economy of iran
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Wikipedia
Economy of Iran
The economy of Iran is the seventeenth largest in the world by purchasing power parity (PPP) and twenty-sixth by market value.[19][20] The economy of Iran is a mixed and transitioneconomy with a large public sector and some 50% of the economy centrally planned.[21][22] Itis also a diversifed economy with over 40 industries directly involved in the Tehran Stock Exchange.[23] Yet, most of the country's exports are oil and gas, accounting for a majority of government revenue in 2010.[24]
A unique feature of Iran's economy is the presence of large religious foundations, whosecombined budgets make up more than 30% of central government spending.[25] Iran is one of the few major economies that has maintained positive growth in the aftermath of the 2008global financial crisis, despite sanctions imposed by the international community as a resultof the country's nuclear program.[26][27]
Distortions resulting from a combination of price controls and subsidies, particularly on foodand energy,[28][29] continue to burden the economy. Contraband, administrative controls,corruption,[30][31] and other restrictive factors undermine the potential for private sector-ledgrowth.[32] The legislature in late 2009 passed President Mahmoud Ahmadinejad's bill toreduce subsidies. This is the most extensive economic reform since the governmentimplemented gasoline rationing in 2007. [32]
High oil prices in recent years have enabled Iran to amass well over $100 billion in foreignexchange reserves.[18][33] Whilst this has aided self-sufficiency and domestic investment,double-digit unemployment and inflation remain problematic.[34] Iran's educated population, economic inefficiency, and insufficient foreign and domestic investment have prompted anincreasing number of Iranians to seek employment overseas, resulting in a significant "braindrain".
History
Prior to 1979, Iran's economic development was rapid. Traditionally an agricultural society,by the 1970s the country had undergone significant industrialization and economicmodernization.[37][38] This pace of growth had slowed dramatically by 1978 as capital flight reached $30 to $40 billion US dollars just before the revolution.[39]
The government's long-term objectives since the revolution have been economicindependence, full employment, and a comfortable standard of living for citizens, but at theend of the 20th century, the country's economy faced many obstacles.[40] Iran's population
more than doubled between 1980 and 2000 and grew increasingly younger. Although arelatively large number of Iranians are farmers, agricultural production has consistently fallen
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since the 1960s. By the late 1990s, Iran had become a major importer of food. At that time,economic hardship in the countryside resulted in vast numbers of people moving to cities.[39]
Following the nationalizations in 1979 and the outbreak of the Iran – Iraq War, over 80% of Iran's economy came under the control of the government.[25] After hostilities with Iraq
ceased in 1988, the government tried to develop the country's communication, transportation, manufacturing, health care, education and energy sectors (including its prospective nuclearpower facilities), and began the process of integrating its communication and transportationinfrastructure with that of neighboring states.[41] The eight-year war with Iraq claimed at least300,000 Iranian lives and injured more than 500,000. The cost of the war to the country'seconomy was some $500 billion.
Macro-economic trends
After the revolution, the government established a widespread education system with highrates of accessibility that made major inroads in improving adult literacy rates: 82% of theIranian adult population is now literate, well ahead of the regional average of 62%.[44] Morethan two-thirds of the population (74 million people) is under the age of 30 while netenrollment at primary school level is almost 100%, preluding a secondary "demographicboom" in Iran in the coming years.[45][46][47] Iran ranks 40th in science production and first inscientific growth in the world in 2011.[48] According to The Economist, Iran was ranked 39thin a list of industrialized nations, producing $23 billion of industrial products in 2008 .[49] Between 2008 to 2009 Iran leaped to 28th from 69th place in annual industrial productiongrowth.[50]
In the early 21st century the service sector constituted the largest percentage of grossdomestic product (GDP), followed by industry (mining and manufacturing) and agriculture.In 2008 GDP was estimated at $382.3 billion ($842 billion by PPP), or $5,470 per capita($12,800 by PPP).[32] The GDP figure is projected to double in the next five years .[51] However, real GDP growth will remain relatively sluggish, averaging 2.2% a year in 2012-16, insufficient to improve the unemployment rate.[52] Iran's informal economy is alsoimportant.[32] According to the IMF, Iran is in transition to a market economy from a plannedeconomy.[53]
On account of these figures and the country’s small but diversified industrial base, the United
Nations classifies Iran's economy as semi-developed.[54] According to Goldman Sachs, Iranhas the strong possibility of becoming one of the world's largest economies in the 21stcentury.[55][56] Also, due to huge energy subsidies, it is one of the most energy-inefficientcountries in the world, with energy intensity three times that of the global average and 2.5times higher than the middle eastern average.[57]
Fiscal and monetary policy
Since the 1979 revolution, government spending has averaged 59% on social policies, 17%on economic matters, 15% on national defense, and 13% on general affairs.[59] Betweensocial and economic affairs, payments have averaged 39% on education, health and socialsecurity, 20% on other social affairs, 3% on agriculture, 16% on water, power and gas, 5% on
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manufacturing and mining, 12% on roads and transportation and 5% on other economicaffairs.[59] Iran's gross net investment was 27.7% of GDP in 2009.[32] Between 2002 and2006, the rate of inflation fluctuated around 14%.[34] In 2008, around 55% of thegovernment's revenue came from oil and natural gas revenue, with 31% derived from taxesand fees.[15][60] The budget for the year 2011 was $500 billion (5,170 trillion rials), an
increase of 45% on 2010.[61]
The budget is based on an oil price of $80 per barrel. The valueof the US dollar is estimated at IRR 10,500 for the same period.[62] According to the head of the Department of Statistics of Iran, if the rules of budgeting were observed in this verystructure, the government could save at least 30 to 35% on its expenses.[63]
Iran had around $100 billion in foreign reserves at the start of 2009[32] and balances itsexternal payments by pricing oil at approximately $75 per barrel.[64] Iran's external and fiscalaccounts will reflect falling oil prices in 2012-13 but remain in surplus. The current accountwill post an average surplus of 2.1% of GDP in 2012-13, and the net fiscal balance (afterpayments to Iran's National Development Fund) will register a small surplus of 0.3% of GDPin 2012-13.[52] The Iranian rial has lost more than 50% of its value between December 2011
and April 2012. The central bank's interest rate is 21%, and the inflation rate has climbed to22% this year, 10% higher than last year.[65]
Five-year socio-economic development plan
The fifth development plan for the period 2010 – 15 sets guidelines for the socio-economicdevelopment of the country. Designed to give power to the people through delegation,[66] theplan is part of "Vision 2025", a strategy for long-term sustainable growth. Under the plan,following annual approval of the government’s budget, the Central Bank of Iran will presenta detailed monetary and credit policy to the Money and Credit Council (MCC) for approval.
