Transcript Economy of Iran

Sectoral Employment Shares 1390
1
2
3
33%
Services
47%
Industry
Agriculture
20%
Iranian Economy
Economy of Iran
Facilitator
Name :
Hamidreza Ghaffarzadeh
Education: Ph.D Urban Development Studies (Univ Aberdeen) ; M.A Economics ( Univ Essex);
Diploma Economics ( Univ Lancaster), B.A Economics ( Univ Tehran )
Work :
Contracts Sn. Officer , Mins of Energy & Heavy Industries (19801986); Programme Officer, Economist, Manager, UN( 19862009); Lecturer ( full time 2009 till now) , Official Translator (1981 till now ) ,
Contracts and Commerce Consultant ( 1982 till now )
Contact details: [email protected]; phone 09123715908
Economy of Iran
Objective
to have a general picture of main features of the
Iranian economy, its potentials and challenges
it faces.
Economy of Iran
Points to Observe :
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Power points in English but teaching in Farsi
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Students are required to prepare a short paper relating to the economy of Iran.
The paper will have 5 out of 20 exam points .
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Participation in and contribution to the discussions is strongly encouraged .
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Mutual respect desired : no late arrivals ; no mobile phone talks permitted;
no private chats ; no leaving of class without prior permission
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Strict attendance record observed .
Iranian Economy
Structure of the Presentation
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Economic Profile
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The Setting
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GNP & Growth
Oil revenue
Role of government, state and private sector
Financial and capital markets
Export and Import of goods and capital
Strategic location, climates and natural resources
Inhabitants : Demographic characteristics, qualitative characteristics
Facing the modern world
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Historical Background
Development planning efforts: pre and post revolution
War & Revolution
Reconstruction
Reformism
Economic Changes Initiative
Moderation
‫‪Iranian Economy‬‬
‫‪Reading Materials‬‬
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‫خالصه گزارش ایران به کنفرانس ریو‪20 +‬‬
‫تحوالت اقتصادی ایران ‪ :‬قنبری ‪ ,‬صادقی‬
‫آقصاد سیاسی مناقشه اتمی ‪ ,‬رنانی‬
‫آقتصاد ایران ‪ :‬رزاقی‬
‫دولت و رشد اقتصادی در ایران ‪ :‬نیلی ‪ ,‬درگاهی ‪ ,‬کردبچه‬
‫مدارهای توسعه نیافتگی ایران ‪ :‬عظیمی‬
‫اقتصاد ایران‪ ,‬نقدها و نظرها‪ :‬هادی زنوز‬
‫ایران‪ ,‬جامعه کوتاه مدت‪ :‬کاتوزیان‬
‫گنج شایگان ‪ :‬جمالزاده‬
‫تاریخ اقتصادی ایران‪ :‬عیسوی‬
‫روزنامه دنیای اقتصاد‬
Economy of Iran
Economic Profile
Economy of Iran
GNP & Growth
Economy of Iran
GNP and Growth
• Data on GNP is not up-to-date and varies according to different sources
and different rates of exchange:
– CBI figure for 1388 ( 2009/2010) is Rials 3,562 trillions and for 1389 ( 2010/2011)
around Rials 4304 trillions at current prices . Assuming $ = Rials 9000 this means GDP
of $ 395 Billions and $ 478 Billions respectively . Per- capita income would be $
5,547 and $ 6611 respectively.
– The World Bank figures are $ 407 Billions for 2010 and $ 475 Billions for 2011.
Respective per capita incomes are $ 6,056 and $ 7,081 .
– The figures by the Economist Intelligence Unit are $ 470.7 - 506.6 for 2011 and $
541.2- 545.9 for 2012.
– EU figures are $480.3 billion (2011 est.).
– Assuming a different parity rate e.f $ = R25,000 could easily more than halve the
above figures!
Economy of Iran
GNP and Growth
•
In short the GDP for 2011 is around $ 478 Billions assuming a parity rate of $ = Rials 9000.
GNP , that includes net export-import ,would be $ 10-15 Billion more . Per capita income
would be around $ 6400- 6,900. Assuming a different parity rate e.f $ = R25000 could
easily more than halve these figures
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Interesting to note that the present value of the per of $ 1410 in 1978 is between $ 5000
to $9000 which indicates no real change after three decades in terms of purchasing power.
•
The growth has been much lower than the % 8 p.a that is suggested by the Vision
Document to ensure that Iran will be a developed country by 2014 .
Economy of Iran
Fall in the ‘official rate of exchange
Economy of Iran
GNP and Growth: How do we fare ?
•
•
Iran essentially is a medium- high level income country although in the recent years it is
slipping downwards :
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According to IMF in 2011 Iran per- capita GNP of $ 6420 was 87th world wide compared with $ 115,000 of Monaco
the 1st and $ 217 of Congo the 185th .
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According to IMF the estimated Per -capita GNP at Purchasing Power Parity (PPP) for 2010 and 2011 will be $
12,100 and $ 12,200 respectively . Per- capita GDP (PPP) is estimated at around 13,184. This compares with $
98,948 for Qatar being the first and $ 349 for Congo being the last. Iran fares 70th in the world.
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Iran GDP of $482 Billions in 2011 is .8% of the global $ 69,899,225 Billion s placing Iran at 25th behind Turkey with $
774 Billion and S. Arabia with 597 Billion . US with $ 17 .6 Trillion and a share of 21% is the first . China and Japan
with $ 7.3 trillion and 5.8 trillion follow.
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Iran GDP at PPP is estimated at $ 839, 571 which places Iran at 18th largest global economy.
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Iran Human Development Index (HDI) in 2012 is .707 , world 89th - corrected later to 78th went up in ranking to 76
in 2013. Itr si the 8th in the region amongst the ten countries Norway (.95 , Australia (.93) , US ( .937) and
Netherlands (.921) are the first four and Burundi (.31) , Niger( .29) and Congo (.28) re the last three.
Change of parity rate would considerably impact Iran’s global ranking.
Economy of Iran: Growth Rates
Average Annual Real GDP Growth Rate (%)
(1997/98 prices)
Mean STD
Before the Revolution
1960-72
1973-77
1960-78
10.6
8.0
9.0
3.5 Before the oil-boom years
7.6 The 1970s’ oil-boom years
6.2 The Shah's years
After the Revolution
1980-88
1989-93
1994-99
2000-2004
1979-2004
-1.3
7.5
2.8
5.4
2.5
8.9
5.4
1.9
1.7
6.7
1960-2004
5.3
5.3 Entire period prior AN
War years
First Plan
Second Plan
Third Plan
All IR Years prior AN
Economy of Iran
Growth rates :IMF figures
2004 ( 1383)
6.1
Ahmadinejad administration
2005 ( 1384)
2006 (1385)
2007 (1386)
2008 (1387)
2009 (1388)
2010 (1389)
2011 (1390)
2012(1391)
4.4
6.2
8.6 revised to 6.4
0.6 revised to 1.1
1.1 revised to 3.9- CBI rate 3
1.6 revised to 5.9- CBI rate 5.8
3
revised to 2
-5.4 announce d after the Election !
2012 (1391)
2013 (1392)
2017 ( 1396)
IMF Future predictions
-0.9 revised to -1.9% although the World bank estimate is - 3%
0 .8 revised to -1.5 together with 42.3 % inflation and unemployment of 13.2
2
Economy of Iran
Economy of Iran
Economy of Iran: Oil and Growth
0.4
0.3
0.2
0.1
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
-0.4
1982
-0.3
1981
1980
-0.2
Annual GDP
Growth
-0.1
Growth in Oil
Exports
0
Economy of Iran
Growth and Oil Revenue
120
100
80
‫درآمد نفت‬
Series1
60
Series2
‫رشد اقتصادی‬
40
20
0
1384
1385
1386
1387
1388
1389
1390
1391
Economy of Iran: Comparative growth rates
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2002
2000
1998
1996
1994
Turkey
1992
1990
1988
1986
Iran
1984
1982
1980
1978
South Korea
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
Venezuela
Economy of Iran; Growth rates Fluctuations
1979-2004: Average 2.5 % p.a.
S.D. = 6.7%
20%
15%
10%
5%
0%
2004
2001
S.D. = 6.2%
1998
1960-78: Average 9% p.a.
1995
-20%
1992
-15%
1989
-10%
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
-5%
Economy of Iran : GNP
450000
400000
350000
250000
200000
150000
100000
50000
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
0
1959
Billion Rls
300000
Economy of Iran:
GDP Growth by IMF
Economy of Iran
Economy of Iran:ُ Sectoral Shares of Value Added
Economy of Iran: Sectoral Growth Rates
Economy of Iran
Evolution of Sectoral Shares in GNP
1963
1978
rate of growth
63-78
Agriculture
% 27.4
% 9.2
% 2-3
%10
% 1.1
Industry
% 17.8
% 18.5
% 10-11
% 19
% 2.5
Services
% 40
%34.6
% 8-9
% 49
Oil
% 12.3
% 34.7
% 20
%22
Note : The ROG figures for 1391 first 9 months are staggering;
National : -5.4 without oil , -2.4 with oil
Agriculture : 5.8 due to fall in Rials
Oil : -36.5 %
Industry : -9.4
Housing : -23.2
Service : -.4
Share
89
r.o.g
89
% 2.1
% 0.2
Economy of Iran
Share of Sectors in GNP
Agri
Oil
Industries $ Mines
Services
10%
Agriculture
22%
Services
49%
Oil
Industry
19%
Economy of Iran
Sectoral Employment Shares 1390
1
2
3
33%
Services
47%
Industry
Agriculture
20%
Economy of Iran
Economy of Iran
Main Features of Growth
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Before 1979, strong growth record under an authoritarian ‘developmental’ state.
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Post revolution rates are in sharp contrast with China and other reforming LDCs including
Turkey and Korea in terms of performance. As China opened up and many other states
dwell ed on structural reforms (1978/9), Iran began its long and hard journey in an
opposite direction with fluctuations between reforms and populism.
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Growth rates are assessed to be below the Iranian economic capacity . It is believed that
the country if left unhampered can easily register % 6 growth p.a !
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Being the world’s possibly only theocracy with spiritual/anti-materialist leanings and
rhetoric , the growth does not appear to be the exclusive ideal, particularly during populist
periods which appear to lean towards distributionist justice .
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Budget and external accounts constraints aided by oil income which appears to dictate the
growth rate in the long run.
Economy of Iran
Main Features of the growth
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With more than three decades after the Revolution, the structural features of the
Iranian economy are remarkably unchanged:
– Lack of sufficient diversification means continued primacy of oil income,
– General investment climate is weak and beset by uncertainty
– Public finances are fragile
– The economy continues to be inward-looking and unsure of its position in the wider
international economy.
– Populism policies are supported by oil revenues.
– Inward looking is assisted by oil revenues
Economy of Iran
Main Features of the growth
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Close to half of the GDP, i.e. % 49 in 1389 is produced by the Service Sector This share has
risen from % 40 in 1342. “ Commerce, Catering and Hotelling’ - 31% of sector – and
‘Transport & Communication’ – 28% are the major components of the sector. The sector
contributed 2.1% of the 5.9% growth in 1389. The sector grew 8-9 % annually . It is also
employing some 47% of the employment encompassing. over 3 million units reflecting the
small size of average service units..
•
Agriculture only contributes % 10 in 1389 as compared to 27.4% in 1342. Of this %72 is
faming , 15% horticulture and 13% to animal husbandry. The sector contributed % 1.1 of
the 5.9% growth in 1389. The sector grew 2-3 % annually. It employs some 20% of the
work force. Agriculture share has been markedly sensitive to rainfall falling sharply in dry
years increasing the grain imports.
•
Mines and Industries share of GDP is 19% compared to 17.8% in 1342. Industry share of the
sector is around 73% while that of Housing is %19. The sector contributed 2.5 % of the total
5.9% growth in 1389. The sector grew 10-12 % annually. It employs %33 of the workforcethis rate includes the oil sector employees.
•
Oil share of GDP In 1389 was 20% compared with 12% in 1342. The sector contributed . 2 %
of the total 5.9% growth in 1389. The sector grew 20% annually. Its contribution to
employment is not significant hinting at so called ‘Dutch Disease “ . The oil revenue
fluctuate in response o world oil pries – and to sanctions- with massive impact on the
economy.
•
Economy of Iran
Main Features of the growth
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During 1342-1389 the agriculture sector share has fallen at the cost of increase in oil sector
and partly Service while the industry share appears to have not much changed.
•
Industries, Commerce, and Transport are the largest components of the GDP. Professional
Services, Financial services, Agriculture, Oil and Housing follow.
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Only Oil, and to a much smaller scale Mines, contribute to the export in a meaningful way .
Service contribution to export is minimal and in the form of “ Transport”. Agriculture
contribution to Exports is dwindling. Industry contribution is equally unremarkable.
•
The contribution of Oil to the economy is much more than its mere share of GDP as the
activities in the other sectors are mostly inward looking and can not provide a substitute
for the oil revenues.
Iranian Economy
Economy of Iran
Economy of Iran
Oil Dependency
Economy of Iran
Oil Revenues of the Ahmadinejad Administration
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The present administration appears to have had the highest share of oil revenues in the
history of the country, close to $ 600 Billions in some 9 years :
Year
–
–
–
–
–
–
–
–
–
1384
1385
1386
1387
1388
1389
1390
1391
1392
Oil revenue (Billions)
other Revenues ( Billions)
Oil %
S 53.8-55. 7
$ 62- 64.4
$ 84.5$ 86.6
$ 69,9
$ 86, 7
$88.2-110
$ 30-40 ?
$ 25 -30?
21.5
19.9
20
22.7
24.3
23.9
33.8
71
76
81
79
74
78
76
•
While this figure might be nominally equal to the total oil revenue from 1905 to 2005 it
must be noted that the purchasing power of USD has also considerably fallen and in real
terms this comparison is not fully meaningful .
•
Nevertheless the oil revenues at this period is unparalleled enabling the government to
spend freely.
Economy of Iran
Oil Dependency
•
Since 1905 when oil was first found it has played an increasingly important role in the
Iranian economy , politics and social relations.
•
Renegotiation of the initial concession by Reza Shah in 1932, Oil Nationalization in 1952 ,
repeated re-negotiations during Pahlavi 2nd , massive strikes during 1978 Revolution, recent
oil related sanctions all point to the political and economic importance of oil in Iran.
•
Attempts to create the Currency Saving Account and the National Development Fund
reflect the need to smooth out the impact of oil revenue fluctuations on the economy and
also treat it as an assets rather than income.
Economy of Iran
Oil Dependency
•
Oil revenues have put us in the league of middle to high income countries.
•
Oil is the major component of the export revenue – more than % 70.
•
Oil is the lion share of the government budgets. Oil fluctuations have in essence shaped
the fortune of development plans.
•
Oil abundance has led to energy inefficiency and waste – perhaps the highest energy
intensity at world level.
•
State control over oil has strengthened its centralist, authoritarian and perhaps despotic
tendencies.
•
Oil abundance has created a sense of ‘entitlement’ in the society that is detrimental to
productivity and economic endeavor.
Economy of Iran
Economy of Iran
Economy of Iran
Economy of Iran
Economy of Iran:
GDP, CPI, CA Growth by IMF
Economy of Iran
Capital Market
Economy of Iran
Banks and Stock Exchange
•
Tehran Stock Exchange (TSE) was formed in 1966 ( 1345) when the economy was
‘modernizing ‘ with six firms . The first studies to form it had started 1936 ( 1315) The
number rose to 105 by ( 1978) 1357 .
