Ali Ettefagh at PostGlobal

Ali Ettefagh

Tehran, Iran

Dr. Ali Ettefagh serves as a director of Highmore Global Corporation, an investment company in emerging markets of Eastern Europe, CIS, and the Middle East. He is the co-author of several books on trade conflict, resolution of international trade disputes, conflicts in letters of credit, trade-related banking transactions, sovereign debt, arbitration and dispute resolutions and publications specific to the oil and gas, communication, aviation and finance sectors. Dr. Ettefagh is a member of the executive committee and the board of directors of The Development Foundation, an advisor to the United Nations High Commission for Refugees, and an advisor to a number of European companies. Dr. Ettefagh speaks Persian (Farsi), English, German, French, Spanish, Italian, Arabic and Turkish. Close.

Ali Ettefagh

Tehran, Iran

Dr. Ali Ettefagh serves as a director of Highmore Global Corporation, an investment company in emerging markets of Eastern Europe, CIS, and the Middle East. more »

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Dependence on Food Imports Doesn't Help

Inflation is another word for reduced purchasing power. Three elements can fuel a spiral. Increases in the cost of raw materials lead to higher prices of final products. Higher prices put pressure on wages to go up so workers can pay for what they buy -- which increases the costs of production and again leads to higher prices. Finally, as prices increase, more capital is needed to produce the same item, which also increases the cost of production and leads to higher prices -- particularly if interest rates go up at the same time.

Current imbalances ought not to be shocking or unexpected. Asset prices and raw materials have shot up, but wages and incomes remained stagnate, and we were told that all is rosy as growth is a one-way and upward trajectory with joy, and debt, for all. I raised this issue back in January, 2007 .

For the time being, there are low stocks, but not acute shortages of, food-- assuming the consumer can afford to pay. Cows are still producing the same amount of milk as two years ago, but it is more expensive to feed the cow and process, package and transport the milk. The excuse of increased demand from China and India is a tall tale. They both have vivid memories of food shortages in the 1950s and 1960s, which was overcome domestically by Chinese and Indians despite political isolation.

The easy days are behind us and the era of a tough climb up the proverbial hill of beans is ahead. Civil commotion about food prices are essentially about low incomes and reduced purchasing power. And these are not limited to developing countries. Soaring home foreclosures and depleted savings in US, a 25 percent jump in British use of credit cards for food purchases since December, and stagnate property prices in Japan are all telling signs of the same story. Blaming oil exporters for high oil prices is a worthless diversion too -- the governments of importing countries raise more cash from fuel and excise taxes (especially in Europe and Japan) than the sum paid to the original exporter of crude oil.

Iranian consumers are not different, as all juggle inflation and low incomes. Like Russians, Turks and others in Eastern Europe, pensioners and retired people here are especially squeezed by reduced purchasing power. Economic pains of transformation, from a state-planned system to a market-managed economy, are expected to repeat events seen elsewhere.

However, Iran’s macro-economic scenario is turning the corner. Long-term investments of the last decade are now producing results, especially in the food and pharmaceuticals sectors as import dependency is almost eliminated: Iran is now a net exporter of wheat and is expected to be self-sufficient in barley (for animal feed) and rice within the next four years-- whilst population has doubled in the last 30 years and as a vast part of its territory is arid. The food processing sector has no spare capacity, busy with seemingly unstoppable domestic demand and exports to markets from Afghanistan, Central Asian and Caspian to Iraq, the Persian Gulf region and Eastern Europe.

Iran’s hot topic of discussion is about the cost of housing, growing demand for its young population (where about 1.5 million of 70 million people reach the age of 18 every year) and rising cost of building materials. The building boom seems to be endless. And like all other countries, Iran is in an endless stream of debates, opinions about government services, trial-and-error tactics, and suggestions in acres of newspaper print about more and better jobs, banks and loans, schools, education, hospitals, roads and politicians that plan factories or government-subsidized investments or pet projects in their own districts. Most significant of all is that Iran has virtually no foreign debt and it can spend its currency reserves on capital goods, rather than import of food.

For Iranians, the economic scene is in part similar to the 1970s, when oil money poured in and inflation ensued. The difference, however, is that the experiences of war, revolution and naked threats of aggression have pushed Iranians towards an attitude of self-sufficiency and a search for an independent path, as chosen by China and India some 30 - 40 years ago. As such, it is a work in progress and the Iranian economy is growing at Chinese and Indian rates.

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