The Iranian economy consists of three distinct sectors: public, private and semi-state — which includes religious, revolutionary, military foundations and cooperatives, as well as social security and pension funds. Experts agree that as a result of flawed privatization processes in the past three decades, the ownership of top governmental enterprises has been transferred to the semi-state sector. Consequently, gradually the semi-state sector has become the largest constituency in the country’s economy. One of the players in this semi-state sector is the network of companies around the Islamic Revolutionary Guard Corps (IRGC), whose role in the economy is usually subject to guessing games by all types of commentators.

The IRGC entered economic activity beyond its military tasks in the aftermath of the 1980-88 Iran-Iraq War. Former IRGC Commander in Chief Mohsen Rezaei recounts that in 1989, then-President Akbar Hashemi Rafsanjani asked the IRGC to shift its capabilities toward the country’s reconstruction. Key political stakeholders welcomed this process during the reconstruction phase. Limitations of the growth of the IRGC in the country’s economy became evident when IRGC-affiliated companies started to bully their way into government projects during the era of President Mohammad Khatami (1997-2005). The most visible cases of friction were the cancellation of the Turkcell mobile license in 2004 and also the cancellation of the Imam Khomeini International Airport security contract with the Turkish company TAV in 2005. Both these contracts were later awarded to IRGC-affiliated consortia. The reluctance in the Khatami era to allow the IRGC to enter strategic sectors such as petroleum was followed by the era of President Mahmoud Ahmadinejad (2005-2013) when all key sectors were opened to IRGC interests, up to the point that Rostam Qassemi, head of Khatam-ol-Anbia industrial conglomerate, became petroleum minister.

IRGC principals have justified the expansion of their economic activities throughout the past two decades by claiming that the IRGC would enter economic fields that are too challenging for the private sector with the intention to help the government and improve economic conditions. Notwithstanding, from the perspective of the private sector, the above justification could only explain the IRGC’s presence in construction and heavy industries, not in entering sectors such as banking, insurance, trading, food and telecommunications. Incidentally, the IRGC network even owns football clubs and hotels. A closer look at the list of companies that are affiliated with the IRGC and the so-called Bonyad Taavon Sepah (BTS, a foundation owned and managed by IRGC commanders) indicates that IRGC-affiliated entities have now entered every possible branch of the economy.

While IRGC principals have always proclaimed support for the government, the relationship between the administration and the IRGC has not been an easy one. In 2013, President Hassan Rouhani asked the IRGC to cut back on its economic activities in order to create more space for the private sector. Furthermore, various studies on the country’s business climate have shown that the private sector feels limited through the presence of semi-state companies. It is not a secret that the access of semi-state actors to projects, funds and political stakeholders generates a competitive environment unfavorable to the private sector. Private players also complain that the footprint of IRGC companies undermines the potential for a greater presence of international companies in the Iranian economy; this is partly caused by the continued blacklisting of many IRGC companies by Western governments, but it is also due to different attitudes among the main players. In fact, private sector companies look for a strategic partnership with foreign entities, whereas many in the semi-state sector, especially IRGC companies, look for tactical cooperation in one project or for a limited time. Appreciating the fact that the private sector will play a key role in job creation, the negative impact of the semi-state sector on business climate needs to be addressed.