•
In 1979 the Banking and Insurance Nationalization Act led to the exclusion many firms
from the TSE reducing the number to 56. Only in 1988 ( 1367) the TSE began slowly to
grow again. Privatization was the main driver for expansion of the TSE as many state
owned firms were offered share sin the exchange.
•
In 2006 the law dealing with the exchange was revised . An Exchange Organization was
formed as a “public non- governmental institution’. A ‘High Council of Securities and
Exchange” was formed -essentially dominated by the state but with representations from
the private sector- to set strategies and policies and monitor. Executive affairs were to be
conducted by the Securities and Exchange Company.
Economy of Iran
Banks and Stock Exchange
•
The new set up allowed for creation of specific commodities exchanges e.g. still and the
unsuccessful oil exchange .The set up also allowed for formation Of Farabors – trans
exchange mechanism that enabled transaction in shares of firms not allowed into the TSE.
•
TSE membership in the World Federation of Exchanges was suspended in 2011.
•
TSE index is a combination of share prices and profit. This has made it ’appear’ increasing
faster than standard indices based on share prices only.
•
TSE in terms of share prices increase and in terms of variety of offered instruments is
amongst world top. The return on shares in the last year is approaching %50!
•
TSE is however very “shallow’ Its worth is close to $ 100 Billions – USA is $ 13000 Billion ,
Japan 3,275 Billion, Hong Kong $ 2,633 and Shanghai's $ 2,313 Billions. It is estimated that
it only provides around % 15 of the economy capital.
•
TSE is also criticized for being subject to government control and restrictions – and ‘leaky’
in term of information.
Economy of Iran
Economy of Iran
TSE Over the past five years ( 2008-2013
Economy of Iran
Banks and Stock Exchange
•
Banking sector was hugely impacted by the Islamic Revolution . Private and joint venture
banks were nationalized, merged - e.g. 11 banks were merged to create bank Tejarat- and
lost capital due to capital flight.
•
Banking sector also had to adjust to islamization of the banking practices including the
‘abolition’ of interest and introduction of a host of Islamic banking instruments. .
•
Reflecting the changes in the economic policy in 1376 ( 1997) financial and credit firms
were allowed to operate. One year later private sector was allowed to form banks. Soon a a
large number of ‘private ‘ banks were formed and the interest in forming banks appear
unabated .
•
“Gharzalhasane” funds are also very much in demand and CBI finds it difficult to control
these that operate as banks. Some 6000 funds are operational. Additionally a large number
of Credit Cooperatives also act as funds with almost % 50 of the share of this particular
market.
Economy of Iran
Banks and Stock Exchange
•
The newly formed ‘private banks’ are often no more than financial arms of large state
organizations:
–
–
–
–
–
–
–
Ansar is the Seapah
Hekmat is the Army
Ghavamin is the Disciplinary Forces
Dey is the Martyrs Foundation
Shahr is the Municipality
Gardeshgary is Tourism Organization
Sina is the Oppressed Foundation
•
Following the privatization efforts a number of major state owned banks including Saderat
and Tejarat and Mellat were floated on the exchange market. Government has maintained
control over management and practically over shares ownership of these so called
privatized banks. These banks are often treated as ‘no more than ‘ funds’ by the
government .
•
The private banks are the thumb of the state and CBi with not much liberty in setting rates
and policies. Nevertheless the profit margin appears high enough to encourage the
demand.
Economy of Iran
Banks and Stock Exchange
•
Banking sector has amassed till end 1391 huge uncollectible debt up to T 80,00 Billions
mostly as a result of extending credit at government order.
•
Banking sector has been hampered by government controlled interest rates and is
behind other financial sectors and goods in terms of ‘profit'. This is forcing the banking
sector to engage in non banking activities to survive and or seek increase in capital from
government sources.
•
In terms of Deposit / Credit the shares of various types of banks are :
Deposit
»
State Commercial ( Melli, Sepah and Post Bank )
State specialized ( Maskan, Tose saderat ,
Tose Tavon, Keshavarzi, Sanat va Madan
Private
Credit
24.6
20.5
11.5
29.4
63.9
49.9
)
Economy of Iran
Economy of Iran
Economy of Iran
Government Involvement
Economy of Iran
Government Involvement
•
It is difficult to define the concept ’ government’ . Equally difficult to define the real meaning of ‘
government involvement in the economy “.
•
“Government “ is to be differentiated from ‘administration’.
•
Administration essentially is the ‘executive power” , that is the President , ministries and affiliated
bodies including state owned companies. The closest Farsi equivalent term is “ Dowati” i.e. , statal .
•
The ‘government on the other hand to include ‘ administration ‘, para- statal, ‘ religious endowments’
and ‘trans –state’ bodies and companies. The closet Farsi equivalent term can be “Hokomati “ . In
certain legislation these are classified as “ Public non- state bodies”.
•
‘Involvement’ to include ownership , control and influence.
•
Total government civil servants in 1391 reached 2 millions being % 24 of workforce.
•
Most of government employees up to %70 are in service sector . Industry takes % 19.4 %
Economy of Iran
Government Involvement
•
Share of government of employment , defined as ‘public sector” in the National
Population is as follows:
–
–
–
–
–
–
–
1335
1345
1350
1355
1365
1370
1390
%7.6
%9.7
%10.7
%19
%31.4
%33.2
%17.4 (?)
•
The employment share shows a clear expansion both before and after the Revolution. In
fact one in every three is a government employee in one way or another.
•
The considerable fall from %33.2 in 1370 to % 17.4 in 1390 surprising and can be due to
‘privatization’, discharge of soldiers after the war with Iraq and perhaps definitional issues.
Economy of Iran
Government Involvement
•
The ratio of Government Budget to GDP as an index of government involvement in the
economy also reflects the government important role – between % 20 to % 60 in various
years. It reveals that 1/5 to ¼ of the GDP is directly spent by the government – even
excluding the so-called para-statals.
•
Yet another index of government control is the ratio of oil revenues- exclusive to
government- to the total currency revenues which has hovered around % 70 to 80 % .
This control has enabled the government to play the ultimate decision maker when it
comes to hard currency distribution.
•
Government has assumed increasing control and intervention powers through control of
oil revenues as well as legislations dealing with government monopolies , price setting ,
import control , subsidies distribution etc etc. This reflects and is inline with the
authoritarian history of government in Iran.
Economy of Iran
Government Involvement
•
Private sector is weak in terms of representation and dialogue and influence. Guilds are
politically controlled And Often find the line between the politics , economy and
professional interest blurred- example of value Added tax .
•
The Chamber of Commerce , Industry and Agriculture although becoming more vocal in
recent years is still considered an ‘observer’ at best without much clout.
•
Government huge control and influence have resulted in the ‘expectation’ that all and
everything needs to be done by the government. In short this has created a sense of
‘irresponsibility ‘ in individuals.
•
The blurred line between the “state-Dowlat ” and “the government- Hokomat ” can be
abused by the ‘executive power’ to escape responsibility and criticism. It is also a
permanent and major source of friction between the two.
•
Government is in short oversized, inefficient, interventionist , non -transparent and nonaccountable. Neither of these features is helpful to a productive economy. While these
have been noted by government itself and repeated as major concerns in all plans the
trend seems to be towards a more heavy handed government.
Economy of Iran
Government Expenditure to GDP 1381-1389
30
28
25
25
25
28.1
24.5
24
25.2
24
22
20
%share
%share
15
Series1
10
5
0
1380
1381
1382
1383
1384
1385
1386
1387
1388
1389
1390
Economy of Iran
80
Governmnet Budget to GDP Ratio
70
State Budght to GDP‫إ‬
60
50
S…
40
30
20
10
0
Axis Title
‫دوره جنگ و نابسامانی‬
‫دوره هاشمی رفسنجانی‬
‫دوره خاتمی‬
Economy of Iran
Inflation & Unemployment
Economy of Iran
Iranian Economy
Iranian Economy
Workforce
•
Total employed is the Demand for Workforce. The statistical definition is however troublesome implying a minimum
of one hour work a week.
•
Active Population- supply of workforce- is all above 10 years that are either in employment or in search of work . It
does not include students , housewives and the prisoners. As such an increase in the number of students leads to
decrease in the rate of active population.
•
Participation Rate is the Active Population divided by 10 Plus years of age and reflects the percentage that is either
employed or in active search of work.
•
Active Population in 2006 (1385) was 23.5 millions out of 70m but experienced a small increase reaching 24.4
millions in 2012 which reflects a decrease in Participation rate.
•
In 1996 the total number of employed was 14.6 Million. in 2006 the number was 20.8 millions reaching 21.4
millions in 2012 . This means that in 10 years 1996-2006 the economy produced close to 6 million jobs while in the
6 years from 2006 to 2012 only 600,000 jobs, that is an average of 100,000 a year.
•
Taking into account the fact that ‘employment’ means having work at least one hour a week this figure includes
considerable hidden unemployment. In other words the number of jobs created by the economy is perhaps half as
much.
Economy of Iran
In winter 1391 the Unemployment rate reached 12.4%, Participation rate fell to
36.8%.Highest unemployment was amongst age cohort 20-24 with a rate of 23.8 %
for men and 48.4% for women. IMF predicts 13.2 % for 2013
•
Iranian Participation is fairly low – around 37-38% and 13-14% for women in 2012 compared to 77.1% US and 58.5% Spain. This is mostly due to the young being in
universities and/or having given up on searching for work.
•
The total number of employed women from 4 millions in 2006 to 3.5 millions in 2012 , that
is a net drop of half millions in spite of population growth and the increase in the number
of educated women seeking work.
•
Dependency rate is defines as Inactive Population divided by the Employed. It reflects
how many people each person carries. This rate was 2.5 in 1966, 4.3 in 1986 , 3 in 1996 and
2.3 in 2002.
•
World Bank predicts that due to aging the non active to active ratio will reach 5 by 2050.
•
In 2012 the Service employs % 47.1 , Agriculture % 18.1 and Industry % 34.8
Iranian Economy
Workforce
•
The Rate of Unemployment is the ratio of those seeking work to active population. It
reflects the gap between the Demand and Supply of Workforce.
•
Except for 1996 the Unemployment has been more than 10% with 2011 rate being 12.3
and that of Autumn 2012 being % 11.2 although some estimates put it at 15%.
•
The Unemployment rate for the youth , women , rural areas, and the deprived provinces
is higher than average:
–
15-29 years unemployment in the fall of 2012 at 23% showing a reduction of % 1.8 to summer.
–
13.4 % for women visa-visa 8.5 % for males in 1996.The rate for young girls is around 43.8 % from
31.8% in 2006
–
24.5 % Luristan, 26.7% Sistan , 23.3 Kurdistan in 2000
–
Rural rate 9.4% visa vis 8.9 urban in 1996
Economy of Iran
•The Unemployment rate reached 12.4% for 1391.
•The urban rate v reached 13.4 %, Rural rate 9.8%
•Rate for men is % 10.8% for women 19.6%
Economy of Iran: Inflation
Iranian Economy
Economy of Iran : Currency and Inflation
Economy of Iran :Comparative Inflation
Economy of Iran
• In June and Sept 2013 Liquidity reached 473 000 and 490,000 Billion Tomans
respectively of which %39 is attributed to Mehr Housing initiative assuming a Money
Multiplier rate of 5 .
•
The rate of growth in liquidity appears to have slowed down stating February.
•IMF predicts 42.3% for 2013
Economy of Iran
Falling Rial
Economy of Iran
Point inflation and Annual Inflation Rates reached %44 and 39% in August 2013
respectively .
Economy of Iran
Economy of Iran
Economy of Iran
Inflation & Employment
• High correlation is observed between inflation and liquidity .
• The causality relations is disputed by some economist who argue that
liquidity is produced following the inflation and the pressure for more
money by the business and industry who pressure authorities for more
liquidity to deal with inflation.
• A significant part of inflation is Iran is endemic , perhaps up to % 10. This
is due to the low productivity of production , pressure on governments
to spend and the wage-prices institutional connection.
• Inflation is also due to expectations , mostly political expectations that
work their way through the system through currency fluctuations.
Economy of Iran
Inflation & Employment
• Inflation history of Iran is led by government monetary policies , or
better put by throwing money at the economy.
• No meaningful relation can be established between the unemployment
and inflation. Inflation and unemployment appear to go hand in hand.
No Philips relations in Iran.
• Sustainable jobs are difficult to create in the Iranian economy. None of
the plans or administrations have been able to create sufficient jobs for
the expanding population.
Economy of Iran
Liquidity and Growth
• A recent study by the Ministry of Economy covering 1961 ( 1340) to 1997
( 1376) concludes that expansionary policies have had little impact on
the growth in the longer term:
– Production is not sensitive to expansion in liquidity
– Each % 1 ( one percent) increase in liquidity lead to % .83 in total expenditure but
only % .17 increase in real output .
– % 90 of price inflation may be attributed to increase in liquidity .
– Contractionary polices can impact the inflation if implemented with caution.
Economy of Iran
The new rate for Misery Index would be more than % 50. i.e 40.1
inflation Plus % 12.4 Unemployment !!
Economy of Iran
Is inflation going to fall soon ?
Economy of Iran
Gini Coefficient
Economy of Iran
Export and Import
Economy of Iran
Export and Import
• Data to be handled with a pinch of salt :
• CBI and Ministry of Commerce data conflict
• Smuggling not reflected in data
• Smuggling estimated be considerable and flowing both ways mostly
due to subsidies , illicit traffic of narcotics and organizational strength of
para-states
Economy of Iran
Export and Import
86
87
88
89
90
oil
nonoil total
84.5
13.1
97.6
86.6
14.7
69.9
services
goods
services
6.9
58.2
15.3
101.3
7.8
70.1
17.7
18.4
88.3
8
69.2
17.6
90.2
22.6
112.8
8.8
75.4
18.9
118.2
26.7
144.8
8.6
77.8
17
Economy of Iran
Economy of Iran
Economy of Iran
Economy of Iran
Imports Origin
Economy of Iran
Export Composition
Economy of Iran
Economy of Iran
Economy of Iran
Economy of Iran
Export and Imports
•
Export is a function of currency, inflation rates , tariffs and non tariff barriers/
stimulants and total income – in Iran oil
•
In 2008 the non -oil exports and oil exports were % 24 and % 76 of the total
export respectively . Non-oil export excluding non liquefiable stood at $ 18
Billions.
•
Export of services during 3rd and 4th plans has been growing at a healthy 20 p.a.
•
Exports of goods during 98-2010 (1377-1389 ) have on average shown an
growth of % 19.3 p.a which is much more than to the global rate of % 12 .
Economy of Iran
Export and Imports
•
Import of good have been constantly on the increase during 3rd and 4th plans: $
15 in 2000( 1379) , $ 38 Billions in 2005 (1384) and $ 48 Billions in the first 10
months of 2012 ( 1391). The main reason has been increase in oil revenues and
the governments wish to control inflation through import.
•
Trade Balance excluding oil has been negative throughout reflecting increasing
dependence on oil revenues.
•
Import of capital has been disappointing.
Economy of Iran
Export and Imports
•
Export /GDP rate has increased from % 13.6 to 38.8 % in a decade reflecting
growth in oil revenues. Non oil exports share has hovered around % 10 .
•
Import /GDP share has risen from % 15.3 in 1998( 1377) to % 31.6 in 2009 falling
back to % 25. 9 in 2010 and 2011.
•
UAE has a % 28.6% share in exports to Iran reflecting the challenges Iran faces in
purchasing ion the international markets.
