Considering the well-known issue of sanctions, the Iranian government must face the daunting task of mitigating and cushioning these economic shocks
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Considering the well-known issue of sanctions, the Iranian government must face the daunting task of mitigating and cushioning these economic shocks. It plans to establish effective mechanisms to cope with the difficulties through financial and manufacturing services, in particular, as the Iranian economy is characterised by a strong State presence in these sectors.
The government has stepped up efforts to sell its shareholdings in large domestic companies to make up for the drop in revenue since sanctions were imposed again in 2018. The budget law passed on 21 March 2019 expected revenue of $2.5 billion from privatisation. The push for privatisation, however, has met with resistance from State-owned companies. There are cases in which the shares sold on the capital markets were purchased by parastatal entities, or in which shares were transferred to the private sector, but without the corporate management’s concomitant responsibility. Moreover, banks and semi-State-owned enterprises tend to be bureaucratic and require heavy guarantees from start-ups seeking financial support.
The government has made this a priority to soften the blow of sanctions to its thriving knowledge-based industries. For example, since 2018, the National Innovation Fund has undergone a major overhaul. It is evolving from a quasi-banking institution into a regulator and facilitator for financing knowledge-based companies to help them overcome obstacles in the dominant financial sectors.
The Fund is being encouraged to coordinate its programmes with those of other research and technology funds and with the banking network. The National Innovation Fund is also introducing new investment schemes and streamlining and rationalizing its organisational structure and procedures. For Iranian organisations, obtaining funds allocated from the State budget does not guarantee that all of them will actually be transferred to them. As of 2020, 87 per cent of the sum allocated to the National Innovation Fund has been secured. This Fund has played a fundamental role by providing facilities for knowledge-based companies, such as prototyping, hire purchase, leasing, working and venture capital, office premises, pre-order activities, industrial production facilities, issuing of warrants and upgrading programmes.
A new phase of Iranian policies has turned towards science, technology and innovation. Until then, the emphasis had been on developing higher education and increasing the number of academic publications (1990-2000), followed by support for emerging technologies (2000-2010). The main result of that first-generation policies was an increase in academic productivity in emerging technologies, in particular, combined with the creation of the first science and technology parks.
The establishment of the Nanotechnology Initiative Council (2002) was a milestone of that period. Those years also saw the adoption of the Competition Act (2007), followed by the establishment of the Competition Council in 2009 to serve as the main pillar of the law’s implementation in the market. The second-generation policies date back to 2010, when the Vice-Presidency for Science and Technology drafted a bill that was later enacted by Parliament as a regulation on the support of knowledge-based institutions and enterprises and the marketing of innovation and inventions (2011).
That explicit focus on knowledge-based economy was a first for Iran. The National Innovation Fund was the practical expression of that legislative measure. The aim was initially to support university spin-offs, but the project gradually expanded to include technology-based start-ups and some large eligible companies such as CinnaGen or PersisGen, which are privately owned.
The third generation of the above-mentioned measures dates back to 2015, when Parliament gave a further boost to entrepreneurship and innovation through the Act on Removing Barriers to Competitive Production and on Strengthening the Financial System. That was the law which led to the first innovation centres and accelerators in 2015. It was followed by the Policy on Local Content Requirements (2016). It introduced a clause requiring international agreements and large national projects to “include local technology and training”. That clause is now being implemented in national projects. Another milestone was the Nanotechnology Expansion Act 2025 (2017). That law established a 10-year plan for the transition from the knowledge creation phase (technology push) to the market expansion phase through the dissemination of nanotechnology in industry and local society (demand pull).
In 2019 there was a notable attempt to modernise public procurement procedures to harness higher levels of local production, through the Law on Maximising the Use of Local Production and Service Capacity to Meet National Needs and Strengthen This Capacity to Improve Exports.
