Consumer Spending Has Recovered from the Sanctions Shock
The Iranian economy is just now emerging from three years of recession, triggered by the imposition of US sanctions, and compounded by the pandemic. These difficult years have put a strain on many Iranian households, which have had to cut back on certain expenses to get by. Still, the resilience of Iran’s consumer-led economy is closely tied to the purchasing power of ordinary Iranians.
The Central Bank of Iran publishes detailed data on bank card transactions, collected at the national and provincial levels. Looking at data for bank card transactions made through ATMs and point-of-sale systems, trends in consumer buying power can be followed. As to be expected, the volume of card transactions has remained relatively stable since March 2018 (the beginning of the Iranian calendar year 1397). The volume of bank card transactions is a measure of the importance of bank cards as a payment means for Iranians buying goods and services. Seasonal drops in transaction volume are seen during the Iranian new year, a two-week period of national holidays when many shops and business are closed. A stunning drop in transaction volume was seen in February 2020, the month that COVID-19 arrived in Iran and the country was thrust into a national down. The total number of transactions fell from around 50 million to just 16,000 in the span of one month. But aside from these events, the imposition of US secondary sanctions in May 2018 has not resulted in a significant drop in transaction volume over the last three-and-a-half years.
Where the impact of sanctions and the pandemic can be seen clearly is in the total value of card transactions. Adjusting for inflation, average monthly transaction values in the Iranian calendar year 1400, which began in March 2021, are so far about 28 percent lower than in the Iranian calendar year 1397. This data corroborates other economic indicators suggesting that consumer demand remains soft as economic challenges depress Iranian purchasing power.
Even so, the decrease in transaction value is perhaps lower than might be expected given the significant shocks of sanctions and the pandemic. One way to interpret the data is that despite economic headwinds such as inflation and unemployment, most Iranians retain most of their purchasing power. The decrease of 28 percent of in the transaction value reflects most families cutting back on discretionary expenses and luxuries. What this means is that Iranians continue to demand most goods and services—a benefit for Iranian companies, particularly those, like the retailers, FMCG manufacturers, and pharmaceutical makers in Serkland Invest’s portfolio, whose products and services can be considered among the most essential. Moreover, in an environment where consumer demand is depressed in this way, sales growth depends on consolidating market share, rather than trying to increase the average expenditure of consumers. This is another reason why the current conditions in the consumer marketplace in Iran favour large companies with consolidated positions like those in the Serkland portfolio.
As economic conditions in Iran improve, consumer spending should rise in step. Data on bank card transactions can be used to monitor for the inflection point—when growth in transaction value outpaces growth in transaction volume, the average value of transactions will be rising once again. For companies that have increased market share during the current period of depressed consumer demand, riding the wave of increased spending among newly-acquired customers will offer an important pathway to increased profitability.
Photo: IRNA