Thereafter, major elements of these policies will be incorporated into the five-year economicdevelopment plan.[59]
Economic reform plan
Expansion of public healthcare and international relations are the other main objectives of thefifth plan, an ambitious series of measures that include subsidy reform, banking, currency, taxation, customs, construction, employment, the development of nationwide distribution of goods and services, social justice and productivity. The main intention is to make the countryself-sufficient by 2015.[67][68][69] By removing energy subsidies, Iran's long term intention is tomake its industries more efficient and competitive on the world stage.[70] These reforms target
the major sources of inefficiency and price distortion in the country's economy and are likelyto lead to major restructuring of almost all economic sectors.[67] The banking sector in Iran isseen as a potential hedge against the removal of subsidies, as the plan is not expected to havea direct impact on banks.[71] Iranian President Mahmoud Ahmadinejad has stated that thecountry will become the world's 12th largest economy by 2015.[20]
Centralization and privatization
Following the cessation of hostilities with Iraq in 1988, the Iranian Government declared itsintention to privatize most state industries in an effort to stimulate the war-torn economy. The
sale of state-owned factories and companies proceeded slowly, mainly due to opposition by anationalist majority in the Iranian parliament. By 2006 most industries, some 70% of the
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economy, remained state-owned.[32] The majority of heavy industries including steel,petrochemicals, copper, automobiles, and machine tools remained in the public sector, withmost light industry privately owned.[32]
Article 44 of the Iranian Constitution stipulates that the country's economy should consist of
state, cooperative, and private sectors based on systematic and sound planning. The statesector includes all large-scale industries, foreign trade, major minerals, banking, insurance,power generation, dams and large-scale irrigation networks, radio and television, post,telegraph and telephone services, aviation, shipping, roads, railroads and the like. These willall be publicly owned and administered by the State. Cooperative companies and enterprisesconcerned with production and distribution in urban and rural areas form the basis of thecooperative sector and will be operated in accordance with Shariah law. As of 2008, 120,000cooperatives were in operation across the country employing about 15 million people .[98] Theprivate sector consists of enterprises concerned with construction, agriculture, animalhusbandry, industry, trade, and services that supplement the economic activities of the stateand cooperative sectors.[99]
Since strict interpretation of Article 44 has never been enforced in Iran, the private sector hasplayed a much larger role than that outlined in the constitution.[100] As a result, in recent yearsthe role of this sector has increased whilst a 2004 amendment to the constitution allows 80%of state assets to be privatized. Forty percent of such sales are to be conducted through the"Justice Shares" scheme and the rest through the Tehran Stock Exchange. The governmentwill retain ownership of the remaining 20%.[101][102] In 2005, government assets wereestimated at around $120 billion. Some $63 billion of such assets were privatized in theperiod 2005 – 2010, reducing the government's direct share of gross domestic product (GDP)from 80% to 40%.[103]
Iranian Revolutionary Guard Corps
The Iranian Revolutionary Guard Corps (IRGC) are thought to control about one third of Iran's economy through a series of subsidiaries and trusts.[104][105][106] Estimates by the LosAngeles Times suggest the IRGC has ties to over one hundred companies and an annualrevenue in excess of $12 billion in business (construction in particular) .[107] The IranianMinistry of Petroleum has awarded the IRGC billions of dollars in contracts as well as majorinfrastructure projects.[108] Tasked with control of Iran's borders, the IRGC maintains amonopoly on smuggling, costing Iranian companies billions of dollars in lost businessopportunities each year.[104] The smuggling itself is encouraged in part by the generous
subsidization of domestic goods (including fuel). IRGC also runs laser eye-surgery clinics,makes cars, builds bridges and roads and is a developer of oil and gas fields.[109]
Religious foundations
Welfare programs for the needy are managed by more than 30 public agencies alongsidesemi-state organizations known as bonyads, together with several private non-governmentalorganizations. The bonyads are a consortium of over 120 organizations which are tax-exemptand in receipt of government subsidies and religious donations. They answer directly to theSupreme Leader of Iran and control over 20% of Iran's GDP.[104][110] Operating everythingfrom vast soybean and cotton fields to hotels, soft drinks, auto-manufacturing and shipping
lines, the bonyads are seen as overstaffed, corrupt, and generally not profitable.[111] Bonyad companies also compete with Iran's unprotected private sector, whose firms complain of the
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difficulty of competing with bonyad firms whose political connections provide governmentpermits and subsidies, which eliminate worries over the need to make a profit in many marketsectors.[111]
Labor and welfare
Experts believe that annual economic growth of above 5% is necessary to absorb the 750,000new labor force entrants each year.[112] Agriculture contributes just over 11% to the grossnational product and employs one third of the labor force.[7] As of 2004 the industrial sector, which includes mining, manufacturing, and construction, contributed 42% of GDP andemployed 31% of the labor force.[7] Mineral products, notably petroleum, account for 80% of Iran’s export revenues, even though mining employs less than 1% of the country’s labor force.[7] In 2004 the service sector ranked as the largest contributor to GDP (48%) andemployed 44% of workforce.[32] Women made up 33% of the labor force in 2005.[113] Youthunemployment (aged 15 – 24) was 23% in 2008, resulting in significant brain drain.[32][114]
Personal income
Iran is classed as a middle income country and has made significant progress in provision of health and education services in the period covered by the Millennium Development Goals (MDGs). In 2010, Iran's average monthly income was about $500 (GNI per capita in 2009:$10,900 by PPP).[13][32][115] There is a minimum national wage applicable to each sector of activity fixed by the Supreme Labor Council. In 2009 this was about $263 per month ($3,156per year).[116] The World Bank reports that in 2001, approximately 20% of householdconsumption was spent on food, 32% on fuel, 12% on health care, and 8% on education.[117]
The poverty line in Tehran for the year ending March 20, 2008 was $9,612, while thenational average poverty line was $4,932.[118] In 2010, Iran's Department of Statistics announced that 10 million Iranians live under the absolute poverty line and 30 million liveunder the relative poverty line.[119]
Social security
Although Iran does not possess universal social protection, in 1996, the Iranian Center forStatistics estimated that more than 73% of the Iranian population was covered by socialsecurity.[120] Membership of the social security system for all employees is compulsory.[121]
Social security ensures employee protection against unemployment, disease, old age, andoccupational accidents.[122] In 2003, the government began consolidation of its welfareorganizations in order to eliminate redundancy and inefficiency. In 2003 the minimumstandard pension was 50% of the worker’s earnings but no less than the minimum wage.[122] Iran spent 22.5% of its 2003 national budget on social welfare programs of which more than50% covered pension costs.[6]
Employees between the age of 18 and 65 years are covered by the social security system withfinancing shared between the employee (7% of salary), the employer (20 – 23%) and the state,which in turn supplements the contribution of the employer up to a total value of 3%.Provision of social security is extended to self-employed workers, who voluntarily contributebetween 12% and 18% of income depending on the protection sought.[122] Civil servants, the
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regular military, law enforcement agencies, and the Iranian Revolutionary Guard Corps allhave their own pension systems.[123]
Trade unions
Although Iranian workers have a theoretical right to form labor unions, in actuality there is nounion system in the country. Ostensible worker representation is provided by the Workers'House, a state-sponsored institution that nevertheless attempts to challenge some statepolicies.[124] Guild unions operate locally in most areas but are limited largely to issuingcredentials and licenses. The right of workers to strike is generally not respected by the state.Since 1979 strikes have often been met by police action.[125]
A comprehensive Iranian labor law covers all facets of labor relations, including hiring of local and foreign staff. This provides a broad and inclusive definition of the individuals itcovers, with written, oral, temporary and indefinite employment contracts all recognized.Considered employee-friendly, the labor law makes it extremely difficult to lay off staff.
