Economy of Iran

Template:Economy of Iran table

According to the Constitution, the economy of Iran is to consist of three sectors: state, cooperative, and private; and is to be based on systematic and sound planning.

The state sector is to include 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; all these will be publicly owned and administered by the State.

The cooperative sector is to include cooperative companies and enterprises concerned with production and distribution, in urban and rural areas, in accordance with Islamic criteria.

The private sector consists of those activities concerned with agriculture, animal husbandry, industry, trade, and services that supplement the economic activities of the state and cooperative sectors.

A strict interpretation of the above has never been enforced in the Islamic Republic and the private sector has been able to play a much larger role than is outlined in the Constitution. In recent years, the role of the private sector has been further on the increase.

Iran's social and economic infrastructure has been improving steadily in many important aspects over the past two decades:

The Iranian government is attempting to diversify by investing revenues in other areas, including, car manufacturing, aerospace industries, consumer electronics, petrochemicals and nuclear technology.

Iran is hoping to attract billions of dollars worth of foreign investment while creating a more favorable investment climate, such as reduced restrictions and duties on imports and the creation of free-trade zones like in Chabahar and the Island of Kish.

Modern Iran has a solid middle class and a growing economy but continues to be affected by high inflation and unemployment.

History

Pre-revolutionary Iran's economic development was rapid. Traditionally an agricultural society, by the 1970s, Iran had achieved significant industrialization and economic modernization. However, the pace of growth had slowed dramatically by 1978, just before the Islamic revolution.

Iran's long-term objectives since the 1979 revolution have been economic independence, full employment, and a comfortable standard of living for its citizens, but at the end of the 20th century the country's economic future was lined with obstacles. Iran's population more than doubled in that period, and its population grew increasingly young. In a country that has traditionally been both rural and agrarian, agricultural production has fallen consistently since the 1960s (by the late 1990s Iran was a major food importer), and economic hardship in the countryside has driven vast numbers of people to migrate to the largest cities. The rates of both literacy and life expectancy in Iran are high for the region, but so, too, is the unemployment rate, and inflation is regularly in the range of 20 percent annually. Iran remains highly dependent on its one major industry, the extraction of petroleum and natural gas for export, and the government faces increasing difficulty in providing opportunities for a younger, better-educated workforce, which has led to a growing sense of frustration among lower- and middle-class Iranians.

After the end of hostilities with Iraq in 1988, the government has tried to develop the country's communication, transportation, manufacturing, and energy infrastructures (including its prospective nuclear power facilities) and Hospitals & Schools and has begun the process of integrating its communication and transportation systems with those of neighbouring states. Also (After the war), the Iranian government declared its intention to privatize most state industries in an effort to stimulate the ailing economy. The sale of state-owned factories and companies proceeded slowly, however, and most industries remained state-owned in the early 21st century. The majority of heavy industry—including steel, petrochemicals, copper, automobiles, and machine tools—was in the public sector, while most light industry was privately owned

File:Meydoon sadeghiyeh.jpg

Tehran's Sadeghiyeh commercial center. Iran's economy is largely state owned. However the government continues in its drive to privatize various sectors.

Iran's current president Dr. Ahmadinejad, a PhD civil engineer, has promised sweeping economic reforms, including widespread social services and the elimination of corruption within all ministries and state owned enterprises through transparency and accountability in the government's business practices.

Centralisation vs. Privatisation

Immediately following Iranian Revolution in 1979 and the outbreak of the Iran-Iraq War over 80% of Iran's economy came under the control of the government (down to 70% as of 2006) . This created numerous problems for Iran as previously internationally competitive companies, such as Iran Air or Iran Khodro, degraded into basic domestic companies that could barely function without massive government subsidies. In 2004, under the presidency of Mohammad Khatami a number of efforts were made to eliminate the role of the government: The stock exchange was re-launched allowing a mechanism by which to sell shares of government companies, elements of the constitution (article 44) which decreed that all the infrastructure should remain state run was eliminated [2], and private banks were launched.

