Border town in Iranian Kurdistan booms through trade with Iraq

At first glance, the Kurdish border town of Baneh is anything but prosperous. Houses are shabby, roads are narrow and potholed.

Yet the town, home to 90,000 Kurds, has 75 shopping malls and is the hub of a multibillion-dollar illicit trade in home appliances and electronics.

Baneh’s reputation as a cut-price shopping destination is known throughout Iran. Residents of big cities such as Tehran order goods for almost half the usual price or make the hours-long trek to the city, returning along rugged roads with television sets and air-conditioners strapped to the roofs of their cars.

“Baneh is very rich now compared to 10 years ago,” says Ali, a 28-year-old local seller of Bosch washing machines in the Behesht mall. “If this business did not exist, I would have been a drug addict and Baneh residents would have starved.”

But while the town’s booming trade has benefited local businessmen, and, say regime critics, Iran’s security forces, it has brought little prosperity to the wider province of Kurdistan, which struggles with underdevelopment and high unemployment. Critics say the lure of high profits has also diverted investment away from more productive sectors.

The trade is facilitated in neighbouring Iraqi Kurdistan. Iraqi traders import goods from China, Malaysia and Turkey, transport them to northern Iraq, then reload them and take them to the Iranian border, where there is no customs post. From there it is a short drive to the town — now the country’s biggest border market.

The route allows Iranian businessmen to avoid high tariffs on imports that are supposed to support domestic industries. It also lets them circumvent banking sanctions over the nuclear programme, which make it difficult to pay for imports. Sanctions have caused the national currency, the rial, to collapse by about 50 per cent over the past three years making imports far more expensive.
Iran Iraq locator map

“It is helpful if sanctions can be skipped [through Baneh],” says Rashed Ozeyri, governor of the town.

The Iranian authorities tolerate the trade as a way of making Kurds feel they are benefiting from being part of Iran. Tehran is mindful that residents of the region fought for independence in the aftermath of the 1979 revolution and see the Kurdistan Regional Government in neighbouring Iraq as a model for federalism.

“The borders are secure because of border residents who should make ends meet with this kind of trade,” says Mr Ozeyri.

Away from the malls and the roads choked with shoppers from other parts of the country, there is less support for the cross border bonanza.

“I can assure you we enjoy minimum benefit from this trade,” says Shirkooh, a shop-owner.

The province’s per capita income is 30m rials ($1,121), less than half Iran’s average. Thousands of workers leave the province in search of work, with the 1.5m population increasing only slightly over the past 20 years, compared with a 1.7 per cent growth nationally.

Most Kurds in the province survive on cattle breeding and agriculture, major crops are wheat, strawberry, chickpeas, alfalfa and potatoes, despite the presence of what analysts say are rich, largely untapped mineral reserves that include iron ore, bauxite and gold.

About two-thirds of small and medium-sized industries, such as carpet making and plastics production, have gone bust in recent years, while those linked to the poultry and construction sectors are working at less than 50 per cent capacity.

There is almost no major industrial production in the province, partly a holdover from an unspoken central government policy in previous decades of keeping border provinces under-developed to discourage separatism, but more recently a result of Kurdish businessmen seeing greater profits in cross-border trade than in industry.

Industrial performance is further undermined by poor infrastructure and the effect of international sanctions.

“Tehran scores a total of 127 on [Iran’s] development index but the figure is 5 for Kurdistan, says Hamed Ghaderzadeh, professor of agricultural economics at the University of Kurdistan. “Kurdistan province also has meagre share in the country’s industrial development and ranks 29th out of 31 provinces.”

Some Kurds say they are disappointed that the centrist government of Hassan Rouhani, who won 72 per cent of Kurdistan’s vote in last year’s presidential election, has failed to deliver on promises to boost economic development by completing road building projects, extending railways and launching a petrochemical project in the province.

But analysts suspect the government is constrained by regime hardliners who highlight security threats from separatists in Kurdistan to justify their military presence, which also allows them to benefit from the trade in Baneh.

“The Insecurity label on Kurdistan has huge financial benefits for some [regime affiliates],” says one economist. “It does not benefit them to accept that Kurdistan is now the most secure province in the country.”

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