Employing personnel on consecutive six-month contracts (a practice that is used to avoidpaying benefits) is illegal, as is dismissing staff without proof of a serious offense. Labordisputes are settled by a special labor council, which usually rules in favor of theemployee.[121]
Sectors of the economy
Agriculture and foodstuffs
About 11% of Iran's land is arable,[126] with the main food-producing areas located in the
Caspian region and in the valleys of the northwest. Some northern and western areas supportrain-fed agriculture, whilst others require irrigation for successful crop production.[126] Primitive farming methods, overworked and under-fertilized soil, poor seed and scarcity of water are the principal obstacles to agricultural production. About one third of total cultivatedland is irrigated. Construction of multipurpose dams and reservoirs along rivers in the Zagros and Alborz mountains have increased the amount of water available for irrigation.Agricultural production is increasing as a result of modernization, mechanization,improvements to crops and livestock as well as land redistribution programs.[127]
Wheat, the most important crop, is grown mainly in the west and northwest whilst rice is themajor crop in the Caspian region. Other crops produced are barley, corn, cotton, sugar beets,
tea, hemp, tobacco, fruits, potatoes, legumes (beans and lentils), vegetables, fodder plants(alfalfa and clover), almonds, walnuts and spices including cumin and sumac. Iran is also theworld's largest producer of saffron, pistachios, berberis and berries as well as the secondlargest producer of dates.[128][128] The country's meat and dairy products include lamb, goatmeat, beef, poultry, milk, eggs, butter and cheese. Wool and leather are also produced whilsthoney is collected from beehives and silk harvested from silkworm cocoons. Forestryproducts from the heavily wooded northern slopes of the Alborz Mountains are economicallyimportant although the cutting of trees is strictly controlled by the government, which alsoruns a reforestation program. Rivers that drain into the Caspian Sea are fished for salmon,carp, trout, pike and sturgeon, from which caviar is harvested to make Iran the world's largestproducer.[127][129]
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Since the 1979 revolution commercial farming has replaced subsistence farming as thedominant mode of agricultural production. By 1997, the gross value of Iran's agriculturalsector products reached $25 billion.[7] Iran has attained 90% self-sufficiency in essentialagricultural products, although rice production fails to meet domestic demand thereby makingsubstantial imports necessary. In 2007 Iran reached self-sufficiency in wheat production and
for the first time became a net wheat exporter.[130]
By 2003, a quarter of Iran's non-oil exportswere of agricultural products.[131] Major exports in this category include fresh and driedfruits, nuts, animal hides, processed foods, and spices.[7]
Manufacturing
Large-scale factory based manufacturing began in the 1920s and has developed gradually.During the Iran – Iraq War, Iraq bombed many of Iran’s petrochemical plants, damaging thelarge oil refinery at Abadan where production came to a halt. Reconstruction of the refinerybegan in 1988 and production resumed in 1993. In spite of the war, many small factoriessprang up to produce import-substitution goods and materials needed by the military.[132]
Iran's major manufactured products are petrochemicals, steel, and copper products. Otherimportant manufactures include automobiles, home and electric appliances,telecommunications equipment, cement and industrial machinery. Iran has gradually becomethe largest operational base of industrial robots in West Asia.[133] Other products includepaper, rubber products, agricultural products, processed foods, leather products andpharmaceuticals. In 2000, textile mills, using domestic cotton and wool such as Tehran Patou and Iran Termeh employed around 400,000 people around Tehran, Isfahan and along theCaspian coast.[134][135]
A 2003 report by the United Nations Industrial Development Organization regarding smalland medium sized enterprises (SMEs) in Iran[136] identified the following impediments toindustrial development:
Lack of monitoring institutions;
An inefficient banking system;
Insufficient research & development;
A shortage of managerial skills;
Corruption;
Inefficient taxation;
Socio-cultural apprehensions;
The absence of social learning loops;
Shortcomings in international market awareness necessary for global competition,
Cumbersome bureaucratic procedures;
A shortage of skilled labor;
Lack of intellectual property protection;
Inadequate social capital, social responsibility and socio-cultural values.
Despite these problems, recent studies reveal that over the past few years Iran has progressedrapidly in various scientific and technological fields. Major advancements have taken place inthe petrochemical, pharmaceutical, aerospace, defense, and heavy industry sectors. Even inthe face of U.S. economic sanctions, Iran appears to be emerging as an industrialized
country.