Despite plans in 2004 to sell billions worth of state assets to the private sector at the fair market price, uptake was very slow. A common criticism of the privitisation effort by investors was the only local Iranian organisations that are capable of buying the large share blocks are themselves government owned. Furthermore, there are many questions as to what constitutes fair market price as government run firms are notorious for their lack of transparency and effective information reporting.

In 2005, Iran tried to sell $2.5bn of government assets, but only managed to offload less than 30 per cent. Ultimately, the slow uptake caused the privitisaiton effort to stall [3].

On July 3rd, 2006 Ayatollah Khamenei once again decreed a renewed effort to privatise the economy^[1]^[2]. The current privitisaiton effort calls for an initial offering of five percent of the firms being privatised. Once the five percent is public, it will establish a market price which further offerings can be based on. ^[3]

Sectors of the Economy

The industrial sector—including mining, manufacturing, and construction—contributed 42 percent of the GDP and employed 31 percent of the labor force in 2004. Mineral products, notably petroleum, dominate Iran’s exports, but mining employs less than 1 percent of the country’s labor force.

Iranian budget deficits have been a chronic problem, in part due to large-scale state subsidies [4]– totaling some $7.25 billion per year–including foodstuffs and especially gasoline.

Government spending between 1992 and 2000, as percent of total budget was as follows:

Health: 6%
Education: 16%
Military: 8%

Macro-economic trend

This is a chart of trend of gross domestic product of Iran at market prices estimated [5] by the International Monetary Fund with figures in millions of Iranian Rial.

Year	Gross Domestic Product	US Dollar Exchange	Inflation Index (2000=100)
1980	6,621,700	70.61 Iranian Rials	2.10
1985	16,555,801	207.29 Iranian Rials	4.40
1990	34,505,630	415.60 Iranian Rials	11
1995	185,927,978	2,046.80 Iranian Rials	43
2000	580,473,336	6,019.01 Iranian Rials	100
2005	1,768,665,370	9,005.01 Iranian Rials	194

For purchasing power parity comparisons, the US Dollar is exchanged at 3,149.33 Iranian Rials only.

Agriculture

Iran’s agricultural sector contributed 11 percent of the GDP in 2004 and employed 23 percent (1996) of the labor force. Since 1979 commercial farming has replaced subsistence farming as the dominant mode of agricultural production. Some northern and western areas support rain-fed agriculture, while other areas require irrigation for successful crop production.

Wheat, rice, and barley are the country’s major crops. Total wheat and rice production fails to meet domestic food requirements, however, making substantial imports necessary. Other principal crops include potatoes, legumes (beans and lentils), vegetables, fruits, sugar beets, sugarcane, fodder plants (alfalfa and clover), nuts (pistachios, almonds, and walnuts), spices (including cumin, sumac, and saffron), and tea. Honey is collected from beehives, and silk is harvested from silkworm cocoons. Livestock products include lamb, goat meat, beef, poultry, milk, eggs, butter, cheese, wool, and leather. Major agricultural exports include fresh and dried fruits, nuts, animal hides, processed foods, and spices.

Manufacturing

File:Samand Sarir2.jpg

Samand Sarir

Iran has a long tradition of producing artisan goods, including carpets, ceramics, copperware and brassware, glass, leather goods, textiles, and woodwork. Iran’s rich carpet-weaving tradition dates from pre-Islamic times, and it remains an important industry and contributes substantially to rural incomes .

Large-scale manufacturing in factories began in the 1920s and developed gradually. During the Iran-Iraq War, Iraq bombed many of Iran’s petrochemical plants, and the large oil refinery at Abadan was badly damaged and forced to halt production. Reconstruction of the refinery began in 1988 and production resumed in 1993. However, the war also stimulated the growth of many small factories producing import-substitution goods and materials needed by the military.

The country’s major manufactured products are petrochemicals, steel, and copper products. Other important manufactures include automobiles (with production crossing the 1 million mark in 2005),[6]electric appliances, telecommunications equipment, industrial machinery (Iran has the largest operational stock of industrial robots in West Asia[7]), paper, rubber products , processed foods (including refined sugar), carpets, leather products, textiles, pharmaceuticals, and cement. Textile mills are centred in Esfahan and along the Caspian coast.

