The first meeting of the series of meetings to examine the obstacles to the development of the digital economy was held, in which we review the most important statements
According to the IDEA, The development of e-commerce in Iran is facing obstacles that have caused its share of the total retail trade to remain constant. Activists of this industry believe that the investment issue is one of the main factors behind Iran’s backwardness in the field of e-commerce.
According to them, despite all the slogans to invite investment, the situation is such that it scares domestic and foreign investors. E-commerce activists emphasize that in order to improve the situation, the entry of companies in this field into the stock market should be facilitated and the conditions for investment should be improved.
The development of e-commerce in Iran has had many challenges up to now. While the countries of the world have experienced a significant growth in their total online retail sales, Iran’s share in this area is very low, around 4%. This issue indicates that there is a significant gap with the world in this field, which shows that despite the high potential of e-commerce growth in Iran, this field has not grown in recent years.
On the other hand, 2% of this 4% share of online retail is related to social commerce (i.e. what is bought on social networks) and only the remaining 2% is related to stores that buy and sell officially. Also, a statistical comparison with startups from other countries in the world can show the distance between Iran and other countries.
Statistics show that the value of Turkish startups has increased almost 10 times since 2018 and reached 39 billion dollars, and the point here is that the growth of Turkish startups has been almost at the same time as that of Iran. But Turkey is not the only country that has been able to grow well compared to Iran; Countries such as UAE, Saudi Arabia, Egypt and Qatar are not far behind.
For this reason, with the presence of e-commerce development specialists and experts, the obstacles and challenges of this field were discussed and discussed and the reasons for Iran’s lack of growth in this industry were discussed.
A look at the definition of e-commerce
“Mohammad Farjoud”, the CEO of Tejarat Bank Technology and Innovation Holding, said that there are several definitions of e-commerce.
Its simple definition is the buying and selling of goods and services on a network platform (Internet). But the definitions differ somewhere, for example, is payment included in this definition or not? Because buying and selling may be online, but payment is not online. In my opinion, what is the government’s basis for the statistics, they have the payments based on IPG and MPG Mobile from Shaparak and subtract a series of categories from it.
But there may be a series of categories that are not inherently, according to our definition, the buying and selling of goods and services; Like charging your wallet at a brokerage. Therefore, the definitions can create such a separation in the statistics.
He believes that regardless of how big the industry gets, “inflation” also adds a percentage to the total riyals of transactions every year: “So all of these can affect the growth of this figure, while it may not fit into the simple definition of e-commerce.”
“Farzin Fardis”, a member of the board of Tehran Chamber of Commerce and CEO of Sarava Company, also emphasized that the definition of growth should be precise: “Inflation is an important part of this growth. Last year, the statistics published by the e-commerce development center of the Ministry of Security show that in 2022, the total turnover of this sector was 1,833 billion tomans, and it grew by 48% compared to the previous year. But is this 48% growth or do we count it as growth because the value of the currency has decreased? In fact, it should not be a statistic.”
He considered one of the methods available to evaluate these statistics as “examining the growth of the number of goods or services sold”: “When we talk about growth, its basic elements must be correct. For example, if we measured these statistics based on dollars, maybe it would be acceptable. If this point is not taken into account, mistakes may occur in calculations and analyses.
Why did the share of online retail sales not grow?
But why haven’t we been able to take a significant share of online retail and grow? “Alireza Kolahi”, the head of the Industries Commission of the Tehran Chamber of Commerce, explained that this is a damage to the country’s economy: “One of our traditional problems in Iran is due to the ineffectiveness of the goods distribution system in the country. Brokers and intermediaries in Iran account for a significant share and are one of the reasons for the high price. Their role in Iran’s economy has always been prominent and they do not create any value.”
According to Kolahi, part of this inefficiency is related to the resistance of the traditional sector, which protects its broad interests at any cost: “But the other part of it is due to the fact that we have not allowed this sector to flourish in Iran. “Digikala” followed the same path as “Souq” and when Amazon bought Souq for a billion dollars, Digikala was much bigger than that. Even at that point, we were ahead of Turkey and the international attention in this field was more to Iran than to Turkey. But where is Souq and where is Digikala now?”
He went on to list the reasons for this delay and said: “The process of foreign investment was interrupted. Not everything was due to sanctions and part of it was due to internal tensions and scared investors. These companies were not allowed to go public, and if they had gone public, they would certainly be much larger now. Digikala, which has come so far and has 2% of the retail market, has stopped the smuggling and entry of counterfeit goods, prevented tax evasion and actually eliminated the inefficiencies of the supply chain.
Now, if we were in the dimensions of Turkey, which is five times our size, we could see what this value creation has been for the government and for the consumer from the perspective of taxes and customs. But now, if we add all these together, we will see how much we have damaged the country’s economy.”