•
A total of 10 countries have close to % 75 of exports to Iran. These alternately
include UAE, China , Iraq , India , Japan, Italy, Afghanistan, Germany , S.Arabia,
Turkey , Korea , Azerbaijan .
Economy of Iran
Export and Imports
•
Most of our exports are destined to Asia with Iraq as a major importer of our
goods. China and India and emerging economies followed by neighboring Turkey,
Afghanistan and Pakistan can be potential markets.
•
Some % 60 to % 70 of our exports are destined to only ten countries reflecting a
low diversity for our non oil exports .
•
Export of services is remarkably influenced by ‘ transport and insurance’
services reflecting the importance of transit. These show an % 18 pa rate of
growth.
.
•
Economy of Iran
Export and Imports
•
Export of services is also impacted by ‘ investment abroad’ which has increased
by % 88 during 4th Plan. These showed a % 40 p.a rate of growth up to 1387.
•
Share of carpets in exports is considerably falling to % 3 of non oil export during
4th plan in comparison to % 11 in 3rd plan. Competition from the region as well as
increasing production cost are blamed.
•
Amount and share of pistachio has also fallen due to poor packing and health
control as well as competition from USA , Germany , Netherland , Hong Kong
and Luxemburg .
Economy of Iran
Export and Imports
•
Raw materials , intermediate and unprocessed materials form the lion share of
exports including Zinc, Copper, Iron ore and Aluminum. These have little value
added.
•
In 2010 some % 64 of imports has been limited to 10 goods including
“mechanical equipment, nuclear reactors , boilers, steel and iron” .Primary
industrial goods such as steel and Iron bars and products , cars parts, gas turbines
etc are amongst major imports.
•
Meat, sugar , medicine , rice , cooking oil and animal food are amongst major
import items. Import of wheat has depended on weather.
Economy of Iran
Export and Imports : latest Figures
•
In the first 11 months of 1391 the import of goods is reported at v$ 48.387 B
reflecting %11.8 fall in value. Wheat is $ 2.346 B , still S 1.94B and maize 1.601
B. Average price per tone is $ 1349. Origin of imports are UAE, China , South
Korea , Turkey and Switzerland
•
In the first 11 months of 1391 the export of goods is reported at $ 37.7 B
reflecting % 4 fall. Exports include $ 8.5 liquefied gases- % 10 fall- , $ 9.2
petrochemical products - % 30 fall- and $ 19.9 B other goods. Average price per
tone is $ 474. Iraq , China , UAE, Afghanistan , India , Pakistan are major export
markets.
•
Export of services has been $ 4.2 B
Economy of Iran
Export – Import of Services
Economy of Iran
Imports composition
Economy of Iran
Origin of Imports
Economy of Iran
Non Oil Export Destinations
Economy of Iran
Export Composition
Economy of Iran
Export-Import by weight
Economy of Iran
Export – Import (excluding oil related liquefied items)
Economy of Iran
Natural and Human Resources
Economy of Iran
Strategic location
Iranian Economy
Strategic location
•
‘Strategy ‘ is defined as ‘ the pattern in a stream of decisions” over long term
and long range; essentially a macro- plan to harness all a major resources
towards major goals.
•
Strategic importance of a “place ” therefore is what the ‘ place and its
associated geographical characteristics ’ bring to bear upon the goals and the
destinations of a place and the people living there and the ways and means
that those people deliberately or otherwise choose to follow in long run.
•
The ‘geographical characteristics’ need to be broadly defined to include climatic
and environmental parameters
Iranian Economy
Strategic location
•
Geographical strategic importance is not a constant factor as :
– It is strongly influenced by a) the available exploitable natural, human and financial
resources and markets of the place and b) the access and threats it provides to other
resources and markets. Sizeable and accessible resources and markets increase strategic
importance . Routes to resources and markets and/ or threats to resources and markets
similarly enhance strategic importance
– Significance of resources and markets change and evolve over time through demand for
the resources, degree of depletion and the state of technology. Increasing demand for
new resources enhance strategic importance while their depletion render the place
unimportant.
– Accessibility & threats to resources and markets , in the place or through it, are
significantly impacted by natural , political and technological opportunities and
barriers. Technological changes through impact on resources and accessibility leave their
footprint on strategic importance. Political and military threats to resources and markets
Iran Economy
Iranvij ?
Arabs , Greeks
Fertile Crescent
Iranian Economy
Location parameters influencing the economy
•
‘Strategic location ‘has played a major role in its economic development or
lack of it:
– High plateau with opening in the north east and south west provided opportunities
both for trade routes and attackers.
–
Silk Road is a case of ‘location’ dictating economic growth which came to a halt
with the invading tribes coming same highway combined with technological changes
that opened up Persian Gulf to European navigation.
– Iran south- west being a part of the Fertile Crescent in the early Mesopotamian
civilizations led to first agricultural settlements and cities in Khuzistan . The SW
opening always a corridor for migration , invasion and cycles of growth and decline.
Pre-Islamic Iranian empires extended to Mesopotamia through this natural corridor
that continued to Palestine and Egypt.
Iranian Economy
Location parameters influencing the economy
– Although the Iraq invasion also came this way the importance of this corridor for
trade with Iraq and Easter Mediterranean countries can not be overstressed .
– The NE opening enabled the early migration of the - called “Arian ‘ tribes to Iran
from Iranvij dislocating and absorbing the existing tribes who had apparently moved
in from the west
– NW always a corridor for Turkish tribes invasions with Moghol devastating
occupation and changes and the accompanying changes in the tribal composition,
land tenure and governance and economy.
– Shahaname is a history of wars with the NE! These repeated invasions , possibly
helped and/ or motivated by environmental degradation in Central Asia and the
collapse of the Persian Empires have played a major role in obstructing economic
development through breeding insecurity, non- accumulation of capital and slow
technological progress. This corridor can now utilized for access to Central Asian
economies.
Iranian Economy
Location parameters influencing the economy
•
Turkish migration to Iran continued when the Turkish tribes moved around the Northern
Caspian and came southwards through the Caucuses. Important to note that Darband
from Sassanid times was to stop this invasion !
•
Rise of Ottoman Empire in the east and the technological improvement in arms intensified
pressure on the NW from 16th Century
•
Caspian Sea never a trade route until recent times but a barrier to potential invaders. The
Sea can however be a potential transport corridor for future .
•
Persian Gulf turned into a route for western powers from 16th century when the sailing
ships went around Africa in search of spice and gold . Attacks on Bushir , short term
invasion of Bandar Abbas and the practical separation of Khuzistan followed.
•
Persia Gulf continues to be vital for the Iranian economy . Persian Gulf –Caspian rail
road played an important role in WWII.
Iranian Economy
Location parameters influencing the economy
– Technological changes and opening of Black Sea to trade allowed for trans-Caucasia
railroad from the Black Sea Batumi to Baku and sea route to Rasht and Trabzon
road to Tabriz in 19th century . These led to the rise of trade in Tabriz and Rasht.
– Technology in other words has opened a major trade trough through NW that
continues to be of high importance .
– Rise of industrial Europe and Russia and their rivalry for control of India , the so
called Great Game had mixed results for Iran as the a major access route. It
weakened it but kept its nominal independence.
– Collapse of the USSR opened a potential market for Iran in Central Asia and
Caucasian countries that wishes to access the open waters of the south. This potential
is not fully utilized.
Iranian Economy
Location : in summary
•
Changes in technology , political and environmental changes have had major bearing
on the ‘ locational’ importance of the country yet it remains a highly strategic place.
•
Evolution the strategic location of Iran has meant Iran was on invasion or invading
routes /campaigns/ activities . When the central government was strong this played
to the advantage of the economy but often it bred insecurity of investment , slow
capital accumulation and the concomitant desire for strong government , major
characteristics of the present Iranian culture and economy.
•
Iran is still a major potential route for trade with Central Asia and Caucasia , a
corridor for Europe –South Asia and access to the Fertile Crescent . These potentials
can generate billions!
•
Iran’s control of the Persian Gulf and the Sea of Oman has significant implication for
oil flow although this can be on the decline in the longer term when oils resources are
depleted. .
Iran Economy
Climates
Iran Economy
Iranian Economy
Topology & climates
•
The topology is characterized by high mountains home to fertile valleys descending into
plains and vast kavirs spotted by oasis settlements watered by Karizs in the past and
canals and pipes in the modern times by waters.
•
The topology together with access to water has dictated or at least considerably influenced
the settlement pattern and economic activities until recent times:
– Cities and farmin villages on the foot of the mountains alongside the Elborz and Zagros
and the individual mountains:
– Farming villages , animal farming and hurticulturing in the valleys and
– Tribes roaming and animal farming in the mountains.
Iranian Economy
Topology & climates
•
Iran enjoys varied climates from extreme cold to hotly dry mostly influenced by the
Mediterranean systems. Nevertheless Iran is essentially a dry country.
• Arid and semi-arid climates cover 73% of the land mostly in the centre and
south with some 7 dry months and annual precipitation of 30 to 250 ml.
• Cold -mountain climate covers 40,000 sq Km covering most of the summits .
Annual precipitation average is 500 ml. Moderate mountain climate cover
300,000 sq km with annual precipitation of 250- 600 ml.
• Caspian climate covers the strip between Elborz and the Caspian Sea with the
average annual precipitation of 600 to 2000 ml
Iranian Economy
Topology & climates
•
Iran is mostly a high plateau descending into the Mesopotamia in the west, Sand plains
in the south east , the Caspian Sea in north and the Persian Gulf in the south.
•
The north edge is covered by Elborz Range and the West and part of the South by
Zagross high mountains. In the North west the Elborz connects to the Zagros ,
Caucasus and Ararat and the Turkish highlands and in the North –east to the
Hindokush mountains. Zagors descends into Khuzistan plains in south west , Persian
Gulf in the south and peters out into plains of Jiroft .
•
The centre is spotted by ‘smallish ‘ individual mountains on its edges but mostly
covered by the two major Kavirs that extend into neighboring Afghanistan and
Pakistan.
•
Rives are short , small and not navigable. Karun is the most outstanding in terms of
flow and end in the Persian Gulf. Most rivers flow out to the neighboring low lands and
to the Caspian Sea and Persian Gulf. Zayandeh rood is the exception that disappears
close to Govekhoni wetland
Economy of Iran
Climates and Natural Resources
Iranian Economy
Water
•
Water , scare and variedly distributed , is the most important natural resource and has
for centuries shaped and influenced the Iranian economy and politics- and culture and
mythology.
– Iran is amongst the arid and semi-arid countries. The average annual precipitation is
230-240 mm with the highest rate of around 2000 mm observed in the Talesh
highlands and the lowest rate of 50 mm in the Central Desert ( Kavir) .Iran average
annual perception is %30 world average
– The region of Turkey, Iran, Syria and Iraq is getting dryer. According to NASA the
region has lost 114 Sq. km fresh water resources in 2003- 2010 .This is essentially due
to over sue of the underground resources although the drought oi 2007 helped.
– The total annual average atmospheric rainfall including snow and rain is 370 to 400
Billion cubic meter of which % 65 ( 240 Billion ) is evaporated and 120 to 130 Billion
cubic meter is ground and underground water .
Iranian Economy
water
•
On the basis of FAO estimates the total annual water from internal sources is around 128
cubic kilometers of which 73 cubic kilometers(CK) is harnessed and divided between
agriculture ( % 90 , 66 CKk, ) , domestic (% 7, 5 CK ) and industry ( the remaining % 2 , 2
CK). Water share of agriculture in Iran is higher than global average.
•
Settlements in Iran followed the water distribution pattern until recent times with
population being settled and economic activities conducted close to the sources of water
alongside Elborz and Zagross plains .
•
Control , upgrading and maintenance of water resources called for home bred
technology of Qanat , organization , finance and often military force leading
centralization of political power and the rise of “ Hydro- state “ and despotism.
•
Water scarcity and unreliability has been a barrier to growth in agricultural production
and a cause of famines and riots.
Iranian Economy
Water
•
Caspian Sea to the north provides access to the Central Asia , Russian and the
Caucuses. It is brackish, unique in biodiversity , source of fisheries and also home to
highly valuable hydro carbon resources worth USD billions.
•
The Persian Gulf and Sea of Oman in the south provide access to open seas, are sources
of fisheries and contain highly valuable hydrocarbon resources.
•
The inland lakes and wetland are under development pressures for short term economic
benefits. Urmia lake is drying out due to low precipitation combined with water
utilization for agriculture. Same pattern is seen in Shadegan, Neiriz and Gavekhoni .
•
Human lake is drying out due to reduced water inflow from Hirmand caused by use
upstream for agriculture .
Iranian Economy
Water
•
Population growth and increasing per capita consumption is putting pressure on water
resources while traditional water supply means are either abandoned or are rendered
insufficient.
•
Fall in water tables are alarmingly high. Currently some % 38 of the plains , that is 229
out of 609 , are barred to harvest ground water while % 11, that is 65 out of 609, are
classified as 'critical'. Each year some 11 plains are added to the list on ones barred
from ground water harvesting .
•
Technologic progress which has allowed for water storage and transfer enabling for
population and economic concentration in arid areas previously uncultivated or settled.
•
This trend, being speeded up in recent decades through dam-building and major water
transfer projects , has proven hugely costly and unsustainable. Khuzestan is being
deprived of water that is transferred to Isfahan. Dez is being dried out to water Ghom .
A recent farmers riot in Isfahan who attacked water transfer installations is telling.
Iranian Economy
water
•
Unsustainable water consumption for agriculture and industry is proving disastrous
for Urumi, Zayanderood , Bakhtegan, Shadegan to menetion a few.
•
In short ,
a) water will be the parameter to closely watch in future economy of the country.
Population growth and distribution and economic activities, in particular agriculture and
urban development , must be monitored not to put additional pressure on the water
resources
b) water management projects are hugely taxing the economic resources and are not
sustainable in the longer run.
Iranian Economy
soil
•
The soil or rather arable and fertile soil, is a limiting factor for agricultural growth. It
is limited in quantity and not of high quality . Iran covers 164.8 million ha of land of
which 1/3 that is 52 million ha may potentially be used for agriculture. Of this 17
millions ha is used for irrigated and dry farming.
•
While Iran's share of global land is %1.2 while its share of global soil erosion amounts
to %10. Should the present soil erosion trend continue in 30 year the country will have
no fertile land.
•
Each year thanks to poor vegetation 1.5 Million ha of agricultural land is desertified
reducing the soil depth by one centimeter - which needs 700 years for reproduction. Soil
erosion has increased from 10 tonnes per ha a year in the 90's to 16.5 tonnes per ha in
recent years.
Iranian Economy
Soil
•
Currently some 100 Million ha of the land, that is more than %60 of the total, is
unsustainable being in productivity decline and open to desertification. This is due to
the geographical location of being placed on the aid belt , natural factors and geological
structure . 95 Million ha of the land is exposed to wind and water erosion.
•
The total annual soil loss, estimated at least to be 2 Billion tonnes or 770 thousands ha ,
is %20 of the global soil natural erosion and % 7.7 of eroded soil.
•
Annual desertification or degradation is close to %1 of the total area of the country
placing Iran in the top five countries facing desertification. Each day the country losses
40 ha of forest that turns into desert.
Fertile soils are often where the water is available. Water transfer initiatives therefore
not technically or financially feasible.
•
•
In short , in spite of the size of the country , fertile soil is a limiting factor to agricultural
development . Soil is being eroded fast and need to be protected. The cost of soil erosion
is much higher than any investment in soil protection.