[137]
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Handicrafts
Iran has a long tradition of producing artisan goods including Persian carpets, ceramics,
copperware and brassware, glass, leather goods, textiles, and wooden artifacts. The country'srich carpet-weaving tradition dates from pre-Islamic times and remains an important industrycontributing substantial amounts to rural incomes. An estimated 1.2 million weavers in Iranproduce carpets for both domestic and international export markets .[138] More than $500million worth of hand-woven carpets are exported each year, accounting for 30% of the 2008world market .[139][140] Around 5.2 million people work in some 250 fields of the handicraftindustry and contribute 3% of GDP.[141]
Automobile manufacturing
As of 2001, there were 13 public and privately owned automakers within Iran, of which Iran
Khodro and Saipa accounted for 94% of total domestic production. Iran Khodro's Paykan, replaced by the Samand in 2005, is the predominant car brand in the country. With 61% of the market in 2001, Iran Khodro was the largest player, whilst Saipa contributed 33% of Iran’s total production in the same year. Other car manufacturers, such as the Bahman Group, Kerman Motors, Kish Khodro, Raniran, Traktorsazi, Shahab Khodro and others accountedfor 6% of the total market.[142] These automakers produce a wide range of automobilesincluding motorbikes, passenger cars such as Saipa's Tiba, vans, mini trucks, medium sizedtrucks, heavy duty trucks, minibuses, large size buses and other heavy automobiles used forcommercial and private activities in the country. In 2009 Iran ranked fifth in car productiongrowth standing next to China, Taiwan, Romania and India.[143] Iran ranked the world's 12thbiggest automaker in 2010 and has a fleet of 11.5 million cars.[144][145][146][147] Iran had a totalproduction of 1,395,421 cars in 2010, including 35,901 commercial vehicles.[148]
Defense industry
In 2007 the International Institute for Strategic Studies estimated Iran's defense budget at$7.31 billion, equivalent to 2.6% of GDP or $102 per capita, ranking it 25th in global defenseexpenditure. The country's defense industry has advanced in the past 25 years and nowmanufactures many types of arms and equipment. Since 1992, Iran's Defense IndustriesOrganization (DIO) has produced its own tanks, armored personnel carriers, guided missiles, radar systems, a guided missile destroyer, military vessels, submarines, and a fighter
plane.[149]
In 2006 Iran exported weapons to 57 countries, including NATO members, andsold $100 million worth of military equipment abroad.[150][151][152]
Construction and real estate
Until the early 1950s Iran's construction industry remained largely in the hands of smalldomestic companies. Increased income from oil and gas and the availability of easy credittriggered a subsequent building boom that attracted major international construction firms tothe country. This growth continued until the mid-1970s when a sharp rise in inflation and acredit squeeze caused the boom to collapse. The construction industry had revived somewhatby the mid-1980s, although housing shortages and speculation have remained serious
problems, especially in large urban centers. As of January 2011, the banking sector, particularly Bank Maskan, has given loans up to 102 trillion rials ($10.2 billion) to applicants
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of Mehr housing scheme.[154] Construction is one of the most important sectors in Iranaccounting for 20 – 50% of total private investment in urban areas and one of the primeinvestment targets of well off Iranians.[6]
Annual turnover in the construction industry amounted to $38.4 billion in 2005 and $32.8
billion in 2011.[155][156]
Seventy percent of Iranians own their own homes.[153]
Because of poorconstruction quality, many buildings stand in need of anti-seismic reinforcement orrenovation.[157] Iran also has a large dam building industry.[158]
Mines and metals
Mineral production contributed only 0.6% of the country’s GDP in 2011,[159] a figure thatincreases to 4% when other mining-related industries are included. Factors including lack of suitable infrastructure, legal barriers, exploration difficulties, and government control over allresources account for such low figures.[160]
Although the petroleum industry provides the majority of revenue, about 75% of all miningsector employees work in mines producing minerals other than oil and natural gas.[7] Theseinclude coal, iron ore, copper, lead, zinc, chromium, barite, salt, gypsum, molybdenum, strontium, silica, uranium, and gold, the latter of which is a mainly a by-product of the SarCheshmeh copper complex operation.[159][161] The mine at Sar Cheshmeh in Kerman Province is home to the world's second largest lode of copper ore.[162] Large iron ore deposits exist incentral Iran, near Bafq, Yazd, and Kerman. The government owns 90% of all mines andrelated large industries in Iran and is seeking foreign investment to development of themining sector.[160] The sector accounts for 3% of the country’s exports.[160]
Iran has recoverable coal reserves of nearly 1.9 billion short tonnes. By mid-2008, thecountry produced about 1.3 million short tonnes of coal annually and consumed about 1.5million short tonnes, making it a small net importer of coal.[163] The country plans to increasehard-coal production to 5 million tons in 2012 from 2 million tons in November 2008.[164] Main steel mills are located in Isfahan and Khuzestan. Iran became self-sufficient in steelproduction in 2009.[165] Aluminum and copper production are projected to hit 245,000 and383,000 tons respectively by March 2009.[164][166] Cement production reached 65 million tonsin 2009, while Iran exports this item to 40 countries.[166][167]
Energy, gas, petroleum and petrochemicals
Iran possesses 10% of the world's proven oil reserves and 15% of its gas reserves.[169]
Domestic oil and gas along with hydroelectric power facilities provide the country withpower.[169] Energy wastage in Iran amounts to six or seven billion dollars per year,[170] whilstenergy consumption is much higher than the international norm.[57] Iran recycles 28% of itsused oil and gas, whereas some other countries reprocess up to 60%.[170] In 2008 Iran paid out$84 billion in subsidies for oil, gas and electricity.[29] It is the third largest consumer of natural gas in the world after United States and Russia.[32] In 2010 Iran completed its firstnuclear power plant at Bushehr with Russian assistance.[171]
Iran has been a major oil exporter since 1913. The country's major oil fields lie in the centraland southwestern parts of the western Zagros mountains. Oil is also found in northern Iran
and in the offshore waters of the Persian Gulf. In 1978, Iran ranked as the world's fourthlargest oil producer, OPEC's second largest oil producer and second largest oil exporter .[172]
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Following the 1979 revolution the new government reduced daily oil production inaccordance with its oil conservation policy. A further decline in production occurred as resultof damage to oil facilities during the Iraq-Iran war. Oil production rose in the late 1980s aspipelines were repaired and newly discovered oil fields in the Persian Gulf exploited. By2004, Iran’s annual oil production reached 1.4 billion barrels producing a net profit of $50
