the Mega Silk Road project in Iran's environment"; third, "Opportunities and Threats of Implementing the Mega Silk Project for the Iranian Private Sector"; and lastly, "Iranian Public and Private Sector Participation in the Mega Silk Project: Policy Recommendations". Each chapter separately contains an introduction, core part, and summary. In this report, Shariatinia, the author, tries to answer the following questions: What are the driving factors of China's second phase of economic development? What are the principles of the Silk Road, and what is its place in China's overall development strategy? What are the effects of the implementation of the Silk Road Initiative in Iran, and what is the position of this country (Iran) in this initiative? The author also shades light on questions such as, what are the factors behind the successful participation of the private sectors of Kazakhstan and Pakistan in the value chain of the Silk Project? What are the opportunities and threats for the implementation of the Silk Road Initiative for the Iranian private sector? What are the strategies for targeted private sector who take part in this Silk Road initiative? 

In the first chapter of this report, the Mega Silk Road Economic Belt project is assessed in the context of China's new development policies. From the author’s point of view, the Silk Road plan can be comprehended and analyzed in the form of the second stage of development policies after the 1949 revolution in China. Therefore, this chapter discusses the characteristics of the last two phases of development policy in China, the first phase of which begins in 1978 and continues until 2012, and the second phase of which begins in 2012 and continues thus far. In addition, this chapter provides a brief overview of China's dual stages of development during the reform and open-door policy, showing that China's development policies have undergone a paradigm shift in recent years. In this paradigm shift, making China a developed country by the mid-21st century is defined as the most important goal. In short, the Silk Road megaproject is a symbol of China, which is increasingly woven into the international political economy, and its influence on the world economy is rapidly seeing growth. 

In the continuation of the first chapter, in the second chapter, the effects of the implementation of the mega silk road project in the surrounding environment of Iran are discussed. In this framework, firstly, the multiplicity of Iran's geoeconomic environment is analyzed, and then, the conceptual framework of this project has also been put under scrutiny. In this regard, the report states that the mega silk project is gradually changing the geoeconomics environment of Iran. This transformation is taking place dramatically on the northern and eastern sides. On the north side of Iran's geoeconomics circumference, the Mega Silk Road project has opened up new avenues for Central Asian countries to emerge from the landlocked state, helping to facilitate China's domination on Central Asian countries’ economies and making Kazakhstan a new transit hub. Also, on the eastern side of Iran's geoeconomics circumference, the project has lifted Pakistan out of economic isolation, turned the country into a land corridor of the Silk Road Initiative, and is transforming its economy. On the southern side of Iran's geoeconomics area, the Gulf Cooperation Council (GCC) countries have been identified as logistic hubs on the initiative's offshore Road, and the UAE has in practice become the Silk Road initiative's logistics hub in the Middle East. In the big picture, the report states that the implementation of this mega project has changed the geoeconomic environment and circumference of Iran for the first time since the collapse of the Soviet Union. 

In the third chapter, the opportunities arising from this mega project for the Iranian private sector are discussed. Moreover, relying on the conceptual framework of the global chain, the value of the position of the Iranian private sector in the various links of this chain-based plan is discussed too. In this regard, first, the concept of the global value chain and its place in the international political economy is discussed, and then the opportunities and threats that the value chain of the Silk Road can bring to the Iranian private sector are discussed. In this regard, the report adds that the participation of the Iranian private sector in the mega value chain of the Silk Road Project is not a choice but a necessity. The report also states that the implementation of the mega Silk Road project implicitly and explicitly will have significant positive effects on the macro business environment of the Iranian private sector, especially in terms of reducing cross-border trade costs. According to the World Bank, Iran and its private sector could potentially be among the most important winners of this macroeconomic project, and the integration of the Silk Road Initiative could revive Iran's historical-geoeconomic position as a bridge between East and West. However, due to the ongoing sanctions against Iran, the country's private sector options to play a role in this project are limited to attracting small and medium-sized Chinese companies, which of course, constitute an important part of the country's economy. In such circumstances, each of the sub-sectors of the Iranian private sector, especially considering the potential profitability of the implementation of this mega project on different industries in the countries along with this project, needs to design their own policies, and they also have to design strategies regarding their participation in this mega project and partnership with small Chinese companies. The report also states that according to World Bank studies, important cities in Iran (such as Tehran and Isfahan) are on the path of the Silk Road corridors, and its implementation could lead to business prosperity in these cities. The implementation of the Silk Road Initiative can also help reduce trade costs in Iran's neighborhood and can improve Iran's foreign trade, especially in terms of market access. Finally, the implementation of the Silk Road Initiative could increase Iran's exports.

In the last chapter, the successful participation of the private and public sectors in Pakistan and Kazakhstan as leading countries in taking advantage of the opportunities of this project is discussed. In addition to the previous chapters, policy recommendations for the purposeful participation of the Iranian private sector in this project have been provided. In this regard, the fourth chapter is divided into three parts: in the first part, the process of participation of the public and private sector of Kazakhstan, and in the second part, the process of participation of Pakistan in this project will be discussed. The third section will provide policy recommendations for the effective public-private partnership of Iran’s participation will be analyzed. 

According to the report, Kazakhstan has successfully linked its development master plan to the Silk Road Initiative within the framework of "policy coordination", connecting its energy and transportation infrastructure to China, and has benefited by establishing itself as a link between China and Europe. Pakistan, too, has taken advantage of its position as an ally of China, with cheap and massive labor and a large potential market, and has shaped the domestic consensus to attract $ 70 billion of Chinese investment in this country. Regarding policy recommendations for effective public-private sectors’ participation of Iran in this project, the report highlights the followings: 

  • Consultation with the government to prioritize the mega-silk project in the relationship between Iran and China, also making this project as the center of relations between the two countries, is recommended too.
     
  • Focus on finding a solution for financial transactions between companies of the two countries.
     
  • Focus on interaction with small and medium-sized Chinese companies due to the atmosphere of sanctions on the one hand and the importance of small and medium-sized companies in the Iranian private sector on the other hand.
     
  • Consultation with the Government to promote bilateral trade liberalization with the neighborhood, with priority given to countries involved in the Mega Silk Road Project, on the one hand, and regular consultation with the Chinese Government to further coordinate policies on the implementation of Silk Road projects on the other hand.
     
  • Institutional interaction with the Chinese private sector with the focus on identifying opportunities for cooperation in the form of this mega project.
     
  • Establishment of the Silk Road Council, consisting of representatives from the government and the private sector, with the aim of promoting purposeful cooperation with China and other countries on the project.
     
  • Establishment of Iran think tank regarding the Silk Road megaproject in Tehran chamber due to the long implementation timeframe of this project.
     
  • Sending the Silk Road Trade Attaché to China in cooperation with the government and the private sector to purposefully introduce Iran's economic potential and to keep these economic potentials up to date with the evolving situation of the project in China.
     
  • Transforming Iran into an axis of consultation and quadrilateral dialogue for the implementation of the China-Central Asia and West-Asia corridor. In this context, consultation between the governments of China, Turkmenistan, Iran, Turkey, as well as the private sector of these countries can help to a common understanding of this corridor and the realization of the common interests resulting from its implementation.

Finally, the “Silk Road Economic Belt: Opportunities and Threats to Iran's Private Sector” comes to an end with a list of sources and references related to the report.


The report is formally entitled "The Silk Road Economic Belt: Opportunities and Threats to Iran's Private Sector." But the author is referring to the China Belt and Road Initiative (BRI), also known as One Belt, One Road (OBOR), which was introduced in 2013. 

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