Iranian Economy
Oil & Gas
•
Oil reserves were estimated at 136 trillions barrels in 2008 and 154 Trillions barrels in
2011. OPEC reserves in these years were 948 and 1200 trillions respectively. World
reserves wee 1213 and 1481 Trillions .
•
In other words Iran contains some 10% of the world oil reserves . It s right after
Venezuela and Saudi Arabia – and perhaps Iraq -in terms of reserves .
•
Reserves are mostly in Khuzistan and Persian Gulf. The Caspian Sea reserves are yet to
be explored .
•
At present reduction rates the oil will last 110 years although the cost of production will
increase making exploitation expensive in not so distant a future depending on
technology development and structure of alternative energy prices.
Iranian Economy
Oil & Gas
•
Gas reserves are estimated at 28 and 37 trillions cubic meters respectively in 2007 and
2011. World reserves are 180 and 196 trillions cm in these years respectively .
•
Iran holds 16 to 17% of global resources. It is second to Russia in terms of reserves is
followed by Qatar.
•
At present rate of consumption the reserves last 180 years !
•
Resources are mostly in Khuzestan ad Persian Gulf. Caspian reserves are yet to be fully
explored although is possible that findings will be announced .
Major Oil Installations
Oil Fields
Iranian Economy
Major Mining sources
•
Iran with roughly 1% of the world's population holds more than 7% of the world's total
mineral reserves. Iran ranks among 15 major mineral rich countries, holding some 68
types of minerals, 37 billion tonnes of proven reserves and more than 57 billion tonnes of
potential reservoirs. Mineral production contributes only 0.6 per cent to the country’s
GDP.
•
The most important mines in Iran include coal, metallic minerals, sand and gravel,
chemical minerals and salt. Large deposits which mostly remain underdeveloped
are Zinc (world's largest), copper (world's ninth largest - revised from second largest in
2010), iron (world's ninth largest), Uranium (world's tenth largest) and lead (world's
eleventh largest).
•
Cooper in large quantity is Kerman - at Sarcheshne in Kerman Province contain the
world's second largest lode of copper ore (5% of the total )- and in Azerbaijan. As of
2011, Iran had the world’s 9th largest reserves of copper at 32.5 million world‘s . As of
2010, Iran ranked 10th in copper production In 2009, Iran exported $1.2 billion worth
of copper cathodes.
•
Precious stones and gold mines reported in varied quantities but not yet a major
sources of income.
Iranian Economy
Renewable Sources of Energy
Renewable sources of energy in Iran are almost abundant :
– Iran is on the global sun-belt and as such can harness unlimited solar energy in
most of the country.
– The topology provides for wind corridors that are potential major sources of wind
energy. Khorasan and Manjil are two major examples. 42 sites have been identified
as appropriate for wind power development, spread over 26 regions across the
country. Marine winds are yet another sources
–
Combination of high mountains ad rivers provide for ‘water heads’ and dam
reservoirs that can produce hydraulic energy
– Geo-thermal sources of energy are found in Azerbaijan and yet to be explored
elsewhere.
Solar Energy Potentials
Iran Wind Potentials
Iranian Economy
Forests and rangeland
•
Forests are the major sources of the industrial wood the annual production of which
has fallen to less than 1 Million cubic meter mostly due to the high level of sustenance
animal husbandry in forested watersheds. It is estimated that 3.5 million cattle ad 1.4
million domestic animals are kept by the forest settlers and villagers.
•
It is speculated that the forest coverage is shrinking fast. Some unconfirmed estimates
point to a 2/3 reduction in the past few decades. Pressure is more obvious in the north
due to fast urbanization and agricultural development although Zagross forests are
experiencing considerable pressure due to development activities.
•
In short forests are hugely threatened and shrinking. Direct economic cost are reflected
in in falling industrial wood production while the indirect costs include increasing floods
, landslides and loss of environmental services.
Iranian Economy
Forests and rangeland
•
Iran is located on the arid land belt of the northern hemisphere. The per-capita forest in
Iran is %17 ha compared with the global average of %62 ha .
•
Of the 164 Million ha of the total area 14.3 Million ha are forested and 3.7 Million ha
are woodland and bushes . % 8.8 of the total land area are under Caspian or Hircani,
Iran & Turani, Arasbaran, SindoSudanese or Persian Gulf-Omani Sea vegetation
types.
•
Caspian and/or Hircani forests cover 1.97 Million ha and include the high density
forests. % 78 are classified as productive , %22 as protected, supported and reserves.
•
The Iranian forest have a major role towards biodiversity protection, regulating water
regime , soil erosion control and floods control and mitigation. Thanks to their flora
and fauna diversity they also contribute to eco- based tourism which is an expanding
activity.
Iranian Economy
Forests and rangeland
•
Rangelands of Iran are estimated to be some 90 millions ha of which 10.3% are
classified as ‘good’ , 41.4% “ average” and 48.2 % are ‘poor” . Total annual
production is estimated some 10 million tonnes of dry fodder, i.e., 2/3 of the demand .
•
Rangeland are under pressure feeding three times their capacity. This over grazing is
leading to fast land degradation .
•
Rangeland have played a major role in the earlier population distribution of the tribes ,
conflict between the settled population ad the tribes and to political changes .
•
In short the pressure on rangeland is alarming with direct economic cost of increasing
meet import and the indirect cost of soil erosion and loss of environmental services.
Iranian Economy
Co2 Emission
•
Iran's share of global Co2 emission is % 1.84. In recent years the population increase,
industrial development and job creation initiatives have increased the demand for
energy and hence the GHG emission.
•
Iran ranked in 2012 the 60th amongst top GHG global producers. In 2009 , 2008, 2007
and 2006 Iran's ranking stood at 39, 34, 49 and 47 respectively . On the basis of 2000
statistics Iran annual GHG production was 500 Million tones which by now has risen to
700 Million tons.
•
Iran is a vulnerable country under the UN FCCC. This is due to its location in the arid
and semi - arid geographical zones, exposure to high risks of natural disasters , oil
dependency and high air pollution in major urban areas. Iran ranks high in energy
consumption and in GHG emission with a 523.3 Million tones CO2 equivalent fuel
based emission in 2008 on the basis of findings reflected in the National Energy
Balance Sheet.
Iranian Economy
Co2 Emissions
•
Research and reviews carried out under the UN FCCC Enabling Project show that in line
with IPCCC scenarios the average temperature in Iran would rise between 1.5 to 4.5 by
2100 in case of a doubling of Co2 concentration.
•
This will have major implications for water resources , energy demand , agricultural
production and coastal areas. For example under certain conditions a %1 reduction in
precipitation could result in %2 – 3 reduction in water flow leading to power production
reduction by the rate of % 3 for each % 1 reduction in water flow.
•
In short the already challenging climate will be even harsher increasing the economic cost
through added food import, higher energy and water bills and mire water conflicts.
Iranian Economy
Biodiversity
•
Iran is a vast and unique territory of very diverse nature. Geology, climate factors
,evolutionary and biological processes have all contributed to this diversity. The
geographical expanse, the unrivalled climatic diversity and the natural barriers have
throughout the geological time combined to result in a unique genetic diversity placing
Iran amongst globally unique areas of biological diversity.
•
The total number of animal species including mammals, reptiles, birds, fish , amphibians
of the marine and terrestrial ecosystems reach 1144. Iran enjoys one of richest plants
genetic resources with more than 8000 recorded species of which 1800 are endemic and
1405 rare. This puts Iran as the most diverse in the Middle East .Some %20 of the
species are exclusive to Iran. Of 42 types of Ramsar Convection classified wetland
ecosystems all are found in Iran except the Tundra type .
•
No much economic use is made of the unique biodiversity except for some limited
localize medicinal applications.
Iranian Economy
Pollution
•
Pollution is essentially a loss of resources , a negative resources that needs to be
accounted for in national ‘green’ accounts.
–
Air pollution , at least in 8 major cities, is costing the economy directly through
cost of measures to combat and control pollution and indirectly through health
costs , lost working hours, reduction in property prices etc . No reliable estimates
are available of the total cost .
– Micro-dust air- masses in recent years have added to the problem. Health cost, lost
working hours, damage to agriculture and farming and animal husbandry ,
reduction in price of property , cost of sand dune fixation etc will for years continue
to bear pressure on economic resources.
Economy of Iran
Pollution
– Water pollution of surface and ground water resources in most of the streams
reservoirs , canals and aquifers is a serious cause of concern. Report of Nitrates in
Tehran drinking water has engaged attention of citizens.
– Wastes and litters are an additional economic burden , particularly in urban areas
and alongside coastal areas. We produce 50,000 tonnes of waste every day close to
world average Annually some 16 Million tonnes of municipal wastes are disposed of
in unhygienic ways.
Iranian Economy
Natural disasters
•
Disasters tax the economic activities, reduce national wealth and slow down
development process. Iran is highly disaster prone being the 6th on global scale.
– Iran is highly seismic with frequent earthquakes , almost a major one every ten
years and thousands each year. The cost of earthquakes runs into USD billions ad
kill almost a 1000 a year. Tehran awaits a big one regrettably.
– Flood cause more financial damage than earthquakes each year. Almost prevalent
every where though more recorded in Elborz valleys made devoid of forests .
– Micro -dust , a new phenomenon is causing billions of damage now
–
Caspian Sea level fluctuation threatens the coastal development in the north.
– Drought and land degradation eat into the budget and into the soil !
Iran Faults
Iranian Economy
Climates and natural resources : Topology & climates
In short :
•
the challenging topology and the scattered water resources resulted in scattered and often
unconnected settlements – over 50,000- that were not on the main trade routes and ’not
impacted’ by the technological progress and development . This meant that national
economy was never fully developed at least till Pahlavi period. It also meant that at the
times of weak central government there was total chaos in the ‘mosaic’
•
Cost to the economy of providing adequate services to all these scattered settlements is
daunting including road building and communication. Most of the funds in the
development plans have gone into connecting these settlements to a transport and
communication system
•
In modern times the technology combined with political reasons has allowed for
settlements being developed or expanded not alongside water resources and in the plains.
This is proving expensive in terms of financial and environmental resources.
•
The climate change will have negative implications and will impose huge cost on the
economy .
Iranian Economy
Geographical Setting: Conclusions
•
Geographical setting has had remarkable impacts on our history, politics and
development.
•
Except for rich mineral resources we have had a mixed package of natural
resources that at times have limited our economic growth.
•
We have not kindly used our natural resources during modern times and are
forced to pay the cost in future.
•
We need to co exist with and within the limits of our natural resources or
pay the cost .
Economy of Iran
Inhabitants
Iranian Economy
Inhabitants : Demographic Characteristics
• Iran’s population in 2011 is estimated to be 75.1 millions- 17th
worldwide. A debates in heatedly continues as to whether this is’
large enough’
– Iran population was between 6 to 10 millions in 16th century and remained almost
same till 1900. In other words the was no pressure on the natural resources ; there
was a material balance.
– The first national census in 1956 estimated the population at 19 millions that is a
doubling in some 50 years during a period of political stability and improved health
measures .
– Population again doubled in less than 25 years but then the pace of growth slowed
down and the next doubling took almost 35 years. Nevertheless the number of
inhabitants in the country increase almost 8 times in a century. This clearly put
additional pressure on fairly limited water and soil resources.
Iranian Economy
Inhabitants : Demographic Characteristics
Population Growth
Time
16th Century
1865
1882
1892
1900
1921
1946
1956
1966
1976
1986
1991
1996
2001
2006
2011
Population(m)
5-10
4.4
7.6
9
9
18.9
25.7
33.7
49.4
55.8
60
64.9
70.5
75.1
Rate of Growth(%)
o
.6
2
3.1
3.1
2.7
3.9
2.5
1.5
1.3
1.62
1.29
Iranian Economy
Iranian Economy
Iranian Economy
Demographic Characteristics: Density& Distribution
•
Overall Population density is not high -46 per sq Km- but most of the population lives in
NW, North , West and in Tehran close to mountains and water while large swathes of the
country is almost empty.
•
Number of settlements is more than 50,000 spread over the vast area in difficult terrain
requiring huge transport and basic services investment. The spatial distribution of
population does not allow for the sustainable development of all settlements.
•
Largest concentration is in Tehran with 12 millions followed by Mashad, Isfahan and Tabriz.
There are 8 mega cities each with a population of over 1 millions – Tehran, Karadj, Isfahan,
Tabriz , Ahvaz, Shiraz , Tabriz , Mashad and Ghom . Concentration of mega cities including
Karadj , Qum, Tehran , Isfahan in the centre of the country is costing hugely in terms of loss
of fertile agricultural land to urbanization and water diversion and transport projects.
Iranian Economy
Demographic Characteristics: Growth
•
Population arte of Growth rose from almost nothing in 16th century to .6 % in 20’s , 3.% in
50’s and 60.s and to almost 4% around the time of Islamic Revolution. In the past two
decades it is falling with the latest being 1.29% in 2011.
•
The baby Boom of the 70’s which was expected to repeat itself in some two decades later
in the 90’s seems to have faltered !
•
The fall in growth rate is attributed to families having fewer children- to 1.3 in recent
years. In 1976 family average size was 5, in 2006 this dropped to 4 and in 2011 to 3.55.
•
While some attribute this to the Family Planning Plan and 20% of “infertile females” most
see this as a result of enhanced awareness, late marriages and the economic cost of
raising a family.
•
In 1392 a survey in Tehran found that close to 45% on couples plan only one child.
Iranian Economy
Demographic Characteristics: Age Pyramid
• Continued drop in growth rate might result in population shrinkage in
2040’s.
•
The changes in the age pyramid points to a shrinking children cohort ,
bulging young population now that turn middle age and old in the next
two decades pressure. 0-14 years were 45.5 % in 1986 but in 2011
dropped to 23.4%
•
This demographic pattern is resulting in pressure on job market and
post graduate openings. Combined with females opting for more higher
education and high rate of unemployment this pattern is producing
considerable number of singles – 700,000 female singles - in traditional
marriage ages.
• Gilan is the ‘oldest’ while Sistan is the ‘youngest ‘ province.
Iranian Economy
Iranian Economy
Iranian Economy
Iranian Economy
Iranian Economy
Demographic Characteristics; Urban & Rural
•
Urban-Rural shares have witnessed remarkable change from almost 30- 70 in 1956 to 7030 , i.e. a reverse of figures.
•
Number of ‘cities’ have surged from 210 in 1956 to 1331 in 2011 thanks to both migration
from villages and to natural population growth.
•
Often these cities are essentially large villages with rural production patterns and cultural
values . Migrants to the cities also bring their rural cultures ad/or develop ‘marginalized’
sub-cultures .
•
During 2006-2011 some 3.2 Millions have migrated from cities to other cities and .7
millions from villages to cities. Tehran ( 3 %Population Growth ) and Busher ( 3.11%) have
highest migration intake while Ardabil ( .33 %), Ilam (.43%) and Luristan (.44%) have
lowest intakes. In other words while migration is slowing down it continues from poorer
and agricultural locations to Tehran and large cities .
Economy of Iran
Age Composition
Economy of Iran
Urban –Rural Population Trend
Iranian Economy
Demographic Characteristics: Tribes
•
Tribal population which once was half the population in 17th century and one fourth in
1914 has continued to shrink and settled own either forcefully or due to the callings of the
modern life. In 1998 their population was estimated to be 1.3 millions. No more recent
figures available although the size is expected to be smaller.