billion.[173]
Officials in Iran estimate that Iran's annual oil and gas revenues could reach $250billion by 2015 once current projects come on stream.[79] Iran manufactures 60 – 70% of itsindustrial equipment domestically, including refineries, oil tankers, drilling rigs, offshoreplatforms and exploration instruments.[174][175][176][177]
Major refineries located at Abadan (site of the country's first refinery), Kermanshah, andTehran failed to meet domestic demand for gasoline in 2009. Iran's refining industry requires$15 billion in investment over the period 2007 – 2012 to become self-sufficient and endimports.[178] Pipelines move oil from the fields to the refineries and to such exporting ports asAbadan, Bandar-e Mashur, and Kharg Island. Since 1997, Iran's state-owned oil and gasindustry has entered into major exploration and production agreements with foreign
consortia.[179][180] In 2008 the Iranian Oil Bourse (IOB) was inaugurated in Kish Island.[181] The IOB is intended as an oil bourse for petroleum, petrochemicals and gas in variouscurrencies. Trading is primarily in the euro and Iranian rial along with a basket of other majorcurrencies, excluding the US dollar.[182] Thanks to a fertilizer plant in Shiraz, the largestethylene unit in the world, in Asalouyeh, and the completion of many other special economiczone projects, Iran's exports in petrochemicals reached $5.5 billion in 2007, $9 billion in2008 and $7.6 billion during the first ten months of the Iranian calendar year 2010.[183][184][185] According to Iran's Petroleum Ministry, Iran plans to invest $500 billion in its oil sector until2025.[186]
Services
Despite efforts in the 1990s towards economic liberalization, government spending, includingexpenditure by quasi-governmental foundations, remains high. Estimates of service sectorspending in Iran are regularly more than two-fifths of the GDP, much of which isgovernment-related, including military expenditures, government salaries, and social securitydisbursements.[32]
Urbanization has contributed to significant growth in the service sector. Important serviceindustries include public services (including education), commerce, personal services,professional services, and tourism. Iran's national science budget in 2005 was about $900
million, roughly equivalent to the 1990 figure.[187]
By early 2000, Iran allocated around 0.4%of its GDP to research and development, ranking the country "far behind industrializedsocieties" and the world average of 1.4%.[188] In 2009 the ratio of research to GDP was 0.87%against the government's medium-term target of 2.5%.[7]
The total value of transport and communications GDP is expected to rise to $46 billion innominal terms by 2013, representing 6.8% of Iran’s GDP.[189] Projections based onemployment figures compiled for the International Labor Organization in 1996 suggest thatIran’s transport and communications sector employed 3.4 million people, or 20.5% of thelabor force in 2008.[189]
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Retail and distribution
Iran's retail industry consists largely of cooperatives (many of them government-sponsored),and independent retailers operating in bazaars. The bulk of food sales occur at street marketswith prices set by the Chief Statistics Bureau. Iran has 438,478 small grocery retailers.[190]
These are especially popular in cities other than Tehran where the number of hypermarketsand supermarkets is still very limited. More mini-markets and supermarkets are emerging, butthese are mostly one-off, independently owned operations. The biggest chainstores are state-owned Etka, Refah, Shahrvand and Hyperstar Market.[190] Electronic commerce in Iran passed the $1 billion mark in 2009.[191]
Healthcare and pharma
The constitution entitles Iranians to basic health care. By 2008, 73% of all Iranians werecovered by the voluntary national health insurance system.[163] Although over 85% of thepopulation use an insurance system to reimburse their drug expenses, the government heavilysubsidizes pharmaceutical production/importation in order to increase affordability of medicines and vaccines. The total market value of Iran’s health and medical sector was $24billion in 2002 and was forecast to rise to $50 billion by 2013, reflecting the increasingdemand on medical services.[193][194] In 2006, 55 pharmaceutical companies in Iran produced96% (quantitatively) of the medicines for a market worth $1.2 billion.[192][195][196] This figureis projected to increase to $3.65 billion by 2013.[194]
Tourism and travel
Although tourism declined significantly during the war with Iraq in the 1980s it has
subsequently recovered. About 1,659,000 foreign tourists visited Iran in 2004 and 2.3 millionin 2009 with most arrivals from Asian countries, including the republics of Central Asia, while a small percentage of tourists (about 10%) came from the countries of the EuropeanUnion and North America.[54][197][198]
The most popular tourist destinations are Isfahan, Mashhad, and Shiraz.[199] In the early 2000sthe industry still faced serious limitations in infrastructure, communications, industrystandards, and personnel training.[126] The majority of the 300,000 tourist visas granted in2003 were obtained by Asian Muslims, who presumably intended to visit importantpilgrimage sites in Mashhad and Qom.[198] Several organized tours from Germany, France,and other European countries come to Iran annually to visit archaeological sites and
monuments. In 2003 Iran ranked 68th in tourism revenues worldwide.[200]
According toUNESCO and the deputy head of research for Iran Travel and Tourism Organization (ITTO),Iran is rated among the "10 most touristic countries in the world".[200]
Banking, finance and insurance
Government loans and credits are available to industrial and agricultural projects, primarilythrough banks. Iran’s unit of currency is the rial which had an average official exchange rateof 9,326 rials to the U.S. dollar in 2007.[32] Rials are also exchanged on the unofficial marketat a higher rate. In 1979, the government nationalized all private banks. A banking systemwas subsequently created where, in accordance with Islamic law, interest on loans was
replaced with handling fees. This system went into effect in the mid-1980s.[59] In 2008Iranian reserves in foreign banks reached $81 billion.[201]
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The banking system consists of a central bank, the Bank Markazi, which issues currency andoversees all state and private banks. Several commercial banks headquartered in Tehran havebranches throughout the country. There are also two development banks and a housing bank that specializes in home mortgages. The government began to privatize the banking sector in2001 when licenses were issued to two new privately owned banks.[204]
The accounts of the state-owned commercial banks are dominated by loans to the state,bonyad enterprises, large-scale private firms and four thousand wealthy or connectedindividuals who do not always repay their loans.[205][206] While most Iranians have difficultiesobtaining small home loans, 90 persons have managed to secure collective facilities totaling$8 billion from banks.[207] In 2009, GIO informed that Iranian banks have some $38 billion of delinquent loans, while they are only capitalized at $20 billion.[208]