Construction

Until the early 1950s the construction industry was limited largely to small domestic companies. Increased income from oil and gas and the availability of easy credit, however, triggered a subsequent building boom that attracted major international construction firms to Iran. This growth continued until the mid-1970s, when, because of a sharp rise in inflation, credit was tightened and the boom collapsed. The construction industry had revived somewhat by the mid-1980s, but housing shortages have remained a serious problem, especially in the large urban centres.

Oil & Gas sector

File:Iran ogdetail.gif

Map of Major Iranian Energy Projects

Since 1913 Iran has been a major oil exporting country. In the late 1970s it ranked as the fourth largest oil producer (OPEC's second largest oil producer) and the second largest oil exporter in the world. Following the 1979 revolution, however, the government reduced daily oil production in accordance with an oil conservation policy. Further production declines occurred as result of damage to oil facilities during the war with Iraq. Oil production began increasing in the late 1980s due to the repair of damaged pipelines and the exploitation of newly discovered offshore oil fields in the Persian Gulf. Iran holds 10% of the world's proven oil reserves. By 2004 Iran’s annual oil production was 1.4 billion barrels. Iran also has the world's second largest reserves of natural gas; these are exploited primarily for domestic use.

Iran plans to participate in a new International Oil Bourse, trading oil priced as Petroeuros (rather than Petrodollars, as oil is traded in all other markets as of 2005).

Services

File:FloweroftheEastHotel5.jpg

Flower of the East Hotel

Despite efforts in the 1990s toward economic liberalization, government spending—including expenditures by quasi-governmental foundations that dominate the economy—has been high. Estimates of service sector spending in Iran are regularly more than two-fifths of the GDP, and much of that is government-related spending, including military expenditures, government salaries, and social service disbursements.

Urbanization has contributed to significant growth in the service sector. In 2004 the sector ranked as the largest contributor to the GDP (48 percent) and employed 44 percent of workers. Important service industries include public services (including education), commerce, personal services, professional services (including health care), and tourism. The tourist industry declined dramatically during the war with Iraq in the 1980s but has subsequently revived. About 1,659,000 foreign tourists visited Iran in 2004; most came from Asian countries, including the republics of Central Asia, while a small share came from the countries of the European Union and North America. The most popular tourist destinations are Esfahan, Mashhad, and Shiraz.

Iran has also developed biotechnology, nanotechnology and pharmaceuticals industries.

Iran has been progressively opening its telecommunications and financial sectors to the global competition.

Iran has a great potential in mining, tourism and the technologies of information like for ICT.

Foreign trade and economic relations

Although petroleum plays a central part in Iran's exports, Iran's non-oil exports hit the $12 Billion mark in 2005[8]. The total volume of imports to Iran rose by 189% from $13.7 billion in 2000 to an estimated $39.7 billion in 2005.[9]

Iran's major commercial partners are Germany, France, Italy, Russia, China, Japan and South Korea. From 1950 until 1978, the United States was Iran's foremost economic and military partner; thus participating greatly in the modernization of its infrastructure and industry. After 1979 though, the United States ended its economic and diplomatic ties, banned Iranian oil imports and froze $12 billion of its assets. In 1996, the US Government passed the "Iran and Libya Sanctions Act" which prohibits (US) companies from investing and trading with Iran for more than $20 million annually, with the exception, since 2000, for items like pharmaceuticals, medical equipment, caviar or Persian rugs.

Since the mid 90's, Iran has increased its economic cooperation with other developing countries in "south-south integration" including Syria, India, China, South Africa, Cuba and Venezuela. Iran is also expanding its trade ties with Turkey and Pakistan and shares with its partners the common objective of the creation of a single economic market in West and Central Asia, like the European Union.