•
Their abode is near borders and in the mountain ranges. Thy are either Persian speaking
including Kurds , Bakhtyaries, and Lurs and Baluchis or Turkic speaking and Arabic
speaking. The letter groups came o the plateau after Islam.
•
The economic main livelihood is animal husbandry placing them in conflict with the rural
farming communities.
Iranian Economy
Demographic Characteristics: Life Expectancy and Literacy
•
In 2011 Life Expectancy for females is 74.6 years compared with 73.1 five years ago.
Comparatives rates for males are 72.1 and 71.1 respectively. Females appear to do better
health-wise !
•
Literacy numbers are encouraging :
–
Literacy rate is 93.2%in 2011.
–
In 2011 a total of 5.5 millions have academic and religious studies compared with 3.8 millions in
2006 and only .3 millions in 1976.
–
17.2% of males and 17.4% of females have academic education, almost one in five to six . Women
appear to do better education-wise
–
28.6 % of the university educated are social sciences , commerce and law and 28 % in engineering.
–
33.4 % of families have computers .– although fast internet access rate is not encouraging !
Iranian Economy
Demographic Characteristics; Ethnicity & Religion
•
CIA World Fact book, ethnicity estimates are Persian, Luri, Gilaki and Mazandarani 66%,
Azeri and other Turkic languages 18%, Kurdish 10%, Arabs 2%, Baloch 2%, other 2%.
•
Library of Congress and the Encyclopedia of Islam states Iran's ethnic group as Persians
65%, Azeris 16%, Kurds 7%, Lurs 6%, Arabs 2%, Baloch 2%, Turkmens 1%, Turkic tribal
groups 1%, and non-Persian, non-Turkic groups less than 1%.
•
The mosaic of ethnicity reflects the history and terrain of the ‘Empire’ that the country
once was.
•
Most Iranians are Muslims; 90% belong to the Shi‘a branch of Islam, the official state
religion, and about 8% belong to the Sunni branch, which predominates in neighboring
Muslim countries. 2% Non-Muslim minorities include Zoroastrians (25 ,000), Jews ( 8800),
Christians (117,000) and others . Sunnies are mostly located in Kurdistan and Baluchistan
and southern provinces
Iranian Economy
Iran Ethnicity
Iranian Economy
Demographic Characteristics: Migration In and Out
• Iran in 2011 is home to 1.4 Millions Afghans and 55,000 Iraqis .These
figures were 1.2 Millions and 44,000 in 2006. Afghans play an important
economic role in construction and chicken husbandry.
• The increase is despite the pursued policy of encouraging the migrants to
return home.
• 1.4 Millions Iranians live in USA and 800,000 in UAE. UK and Canada are
home to 410,000 , to 210,000 , France to 155,000 and Sweden to
110,000. In other words some 3 millions Iranians are living aboard. This
points a considerable brain drain and a major economic and political
migration that is costing the economy hugely.
Iranian Economy
Iranian Economy
Inhabitants : “National Characteristics ?”
•
Could one claim that nations have ‘ national characteristics while not falling into
the trap of racism ?
–
Geographical determinism at times claims to have the answers to the ‘whys’ of development .
While this may not hold much water it is certain that a combination of ecology , geography,
economy and traditions and values contribute to the development of national features – similar
to the development of biological features in the process of evolution.
–
Overtime the communities develop ‘characteristics’ that make them different from others, it is
argued. These characteristics are not due to biological and racial causes and differences and
often are developed due to the environmental , social, economic and political reasons, the
argument continues.
–
It is suggested that Iran has been a victim of despotism and insecurity throughout its history and
this has left its marks on the national psyche. Despotism has been total and has regenerated itself
–
Despotism has essentially destroyed individualism and what comes with it including ‘property
ownership and personal rights’ Insecurity - fed by despotism, repeated ,invasions and colonialism
and the harsh climate- has included legal insecurity, political insecurity, economic insecurity.
Iranian Economy
Inhabitants : “National Characteristics ?”
• Faced with despotism and insecurity the inhabitants of the plateau have
developed certain adaptive features that at times may raise eyebrows to
say the least. Some suggested features could include :
–
Iranians think of themselves as a ‘unique’ or ‘different ‘ people and regard selvs very
highly in comparison with the neighboring nations.
– The long and eventful history particularly the pre-Islamic empires are repeatedly
invoked to prove the ‘supremacy “. The ‘Shism’ faith and the Frasi language are noted
and praised by the Iranians as ‘differing’ features from the other Muslim
communities .
– This sense of being different , rooted in insecurity, might have contributed to the
continuity of Iran as a different and independent nation but has not help Iran in its
political and economic transactions with the immediate neighbors.
Economy of Iran
Inhabitants : “National Characteristics ?”
•
Sophism ,runs deep in Iran. It is an outlook that essentially a search for unity with
Ahura, Light or Allah can also hinder economic ambition which is a drive of economic
progress.
•
Despotism has bred a historical deep lack of trust in government on one hand and the
huge expectation from the government to fix all on the other hand. Except for short
periods in the Iranian history the Sultan is to be avoided at all cost yet he /she is the one
that is expected to clean the irrigation canals, build roads and in modern history- that
oil revenues are in government hands – do anything from garbage collection to building
the industry.
•
Despotism is perhaps a major contributor to the prevalence of ‘Conspiracy’ and Denial
theory in Iran. Most Iranian do not believe in the ‘ apparent’ facts and always try to
find conspirators behind events which are ‘reshaped’ and perceived differently from
the ‘reality’. Most often they package the ‘reasons’ for political and economic events in
factors that are beyond their control, factors that are manipulated by ‘outsiders’ – UK is
a favorite suspects ! A clear implication is that economic success or a failure is also
attributed not the work of individuals but to ‘other factors” . Entrepreneur approach is
therefore not respected.
Iranian Economy
Inhabitants : “National Characteristics ?
•
Duality runs deep in the national psyche. World is seen as a battleground for the
eternal fight between Ahura and Ahriman or Allah and Sheitan. In this battle the
individuals are seen not in total control of their deeds ad decisions. A
consequence is the ‘fatalism’ which breads lack of drive for economic progress.
•
Duality is also seen in the cultural dialogue and divide between tradition and the
modernity. This duality has affected all aspects of the Iranian life down from the
constitution to ordinary lives. Economic policies & actions are no exceptions and
are hugely impacted by the divide.
•
Messianic expectation is a major characteristics. Most faiths have an embedded
Messiah but in Iran this is the pillar of the faith. The consequences for the
economic activities could include a distaste for progress and planning which are
seen to delay the Messiah on one hand and the expectation that problems can
be fixed in a short term by a savoir on the other hand.
Iranian Economy
Inhabitants : “National Characteristics ?”
•
Being ‘clever’ is perceived to be contributing to success. Cleverness-’Zerangi’- while not
directly seen as a ‘value’ it nevertheless is perceived to be highly useful . Zerangi comes as
a package including shrewdness, cutting corners, bending and breaking laws and norms,
selfishness and trickery.
•
This aspect of the national character is repeatedly referred by the folklore , literature and
by outside observers. It is possibly a product of long term insecurity and despotism.
•
Iranians have historically destroyed their own ‘ elites ‘ after a period of ‘blowing them
up’ , it is suggested. This means that the individuals who appear to be doing better than
others face fierce rivalry mixed with dislike and often end up losing out in status and
wealth after a short run of popularity and success . As a consequence the individuals,
particularly the traditionalists prefer to hide to hide and hoard wealth and /or lock it in
activities that are ‘safer’ and more ‘liquidable’ . This feature tends to hamper investment
especially in long term ventures.
Iranian Economy
Inhabitants : “National Characteristics ?”
•
The implications of theses features for economic performance are not positive :
–
–
–
–
–
•
It breeds a lack of trust and insecurity.
It discourages long term planning. Iran remains a ‘short term ‘ society and economy .
It is considerably increasing the ‘transactions Costs.
It is detrimental to fair completion.
Its discourages hard-work and continuity
Having said this one must not forget that the Iranians like other individuals seek
profit and utility and their economic behaviors of the majority does not
markedly differ from the average “ John Smith “ or “Ali Agha’.
Iranian Economy
Inhabitants :Conclusions
• Iran has an ‘urbanish’ , young to mid-aged population settled close to
water resources and/or centres of political and industrial activities.
• Population growth rates are slowing down below replacement rates.
• Population is literate and ‘educated’
• Unemployment is high, participation rate is low.
• “National characteristics help survival and may not be helpful to long
term economic progress . ’
Iranian Economy
Historical Background
Black Sea Flooding and Migration Flows
Iranian Economy
Historical background
•
Geography and ecology have considerably impacted the economic development history :
– Absence of powerful central government : sheer size of the country combined with the
difficult terrain and absence of navigable rivers has, except for short periods,
prevented the emergence of strong central governments in comparison with
neighboring Mesopotamia , Egypt and Turkey.
– Isolation : Sheer size and varied ecologies has allowed for isolationism and self
sufficiency reducing the drive for the need of participation in global trade of goods
and ideas.
– Invasion route: : Invasions by Turkish tribes, Arabs , Mongols, Afghans have retarded
the economic development .
– Silk route encouraged trade . Development sea routs around Africa practically
destroyed the Silk Route impacting Iranian trade .
Iranian Economy
Historical background
– Tribal country : Iran has not had strong bureaucratic governments and often than not
has been ‘tribal’ and ‘feudalistic’. The Wittfogel theory of Hydraulic states does not
apply to Iran . Iran has been cradle of thousands of despots each in its own valley
having tenuous connections with the centre. People feared all !
– Tribalism and the change over from one dominant tribe to the other has been a
feature of development and has significantly slowed down capital accumulation.
Tribalism has also been detrimental to agricultural growth.
– Importance of Water : Iran had been mostly watered by expensive Ghanat system and
not by the cheaper flooding method applied in Egypt and Mesopotamia. Ghanat is
expensive to run and maintain but easily destroyable, which has occurred several
times ruining gained economic progress.
Iranian Economy
Pre-Islamic period
•
Achamaenids ( 559-330 BC): Trade with Mesopotamia, expansion of Ghanats, use of
money and banking , roads and post , introduction of Cotton from India.
•
Greeks (330- 247 BC) : Silk road develops with cities built from Mesopotamia to Bactria
alongside the road, extensive use of money, expansion in trade- glass, iron, wood, textilewith India , improved agriculture production techniques, reduction in value of money.
Economic decline towards the end of the Greeks dominance.
•
Parthian ( 247BC- 227) : Rise of Roam Empire in West and Han Empire in China increases
trade and income for the dynasty, road and water system expansion, improved transport
through … improved metallurgy from China and glass work from Syria, introduction of
Sugar cane and Dice from East.
•
Sassanid ( 227 – 651). First half sees an economic expansion while the second half is one of
decline. Water wheel, mill, silk and textile and dam building know how through use of
Roman slaves helped production . Cities were revitalized. Trade through silk Road and
banking facilities grew. Iranians ship went to China. Exchange of know how was
encouraged. Land tax system was reformed . In the second half the war with the Roman
Empire ad the Mazdaki Revolution led to economic decline.
Iranian Economy
•
Arabs and Turkish tribal invasions:
First six centuries- while having major negative impacts on some provinces, generally
provided for economic growth. The Islamic Empire provided for free trade in a large part of
the world extending to Spain and China .
•
Cultivation /production of cotton , sugar cane , rice , silk , fruits, sugar refining, distillation,
chemicals and textiles expanded. Irrigation methods improved. Iran excelled in paper
production. Iran traded with East Africa, India and even China- Iranians and Arabs burnt
Canton in China! !
•
Iranian cities on the trade route including Siraf reached their heights. Science and
technology saw huge leaps forward.
•
Not all the country benefitted from the economic growth. Agricultural production
remained at subsistence level. “Eghta’ was introduced in place of tax contracting. Eghta
meant transfer of the tile to the military class in lieu of salary and pay. The owners of the
tile in exchange had to provide certain military and administrative services to the central
government. This led to weakening of central power and rise of land owning class.
Iranian Economy
•
Mongols & Timurids ( 1220 – 1501) :
Mongol invasion, coming after the waves of earlier Turkish migrations and attacks that
seriously weakened the Islamic empire put an end to this Islamic renaissance. Millions
were killed , cities were destroyed some still in ruins. Tribal population increased adding to
the pressure on agriculture. Tax revenues dropped by 80% reflecting the poor shape of the
economy. Lack of security and weak central government meant o destruction of
agriculture .
•
Silk production however in Gilan expanded and trade in the south grew with Iran having
some colonies in Bengal.
•
An important event took place in the south however. Europeans managed to go around
Africa and establish outposts in the Persian Gulf. This strengthened the decline of the Silk
Road which was well in advance due to the Mongol invasion. Portuguese forbade the
Muslim ships going to India in 1506. It diverted trade away from Iran when the British and
the Dutch expanded spice trade through the Indian Ocean throughout the next three
centuries . Iran lost influence in the Persian Gulf. The British power expanded in India and
the rivalry with the Russian began influencing the Iranian economic life .
Iranian Economy
•
Safavids ( 1501-1736).
The opening of the sea route at the beginning did not have much impact on the Iranian
economy which once again was on relative rebound thanks to the establishment of a
strong central government which allowed for road & caravansary and Qanat construction
maintenance and for security.
•
While the economy did not reach the pre Mongol levels it nevertheless witnessed growth.
It was an agriculture self sustaining economy with silk and textile for exports .
•
Trade expanded remarkably especially with Europe- Iranians total trade was around one to
two Millions Pounds which was almost ½ to 1/3 of the British trade and twice that of
French exports.
•
Trade was based on Silk and hand made cloths. It was mostly through Tabriz, BursaAleppo or Trabzon as well as through the Persian Gulf. Armenian traders forced to migrate
to Isfahan took the leading role in silk trade .
Iranian Economy
Historical background
•
Science and some form of arts showed some early progress but it is notable that Iran
essentially missed on the industrial revolution which was beginning to take root in Europe
around this time. Iran seemed disinterested to participate in the world.
•
The prosperity of the Safavid period lasted till first half of the 17th century. The Empire
then began to crumble due to own tribal nature, conflict with the rising Sunni Ottoman
Empire in the West which had begun with the fall of Istanbul in 1453 , the building
pressure from the increasing British influence in India , the Russian southward move in
the Caucuses and Turkmenistan.
•
Silk production and trade fell significantly ( from 2,760,000 Pounds to 360,00 ) due to
insecurity and rise of Bengal silk production.
•
The gap of 1736 to 1785 following the Afghan invasion saw the total disintegration of the
central power and the collapse of the economy. Even the invasion of India and his pillage
of the royal treasures by Nader did not help much . Isfahan and Tabriz populations fell
from 600,000 and 550,000 to a ‘few ten thousands’ and 30, 000 respectively indicating
the major economic decline.
Iranian Economy
•
Qajar (1785- 1925):
The period signifies the pauperization of Iran, a processes that had already begun in the
second half of the 18th century and accelerated in the 19th century .
–
Agha Mohammdkhan ‘reassembled’ Iran after the chaotic period following the fall of Safavid in
1736 . His successor Fathalishah lost two major wars with the Russians in the 1820’s that put a
huge dent in the budget and bared the economic and technological underdevelopment of the
country . The reform attempt prompted by the defeat was mostly military oriented and short
lived. The succeeding King Mohammad Shah period was void of any reform and of major progress
although qanat system received some attention and internal security was strengthened .