As of 2010, the Tehran Stock Exchange trades the shares of more than 330 registeredcompanies.[203] The stock market capitalization of listed companies in Iran was valued at$100 billion in 2011.[209] According to experts, Iran offers many investment opportunities,
particularly on its Tehran Stock Exchange.[210] In 2010, Iran attracted almost $11.9 billionfrom abroad, of which $3.6 billion was FDI, $7.4 billion was from international commercialbank loans, and around $900 million consisted of loans and projects from internationaldevelopment banks.[211]
Insurance premiums accounted for just under 1% of GDP in 2008,[163] a figure partlyattributable to low average income per head.[163] Five state-owned insurance firms dominatethe market, four of which are active in commercial insurance. The leading player is the IranInsurance Company, followed by Asia, Alborz and Dana insurances. In 2001/02 third-partyliability insurance accounted for 46% of premiums, followed by health insurance (13%), fireinsurance (10%) and life insurance (9.9%).[204]
Communications, electronics and IT
Broadcast media, including five national radio stations and five national television networksas well as dozens of local radio and television stations are run by the government. In 2008there were 345 telephone lines and 106 personal computers for every 1,000 residents.[214] Personal computers for home use became more affordable in the mid-1990s, since whendemand for Internet access has increased rapidly. As of 2010, Iran also had the world's thirdlargest number of bloggers (2010).[215] In 1998 the Ministry of Post, Telegraph & Telephone(later renamed the Ministry of Information & Communication Technology) began selling
Internet accounts to the general public. In 2006, revenues from the Iranian telecom industrywere estimated at $1.2 billion.[216] In 2006 Iran had 1,223 Internet Service Providers (ISPs),all private sector operated.[217]
According to the World Bank , Iran's information and communications technology sector hada 1.4% share of GDP in 2008.[214] Around 150,000 people are employed in this sector,including 20,000 in the software industry.[218] There were 1,200 registered IT companies in2002, 200 of which were involved in software development. In 2008 software exports stoodat $50 million.[219] By the end of 2009, Iran's telecom market was the fourth-largest market inthe Middle East at $9.2 billion and is expected to grow to $12.9 billion by 2014 at acompound annual growth rate (CAGR) of 6.9%.[220]
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Transport
Iran has an extensive paved road system linking most of its towns and all of its cities. In 2007the country had 178,152 kilometres (110,699 mi) of roads, of which 66% were paved. Thesame year there were approximately 100 passenger cars for every 1,000 inhabitants[144] whilst
trains operated on 11,106 kilometres (6,901 mi) of track .[32]
The country’s major port of entry is Bandar-Abbas on the Strait of Hormuz. After arriving inIran, imported goods are distributed throughout the country by trucks and freight trains. TheTehran – Bandar-Abbas railroad, opened in 1995, connects Bandar-Abbas to the railroadsystem of Central Asia via Tehran and Mashhad. Other major ports include Bandar Anzali and Bandar Torkaman on the Caspian Sea and Khoramshahr and Bandar Imam Khomeini onthe Persian Gulf . Dozens of cities have airports serving passenger and cargo planes. Iran Air, the national airline, was founded in 1962 and operates domestic and international flights. Alllarge cities have mass transit systems using buses whilst several private companies providebus services between cities. Tehran, Mashhad, Shiraz, Tabriz, Ahvaz and Isfahan are in the
process of constructing underground railways. More than one million people work in thetransportation sector, accounting for 9% of 2008 GDP.[221]
Foreign trade and economic relations
Iran is a founding member of OPEC and the Organization of Gas Exporting Countries.[222] Petroleum constitutes 80% of Iran's exports with a value of $46.9 billion in 2006.[223] Iran'snon-oil exports stood at $16.3 billion in 2007, a rise of 47.2% over the previous year,[224] and$25 billion in 2010.[225][226] For the first time, the value of Iran’s non-oil exports is expectedto reach the value of imports at $43 billion in 2011 and $50.5 billion a year later.[227]
Pistachios, liquefied propane, methanol (methyl alcohol), hand-woven carpets andautomobiles are the core items of Iran's non-oil exports.[228] Iran's exports of technical andengineering services in 2007 – 08 were $2.7 billion of which 40% of technical servicespertained to Central Asia and the Caucasus, 30% ($350 million) to Iraq, and close to 20%($205 million) to Africa.[229] Iranian firms have implemented projects in different fields suchas energy, pipelines, irrigation, dam construction and power generation in differentcountries.[230] The country has made the development of non-oil exports a priority[73] and hasthe advantage of a broad domestic industrial base, an educated and motivated workforce aswell as a favorable location, which gives it access to an estimated population of some 300million people in Caspian markets, Persian Gulf states and some ECO countries furthereast.[231][232]
The total volume of imports to Iran rose by 189% from $13.7 billion in 2000 to $39.7 billionin 2005 and $55.189 billion in 2009.[233][225] Iran is among the few countries that hasmaintained positive GDP growth despite the 2008 global financial crisis.[26] Iran's majorcommercial partners are China, India, Germany, South Korea, Japan, France, Russia andItaly. From 1950 until 1978, the United States was Iran's foremost economic and militarypartner, playing a major role in the modernization of its infrastructure and industry.[37][38]
Since the mid 90's, Iran has increased its economic cooperation with other developingcountries in "south-south integration" including Syria, India, China, South Africa, Cuba andVenezuela. Iran's trade with India passed the $13 billion mark in 2007, an 80% increase in
trade volume within a year.[234] Iran is expanding its trade ties with Turkey and Pakistan and
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shares with its partners the common objective to create the ECO, a single economic market inWest and Central Asia.[235]
Since 2003, Iran has increased investment in the economic development and reconstructionof neighboring countries such as Iraq and Afghanistan. In Dubai, UAE, it is estimated that
Iranian expatriates handle over 20% of its domestic economy and account for an equalproportion of its population.[236][237] Migrant Iranian workers abroad remitted less than $2billion home in 2006.[238] Between 2005 and 2009, trade between Dubai and Iran tripled to$12 billion; money invested in the local real estate market and import-export businesses,collectively known as the Bazaar , and geared towards providing Iran and other countries withrequired consumer goods.[239] It is estimated that one third of Iran's imported goods andexports are delivered through the black market, underground economy, and illegal jetties.[104]
Foreign direct investment