Lack of investment, the factor behind the competition
In the continuation of this meeting, Farjoud explained about the main factors behind Iran’s backwardness in the field of e-commerce: “Investment is one of its causes. In our startup ecosystem, under 1 billion dollars have been invested in the past 15 years, while in 2021, only a few major startups in the region have attracted 5 or 6 billion dollars in investment.
According to the CEO of Tejarat Bank Technology and Innovation Holding, when there is no investment, we will naturally fall behind in the competition: “Now, in the field of clothing, one third of the sales of “Trendyol” in Turkey are destined for Iran, and this is a very bad thing; Because it causes currency exchange and damage to the domestic producer, and it has created an opaque market.
Another issue he raised was “trafficking”: “Due to legal barriers to import, nowadays smuggling has a serious share of our retail market. About four billion dollars of the 8 billion dollar clothing market is smuggled. Also, 2.5 billion dollars out of 4 billion dollars in the cosmetic-sanitary market or 2 billion out of 6.5 billion dollars in the field of household appliances are smuggled.
These have increased the power of the offline market compared to e-commerce; In addition, Iran’s official e-commerce market is transparent and does not sell contraband. So this is another lever that reduces our e-commerce share, because the demand is for the product, but it is imported through a different way and sold on a different platform.”
Farjoud considered the other reason to be “cultural” and said: “Naturally, in Iran, our retail sector is very diverse. It means that there has been a large number of goods since the past and this culture still exists. With almost a quarter of the population of America, we have more supermarkets than America.”
But could we have growth in this area without the flow of foreign investment? In response to this question, Fardis said: “The discussion of foreign investment is one of the requirements that if we look at the macro economy, we see its necessity more and it is not limited to the digital economy. “Our entire capital market can eventually mobilize three billion dollars of resources per year for new investment.”
According to the CEO of Sarava, by summing up all the numbers, our domestic capital production capacity is 5 to 10 billion dollars in an optimistic state: “For this reason, in the best case, between 30 and 40 billion dollars and even up to 100 billion dollars for an 8% growth. We need a stable economy mentioned in the development plans. So our problem with investment is a bigger problem that we also see in the digital economy.”
But why is this not happening despite the slogans? He believes that despite all the slogans to invite investors, they are afraid; Both domestic and foreign investors:
“Investment in our country is a legal path. We had a progressive law called “FIPA” that the Ministry of Economy, by involving all the country’s institutions that can have all the necessary controls and supervisions, could give a foreign group the permission and the necessary guarantees from the country’s side. This rule still exists and we roll out a red carpet for foreign investors; But why doesn’t it happen? Because the reality he sees is that the previous investor could not get his money, or he cannot count on economic stability, or sometimes there are conflicts at the socio-political levels. T
Therefore, the investor wants to go to a country that has less trouble and much easier to convert capital into added value. Therefore, investors prefer to choose countries such as the UAE, Qatar and Turkey for investment and do not seek the risks of working with Iran.”
According to Fardis, the past behavior has led to sedimentation of the results and achievements in the investor’s mind, and the result is that they do not invest: “Therefore, the foreign investor has the option to get more incentives in Turkey and to do his work with smoother economic conditions and Take advantage of it.
We see that despite following the 25-year strategic plan with China, China is investing much faster in Saudi Arabia and Turkey. For example, the news has recently been published that the Alibaba Group has once again increased its investment in Trendyol and actually helped to further develop this group.
The member of the board of the Tehran Chamber of Commerce pointed out that nowadays the president of Turkey or the crown prince of Saudi Arabia dedicate a major part of their work plan to attract the big investors of the world to their country.
“We even see the president of Turkey having a meeting with Elon Musk and accepting all his protocols for Tesla to build its next factory in Turkey. In fact, the countries around us are as if all their institutions have gathered to their highest level in order to bring capital, technology and management into the country to increase the income level of the people of that country, which ultimately leads to political and economic stability in that country.
Also, Fardis believes that the control over attracting capital should not be such that investment does not occur: “This is an important issue that must be answered once and for all if we want to have foreign capital or not.”
“Government intervention has even hindered domestic investment”
In the continuation of the meeting, there was a discussion about the domestic capital, which apparently has not been successful in attracting a significant number of domestic investors.
Referring to the statistics, “Kolahi” stated that the total value of real estate in Iran’s economy is six to one compared to the GDP, and two to one in the United States. He believes that this unreasonable price of property in Iran shows that either a lot of money has gone or created a bubble. Therefore, instead of investing in the productive sector, the country’s capital is invested in concrete and cement, there are empty units, and on the other hand, buying property is unimaginable for people.
The reason for all this is that this is the only place where the government does not interfere and Iranian society has come to believe that real estate is a safe place to invest:
“The fact is that if we had invested the same capital that we brought to Sarava in a property, it would have multiplied and we would not have been charged with various charges from inside and outside. Except for the digital sector, there is no investment in the stock market either, because there is still no certainty and there are no monitoring mechanisms. In addition, the government also interferes in it and sometimes even fluctuations happen by government institutions.”