–
Amirkabir Reforms in 1848-1851, influenced directly by Tanzimat in Ottoman Empire and at the a
time of similar reforms in Japan and Egypt was short lived but made lasting impacts. They included
reducing power of clergy and the court to enhance investment security, education enhancement
through introduction newspapers and university, promotion of national industry, mining and
agriculture through training and tax exemption . His murder was an indication of the strong
paranoid despotism and the powerful conservatism .
–
Yet one more failed reforms were attempted by Hussein Khan Sepahsalar 1871-1873 . These were
halted due to opposition from the conservative establishment
Iranian Economy
Historical background
•
The long reign of Naseraldin Shah ( 1848 - 1896) sees Iran turning into poor country. Several factors
contribute to this process:
•
In 1860 the silk production was decimated by a disease (muscardine) never to fully recover. Silk which was always
a major export item and a source of foreign revenue almost faded from the scenery by the end of the Qajar
period .
•
From 1860 onwards the global fall in the price of silver, the official currency of Iran, led to inflation and increased
poverty. The fall in the price was caused by the increase in the global supply of silver after major finds in South
America. This was detrimental to the already weak Iranian economy. It accelerated the pauperization of the
country as the national wealth shrunk considerably.
•
Major famines and outbreaks of cholera are frequent during this period adding to the army of the poor.
•
Increasing dominance of the foreign powers of the time Russia and Great Britain (GB) and their rivalry hindered
economic progress.
•
Iran was sidelined by the major trade routes that went through Suez and oversees.
•
Iran a despotic country not being a major market and lacking an educated class did not attract much foreign
investment in comparison with Egypt or Turkey
Iranian Economy
Historical background
•
This period was the Age of Concessions , often with discriminatory conditions ,starts during Naseraldin Shah
time . These are mostly awarded to Russia and GB. Major ones include:
•
To Russia
•
•
•
•
Oil in the north
Mazandaran Anzali to Ghazvin- Tehran- Hamdan and Tabriz- Jolfa Roads
•
Forest
•
Loan Banking
•
Cossacks ( army !)
•
Telegraph line
•
Mining in Azerbaijan
To GB
– Oil in the south
– Royal bank
– All mines in Iran
– Telegraph lines from Iraq to Bushir and other extensions
– Railroad from Khoramshar to Khoramabd and other extensions
– Tobacco
To others
– Archeological exploration in Shush to French
– Banking to Germans
Iranian Economy
Historical background
•
External trade and communication with Europe and Russia picked up from mid- Qajar when Russian
and UK became adjacent neighbors and vied for supremacy in the country with an eye on India . The
increasing trade had major implications :
•
It forced out the national handicrafts and textile industries which could not compete with the
cheap imports.
•
It gave rise to the urban merchant class who began to gain ground around same time. The
merchant class desire to have a say in the running of the country and of the economy played a
major rule in the Constitutional Revolution .
•
The trade led to the introduction of and/or increase in cash crops such as opium, cotton and
pistachio production .
•
Trade, increased communications combined with migration of the poor to Baku to work in the oil
fields, allowed for import of news ideas- and comparison with the advanced societies. These
ideas planted the seeds of the Constitutional Revolution
Iranian Economy
•
Fall of Qajar ( 1896- 1925)
This period starts with the assassination of Nasraldinshah seen as a pretest to
injustice and foreign influence. This remarkable period in the Iranian history
sees :
–
–
–
–
–
–
–
–
–
–
–
–
Three kings in a span of less than 30 years;
Kings tours of Europe on loan
The Constitional Revolution (1905-7)
Emergence of modernism ( TAJODOD) ;
Invasion of Iran by Ottomans, Russian and British during the WWI( 1914-19)
The Russian Revolution ( 1917)
Collapse of the Ottoman Empire ( 1922)
Discovery of oil in Iran ( 1905)
Dividing Iran between Russia and GB Zones of Influence ( 1907, 1919)
Morgan Shuster mission to reform finance fails due to Russian pressure ( 1911)
Withering of the central government and localized riots and revolutions
The Coup that brings the Pahlavi to power ( 1921)
Iranian Economy
Economic Profile end Qajar ( 1912)
– Essentially a poor and stagnant rural agricultural economy being dominated by the external
powers . In 1918 ¼ of the peasants died of famine
– Despotic but weak central government .
– Tribal dominance hindering central authority and agricultural development .
– Strong landowner class but an emerging trader class.
– Being influenced by forces of modernism which clash with the established conservatism.
-
Slow capital accumulation.
-
Considerable price increase due to invasion.
-
A population of 4.5 Millions mostly dirt poor and illiterate facing a despotic and corrupt
govt.
Iranian Economy
Economic Profile end Qajar ( 1912)
•
Govt expenditure of between 50 to 145 Millions Gharan or up to some 1.6 to 2.3 Million Sterling
Pounds with 10- -12 % deficit.
•
80% of Revenue from Direct tax mostly land and per- head tax ( 10 to 40% on income !) and %16 Indirect
tax on opium , sugar etc. Customs , mine rental and royal rentals also contributed .44% of Budget spent
on armed forces and % 1 on education.
•
Main export items include cotton ( 20% hiked during American Civil War) carpet ( %16) , silk ( %5) , fruit
and dried fruit ( 18%), rice ( % 11), animal skin and precious stones. Main imports were textile, oil and
sugar and tea- and anything from shroud to paper ! Trade always in deficit and 56 with % Russia, 32 %
GB and India , 13% Ottoman, Germany and others
•
No railroad except Tehran- Shahabolazim, few unpaved roads ( Anzali-Ghazvin- Tehran- Hamadan; JolfaTabriz: Tehran- Ghom- Arak: Bajgiran- Mashad; Isfahan- Bakhtyari- Shushtar- Khoramshahar)
•
•
Industry limited to carpet, silk textiles , misc ( a few electricity plants, textiles, matches, guns
production, paper mill, bear etc)
•
Mines included Iron ore, copper ( everywhere!)
Iranian Economy
Facing the Modern World
Iranian Economy
First Pahlavi ( 1925-1941) :
•
This period is often associated with the enhanced political centralization, increased interventions
by the government in the economy, slow start to industrialization, rise in oil revenues and
attempts at modernization. Major developments include:
•
Security : Enforced security through use of armed and security forces to put down tribal and
regional unrests, stifle academic and intellectual protests and restrict the clerical power. Increased
in military expenses ( 25-50% of budget eating into in oil revenues) – although the army melted
with the allied invasion!
•
Bureaucratic and Legal setting: A centralized bureaucratic set up including ministries with countrywide branches working on the basis of approved codes and statues was introduced. Major legal
reforms were introduced including formalized legal codes and contracts and a European style court
system .
•
National market: Road and railroad expansion including north-south rails road ( 1927-38) funded
through indirect taxation and some 24000 km of roads by 1938 leading to huge reduction of % 75 in
transport costs. Few aircrafts and airports as well as expansion in intercity telephone lines .
•
Trade & financial Reforms: State monopolies of tobacco, sugar, textile , opium, cars etc . State
monopoly of foreign trade and currency and setting quotas for export and import. Increase in
custom tax. Price setting and licensing led to creation and strengthening of a government
dependent entrepreneurial class.
•
Educational Reforms. Tehran University was opened , new schools modeled on Europe were
introduced. Professionals training although at limited scale was introduced. Students sent abroad
to learn new technologies and science.
Economy of Iran
Iranian Economy
First Pahlavi ( 1925-1941) continued:
• Currency Reform : Silver fluctuations during the WWI and its fall after the war led to a huge fall
in the value of Gharan from Pound =58 in 1929 to Pound =112 in 1930. A new currency
namely Rials was introduced in 1930 which was no longer silver- based . Notes were issued
which were not convertible .
• Banking sector: The National Bank with exclusive mint rights and a number of other
specialized bank to deal with agriculture, industry , loans and army were established.
• Industry : It was supported through tax exemption , subsidized transport and lower road levies.
Import substitution was the aim. A small number of food , textile, leather , electricity arms,
cements etc plants were established some undermining handicrafts. Government became
owner and operator a of a number of plants.
• Oil : Oil production rose from 16.1 Million Barrel a year in 1921 to 63.7 Millions in in 1938 and
119.7 in 1945 reaching 207.5 in 1950 before nationalization. Towards earned of period oil was
13% ob national budget and 10% of GNP and more than 50% on export revenue. The oil
concession was renegotiated with mixed benefits for Iran in 1933 while oil was turning into a
major global commodity .
• Agriculture : This sector saw no major exchange except increased land ownership by the King
and increase in cash crops including cotton .
Iranian Economy
Economic profile at end of first Pahlavi ( 1925-1941)
•
Iran was now a ‘national economy’ with a fair degree of security. Forces of modernization were encouraged
although democratic values were never encouraged. Despotic centralism was the norm.
•
Russia was replaced with USSR and event which began to have major political and intellectual repercussions in
Iran . GB influence was being challenged first by Germans who took 45 % of trade in 1940 and then by USA who
at the time was not seen as a major Imperialist power.
•
Oil share in the economy was on the rise but the country was still agricultural with 75% of the 15 million
population in village and % 7 nomads who were being forcefully settled.
•
•
Most of employees were in agriculture . Govt and wage earners only only 3.2 % and 6% respectively.
Composition of trade had changed with Iran being an importer of industrial and consumer goods and an
exporter of oil. Some analysts saw this as the start of neo colonialism.
•
A new social composition emerged with govt employees, the educated , the industrial workers and the
entrepreneurial groups playing amore important rule while the tribal powers and the clergy lost power.
•
Nationalism , reformism and socialist ideas clashed with conservatism with religion taking part in all camps .
State interventionism was becoming the dominant economic thinking. Recourse to foreign economic advisors
was seen as a panacea.
•
Indirect taxation to pay for economic and social reforms towards the end of the period hiked prices by 50%
Iranian Economy
•
Second Pahlavi ( 1941-1979):
This period is often associated with:
–
the increased authority of the Shah,
–
increasing influence USA in the political and economic scenery, US – USSR Cold war implications for
Iran
–
oil nationalization, considerable rise in oil revenues,
–
continued increasing interventions by the government in the economy, and economic planning
exercise
–
fairly rapid industrialization mostly oriented towards import substitution ,mass education and
health initiatives, rise of middle class and consumerism
–
land distribution , decline of the landowning class and the stagnation of agriculture
–
Strengthened technocratic approach to politics and management, clashes with conservative forces
and populists ideas
–
rapid urbanization and modernization resulting in considerable social mobility and dislocation
and unrest
Iranian Economy
•
Iran invasion and aftermath ( 1941- 48):
Allied Forces invaded Iran in September 1941 till end of war in 1945. Soviet Forces stayed on
however supporting a ‘People Republic of Azerbaijan’ and ‘Kurdistan’ till December 1946 when
these were over-run by the central armed forces after political pressure by Truman on the
Soviets- also by a promise of oil concession to the USSR
•
During same period the Communist Party Tudeh gained mass support in the educated classes
and the poor. The influence of the Tudeh party on economic approach was to last for decades.
The emphasis on ‘ non capitalist road to growth’ and the accompanying desire for central
planning, large government , egalitarianism and the despise of the ‘western imperialism’ and
‘individualism’ never left the Iranian intellectuals.
•
Shortages and inflation fueled by the invasion, insufficiency of govt budgets , weak central
government, Rails depreciation and amassed debt by Allied Forces ( $ 150m) to the government,
pressure on the road and railroad system and increasing influence of US and USSR are the main
features of the invasion period. Financial Reforms by US advisor Arthur Milspauagh 1941-1945,
visiting Iran for a second time, contrary to his first period in office , were not effective
•
In 1948 under Truman Article 4 – a US funded technical and economic assistance –a limited
number of technical projects were initiated and a study on the economy was carried out. The
study estimated a loan requirement $ 250m to implement the First 7 Years Development Plan
which was being drafted by an US consulting firm to be carried out 1948-1955. This is the
beginning of development planning in Iran.
Iranian Economy
•
Mosadeg ( 1949-1953) :
Rise of nationalism and of Islamic Fundamentalism , triggered by the demand for an
increasing share of the rising oil revenues and the reaction to foreign interventions , is
notable in post war period with massive public demonstration accompanied with a
number of assassination. These led to Mosadegh cabinet from 1949 to 1953 . Main
features include :
–
USSR pressure for oil concession supported by Tudeh party. An agreement signed in 1946
which was not ratified by Parliament.
–
Political instability , relative political freedom, strikes, assassinations and demonstrations
were the norm. The period was marked by rivalry between the court, the conservative
forces and foreign influence on one hand and a disintegrating coalition of religious and
nationalist forces with the Tudeh Party being unhelpful to the latter group.
–
Oil nationalization emerging as the main political and economic issue. Politically its control
was seen as an issue of independence, economically one of exploitation as UK tax of 19%
was more than Iran’s share of 11.9% from oil revenues.
Iranian Economy
•
Oil was nationalized in March 1951. This meant state ownership of resources , control of
management but also dealing with the costs incurred by the BP due to nationalization.
Mosadegh took office shortly afterwards.
•
Oil export was halted by BP reducing govt income. National Bonds were issued but not
well received by the wealthy classes. Exports encouraged and imports curtailed resulting in
positive trade balance . A Rural Development Fund , with limited success, was established
to be funded by a percentage of the land owners share of production. Caviar concession
was not renewed. Capitulation exemption was annulled.
•
The 1st Development Plan was halted for lack of funds and political instability. No major
social reforms were carried out.
•
Towards end of period the govt had to cover budget deficit through printing money which
was criticized by the opposition. Continued economic difficulties eroded the national
support paving the way for the coup of August 1953 with foreign support.
Iranian Economy
•
Attempts to renegotiate a new deal and mediation by the US government and later by the
World Bank did not work as Mosadegh was under pressure by the Tudeh party and his
own allies not to be seen as giving concessions while at the same time fending off hostility
by the court, conservative forces , former allies and the increased pressure by the new
hard-line administrations in USA and UK .
•
The Coup left a huge punch the Iranian psyche that is felt even today. It unraveled the
King-people link, opened an unending debate on who was to be blamed for the failure of
the movement, increased xenophobia, pushed the Tudeh party to its limits , increased the
USA influence vis-a-via UK and paved the way for the emergence of yet another despotic
king.
•
Economically this a period when the Iranians became fully conscious of the need to run
own business , had their first Development Plan thwarted and tried albeit without much
success to run an oil-less economy. It helped to have somehow improved oil agreements
in future but kept Iran in the western hemisphere of interest.
Economy of Iran
Development Planning
Iranian Economy
•
Post- Coup Period (1953-1962):
This is a period of political instability and economic crisis that ends with the beginning of
the “White Revolution”. Political scenery is characterized by the increasing dominance of
the US and forces of westernized modernism as well as by the increased interventions of
the Shah in the management of the country. Important developments include:
–
The trial of Mosadegh , political repression of opposition and suppression of Tudeh party;
creation of the security organization SAVAK; continued but declining influence of the traditional
oligarchic forces through five short lived cabinets and fraudulent elections; tacit support of the
main religious establishment of the monarchy combined with small religious radical opposition.
–
US initial hesitation to fully support the Shah- as represented by the apparent support to the
Gharani coup attempt , support to Amini’s being appointed as prime minister- is at the end
replaced by wholehearted support to him when he embarks upon the White Revolution.
–
Iran departure from ‘Negative Balance “ policy of Mosadegh by joining the Baghdad Military Treaty
( 1955) despite earlier approaches made to towards USSR .
–
Reemergence of a short lived “ National Front”, a loose coalition of nationalist forces supporting
Mosadegh . The front split into smaller groups when it failed to make any impact.
