Thursday , 16 September 2021

Will gold exports help boost Iran’s economy?

Al-monitor — Millennia after the discovery of gold, the metal continues to retain its value and status as precious and remains widely used. Its unique characteristics, including its malleability and resistance to corrosion, have made into a key element in medicine as well as in engineering and electronics.

The significant economic advantages of the metal, such as its profitable trade along with related wealth and job creation, are the most important factors behind countries around the world attaching paramount importance to their gold industries. Iran, one of the most resource-rich countries, has not been an exception. Investment in gold-mining projects and related industries have surged in the past decade. In recent years many important developments — among them the discovery of gold reserves in Yazd province and the establishment of major gold complexes — have further shone a spotlight on Iran’s gold reserves and their potential.

Maysam Bizaer

With Iran holding proven gold reserves estimated at 340 metric tons — scattered among some two dozen mines, 15 of which are currently operational — the Money and Credit Council of the Central Bank of Iran (CBI) issued a letter to custom’s authorities legalizing the export of raw gold, provided it is extracted from domestic mines and is not sold on Iranian markets at competitive international prices. Moreover, exporters must repatriate revenues either as foreign exchange or standard gold bars. The letter also stated that the change in policy was pending approval by the Industry, Mines and Trade Ministry.

Previously, the CBI had held the exclusive right to export gold. Although exporters still need permission from the CBI to sell gold, the removal of previous limitations has been hailed by many active in the country’s gold industry. “The move gives the opportunity to Iranian mines to enter the competitive market of gold exports. Iran can also enter global markets,” Mohammad Vali, head of Iran’s Gold and Jewelry Producers and Exporters Union, told the semi-official Iranian Students’ News Agency July 5.

Kourosh Azizi, an economics consultant who works with mining companies, also described the lifting of restrictions as a positive development, provided relevant and well-designed schemes will also be put forward. “Key gold reserves in Iran are managed by the government, while the private sector runs small mines,” Azizi explained to Al-Monitor. “In the short term, the legalization of raw gold exports helps the private sector access foreign exchange resources, which subsequently helps it attract capital, pay off debts to banks and resolve other problems it faces. With the private sector booming, small economic enterprises will be able to attract investment as well, something considered as a driving force to make and maintain changes in gold mining.”

The new guidelines have also been criticized, however. Mining researcher Morteza Momenzadeh is not very positive about the legalization of raw gold exports. He told Eghtesad News July 5, “The measure helps increase mining activities, but it is not of significant help in boosting the gold economy. Domestic gold consumption is higher than production. As such, domestic production of gold is not sufficient for exports.”

Iran’s raw gold production is projected at five to ten tons per year, while the gold in circulation stands at 300 tons per annum. This indicates that the industry has yet to make a considerable contribution to the overall economy, given that domestic consumption represents the lion’s share of domestically produced gold, with exports limited to gold products rather than raw gold.

Moreover, even though the export of raw gold is now legal, various challenges remain as experts believe the country lacks the cutting-edge mining technology and machinery required to produce gold on par with international standards.

While the acceptable global standard for gold bars at the London Bullion Market Association requires the product to have a purity of 99.9%, only one Iranian mine can currently produce raw gold with such purity. According to Iranian officials, all other mines produce gold with a purity level of 99.8%.

Nonetheless, Azizi, who has years of experience working with major state companies in the mining industry, said that the long-term effect of the legalization of raw gold exports is manifold. “Once private sector-run gold production becomes lucrative, producers will have the tendency to explore and extract more gold mines,” he explained. “This will require the use of new technologies, which subsequently brings high-level added value to gold mining.”

Hamid, a jeweler in Tehran, also described the decision to authorize raw gold exports as a good step, but said that it will take time to bear fruit. “Gold production has really progressed over the past five years. You can hardly differentiate between Iranian-made gold products and their Italian equivalents,” he told Al-Monitor. “But, the industry needs to receive great support if it wants to enter international export markets.”

Indeed, Iran has a long road ahead of it in achieving its goal of becoming a major gold exporter. It currently has to rely on imports to meet domestic demand. Meanwhile, experts cite issues related to trade in precious stones as well as the lack of required machinery as additional hurdles that the government has to address to further boost the gold industry.

Though the use of gold and the jewelry industry have millennia-old roots on the Iranian plateau, Iran’s present share of global production of raw gold and jewelry is 1% at best, even after the increased emphasis on developing gold mines in the years since President Hassan Rouhani was elected, in 2013. Iranian officials believe that with the sanctions lifted as part of the nuclear deal, the country’s mining sector can catch up with the world by increasing its gold- production capacity and attracting additional investment from foreign companies.

As such, while there has been foreign investment in Iranian gold mines by Russia and China, many experts believe that given Iran’s vast untapped mining potential — with 68 types of minerals amounting to total reserves of 43 billion metric tons — major global firms that have not already entered the market will sooner or later take steps to do so.