The Iranian judiciary established the Special Council for the Settlement of Disputes between Corporations and Elites. It is based in the Pardis Technology Park. A second Council was also established to deal with the legal problems faced by digital companies. For this third-generation policies, the Vice-Presidency for Science and Technology has shifted from a national innovation system approach, in which government actors are the focal points of innovation, to the development of an innovation ecosystem approach, in which knowledge-based business centres and technology-based start-ups receive support and their innovativeness is linked to meeting national and industrial needs.
Policies to support what are called “innovation zones” in Iran can also be divided into three phases.
The first phase entailed measures to encourage the establishment of science and technology parks and incubators on university campuses. By 2018, universities housed 45 active science and technology parks and 193 incubators. The Pardis Technology Park is the largest one. It hosts around 500 companies with a total of over 6,000 employees. It accounts for 10 per cent of the revenue and exports of Iranian science and technology parks.
The second phase consisted in creating areas and premises within large cities where start-ups, investors and other innovation players could meet and exchange experiences and projects. Abandoned factories were renovated and renamed “innovation factories” to accommodate that new generation of entrepreneurs. The first two innovation factories are Azadi and Highway, established in Tehran in 2017 and 2019, respectively, which are branches of the Pardis Technology Park. Start-ups and factories relating to Azadi and Highway are entitled to access the facilities of the Pardis Technology Park.
Azadi covers an area of 18,500 square metres and employs 3,500 graduates and young entrepreneurs. Start-ups operate in a wide range of fields including architecture and urban life, artificial intelligence, biotechnology, creative content, cyber security, fintech (i.e. computer programmes and other technologies used to support or enable banking and financial services) and insurance, nano-pharmaceuticals and tourism.
The Highway Innovation Factory can accommodate up to 500 employees. It was opened with 20 start-ups working in the fields of information and communication technology, medical devices, management, creative content development and agriculture. There are plans to establish further innovation factories in major cities by the end of 2023.
In the third phase of creation of the innovation platform, academic centres in urban areas are being turned into third-generation universities, also known as entrepreneurial universities. The aim is to bridge the gap with traditional universities and improve the position of universities within the overall innovation ecosystem. The Sharif Innovation Zone is a prime example of this approach. By 2017, more than 500 start-ups had been created by students, graduates and faculty at the Sharif University of Technology, according to the Platform Towards Developing Entrepreneurship.
From here to the digital economy, the step is short. Since 2015 many universities and science parks have organised events to help graduates develop both technical and soft skills. Start-up weekends, ide shows and bootcamps (technical education and training camps) have become ordinary events, with topics ranging from rural entrepreneurship, health, clean air and water to transportation, artificial intelligence, blockchain (i.e. a system in which a record of transactions made in bitcoin or another cryptocurrency is kept on several interconnected computers in a peer-to-peer network) and cybersecurity.
In 2019, the Vice-Presidency for Science and Technology issued an executive directive advising universities to support bootcamps in fields relating to the digital economy. Some 23 bootcamps on the digital economy were planned for the 2019-2020 period for graduates in digital technologies such as artificial intelligence. The proliferation of these events is a positive sign of the Iranian leaders’ support for start-ups. There is concern, however, that these events provide little real support, over and above granting awards and some modest funding. Having a national network of professional mentors in various sectors who could interact with start-up teams would help them through the gestation phase.
Training modules for trainers could be developed to guide these mentors. Sa’di, the celebrated 7th century Persian poet, compares a scholar without action to a bee without honey. Iranian policymakers in these areas had probably this quote in mind when they devised policy instruments to enhance the impact of the first- and second-generation policies described above. For example, the main result of those policies was more university graduates and scientific publications. That result alone, however, did not significantly increase value creation. This is where the third-generation policy instruments and programmes come in. By emphasising the building of ecosystems and platforms, they are more likely to produce greater added value, although it is a bit early to tell at this stage.
These policy instruments and programmes seek to boost innovative industries and digital industries. One of these is IranLab, a start-up that organises exhibitions of advanced equipment and materials for domestic workshops where creative companies can meet potential customers. So far there have been six IranLab exhibitions and there is also a permanent online marketplace for interested customers.