Iranian Economy
•
Economy was first propped up by the increasing oil revenue following the conclusion of a
new Oil Agreement that resumed oil export , opened the field to UA firms and gave Iran %
50 of the net revenues. US provided loans and aids to the new cabinet . Even USSR paid its
loan !
•
The Plan and Budget Organization was set up in 1955. The early history of the PBO is one of
influence by US consultants and the foreign trained technocrats .It is also marked by clashes
with the Shah who was seeking more control.
•
Two major investment banks namely Industrial Credits Bank and the Industrial and Mining
Development Bank (IMDB) were established in 1956 and 1959 respectively. IMDB was
privately owned with foreign participation.
•
Government expenditure rose mostly in transport infrastructure projects, dam building ,
education and health. Limited support was provided to the modern industry and to the
private industrialists who were investing in the tried fields of textile and clothing , food and
construction related activities. Support to agriculture was mostly towards irrigation.
•
Land ownership structure was not touched- except for the Shah who sold his land to the
government and packaged it as a land distribution initiative.
•
.
Iranian Economy
•
Imports surged due to unsatisfied demand of the Mosadegh times combined with the
injection of the oil money into the economy. The importers and the contractors appeared
to have considerably benefited while the wage and salary earners felt the brunt of the
inflation.
•
Government ran out of money in 1960. Strikes spread . With US blessing the Shah asked
Amini to from government.
•
Amini government initiated a land reform programme , a fight against corruption and an
austerity programme that included in creased import tariffs and reduced expenditure. In
spite of initial success he did not last more than 14 month in face of pressure from the Shah
who felt threatened by him , conservative forces who were not happy by his land reform
and anti -corruption drive , the nationalist opposition who opposed anything that came
from the top and the USSR dislike who saw him as a US man.
•
He was replaced by Alam, a staunch supporter of the Shah. This essentially meant transfer
of essential executive power to the Shah with prime minister acting more like an advisor.
This was turning point , the beginning of the Shah increasing despotism and quasi’
modernism and nationalism.
Iranian Economy
The Last Years of the Shah (1962-1979 ) : Political Setting
•
The period starts with the so called “White Revolution “ which later and after the 1963
‘Uprising’ was named as the “Shah and People Revolution “ . This was a mixed bag of
reforms including the land redistribution efforts started by Amini and encompassing
populist /socialist reform ideas such as nationalization of forest and rangeland ,
distribution of industrial profits to the workers, women suffrage, extension and education
and health corps etc. It was later extended from the first 6 points to many more.
•
The package was approved through a questionable “Referendum ‘ in February 1963. The
nationalists did not a clear position on the reforms .The mosque opposed it.
•
In June 1963 in a reaction to the reforms and to the Shah’s orientation towards foreign
influence an uprising swept Tehran together with protests in some other cities. This was
forcefully quashed by the government . The street leaders were executed . The spiritual
leader Ayatollah Khomeini was sent to exile abroad in a year after he voiced objection to
granting by government of the capitulation rights to the US army personnel working in
Iran. This event essentially created an unbridgeable gulf between the Mosque and the
court.
Iranian Economy
The Last Years of the Shah (1962-1979 ) : Political Setting
•
In March 64 the Shah, through the parliament which was no longer representing the landowners and
the old aristocracy, appointed Mansor as his prime minister. He was the symbol of the new rising
political elite seeking modernism. He was assassinated in February 65 by Islamic radicals. He was
replaced by his Minister of Finance Hoveida who faithfully served the Shah for 13 years without ever
objecting his despotism.
•
Political scenery is characterized by monarchical despotism including an obedient cabinet , army and
security structure and a handpicked parliament. Political opposition is not tolerated forcing it
underground and recourse to armed struggle. Elder statesmen are silenced and or sent to exile. A
singe party system is announced in 1976. Only the Mosque keeps its structure and organization.
•
Having dealt with his rebellious head of SAVAK, religious opposition , the nationalists and the
landowner class the Shah tried to loosen his dependence on USA through warming up to USSR and
Warsaw pact purchasing arms and industrial plants including a still complex. Iran becomes the ‘US
Gendarme ”.
•
Increased oil revenue enable extravagant expenditure to reassert old Persian Empire and held the
“Great Civilization”. Shah seen as ‘megalomaniac ‘ and ’nuts’ during last years of his reign!
Economy of Iran
Major social changes
•
Phase out of the landowners as a major class as a consequence of the land reform
•
Rise of a new political elite composed of army and security top brass, high level officials, technocrats
enterprisers close to the government. Power was in being in direct control of or close to centers of
control over oil revenue, a feature that was to reflect the Iranian politics in the decades to come.
•
Massive rural urban migration and rise of marginal settlements-rural growth %1.2 in comparison to
urban % 4.6 with urban share of population rising from % 35 to % 47.
Economy of Iran
Major Economic changes
•
Expanded government expenditure and cheap loans allowed increased investment in
industry and construction .
•
Two important feature were the very high capital-labour ratio ( $ 20,000 for one worker
in 73-78 from an earlier $ 4000 to a worker in 1963-1973) and the lack of skilled labor
which led to % 9.1 unemployment rate combined with huge influx of foreign workers- from
maids to drivers to technicians .
•
In 1972 some %52 were estimated to be under biological poverty line.
•
In 1977/8 government faced budget deficit and had to start cutting out on expenditure !
Economy of Iran
Major Economic changes
•
The 3rd and 4th Development Plans sought to expand transportation infrastructure , steel industry and
import substitute industries. Ministry of Economy was a leading authority brining Iran USSR technology
and ‘national’ industrialists but faded way in the power struggle with the the Shah.
•
in 1973 oil prices went up considerably due to political reasons increasing the oil revenues by % 220.
The 5th Plan was revised to aim at Iran becoming the 5th world Industrial nation. Extravagant and
ambitious programmes including atomic power plants , gas transport, etc were initiated.
•
Balance of Trade which was negative till 1973 turned positive but capital flight began in 1974/5.
•
Government expenditure in 1973 was 26 times 1962. Per-capita GNP rose from $183 in 1963 to $ 1410 ,
almost 9 times, in 1978.
•
Consumption and import increased accordingly forming a habit which was difficult to change in later
years.
Economy of Iran
Major Economic changes
•
In 4 Phases of reforms the land was distributed to those with Nasagh - ‘”cultivation right ‘ leaving out
the landless. First phase covered only 20%. Succeeding phases increased rented land.
•
Some fertile land was distributed to officers crop in Gorgan. This was combined with labour import from
Sistan.
•
Attempts were made to reassemble the divided land parcels through socialist as well as western models
without much success.
•
Agricultural production faced difficulties - including low prices, repeated policy changes and the
unfilled gap of owners- growing at a slow rate.
•
The reforms led to accelerated rural-urban migration.
Economy of Iran
Economic Profile at End of Monarchy
•
Streamlining and coordination practically impossible due to despotism, huge government
and absence of democratic institutions
•
Poor agriculture not yet replaced by a viable industry or service sector.
•
No clear strategy as what industry or service to replace oil in longer term
•
•
•
•
•
GNP raised ten times in a short period of time
•
High social and economic expectation raised consequent to a social - welfare oriented
government aiming to create a middle class.
Inflation reached % 40 in 1976, cash running out leading to tightening of belts .
Numerous ambitious projects facing shortages of cash and of skilled workers .
Economy of Iran
Economic Profile at End of Monarchy
•
Private sector essentially dependent on government and oil
•
Rampant corruption
•
Human Rights pressure by US forcing an ease out of political restrictions which could not be controlled
later.
•
Expansion of the working class uprooted from villages moving to cities with traditional values.
•
Pressure on the traditional lower and middle class due to new industries, import and modernism.
•
Strengthened ‘modern ”’middle class based on government ,industrial and service expansion
•
Considerable expansion of education, health and social services .Surge in foreign education.
•
Enhanced social mobility- and social dislocation and dissatisfaction.
Economy of Iran
Economic Profile at End of Monarchy
Agriculture
Industry
Services
Oil
•
Share in GNP
1963
Share in GNP
1978
Average Growth rate
% 27.4
% 17.8
% 40
% 12.3
% 9.2
% 18.5
%34.6
% 34.7
% 2-3
%10-11
% 8-9
% 20
In 1978/9 Revolution swept the Pahlavi dynasty away.
Economy of Iran
Islamic Republic of Iran
Economy of Iran
Islamic Republic
•
Islamic Revolution of 1979 opened a Pandora Box ushering in a mixed bag of anticapitalism , anti-westernism tendencies and ideologies coupled with religious
conservatism and traditionalism of Islamic ethics and thinking. This is well reflected in the
Constitution which was drafted by a Council of the Elites and publicly endorsed in 1980 .
•
In a span of ten years Iran experienced four prime ministers ( Bazargan Feb-Nov 1979,
Rajiee 80-1 Mahdavai 81 , Mosavi Sep 81- 89 ), three Presidents ( Banisadr Feb 80- August
81, Rajee Sept 81, Khameni 81-89), a Council of Revolution ( Jan 1979- July 1980),
invasion of US embassy in (Nov 1979), a war with Iraq ( Sep 1980- August 1988), a revision
of the Constitution in 1980 .
•
The country also underwent unrest in minority dominated regions of Kurdistan and
Turkmen Sahra and political infightings between plethora of parties, organizations and
groups . A campaign of terror, assassinations and political hardening followed in 81/84.
Economy of Iran
Economy of Iran
Economic Orientation of the of the Constitution
The Constitution of the Islamic Republic calls for :
–
Planning towards creating a “spiritual’ man
–
–
–
–
–
–
–
–
–
–
–
Economic independence and self reliance
A three sectored economy with a large role for government
regional equity
poverty elimination
Employment for all and freedom of job
Meeting the basic needs for all including housing, health and education
Discouraging conspicuous consumption
Combating monopoly, usury, hoarding, incurring loss to others
attention to modern technology
Public ownership of natural resources and protection of environment ,
Conditional ownership right
Economy of Iran
Period of Turmoil & War 1979-1989
•
Flight of capital led to the near bankruptcy and collapse of the banking system .
•
Banking and insurance systems was nationalized.
•
Large industrial units were mostly expropriated and put under control of Ministry of
heavy Industries, Ministry of Industry and the newly created or revamped Foundations.
The management of the industry suffered due to lack of funding, change of ownership
and the inexperience of the new managers combined with the continuous in-fights over
the political control.
•
Flight of foreign experts and purges led to massive dislocation in management
Economy o Iran
Economy of Iran
Economy of Iran: Mosavi cabinet
Economy of Iran
Economy o Iran
Economy o Iran
Economy of Iran
Economy of Iran
•
The war sucked in resources and led to huge direct , around $ 100 Billions and indirect costs around
$ 1000 Billions . A estimated 200,000 were killed mostly the youth . The direct damages were in
Khuzestan and Persian Gulf including oil insulations , post facilities , roads and cities. Armed forces
lost planes, ships tanks etc. indirect cost was due to the loss of work time and lost income and
investment.
•
The country emerged from the war with a seriously damaged infra-structure low rate of investment
and low currency reserves. Price mechanism was not functional due to rationing and price control
measures . Government and public institutions had grown considerably in size.
•
Political scene underwent considerable upheavals resulting in the banning of non- religious and
nationalists organizations and movements including Tudeh Party, MKO, FKI, Freedom Movement etc.
The unruly clergy was not exempted from this purge . As time went by the political liberty became
more constrained. Authoritarianism returned.
•
Setting up of parallel public organizations and structures added to the coordination challenges,
increased the size of the public sector and increased costs. These included inter alia the Construction
Jihad, The Imam Relief Committee, Revolutionary Committees, Revolutionary Guards, The Foundation
for the Oppressed, The Foundation for the Martyrs etc. The traditional religious structures and
institutions such as the shrines endowments were strengthened amassing considerable financial
assets -and political power. These were essentially out of the sphere of the state control.
Economy of Iran
Period of Turmoil & War 1979-1989
•
US sanctions were slapped on the country and considerable foreign reserves and assets were frozen.
increased sense of insecurity leading to the capital movement away from productive sectors to the
service sector.
•
Rationing system was introduced leading to smuggling and rent. Price control was imposed backed by
judicial punishments for violators.
•
Rials parity rate was held up officially high resulting in corruption and rent . A multitude of different
rates were being applied to various rates of trading relations. Trade was heavily controlled by the
government that was promoting ‘ national production’ and ‘price control’ through Purchase and
Distribution Centres (PDCs)
•
Oil revenues sharply fell from $ 18-20 M in 1978/79 to around $ 11 1980 M. in This was in spite of the
sharp rise in oil prices in 1979 . The oil prices however fell considerably in 1985 and 1986 increasing
pressure on the economy that was already constrained by the war costs.
•
During the period the GNP fell by 2.3 % and Per capita income by 10.2%. Agriculture production rose by
4.7% , oil and gas fell by 8.2%, industry by .8% and services by 2.3% .
•
When the war ended in 1998 the oil revenues was at $ 9.6 M . Imports had fallen to a meager $ 8 M .
Rate of growth was -5.5 % . Fixed Investment had fallen by -19.7 , liquidity was rising at 23.8% , and
inflation by 25%. $/Rials market parity was 30 times the official rate.
Economy of Iran
Period of Turmoil & War 1979-1989
•
Planning efforts began in 1981 ( 1360) with draft 1st Plan but the Parliament did not give its blessing to
it in 1983( 1362) . The refusal of the parliament in part was due to the fact some influential MPs were of
the opinion that planning was against the forces of the market while others felt in the face of upheavals
no plan worked. It is also suggested that there was a feeling that planning would only delay the ‘
promised’ appearance of the Mahdi. The Plan which was essentially based on the defunct Sixth
Development Plan was however pursued as a guideline by the Plan and Budget Organization . The draft
plan as well the government policies favored agriculture sector.
•
During this period a ‘nomenclature’ emerged composed of influential clergy , bazaar merchants, and
high level bureaucrats including officials in the government , in the foundations and in the armed and
security forces. The source of power of the emerging nomenclature was not possession of economic
assets alone at this stage and depended on a mix of religious authority, political past , proximity and
access to the Leader and membership of loosely defined political groupings, e.g. attendance at certain
religious schools .
Economy of Iran
Reconstruction & Stabilization Period: 1989- 1997( 68-76)
•
This period is signified by the Presidency of Hashemi and overlaps with the
implementation of the 1st Development Plan ( 90-95) and two years of the 2nd
Development Plan ( 96-2001).
•
At the start of the period the oil prices rise close to $ 30 per bl due to the Gulf Wars but
then dipped to below $ 20 from 91 to 94 when oil flows back to the market.
•
The major economic approach during the 1st Development Plan period was to reconstruct
the war damaged infrastructure, unshackle the economy from price controls, phase out
rationing , float-manage the currency, attract foreign investment, promote the capital
market through the stock exchange mechanism and strengthen the private sector. The
growth objective was a modest 1.8% p.a.
•
Some argue that the 1st plan was the work-put of the ‘liberal minded ’ economists, a
‘diversion’ from the original values of the revolution drawn under the influence of the
adjustment policies of the World Bank, particularly from 92 (1371) onwards .
Economy of Iran
Reconstruction & Stabilization Period: 1989- 1997( 68-76)
•
The 1st Plan faced three challenges:
-
The financing burden fell on foreign short term loans – so called usance- in the
absence of direct foreign investment and insufficiency of oil revenues. This led to a
crisis in loan repayment in 93/94 ( 71-73).
