17 months of internet shutdown costs Iran billions, sparks capital flight

A recent report by BBC Persian earlier this month revealed that the 17-month-long social media ban and occasional total internet blackout in Iran caused over US$1.6 billion in damage to Iran's economy, adding to the economic issues of the low-income part of Iranian society.

Without official government data on Iran's economic status and the impact of internet connectivity and social media platforms on small businesses, understanding the damages caused by internet disruptions remains challenging. However, even government-released information shows a grim image of the situation.

In September 2022, during one of the harshest internet cut-offs in Iran, the ISNA news agency, related to the country's Supreme Council of the Cultural Revolution, reported that every hour without the internet cost Iran US$1.5 million.

The internet blackout started in Iran following nationwide demonstrations that engulfed the country in protest to the death of the 22-year-old Mahsa Amini in the custody of Islamic morality police on 16 September 2022.

To control the news about the demonstrations and the brutal images of the police and Iran's Islamic Revolutionary Guard Corps (IRGC) crackdown, the establishment shut down the internet on several occasions.

However, the intensity of the total shutdown of the internet has reduced since January 2023. Several social media platforms and messaging applications have remained blocked in the country, causing severe damage to its already troubled economy.

Millions of dollars lost

According to Statista, an online portal providing data on the global digital economy in 2022, Iran's internet was off for at least 7,171 hours, costing the country US$773 million.

A significant blow was dealt to online shopping and electronic payment processing. According to local media, 90 per cent of transactions in Iran occurred in the virtual sphere before the protests in 2022.

During the initial two weeks of the protests, Zibal and Zarin Pal, two Iranian companies providing online payment platforms for businesses, witnessed a drastic 55 and 60 per cent drop in the number of online transactions they supported, respectively.

Adding to the country's economic crisis, the authorities clamped down on social media platforms such as WhatsApp and Instagram, along with blocking access to Google Play, App Store, Skype, and Microsoft's website. However, the most significant economic damage was witnessed by small businesses due to the social media ban.

In October 2022, Farzin Fardis, Chairman of The Economic Innovation and Digital Transformation Commission at the Tehran Chamber of Commerce, estimated that the Instagram ban alone had led to the closure of at least 500,000 Iranian small businesses on the platform and had a direct impact on one million Iranians, with eight million more indirectly affected.

Capital flight, a looming crisis

Seventeen months after the anti-establishment protests first ignited, the nation saw a reduction in total internet cut-offs. However, the ban on social media platforms and other websites remained firmly in place.

Following a four-month-long, deadly confrontation between protestors, the police, and the IRGC forces, the authorities leveraged the social media ban to suppress any resurgence of protests.

Iranian economists and businesses quickly pointed out that this ban was a significant force for a surge in capital outflow.

Nasser Beiki, the director of Iran's Arak Chamber of Commerce, warned that the country's economy had already suffered immensely due to internet cut-offs and the constraints on internet users.

"One of the impacts of internet shutdown is capital outflow," Beiki said. "Capital, by its nature, seeks a safe and secure environment, and if it can no longer find such a space, it will not be possible to keep the capital."

A month after Beiki's remarks, while the brutal crackdown on protestors was still going on, the Iran Migration Data Portal, in a report, warned about the increasing pace of the capital that moved from Iran to other countries due to the government's limitations on the internet.

In response to whether the pace of capital outflow would increase, the report emphasised, "A glimpse at the official data released by the Central Bank shows that the answer to this question is affirmative."

It added that the amount of capital moved from Iran to other countries over two decades exceeded US$200 billion.

Despite the mounting economic losses and pleas from experts and citizens to lift the bans, the government remained unresponsive.

In January, during his latest statement on the internet ban, Issa Zarepour, Iran's Minister of Information and Communications Technology, stressed that social media platforms and messaging applications would not soon be accessible to the public in the country.

Reza Olfat-nasab, a member of the union of Internet-based businesses, underscored the difficult circumstances, remarking, "The conditions have been so dire over the last three years. In general, we have all come to accept that there is no alternative."

Emphasising the frequent disruptions in Iran's internet, Olfat-nasab expressed concerns about the possibility of its speed decreasing even further and more bans being imposed on the internet.

"The officials, indifferent to the livelihoods of those dependent on the internet, show no concern. As a result, we are doomed to persist with the existing internet," he concluded.