Kolahi believes that injecting new blood into the ecosystem goes through two paths: “First, entering the stock market means removing a value from the theory, and then we can say how much the investor’s capital is.” The second is the Leash Law, which seems destined to suffer the fate of Article 12 of the Law on Removing Obstacles. These two are the only ways that a significant amount can enter the ecosystem, not to the extent of neighboring countries.
He also said about the level of satisfaction of domestic investors with their investments in domestic startups: “Economically, they definitely regret it, because if they had put this capital in property or taken it from Iran, they could have been ahead and would not have experienced many margins.” “One or two of the companies had such a bad experience that they stopped their new investment long ago.”
In confirmation of these words, Fardis stated that many of the domestic investors he has worked with in these years, financial incentives are important to them and they are also concerned about the progress of the country. Many of them have had considerable wealth and created added value and accumulated their capital before, but when they entered this field, if they looked at it from an economic point of view, they would not make further investments.
Nevertheless, when they want to make a decision, even though they know it is not economic, but having an economic concern for the country makes them step on this path again.
what’s the solution?
Referring to the solutions for the growth of e-commerce in Iran, Farjoud said: “To invest in this area, you should either use capital market resources or bring private and foreign investors or take loans from banks.” Almost every country that has a unicorn – as an indicator of the development of the digital economy – has had a foreign investor. The absence of foreign investors in the current situation may be due to sanctions, but most of it is related to the laws and the way they are treated.”
He believes that the IPO debate is a solvable issue: “When startups like Digikala are behind in the stock market for years, it has different effects. All over the world, startups that become unicorns themselves reinvest in lower tiers. But when they don’t enter the capital market, resources are in trouble. However, if we can make the rules a little clearer and easier for them to enter the capital market, it can be solved.”
According to Farjoud, there are also challenges regarding borrowing from banks: “Given that the field of venture capital is a bit difficult to invest; That is, in the field of digital economy, we have both the general risk of venture capital and an excess risk. For this reason, it is not easy to attract investments from other areas.”
The CEO of Tejarat Bank Technology and Innovation Holding said about smuggling: “When we ban goods, the first thing we lose is transparency. One way is to be a little more serious about import bans, at least in some radical ones like clothing, which hit the domestic producer. “Currently, the cost of counterfeit goods may be several times that of original goods.”
According to him, there are also capacities that can be exported by connecting to other e-commerce platforms, but it has been less addressed: “This is while we have a competitive advantage in a series of goods in the region. If our export laws are such that it can support domestic sellers to connect to platforms outside of Iran, this can be a good opportunity.”
Equity of access in the digital economy
Many people from abroad have invested in some startups, but now there is a wave of disappointment over startups. Regarding whether this situation is reversible or not, Fardis explained that in some areas, if they are given the opportunity and the supervision and controls are reasonable and reasonable, we can hope for it.
He said about one of the most important values accepted in our country, namely “justice of access”: “In the space of the digital economy, we help this economy to develop. On platforms, we make it possible for people in the most remote and under served places to have the same level of access as in the capital. We allow a small producer to sell his product next to a big businessman and this is nothing but justice. We want to help those areas develop as well. “If we ease the restrictions and allow this growth space to develop, we can hope for further rapid growth.”
Another point that the CEO of Sarava pointed out was the components of this chain: “The report of the “Teta” center (Iran’s e-commerce development) and Digikala shows that 60% of shipments are carried by the post office, and in a way the post office has become the bottleneck of e-commerce logistics. , because there is a monopoly in the postal industry of the country. As a result, the National Post Company loses and other companies cannot be established.
Several times, the country’s big investors have tried to develop e-commerce transport chains, but on the other hand, Post gives a price that it is not clear when the break-even point of investing in such a chain will work. Therefore, apart from the big issue that needs to be solved, reforms must also be made in the chain so that growth can happen.”
According to him, when the required logistics chain of e-commerce is not well established, the e-commerce complex is forced to put some of its resources here: “While other countries do not need to invest in such areas, they plan on e-commerce technologies. »
Confirming the words of the CEO of Sarava, Farjoud said: “Besides e-commerce, there are good signs in the field of fintech, and it will help in places like lending and microcredit, because the flow of cash has gone down; Therefore, the share of the credit area has increased. This applies to sellers and suppliers, and they have serious problems with cash flow for buying and selling goods. Therefore, the field of credit in e-commerce can be effective.
Last year, we invested in “DGP” as the investment arm of Bank Tejarat, and provided banking tools, and finally, a significant number of micro-lending was done on specific products and with specific credit. In fact, the combination of the banking network and the country’s tax and credit system shows how the growth of fintechs can affect e-commerce.”
Kolahi also said in summing up the talks about support for startups: “Support has a logical limit; It should not be in such a way that we leave the companies in front of the foreign giants without any support, nor should we have a tariff of more than 40%. Tariff more than this means smuggling, destruction of value, etc., and if a company cannot compete with 30% protection level, it should not exist.”
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