Since 2003, Iran has increasingly invested in the economy and reconstruction of its neighboring countries like Iraq and Afghanistan. In Dubai, UAE, it is estimated that Iranians expatriates are handling over 20% of its domestic economy with an equal proportion of its population. Money is invested in the local real estate market and import-export businesses geared towards providing Iran and other countries with the demanded consumer goods.

Iran and the World Trade Organization

Iran has had an observer status at the World Trade Organization (WTO) since 2005. The United States has consistently blocked Iran's bid to join the WTO since Tehran first asked for membership several years ago.

Yet if Iran does eventually gain membership status in the WTO, among other prerequisites, copyright laws will have to be obeyed in Iran. This would require a major overhaul of business and trade operations in Iran, a change which many experts believe would be a price too heavy for Iran's economy to pay at the present time.

Other statistics

Population: 70 million (2006 est.)

Labor force: 30 million (2006 est.)

Investment (gross fixed): 31.3% of GDP (2004 est.)

Household income or consumption by percentage share:

lowest 10%: NA
highest 10%: NA

Agriculture - products: wheat, rice, other grains, sugar beets, fruits, nuts, cotton; dairy products, wool; caviar

Industrial production growth rate: 3.5% excluding oil (2004 est.)

Electricity:

production: 129 TWh (2002)
consumption: 119.9 TWh (2002)
exports: 0 kWh (2002)
imports: 0 kWh (2002)

Electricity - production by source:

fossil fuel: 97.1%
hydro: 2.9%
other: 0% (2001)
nuclear: 0%

Oil:

production: 3.962 million barrel/day (2004 est.)
consumption: 1.4 million barrel/day (2002 est.)
exports: 2.5 million barrel/day (2004 est.)
imports: NA
proved reserves: 130.8 billion barrel (2004 est.)

Natural gas:

production: 79 billion m³ (2003 est.)
consumption: 72.4 billion m³ (2003 est.)
exports: 3.4 billion m³ (2003 est.)
imports: 4.92 billion m³ (2003 est.)
proved reserves: 26.7 trillion m³ (2004)

Current account balance: $2.1 billion (2004 est.)

Exports - commodities: petroleum 80%, chemical and petrochemical products, carpets and handicrafts, caviar, military supplies, Cars, agricultural products, foodstuff, technical services, consumer goods.

Imports - commodities: industrial raw materials and intermediate goods, capital goods, foodstuffs and other consumer goods, technical services, electronics and computers.

Telephones: 11.2% of population (2005)

Landlines: 14.6 million (2005)

Cellular: 4.3 million (2005)

Internet users: 7.5 million (2005 est.)

Reserves of foreign exchange & gold: $40.06 billion (2005 est.)

Exchange rates: rials per US dollar - 8,885 (2004), 8,193.89 (2003), 6,906.96 (2002), 1,753.56 (2001), 1,764.43 (2000)

note: Iran has been using a managed floating exchange rate regime since unifying multiple exchange rates in March 2002.

Currency and Banks of Iran

The government makes loans and credits available to industrial and agricultural projects, primarily through banks.

Iran’s unit of currency is the rial. The official exchange rate averaged 8,614 rials to the U.S. dollar in 2004. However, rials are exchanged on the unofficial market at a much higher rate. In 1979 the government nationalized all private banks and announced the establishment of a banking system whereby, in accordance with Islamic law, interest on loans was replaced with handling fees; the system went into effect in the mid-1980s. The banking system consists of the central bank, which issues currency; several commercial banks that are headquartered in Tehran but have branches throughout the country; two development banks; and a housing bank that specializes in home mortgages. The government began to privatize the banking sector in 2001, when it issued licenses to two new privately owned banks. The Tehran Stock Exchange trades the shares of more than 400 registered companies.

File:Iranmoney.jpg

20,000 Iranian Rial produced by Bank Markazi

Major banks

References

Relevant links

Official

Semi-official

[1] [1]

[2] ttp://www.tradearabia.com/tanews/newsdetails_snECO_article111329_cnt.html

[3] ttp://www.iranmania.com/News/ArticleView/Default.asp?NewsCode=46162&NewsKind=Current%20Affairs

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