‘Made in Iran’ Thrives in Economy Trump Tried to Crush
(Bloomberg) - There couldn't have been many worse times starting a new business in Iran. Even before officials from the Islamic Republic alerted the public to a major coronavirus outbreak, the country began the year in tense conflict with the United States while its economy was crippled by sanctions.
For a trio of design graduates, the risk of having their own market of tens of millions of consumers who lacked imports was worth it. Her fashion brand Koi has sold thousands of crop tops and striped jeans since July.
"Made in Iran" has emerged as a rare glimmer of hope for the financial devastation caused by exclusion from the oil market and world trade while Covid-19 rages on. In a country where so many people are shaped by cycles of Western restrictions, brands like Koi, Zi Shampoo and Bonmano Coffee are among the household names that fill the vacuum for consumer goods.
"We only knew it would work because we ourselves and so many people around us were so desperate for basic, simple things," said Armita Ghasabi, 30, one of the founders of Koi.
Koi uses fabric that was spun in a textile factory in the northwestern Iranian city of Khoy, so there is no longer any need for imported materials. A lack of competition from global brands and low labor costs keep prices affordable and margins healthy, according to Ghasabi. For every $ 18 worth of jeans, local currency equates to a profit of $ 11 to spend on new lines of products.
Iran has been proud of its resilience for years, something that Supreme Leader Ayatollah Ali Khamenei has tried to expand and anchor in politics with his doctrine of the “economy of resistance”. The 2015 nuclear enrichment reduction deal promised to put the nation back in the international fold before President Donald Trump abandoned the deal and began his attack on the Iranian economy.
One of the first things to disappear from Tehran's streets after sanctions were imposed in 2018 was clothing stores. Popular shopping malls, which for years hosted unofficial versions of Mango and Zara or franchises for Adidas and Benetton, are now dominated by empty retail stores.
A combination of the sudden drop in the value of the rial, a huge impact on consumer purchasing power, and a government ban on hundreds of non-essential goods, including clothing, has been ripped through the retail trade. Fewer imports resulted in a shortage of mundane items like foreign brands of shampoo, the price of which has skyrocketed.
Nazanin, co-owner of a small marketing company in Tehran and who refused to give her last name because of her sensitivity to conversations with foreign media, said she started buying Zi shampoo because she could no longer afford the Elvive brand from L'Oreal. If she finds one, a bottle will cost six times more in local currency than it was two years ago.
"The quality is pretty much the same," said the 51-year-old. "I really didn't have a choice and I don't want to buy the older, traditional Iranian brands."
Iranian officials were told to expand the private sector and export to nearby countries. However, Iran's largest indigenous manufacturing industry, such as automakers, is still very sensitive to sanctions and plagued by corruption. The coronavirus has now hindered cross-border trade. Many smaller companies are doing better, even if the gross domestic product has shrunk by 12% since 2018.
"There has been a definite trend over the past two years where more people are starting small businesses and selling things they can make themselves," said Amir Ali Sabour, director of marketing communications at online retailer Basalam.com.
On the website, which puts customers in direct contact with manufacturers and suppliers, the number of small business registrations this year has increased from 4,000 last year to 48,000, Sabour said.
At Koi, where teams of technicians and machinists in face masks diligently carry out quality controls and cover hems, sales are strong. Within two months of Koi's market launch, the company had already sold out its blue-ecru-striped balloon jeans and sleeveless cornflower tops. The most expensive items in the collection are less than $ 20.
The Iranian economy certainly remains in great trouble. The daily death toll from Covid-19 rose to a record high this week. Travel restrictions have been imposed on five cities, including the capital Tehran.
Many important goods that are manufactured in Iran are still rising dramatically in price because some of them are dependent on imports. Koi struggled to source quality zippers and other metal fasteners from Tokyo-based YKK Group, and it took two months for customs to clear a shipment of buttons due to the ban on imports. But sales are strong, at least in the short term.
"It's really difficult to make estimates," said Fojan Fard, 33, one of the company's other founders. "Every day we don't know how much poorer the Iranians will be."
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