Seyed Kamal Seyed Ali was the chairman and CEO of the Export Guarantee Fund of Iran (EGFI) from 2005 to 2009. After a stint as deputy governor of the Central Bank of Iran, he was re-appointed as the head of the country’s ECA in July 2015. Here he talks to Melodie Michel at EGFI’s offices in Tehran about his plan for boosting Iranian exports in a post-sanctions environment.
GTR: You have been at the forefront of the Iranian export sector for over 10 years – what are some of the changes you witnessed during that time?
Seyed Ali: A lot of things have changed in 10 years in a positive and negative way. On one hand we had some improvements: Iran’s exports increased fivefold in 10 years; but on the other hand, we experienced some difficulties. For example, Iran had over 700 correspondent banking relationships abroad and lost a lot of them because of sanctions. One of the most important effects of that change was that it created problems for transferring money for trade, even for humanitarian purposes.
At EGFI in particular, we have had more work under the sanctions, since the risk went up and exporters came to us to cover that risk. For us, the most important problem was debt collection from abroad.
Although Iran’s trade continued under the sanctions, there were some problems for the import of commodities: the cost of transferring money went up about 8%. As there were few chances of using LCs, importers were mostly required to make advance payments without having any guarantees or bonds in return. But for exports, the impact was not as significant, because a lot of private exporters had accounts abroad, so buyers could transfer the money to the account in that country.
For government-owned exports like oil, there were problems of course, but the sanctions also brought advantages on the whole: they forced us to think about ourselves, which led to self-sufficiency and the self-confidence to produce things we didn’t before, like spare parts of petrochemical factories and cars, as well as all dual-use products we were not allowed to import.
GTR: What were the most resilient Iranian exports during the sanctions?
Seyed Ali: Despite all the political pressures and sanctions against Iran, non-oil exports (including petrochemicals) have grown from around US$10-12bn 10 years ago to US$50bn in our last calendar year (March 2013 to March 2014). Our traditional exports, such as pistachios, carpets and saffron did as well as before. Among the industrial products, the steel sector was resilient and had good growth. After the fall of the Saddam Hussein regime in Iraq, and also with the Taliban in Afghanistan, these two big markets became important for Iranian technical engineering exports, as well as commodities. We also performed large technical engineering exports to CIS countries, with big projects in Tajikistan and Turkmenistan, for example.
GTR: Which sectors are set to benefit the most from the lifting of sanctions?
Seyed Ali: The first sectors that will benefit are petrochemicals and oil. As Europe already has a good industry, we can’t sell techno-engineering services there, but we can export petrochemicals, oil and traditional goods like carpets and saffron.
GTR: What are your plans to grow EGFI’s business now that sanctions are about to be removed?
Seyed Ali: In 2008, 14% of Iranian exports were covered by EGFI, which is more than the world average of 10%. Now it’s about 2%, but we have to try to get that percentage back. This year we hope to bring it up to 5%, and next year, 10%, as copper and petrochemicals can now be added to our portfolio.
Our target exposure is US$5bn, which would be 10% of non-oil exports.
GTR: How do you plan to achieve that?
Seyed Ali: First, our plan is to ask regional representatives in different provinces in Iran to communicate with exporters, and improve their marketing. We will also enhance relationships with international bodies and the banking system in Iran. We are also communicating with the chambers of commerce of each province in Iran, as well as exporters’ unions and associations.
Second, we will increase our capital by collecting debts abroad: over the past few years, we paid claims to Iranian exporters as buyers didn’t pay them, either because they weren’t able to transfer the money or because they just didn’t want to, and we have yet to collect those debts. The amount we are hoping to get back is around US$300mn, mostly from Tajikistan and Cuba.
Third, the cabinet just approved a US$200mn increase of our capital, which is currently around US$300mn. With US$500mn of capital, we can commit to exposure of US$5bn.
The cabinet is also going to approve the decrease of our premium and commission rates for our insurance policies and working capital guarantees. Then it will compete with the premium the other ECAs and private sector insurers charge abroad.
GTR: What are your plans for co-operation with other ECAs and FIs around the world?
Seyed Ali: We have good relationships with them – we are a member of the Prague Club, a founding member of the AMAN Union, and part of the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC). We also have good co-operation with other ECAs in different parts of the world, with which we exchange information on the creditworthiness of companies or any other technical issues. We are going to ask ECAs in Europe to restart their co-operation with us, as we will need that in the near future.
Co-operation with foreign institutions is also important to help us with our debt collection, and to get good training: we have had a couple of training courses
with Sace in Tehran.
GTR: Do you have any competitors inside the country?
Seyed Ali: Not yet, but we hope to have some soon. Anywhere the private sector competes with the public sector, efficiency goes up.
GTR: Aside from providing cover, what do you do to encourage the growth of Iranian exports?
Seyed Ali: We try our best to facilitate the penetration of exporters into new markets.
Right now our most important role is to help exporters secure working capital from banks: the government’s fight against inflation (which went down from 49% to 15% over the past two years) has triggered a recession, and banks have been reluctant to provide the loans needed for the production of goods for exports, due to tightened liquidity and increased risk. Working capital guarantees have been our biggest activity in the past few years, to help the exporters.
GTR: It seems like there is a lot of corporate interest in Iran – different international trade delegations land at Tehran airport every day – but banks appear a lot more cautious for fear of facing fines and penalties. What do you make of this gap between corporate and bank interest?
Seyed Ali: In 2008, Iran had around US$30bn of exposure by ECAs, mostly European ones. Right now, it’s just US$4bn. This means that during the sanctions, we paid back more than US$25bn of our debt. Since the revolution, our payment record has been very good, and the problems in recent years were due to other countries blocking the channels of payment.
But unfortunately, the OECD and the Berne Union members graded us 7 in their country risk classification. That’s not fair: if you look at all the points used to calculate the risk of a country, more than 70% of the rating is based on economic factors, and 30% on political factors.
Our GDP is very good, we don’t have any debt to other countries and our banking system is very strong. We ranked high for all the economic points used in the rating, so if it was fair, in 2014 we should have been graded 4. We’ve asked some Berne Union members to help us to change the rating, but they are waiting for the lifting of sanctions.
Most countries have foreign debt of up to 30% of their GDP, but right now, we don’t have any debt. We could get loans/finances of up to US$150bn from abroad, and foreign institutions shouldn’t be scared. We are very strong about our payments.
I believe that from December or January, sanctions will be lifted and the banking system will open its doors to Iran again.
GTR: If foreign corporates want to do business with Iran but their banks won’t follow them, what are other financing possibilities?
Seyed Ali: If they have an Iranian partner they can work with them as an investor. For example, there are plans to invest jointly in plants, etc. Even now there isn’t any obstacle to transferring money from Iran to abroad, but there is a 10-15% difference between ‘market price’ – via cash exchange – and banking system price. The reason for this is that to transfer money, Iranian banks have to go through China, India, Korea and other importers of Iran’s oil. 8% of the 15% difference comes from that detour, due to the sanctions.