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How Iran tech industry thrived despite sanctions: Modern Diplomacy

By Al Mayadeen English
Source: Modern Diplomacy
16 Jun 2023 23:08
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As Iran currently ranks 127th out of 190 countries in terms of ease of doing business, and 178th in terms of starting a business, more needs to be done to facilitate business for digital companies.

Students listen to a technician while visiting an exhibition of the country's nuclear achievements, in Tehran, Iran, Wednesday, Feb. 8, 2023 (AP Photo/Vahid Salemi)

A report published by writer Giancarlo Elia Valori for Modern Diplomacy on Friday details the means by which Iran has managed to get through sanctions through various strategies and mechanisms of State intervention and non-intervention.

After sanctions went back into force in 2018, privatization seemed like a viable solution to address the heavy drop in revenues in the largely State-controlled Iranian economy, with some experts forecasting that the shift to privatization would generate $2.5 billion - as per the budget law which was passed on 21 March 2019.

Some State-owned companies, however, contested the measure, arguing that in some cases the shares sold on the bonds market were bought by State-related entities, and in others, the shares would be sold to the private sector but without full and unfettered responsibility from corporate management. Moreover, start-ups seeking financial support tend to experience challenges in gaining sufficient financial support from heavily bureaucratic banks and semi-State-owned companies.

The Iranian government has actively sought to ease the effects of sanctions on its knowledge-based industries through the implementation of various innovative financial mechanisms. For instance, in 2018, the National Innovation Fund underwent major changes, evolving from a quasi-banking institution to a financial regulator with the aim of facilitating the transfer of crucial funds to knowledge-based companies.

The institution has been pushed to allocate resources in line with other research and technology funds, including those allocated by banks. It also unveiled new opportunities for investment schemes. Although the State allocates funds from the budget to Iranian organizations, this doesn't guarantee that all of the funds would actually be transferred to them. As of 2020, 87% of the sum allocated to the National Innovation Fund has been obtained. This organization played a crucial role in providing funds for various kinds of knowledge-based companies, such as prototyping, hire purchase, leasing, working and venture capital, and the like.

Valori says that Iranian policies have evolved in three distinct stages: the first, spanning from 1990-2000, mainly focused on the development of higher education and an increase in the number of academic works; the second, from 2000-2010, focused on support for emerging technologies; and the present one is characterized by a shift towards science, technology, and innovation.

During that second generation, the government founded 2002 the Nanotechnology Initiative Council, a major milestone at that time period that also saw the adoption of the Competition Act five years later. Then in 2009, the government founded the Competition Council to act as a pillar of market rules and laws.

The third generation, which kicked off in 2010, saw the enactment of a bill by Parliament in 2011 as a regulation on the support of knowledge-based companies and institutions. The National Innovation Fund was "the practical expression of that legislative measure." Though the initial goal was to support university-based research, the project expanded to include start-ups and large companies such as CinnaGen or PersisGen.

By 2015, the time when the third generation of policies kicked off, the Parliament enacted the Act on Removing Barriers to Competitive Production and on Strengthening the Financial System, enabling the establishment of the first innovation centers and accelerators that very same year. The following year saw the enactment of the Policy on Local Content Requirements which unveiled a clause requiring international and national projects to "include local technology and training."

Then in 2017, the Parliament passed the Nanotechnology Expansion Act 2025, a 10-year plan aimed at facilitating the shift from the knowledge creation phase to the market expansion phase through the dissemination of nanotechnology in industry and local society. In 2019, a bill titled Law on Maximising the Use of Local Production and Service Capacity to Meet National Needs and Strengthen This Capacity to Improve Exports was passed in a bid to modernize public procurement procedures to increase local production.

Several judiciary mechanisms have also been established to address problems faced by knowledge-based and digital companies. For example, the judiciary established the Special Council for the Settlement of Disputes between Corporations and Elites, based in Paris Technology Park. At this third generation of Iranian policies, the focus has shifted from a national innovation system approach to the development of an innovation ecosystem approach which would allow knowledge-based and technology companies or start-ups to receive financial support in order to advance innovation and meet national and industrial needs.

Valeri notes that there have been three distinct phases to characterize policies aimed at supporting what is called "innovation zones" in Iran's economy.

The first involves policies that promote the establishment of science and technology parks and academic incubators in universities. "By 2018, universities housed 45 active science and technology parks and 193 incubators," Valeri notes. The second involves the creation of areas within large cities where start-ups, investors, and other key players would meet and exchange ideas and projects. The third involves upgrading universities into third-generation universities, also known as entrepreneurial universities. These are intended to "bridge the gap with traditional universities and improve the position of universities within the overall innovation ecosystem."

Iran's economy manage to defy the plight of inhumane US sanctions through the implementation of such policies, instruments, and programs aimed at boosting innovative and digital industries. With efforts from both State and private actors, the population managed to evade the excruciating effects of the dollar being weaponized to subdue the nation to US interests.

As Iran currently ranks 127th out of 190 countries in terms of ease of doing business, and 178th in terms of starting a business (data from WorldBank), Valeri says that more needs to be done to facilitate business for digital companies.