September 24, 2023

Persian News

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Capital market plays vital role in growth of domestic production

TEHRAN- In recent years, when the unilateral sanctions of the West faced Iran’s economy with many problems, paying attention to production and strengthening domestic production is one of the most basic approaches of Iran to deal with sanctions.

The key to the strengthening and growth of Iran’s economy is focusing on production, and accordingly, for several years, “production” has been the main focus of the slogan of the year, and the strengthening of production and the removal of obstacles have been emphasized.

The Iranian calendar year 1398 (March 2019-March 2020) was titled “Production Flourishing”, 1399 was named “Surge in Production”, the name of 1400 was “Supporting Production, Eliminating Obstacles”, the slogan of 1401 was “Knowledge-based Production and Job Creation”, and 1402 (the current year) is named “Inflation control, Production Growth”.

Various factors play role in strengthening domestic production, among them a strong capital market is a major one.

Capital market greatly contributes to increasing production through the following functions:

1. Facilitating access to capital

One of the primary functions of the capital market is to provide businesses with access to capital.

Strengthening the capital market will help the financing of companies, and facilitating the financing of production companies will itself lead to the prosperity of production, because the capital market is the only market that will not cause inflation when liquidity enters it.

2. Encouraging innovation and research

The capital market encourages innovation and research by providing funding opportunities for start-ups and small and medium-sized enterprises (SMEs).

These companies often have limited access to traditional bank loans, while the capital market offers them a broader range of financing options.

These investments not only provide financial support but also bring expertise, enabling companies to innovate and develop new products and services. This, in turn, leads to increased production.

3. Enhancing efficiency and productivity

The capital market plays a vital role in enhancing the efficiency and productivity of companies.

When companies are publicly listed, they are subject to greater scrutiny from investors, analysts, and regulators. This increased transparency and accountability encourage companies to improve their operational efficiency and adopt best practices.

Through this mechanism, the capital market promotes competition and productivity and ultimately leads to increased production.

4. Encouraging long-term investment

The capital market promotes long-term investment in productive sectors of the economy.

Institutional investors such as pension funds and insurance companies invest significant amounts of capital in the capital market. These institutional investors have a long-term investment horizon and seek stable returns over an extended period. As a result, they invest in companies that demonstrate sustainable growth prospects and long-term profitability.

This encourages companies to focus on long-term planning.

Given that the main function of the capital market is to help finance companies, if the hot money in the Iranian economy is invested in this market instead of moving towards markets such as cars, housing, gold, and foreign currency, it will lead to the growth of production.

The funds that are collected in the stock market help to increase the capital of accepted companies, and as much as the market is flourishing, companies can pursue and achieve their development plans by increasing capital.

With the expansion of the development plans of the companies, the country sees the growth of production, and economic growth as the result.

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