Another programme has been offering market support for locally built advanced machinery since 2018, reflecting the importance of this sector for Iran. More than 400 companies have so far benefited from this programme, leading to the manufacturing of 600 new products. Another policy instrument focuses on helping knowledge-based companies commercialise their products. Companies are offered financial support mechanisms, such as buyer credit, pre-purchase and prototyping credit. These measures can be combined with other regulatory support mechanisms for knowledge-based entities, such as tax exemptions, low-interest financial services, customs duty exemptions and social insurance.
According to the World Bank (2020), Iran ranks 127th out of 190 countries in terms of ease of doing business, but 178th in terms of starting a business: hence there is a need to make it easier for digital companies to do business.
In 2016, an executive directive was drafted to help the growing number of online businesses overcome bureaucratic hurdles. This led to the establishment of the National Union of Online Businesses in 2017, which provides its members with business licences and other forms of support. This Union has also proved useful in addressing some regulatory and other obstacles faced by traditional businesses. For example, in 2020, a Parliamentary working group addressed the challenges faced by e-commerce and online services.
Over the last five years, Iran’s digital ecosystem has witnessed a boom in online platforms. For example, there are ride-hailing apps (Tapsi and Snapp), online marketplaces (Digikala, Divar), video streaming (Aparat) and an app-based distribution platform (Café Bazaar). A ride-hailing company is a company that – via websites and mobile apps – matches passengers with drivers of rental vehicles which, unlike taxis, cannot be called and stopped on the street.
Covid-19 has had a positive effect on Iranian online health and wellness start-ups. Since the outbreak of the pandemic, many new health apps have been advertised on billboards.
The growth in demand and supply for online services is related to the strong increase in the Internet penetration, particularly mobile Internet, which reached 70 per cent in 2020, up from 40 per cent in 2015. Two thirds of mobile phone connections now have the Internet access. Another type of complementary programme pursued more proactively in recent years aims to instil political awareness and acumen in policymakers to improve decision-making in priority areas of science and technology. Such programmes include: a National Technology Foresight Programme (2015) for the energy, automotive, health and water sectors; Research & Development Surveys conducted every two years from 2015 onwards by the Iranian Statistical Centre to measure the level of government and non-profit sectors; the Iran Innovation Survey (2016), carried out annually by the Vice-Presidency for Science and Technology; and the National Science and Technology Monitoring System, introduced in 2015 by the Supreme Council for Science, Research and Technology.
A few words are finally appropriate about the aforementioned PersisGen. It is a biopharmaceutical company that designs, develops and manufactures biosimilars, vaccines and plasma-derived products, launched in 2016. It also specialises in regenerative medicine through the use of stem cells. PersisGen has an accelerator department that is the first of its kind in medical biotechnology in Iran. The accelerator helps young researchers acquire practical skills and establish independent knowledge-based companies. It mentors start-up teams, providing them with the technical infrastructure and guidance on prototyping, technology buy-back and investment. It also signs contracts with start-ups for joint product development. PersisGen is financed entirely through private equity, which is a category of financial investment through which an entity brings new capital, and thus finances a target company by purchasing shares and/or subscribing to newly issued shares bringing new capital in-house.
One of PersisGen‘s main private investors is CinnaGen, a pioneer in Iranian biomedicine founded in 2003. CinnaGen deploys its joint research expertise with the Fraunhofer Institute in Germany. PersisGen has no foreign shareholders. It is supported by the Vice-Presidency for Science and Technology. The economic savings for Iran from not having to import medical products thanks to PersisGen’s accelerator are expected to reach $400 million per year by 2025. This forecast should not be unduly affected by the re-imposition of sanctions, as most of the planned production will be for the domestic market.
Therefore, while in Iran they go ahead in spite of sanctions, in countries like Italy and other colonies, companies are blocked by the ridiculous eggheads at home.
