Carpet Merchants Need Some Magic...While Oilmen Come Rushing In

Akbar Azadi is angry. The 63-year-old Tehran carpet dealer is frustrated by what he views as the rigid export controls and red tape "strangling" the business that has spanned four generations of his family. "In most countries, governments seek to help their exporters. In Iran, they work against us," he says, fingering prayer beads and sitting atop a splendid rose-red and bright blue rug in the eerily empty carpet bazaar.

Despite recent measures to boost rug exports, Iranian carpet dealers say the hand of government still lies heavy on their business. And they aren't the only ones who complain. Iran's fruit, vegetable, and fish exporters lament the ever-changing array of export laws they face, and manufacturers are equally drowned in bureaucracy. As one Tehran-based German businessman puts it: "The government views the private sector with a mingling of suspicion and jealousy. So they instituted laws to rein it in."

Iran earned $631 million from carpet exports last year, up 5% from 1997, but way down from $1 billion-plus in 1994. Iran's carpet woes reflect a broader problem of economic mismanagement, corruption, and state interference in the economy, analysts say. "The carpet industry is just a symptom," says Fariborz Raisdana, a Tehran economist.

The problems begin with Iran's constitution, a decidedly anti-private-sector document that assigns the vast majority of economic sectors, including "foreign trade," to state control. As a result, layers of red tape choke business, creating lucrative opportunities for corruption. Iran's revolutionary politics haven't helped matters much, either. U.S. sanctions, imposed in 1995 to combat Tehran's alleged support of terrorism, rob carpet exporters of the world's biggest and richest market, opening doors to cheaper "Persian carpet" knockoffs from China, India, and Pakistan. International isolation also weakens the rial, spurring inflation, which Tehran estimates at 19% and independent economists put at 30%.

To stem the rial's plunge, which started in April, 1995, when the U.S. announced the sanctions, the government immediately established an official exchange rate and tough currency repatriation laws. Iranian businesspeople also charge that Iran's bonyads, semi-governmental "charitable" foundations, use their high-level influence and access to cheap dollars to evade controls on the carpet trade and many others, a charge bonyad officials deny.

FREE AT LAST. Iranian President Mohammad Khatami, the reformist leader elected in 1997, regularly refers to the economy as "structurally sick" and pledges reform, including a restructuring of the bonyads. To boost nonoil exports, Tehran has loosened foreign exchange controls. Still, merchants such as Masoud Naeni, a former carpet dealer who left Iran to set up shop as a textiles trader in the business-friendly Arab city of Dubai, is skeptical. The Indian textiles he trades around the world are coarse and plain in comparison to the delicate silk carpets he specialized in. But unlike in Iran, he says, "I am free to be a businessman."

One Iranian industry that's staging a comeback is oil. An aggressive marketing campaign, a slew of new projects, and a restructuring of the state-owned oil company have led to a stampede of the world's oilmen to Tehran's doorstep, despite U.S. sanctions that seek to penalize foreign companies investing in Iranian oil. France's Total has already signed two major deals worth more than $2 billion. Another French company, Elf Aquitaine, joined with Italian rival ENI in March for a $990 million deal to develop an offshore field.

Carpet Merchants Need Some Magic...While Oilmen Come Rushing In (int'l edition)

Oil accounts for 15% of Iran's GDP and 80% of hard currency earnings--a total of $9.8 billion last year, 36% less than in 1997 because of rock-bottom oil prices. Burdened with high external debt and rising budget deficits, Iran has launched a major campaign to lure international investment in the industry. Oilmen like what they see. Says a senior Western oil exec: "The new deals Iran is offering are more realistic and internationally competitive than a few years ago." And Bijan Khajepour, an oil industry consultant, says he finds himself besieged by requests for help from oilmen visiting Tehran. Iran's carpet dealers can only hope the visitors buy a few rugs during their stay.

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