Economic Cost of Internet Disruptions Estimated at Up To $4.8 Billion
The damage caused to the Iranian economy by the Internet disruptions of the last four months is estimated at tens of trillions of Tomans.
The directors of the Tehran Chamber of Commerce announced, at the end of October last year, that the direct loss of income has been about 35 trillion Tomans (about $650.5 million, at an exchange rate of 53,800 Tomans/$1) in the first month of the protests alone. This figure, including indirect damages, reaches about 80 trillion Tomans (nearly $1.5 billion) for the entire duration of the disruptions. This figure is equivalent to the monthly living expenses of more than five million working families.
Iran Open Data’s calculations show that the internet disruption caused between 40 and 120 trillion Tomans ($744 million and $2.23 billion) of damage from the 1st of October 2022 to the end of January 2023. If we take into account Iran’s 40% inflation, this number increases to about 170 trillion Tomans ($3.1 billion).
In September 2022, Farzin Fardis, head of the Economic Innovation and Digital Transformation Commission of the Tehran Chamber of Commerce, said that one month of internet disruption has caused 35 trillion Tomans ($651 million) in damages. He also estimated the indirect damage of these disruptions to be 45 trillion Tomans ($837 million).
One month after the Tehran Chamber of Commerce meeting, Mohsen Ameri, head of the Business Environment Improvement Center of the Iran Chamber of Commerce, estimated the damage caused to businesses amid the two-month internet interruption at more than 150 trillion Tomans (nearly $2.8 billion).
Based on this assessment, the monthly average of 75-trillion-Toman ($1.3-billion) economic loss in the first two months can be forecasted in three different ways for the months of November and December.
In the optimistic scenario, if this trend continued with a 25% increase in losses, the total losses through December will reach 187.5 trillion Tomans (about $3.49 billion).
In the centrist scenario, assuming the loss factor rises to 50%, the total losses to Iran's economy through the end of December would be around 220 trillion Tomans (about $4.09 billion).
In the worst-case scenario, assuming the losses continued to increase 75%, the damage through the month of December would reach 262.5 trillion Tomans (about $4.8 billion).
Damage to internet-dependent businesses estimated at 118 trillion Tomans ($2.19 billion)
Another method of estimating the financial damages caused by the internet disruptions is to focus on Internet-focused businesses, which now account for 7.2% of the total Gross Domestic Product (GDP), according to a statement by Issa Zarepour, the Minister of Communications and Information Technology, on August 31 of last year.
Iran’s Central Bank has estimated the value of Iran's GDP in 2020 as about 6.526 quadrillion Tomans ($121.5 billion); 7.2% of the GDP is about 470 trillion Tomans ($8.7 billion) which equals the annual share of internet-based businesses, and their monthly share is 2.39 billion Tomans ($44,548).
To calculate the financial losses to businesses caused by the internet disruptions that occurred between October and January, we use the three previously mentioned methods.
This estimate applies only for e-businesses, and doesn’t take into account the losses incurred by other types of businesses that rely on the use of the internet.
Core internal business processes including correspondence, purchases, sales, payment, tracking, as well as warehouse, shipping, productions, and administrative coordination are reliant on the internet. The negative impact on the wider economy is illustrated by four consecutive reports published in October and November by various economic players.
In their report in October 2022, purchasing managers say the service sector, especially transportation and shipment, has been severely affected by the internet interruptions.
Also in the report, exporters complain that “the restrictions on the internet and the social networks have caused losses and decreases in exports.”
A separate October 2022 report, Shamekh, compiled by representatives of various economic sectors, states: “In general, companies that have already experienced declines due to the recent unrest and the lowering of the customer purchasing power are facing a sharp decrease in demand and sales.”
The purchasing managers’ report of November 2022 also indicates the negative effect of internet disruptions on various sectors, including wood, paper, and furniture making.
Referring to the continually decreasing trend of consumer purchasing, this report states that “in some cases, the internet outage has caused a reduction in demand.”
The purchasing managers’ reports of December 2022, the last report at the time of writing this article, still stresses the negative effect of internet disruption on the economy. The report states that “Internet interruption and the drop in online sales, as well as strikes and the closure of some retail establishments in the food industry, have been the cause of reduced sales.”
In another part of this report, garment and leather industries reported that “an at least 70-percent drop in online sales of clothing, and an about 50-percent drop in in-store sales has been attributed to the recent unrest and internet interruptions.”
It is difficult to accurately estimate the total economic damages caused by the internet outages. For example, we cannot accurately estimate how many startup investors and virtual business operators, discouraged and frustrated with the situation, left the workforce, or left the country entirely. Physical, human, and social capital, as well as loss of potential investment are the costs that are missing from the loss estimates.
The threat to 1,700,000 businesses
Internet disruption and the filtering of social media application, such as WhatsApp and Instagram are clearly harmful to Internet and social media businesses.
The Beta Research Center, an Iran-based firm, published a report in February 2021 stating that “the income of 9 million people depends on the Instagram social network.”
This report’s data shows that in 2019, more than 1,700,000 companies, including at least 200,000 large and medium businesses, and 500,000 provincial and local businesses, were being showcased on Instagram. Each one of these pages was a source of income for one or more individuals. Also, about one million pages on Instagram that yield micro incomes from Instagram.
These figures will certainly increase in 2020 and the first half of 2021. Sina Farahi, a founder of several social media start-ups and a well-known e-business owner, in an interview with Tehran’s Donya-ye Eghtesad newspaper estimated that Instagram has more than 52 million users in Iran, and 1,700,000 businesses have presence in this social network. In response to the blocking of this popular social network, he said that filtering will directly impact the livelihoods of up to 10 million Iranians.
In a meeting held by the Tehran Chamber of Commerce in late October 2022, council members discussed the internet interruptions and the resulting economic damages, announcing the first estimates of these losses.
In the same meeting, Farzin Fardis, head of the Economic Innovation and Digital Transformation Commission of the Tehran Chamber of Commerce, announced that Iranians own between 500,000 to 700,000 businesses on Instagram which employ around 1,000,000 people.
According to a report by Tekrasa, which monitors technology and start-up trends in Iran, 415,000 stores operate on Instagram, and their financial transactions volume, in 2020, was between 18 and 32 trillion Tomans (about $400-710 million).
This report states that one million people have been working on Instagram in Iran, executing 310,000 to 470,000 orders daily.
By estimating this year’s Instagram business transaction volume in Iran, and taking into account the 48.5% inflation announced in December 2022, we arrive at 26.7 trillion ($590 million) to 47.5 trillion ($1 billion) Tomans.
The repost estimates the number of daily orders on Instagram ranges from 310,000 to 470,000, and the value of each order is estimated to be between 160,000 and 180,000 Tomans ($3-4).