In the 1990s and early 2000s, some indirect oilfield development agreements were made with
foreign firms, including buyback contracts in the oil sector whereby the contractor providedproject finance then received remuneration from the National Iranian Oil Company (NIOC)in the form of an allocated production share. Operation of the field was then transferred toNIOC after a set number of years, thereby completing the contract.[240]
Unfavorable or complex operating requirements and international sanctions have hinderedforeign investment in the country, despite liberalization of relevant regulations by the Iraniangovernment in the early 2000s. Iran absorbed $24.3 billion of foreign investment between theIranian calendar years 1993 and 2007.[241] Foreign direct investment in Iran hit a record $10.2billion in 2007 from $4.2 billion in 2005 and $2 million in 1994.[242] Foreign transactions
with Iran amounted to $150 billion of major contracts between 2000 and 2007, includingprivate and government lines of credit.[243] In 2007, Iran had $62 billion worth of assetsabroad.[244] The EIU estimates that Iran's net FDI will rise by 100% between 2010 – 2014.[245]
Foreign investors have concentrated their activities in the energy, vehicle manufacture,copper mining, construction, utilities, petrochemicals, clothing, food and beverages, telecomand pharmaceuticals sectors. Iran is a member of the World Bank's Multilateral InvestmentGuarantee Agency.[246] In 2006, the combined net worth of Iranian citizens abroad was about1.3 trillion dollars.[247]
According to the head of the Organization for Investment, Economic and Technical
Assistance of Iran (OIETAI), Iran ranked 142 among 181 countries in terms of workingconditions in 2008. Iran stands at number 96 in terms of business start-up, 165 in obtainingpermits, 147 in employment, 147 in asset registration, 84 in obtaining credit, 164 in legalsupport for investments, 104 in tax payments, 142 in overseas trade, 56 in contract feasibilityand 107 in bankruptcy.[248] Iran ranks 62nd in the World Economic Forum's 2011 analysis of the global competitiveness of 142 countries.[249][250] Firms from over 50 countries invested inIran between 1992 – 2008, with Asia and Europe the largest participants as shown below:[251]
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Iran and the World Trade Organization
Iran has held observer status at the World Trade Organization (WTO) since 2005. Althoughthe United States has consistently blocked Iran's bid to join the WTO since it first asked formembership, the country was accepted in a goodwill gesture to ease nuclear negotiations
between Iran and the international community.[252]
Should Iran eventually gain membership status in the WTO, among other prerequisites,copyright laws will have to be enforced in the country. This will require a major overhaul of business and trade operations. The country is hoping to attract billions of dollars worth of foreign investment whilst creating a more favorable investment climate through reducedrestrictions and duties on imports. Creation of free trade zones such as Qeshm, Chabahar andKish Island should also assist in this process. Iran has allocated $20 billion in 2010 to loansfor the launch of twenty trade centers in other countries.[253]
International sanctions
After the Iranian Revolution in 1979, the United States ended its economic and diplomaticties with Iran, banned Iranian oil imports and froze approximately $11 billion of its assets.[254] In 1996, the U.S. Government passed the Iran and Libya Sanctions Act (ILSA) whichprohibits U.S. (and non-U.S. companies) from investing and trading with Iran in amounts of more than $20 million annually.[255] Since 2000 exceptions to this restriction have been madefor items including pharmaceuticals and medical equipment.[256]
Iran's nuclear program has been the subject of contention with the West since 2006 oversuspicions of Iran's military intentions. This has led the UN Security Council to impose
sanctions against select companies linked to the nuclear program, thus furthering thecountry's economic isolation on the international scene.[26] Sanctions notably bar nuclear,missile and many military exports to Iran and target investments in oil, gas andpetrochemicals, exports of refined petroleum products, as well as the Iranian RevolutionaryGuard Corps, banks, insurance, financial transactions and shipping.[257]
Effects
US sanctions against Iranian banks ironically ensured Iran's immunity from the globalfinancial crisis.[258] According to U.S. officials, Iran may lose $50 billion to $60 billion inpotential energy investments, along with critical technology and know-how from major
international companies.[259]
Admittedly, sanctions are making imports to Iran 24% morecostly on average.[260] In addition, the latest round of sanctions could cost Iran annually $50billion in lost oil revenues.[261] According to Iranian officials, a large-scale withdrawal fromIran by international companies as part of economic sanctions represents an "opportunity" fordomestic companies to replace them.[262][263]
Iran could reduce the world price of crude petroleum by 10%, saving the United Statesannually $76 billion (at the proximate 2008 world oil price of $100/bbl). Opening Iran’smarket place to foreign investment could also be a boon to competitive US multinationalfirms operating in a variety of manufacturing and service sectors.
— National Foreign Trade Council: "Normalization of Economic Relations"
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Iran
Since adopting a managed floating rate in 2003, the Iranian Rial's value has remainedrelatively stable.
Iran's nominal GDP & projections (1999-2015 est.)
Economy of Iran
Central Bank of Iran Rank 17th (PPP) / 26th (nominal) Currency 1 toman (superunit) = 10 Iranian rial
(IRR) ( ) = 1000 dinar Fiscal year 21 March – 20 March Trade organizations ECO, OPEC, GECF, WTO
(observer) and others Statistics GDP PPP: $930.236 billion (2011 est.)[1]
Nominal: $475.052 billion (2011 est.)[2] GDP growth 2.5% (2011);[3]
3.4% (2012 est.)[4]
GDP per capita $6,259 (nominal); $12,258 (PPP). (2011 estimates).[5]
(PPP; 94th)
GDP by sector agriculture (11%), industry (41.7%), services (47.3%) (2010 est.) GDP by componentPrivate consumption (36.4%)
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Government consumption (10.3%)
Gross fixed investment (23.9%)
Exports of goods/services (34.6%)
Imports of goods/services (−19.7%) (2008 est.)[6][7] Inflation (CPI) 21.5% (March 2012)[8] Population
below poverty line 18.7% living below $11/day (2006)[9]
3.1% living below $2/day (2006)[10]
Gini coefficient 0.36 (2009 est.)[11]
Labor force 25.7 million (2010
est.); note: shortage of skilled labor Unemployment 11.5% according to the Iranian government (2011
est.)[12] Average net salary $500/month (2010)[13] Main industries petroleum, petrochemicals,
fertilizers, caustic soda, car manufacture, pharmaceuticals, home appliances, electronics, telecom,
energy, power, textiles, construction, cement and other construction materials, food processing
(particularly sugar refining and vegetable oil production), ferrous and non-ferrous metal fabrication,
armaments Ease of Doing Business Rank 144th[14] External Exports $84.31 billion (2010 est.) f.o.b.
Export goods petroleum (80%), chemical and petrochemical products (4%), fruits and nuts (2%), cars
(2%), carpets (1%), technical services Main export partners China 16.3%, India 13.1%, Japan 11.5%,
South Korea 7.1%, Turkey 4.2% (2009) Imports $58.97 billion (2010 est.) f.o.b. Import goodsindustrial raw materials and intermediate goods (46%), capital goods (35%), foodstuffs and other
consumer goods (19%), technical services Main import partners UAE 15%, China 14.5%, Germany
9.7%, South Korea 7.3%, Italy 5.2%, Russia 5.1% (2009) FDI stock Home: $16.82 billion (72nd; 2010)
Abroad: $2.075 billion (68th; 2010) Gross external debt $14.34 billion (31 December 2010 est.)
Public finances Public debt 16.6% of GDP (2010 est.) Revenues $110.9 billion (2010 est.) (on exchange
rate basis, not PPP)[15] Expenses $89.98 billion (2010 est.) (on exchange rate basis) Economic aid $121
million (2008 est.)[16]
Credit rating B for sovereign risk (October 2010)[17]
Foreign reserves $100
billion (2010 est.)[18] Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars
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Year
(Source:
IMF)[58]
GDP, current
prices
(billions IRR)
Implied PPP
conversion
rate
(USD/IRR)
GDP at PPP per capita
(current international
dollar)
Inflation
index
(average CPI)
(2000=100)
Population
(million
persons)
1980 6,622 58 2,974 2 38
1985 16,556 77 4,507 4 48
1990 35,315 144 4,489 12 55
1995 185,928 569 5,094 43 64
2000 580,473 1,341 6,800 100 64
2005 1,697,305 2,675 9,268 190 68
2010 (est.) 3,698,348 4,307 11,396 377 75
Item 2010 (achieved) 2010 – 15 (target)
GDP worldranking
18th largest economy by PPP[72] 12th in 2015[20]
Annual growthrate
2.6%8% on average (based on $1.1 trilliondomestic and FDI);[73][74] BMI forecast: 3.6%on average (2009 – 14)[75]
Unemployment
11.8% according to government;unofficially: 12 – 22%;[76] 30%according to opposition[77]
7% by 2015, by creating 1 million new jobseach year[73]
Inflation rate 15% (as of January 2010) 12% on average[73]
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Value Added Tax 3% 8%[78]
R&D (% GDP) 0.87% 2.5%[7]
Oil price &revenues in budget
$60 per barrel
$65 per barrel on average[73] / $250 billion inoil and gas revenues[79] in 2015 once thecurrent projects come on stream; InternationalMonetary Fund projections: ~$60 billiononly[80]
Oil production 4.1 million bpd5.2 million bpd[81] Some 2,500 oil and gaswells should be drilled and commissioned.[82]
Natural gas production
N/A 900 million cubic meter/day[83]
R&D projects inoil industry
N/A
implementation of 380 research projects by2015 covering the enhancement of therecovery rate, gas conversion and hydroconversion.[84]
Share of non-oil
exports 20% 30% ($110 billion) by 2015
[73][78]
Investment in oiland gas industry
N/A $20 billion a year in private and foreigninvestment, in part to boost oil refiningcapacity [73][85]
Petrochemicaloutput
~50 million tpy 100 million tpy[86][87]
Bunkering25% market share in PersianGulf
50% market share or 7.5 million tpy of liquidfuel[88]
Oil productsstorage capacity
11.5 billion liters 16.7 billion liters[89]
Electricitygenerationcapacity
61,000 MW 86,000 MW[90]
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Efficiency of power plants
38% 45% [91]
Investment inmining andindustry
N/A $70 billion/700,000 billion rials[92]
Crude steelproduction
~10 million tpy 42 million tpy by 2015[92]
Iron oreproduction
~27 million tpy 66 million tpy by 2015[92]
Cement ~71 million tpy 110 million tpy[92]
Limestone N/A 166 million tpy[92]
New industrialparks
N/A 50 new industrial parks to be built by 2015 [93]
Ports capacity 150 million tons 200 million tons[94]
Railways 10,000 kilometers[95] 15,000 kilometers by 2015 at a cost of $8billion per annum.[67]
Electronic trade N/A 20% of domestic trade, 30% of foreign tradeand 80% of government transactions to bemade electronically.[96]
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Mobarakeh in Esfahan is Iran's largest steel mill listed on the Tehran Stock Exchange.[97] In recent
years, Iran has resumed its drive towards privatization and economic liberalization.
Wheat, the most important crop, is grown mainly in the west and northwest whilst rice is the major
crop in the Caspian region. Agriculture contributes just over 11% to the gross national product and
employs a third of the labor force.[7]
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Iran has a diversified and broad industrial base. In 1998, the United Nations classified Iran's economy
as "semi-developed".
Iran plans to generate 23,000 MWh of electricity through nuclear technology by 2025 to meet its
increasing demand for energy.[168]
Iran's refining capacity (2007-2013 est.)
IRAN: Healthcare (Source: EIU)[192]
2005 2006 2007 2008 2009 2010
Life expectancy, average (years) 70.0 70.3 70.6 70.9 71.1 71.4
Healthcare spending (% of GDP) 4.2 4.2 4.2 4.2 4.2 4.2
Healthcare spending ($ per head) 113 132 150 191 223 261
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The Tehran Stock Exchange has been one of the world's best performing stock exchanges in recent
years.[202][203]
Iranian exports in 2006. Pistachios, liquefied propane, methanol, hand-woven carpets andautomobiles are the core items of Iran's non-oil exports.
Map of the Economic Cooperation Organization (ECO) member states
Foreign direct investment in Iran, net inflows (2000-2007).
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Continent of
originLeading countries investing in Iran (1992 –2008)
Number of
projects
Total amount
invested
Asia United Arab Emirates (UAE), Singapore, Indonesiaand Oman
190 $11.6 billion
EuropeGermany, the Netherlands, Spain, UK, Turkey, Italy
and France (20 countries in total)253 $10.9 billion
Americas Canada, Panama, the USA and Jamaica 7 $1.4 billion
Africa Mauritius, Liberia and South Africa N/A $8 billion
Australia Australia 1 $682 million