-
Price liberalization efforts did not lead to increased production and supply and mostly
increased the demand creating inflationary pressures - towards 50% in 1994/5( 73-74)and fall in the rate of parity. The objective of increasing industrial production and
export did not materialize in the absence of a viable privatization programme and the
continued structural production challenges.
-
Non- oil exports rose from $ 1 Billions to $ 3.7 Billions but this was only 15.9% of the
objective. Money from exports did not return to the country adding to the financial
pressure of the loan crisis.
Economy of Iran
Reconstruction & Stabilization Period: 1989- 1997( 68-76)
•
The 1st Plan although not successful in attracting foreign direct investment was a
success in terms of economic growth while keeping inflation at bay, at least initially .
•
The growth rate was on average 7.4 % but fell in the last two years to 4.7% and 1.8 % .
The fixed investment rose by 9.2 % p.a. Construction and investment rates of
investment growth were 13.3% and 13 % respectively. Unemployment fell to 11.1 %.
•
The 1st Plan and the ‘adjustment approach ‘ was in effect abandoned in in 93/94( 72-73)
as government reintroduced import and exchange control measures including ‘
exchange return guarantee’ .
Economy of Iran
Reconstruction & Stabilization Period: 1989- 1997( 68-76)
•
A move to introduce single currency in March/April 93 ( 72) backfired leading to a
rampant inflation in the following years forcing the government to drop the initiative.
The failure was due to insufficiency of foreign currency to back the initiative combined
with the hostile international relations.
•
In 1995/96 ( 1374) the inflation was at its highest close to 50% p.a. The average rate of
growth p.a for the period was 3.2, much lower the plan objective of 5.1 % while average
inflation was 25.1% . Liquidity rose 44.6 % p.a . Imports fell to $ 13.7 M p.a some 38%
lower than the first plan. Rate of growth in fixed investment was low 8%.
•
The departure from the plan was due to the falling GNP growth rates the , 14.2 % fall
in the fixed investment, the 35.2 % growth in the liquidity and the hefty increase of
58.6 % in market $ parity rate. Imports also fell to $ 11.8 M, being half of the previous
year.
Economy of Iran
Reconstruction & Stabilization Period: 1989- 1997( 68-76)
•
Instead a ‘stabilization’ approach was pursued in the 2nd Development Plan which began
with a one year delay in 95 ( 1374). The 2nd Development Plan aiming at 5.1 % GNP growth
covered 1995 to 2000 ( 1374- 1378) coinciding with the presidency of Hashemi ( up to
June 97) and Khatami ( 1997- 2005) . The plan pursued the objective of reconstruction of
war damages and economic liberalization but had a strategic change of heart leaving the
adjustment policies which were being blamed for the runaway inflation of 50% in 94/ 95.
The Plan aimed at
–
–
–
–
–
–
–
–
–
–
–
–
Social Justice
Increased productivity
Agriculture based sustainable development and growth with an average %.5.1 p.a Growth
Reducing oil dependency
Enhanced public participation
Balance between private, government and cooperative sectors
Strengthened defensive capacity
Emphasis on research , human capacity building and the role of law
Environment protection
Independent foreign policy pursing ‘integrity , reason and national higher interest”
Promotion of Islamic values
Structural reforms in executive- monitoring and judicial set ups
Economy of Iran: Oil and Growth
0.4
0.3
0.2
0.1
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
-0.4
1982
-0.3
1981
1980
-0.2
Annual GDP
Growth
-0.1
Growth in Oil
Exports
0
Economy of Iran
Reconstruction & Stabilization Period: 1989- 1997( 68-76)
•
During the 2nd Plan the Government had to grapple with currency constraint due to the
repayment of loans, difficulty in raising new loans and the fluctuations in the oil
revenues. The international political atmosphere was not favorable towards Iran
following apparent involvements in Lebanon and in certain assassinations in Europe
which brought up against accusations against the Iranians government and cooling
down of relations.
•
In 1998 ( 1377) Oil prices fell to its lowest adding to the pressure on the Iranian
economy. The government had to rely on deficit financing which led to inflationary
pressures .
•
Second Plan is a mixed period in terms of growth. While on average it registered % 5.7
but it slowed down almost an economic melt- down - particularly in the last two years
coinciding with the first two years of Khatami’s presidency.
Economy of Iran
•
2nd Development Plan suffered due to revenue constraints. The response of the planners
and the executive body was to:
–
work towards assured stable revenues as the oil price and revenues fluctuations during period
left its impact mostly on development projects . This lead to the idea of the “ Currency Saving
Account“.
–
increase tax revenues . Taxation received attention with streamlining and reform efforts to
enhance tax base and revenue.
–
Work towards export income through enhancing the export of non oil –items through export
guarantees and support
–
Mange –float the currency to reduce corruption and use prices as signals for economic actors
including exporters .
–
rethink the loan programme from short term commercial loans to longer term “ Counter
Purchase deals” in infrastructural initiatives such as oil and gas.
Economy of Iran
Reconstruction & Stabilization Period: 1989- 1997( 68-76)
•
The political setting during the ‘Reconstruction Period’ was a mixed package of relatively increased
economic security , increased private sector involvement and continued government interventions.
Political freedom however did not match the economic liberalizations. Some argue that this was a
Malaysian or Chinese oriented model of growth adopted to the Iranian setting. What was lacking
however was the foreign investment that never materialized due to the political and ideological mind
sets.
•
The period saw the continued influence of the ‘nomenclature “ of the previous period. The
nomenclature now included the revolutionary armed forces after the end of the war. It also
witnessed the rise of the a new entrepreneur class involved in export- imports, construction and in
professions activities. This ‘ Islamic white collars’ class of pragmatics tried to strengthen its political
power through the formation of Kargozoran Sazandegi.
•
The rich-poor gap appears to have widened during this period mostly due to inflation , the pace and
process of privatization and involvement in the development process. No concrete figure is at hand to
prove this except some Gini Coefficients and journalistic observations.
Economy of Iran
The Reformism Period 1997-2005
•
•
•
This period , the two terms presidency of Khatami, overlaps with two last years of the 2nd Plan , the
entire 3rd Plan and the first two years of the 4th Plan. Some argue that that the economic adjustment
strategy and polices enshrined in the 1st Plan and partially in the 2nd Plan were in part responsible for
the victory of reform- minded politicians in the presidential election of the 2005. Surely this victory
was also helped by the baby boomers of the mid 70’s who were voting now.
The period starts with the sharpest fall in oil prices in 1998 ( 77) to less than $15 per barrel and return
to the healthier rates of around $ 25 after 2000 (79) with a jerk around 2001 ( 80) due to OPEC cuts.
•
Politically the administration faced internal challenges from the more conservative figures in the
establishment as well the more radical reformists- at the rate of the claimed ’ one crisis for each 9 days’
constraining the implementation of some policies, while at the international level the atmosphere
appears to be more favorable, although this not translated into financial support.
•
The first two years of the period are essentially focused on crisis management dealing with the falling
oil prices , reduced imports and low growth rates- as well as the considerable social expectation released
in the election. The economic thinking of the new administration is however reflected in the 3rd Plan.
Economy of Iran
•
The Reformism Period 1997-2005
The 3rd Plan main objectives include :
–
Reform of the bureaucratic system, reducing government size ( by 5%) and involvements, increasing productivity
–
Reform in the state- owned companies through sale , merger , reorganization and dissolution increasing
productivity .
–
Enhancing competitiveness and reducing monopolies
–
Prompting social justice, social security and tragetization of subsidies
–
Prompting employment and job creation activities
–
Tax reforms through “ Tax Affairs Organization” and a ‘country –wide country-wide tax system’
–
Reforms in capital and money markets to enable capital mobilizations
–
Reforms in trade including currency system towards a single currency , trade liberalization , abolition of ‘export
deposit’
–
Reducing oil dependency through ‘ Currency Saving Account ”
–
Reforms in Budgeting
Economy of Iran
The Reformism Period 1997-2005
•
The 3rd Plan is a positive departure from the tradition as it attempts to
–
a) provide an ‘enabling environment’ for economic activities rather than listing defined projects
–
B) includes a large number of ‘ policies’ that are deemed as approved by the parliament thus
reducing the need to recourse to the Parliament for further approvals.
•
Plan placed a ceiling of $ total balance 25 M at end of Pan on foreign loans.
•
Another major feature is the intention to delegate more planning and monitoring authority
to the Ostans. The plan calls for Ostan – determined budgets to be close to 50% of the
total budget t the end of plan. Each Ostan is also required to form own Planning and
Monitoring Council.
•
The plan devotes considerable attention to environmental issues . It calls for forest
protection , public participation , EIA of all major projects , support to NGOs and pollution
reduction through financial and accounting incentives , emphasis on sustainable
development, combating air pollution in major cities , freeing coastal areas of the Caspian
Sea etc.
Economy of Iran
The Reformism Period 1997-2005
•
Currency Saving Account is yet another major initiative. CSA is introduced with the
objective of stabilizing the currency revenues- mostly oil revenues- that feed the economy.
The reason is the impact of fluctuations that have challenged planning efforts in Iran.
•
The plan provides for the balance of ‘additional revenues- that is revenues higher than
the pans estimates included in table in the Plan - to be deposited in a currency account
held with the Central bank of Iran.
•
The CSA can be used after the third year to cover :
–
–
–
•
Shortfalls in currency revenues, if any.
Production loans from the balance only after covering revenue shortfalls
Production and investment projects through a Rials Account that absorbs a part of the savings
CSA may not be used to cover ‘current ‘ expenditures except for revenue shortfalls , the
Plan specifies.
Economy of Iran
The Reformism Period 1997-2005
– Foreign Investment Promotion Act approved. This combined with the positive image
of the administration increased investment to $ 2.4 Milliard in 2002/2003 being 50%
of total foe the ten year period of 93-2003 .
– Export Currency Deposit was annulled and export process facilitated leading to an
increase of non oil exports to 6 Milliards in 03 . Non-tariff barriers to trade were
removed to enable WTO entry.
– Banking reforms carried out to allow private banks operation.
– Privatization accelerated although much less than the target. The Privatization
Organization was created in this period 2001 ( 1380) as a government company under
the Ministry Of Economy but did not do much till approval of the Article 44 as
Amended Act some six years later .
Economy of Iran
The Reformism Period 1997-2005
•
The 3rd Plan is assessed to have positively contributed to the development :
–
GNP grew 5.5 % p.a lower than the objective 6% , unemployment fell by .5%. Gini slightly
increased. Inflation on average stood at 13.8. Foreign currency reserves rose to $ 17 Milliards.
Foreign debt fell.
–
Currency Saving Account collected some $ 22 Milliards which were partially utilized to introduce
single currency , speed up development projects, provide currency loan to private – and even pay
salaries !
–
Single rate for currency and ‘managed floating’ applied. The currency market was very stable.
–
Tax rates reduced leading to increased tax income.
–
Levies- some 25- were ‘ unified’ to ease production and economic activities .
Economy of Iran
The Reformism Period 1997-2005
•
•
The 3rd Plan also faced challenges :
–
pressure on the Currency saving Account to be used for non- development purposes.
–
Increased imports leading to oil excluded trade deficit of $ 20 Billions in 2003.
–
Slow increase in exports of non- oil items
–
Low foreign investment
–
Liquidity growth that could lead to inflationary pressure
–
Insufficient job creation
–
Privatization as a means of government debt clearance leading to unclear ownership and management structures
Most of the challenges are rooted in the structure of the economy being a government
dominated , heavily regulated , oil dependent system that is uncertain how to deal with
the outside world. All in all the 3rd Plan was more of success than other plans .
Economy of Iran
The Reformism Period 1997-2005
•
The major economic beneficiaries of the period appear to be the ‘nomenclature’ and the
“Islamists white collars’ plus the professionals , entrepreneurs and the import- export
traders. Western-influenced mannerism and the conspicuous consumption of the newly
rich of the Construction and Reform Periods do not seem to have had the approval of
many who did not do well during the period and/or felt that the ‘values of the revolution’
were being tramped upon.
•
The presidential election of the 2005 ( 1384) ushered in a new administration ‘seeking
social justice“ . The year before a conservatives dominated parliament had been elected .
The political , economic and security apparatuses were now in full control of ‘
principalists’ or ‘fundamentalists’ that were united in their opposition to the ideas and
policies of the reformist administration which they considered ‘liberal and western
oriented ‘ favouring the rich. It appeared that the setting was fully ready for
implementation of the electoral agenda of the new president whose campaign slogans
were promising a rerun to the early days of the revolutionary values of justice and people
power.
Economy of Iran
The Reformism Period 1997-2005
•
The political scenery underwent major changes during the period. Initially there was a “
Political Spring” with press freedom, emerging parties and political groups and reduced
social restrictions.
•
On foreign relations the administration promoted the concept of “ the Dialogue of
Civilization” and sought to improve the international standing and relations of the
country. Reaction of the conservative and fundamentalist forces was hesitant at the
beginning but turned stronger and effective as the time went by.
•
By the end of the period the administration appeared handicapped and struggling in face
of the vehement conservatism . It therefore increasingly turned its attention to the
economic issues rather than political and social issues. This change of heart did not go well
with those seeking fast social and political changes including the earlier allies of the
President . The administration seemed to be caught between the rock and headstone of
conservatism and radicalism.
Economy of Iran
The 20 Years Vision Document
•
The 4th Plan is based on the I.R. Iran 20 Year Vision document developed by the High
Council of Expediency and approved by the leader in 2003.
•
The Vision document sets out the longer terms goals and objectives of the country for the
next 20 years and charts out the main strategies and policies to achieve these goals and
objectives.
•
Iran is seen in 20 years to be a ‘ developed country with the first regional ranking in
economy, science and technology with Islamic and revolutionary identity , inspiring the
Islamic world enjoying constructive and effective international interactions” . This rather
ambitious objective requires a fast rate of GNP growth of more than 8% p.a , it is
estimated.
Economy of Iran
Economic Changes Initiative
Economy of Iran
The ‘Justice Seeking’ Period : 2005-2013
•
This period covers two terms presidency of Ahmadinejad and coincides with the 4th Plan and part of the
5th Plan. Although the 4th was approved in mid 2004 during Khatami’s time but it was severely
criticized and by the new conservative dominated parliament and revised accordingly .
•
The Parliament approved a bill in 2005 (Esfand 83) to ban any price increase in basic commodities and
services including fuel , water, electricity, phone , post . This in essence put an end to the gradual phase
out of subsidies that the Khatami administration had begun to do. Arguably this move by the
parliament was responsible for the price jumps of the later years when the price increase became
inevitable to cover accumulated losses .
•
The new administration in effect dropped the plan and planning , some might argue . While this may
not be entirely the case it is clear that new administration has had different ideas and methods to run
the country.
•
Several initiatives not originally included in the 4th Plan form the linchpin of the economics of the new
administration including “Edalt Shares” ; “Targeted Subsidies’ , “ Value Added Tax” , ‘Projects approved
at Ostan Level during Ostan Visits ” , “ Quick Return Firms” , “ Mehr Fund “, ‘ Obligatory Bank Loans’ etc
etc. These are part of a package named “ Economic Changes Initiative’.
Economy of Iran
The ‘Justice Seeking’ Period : 2005-2013 continued
•
In 2005 the new President dissolved and reorganized the Plan and Budget Organization which till then
was the authority responsible for the implementation of the development Plans. The PBO was merged
with the Recruitment Organization and reorganized as the Office of Vice President for Management $
Strategic Supervision (MSS) . This meant that the planning efforts were now directly under the
President and no longer answerable to the Parliament except at the time of the plan approval .
•
He also dissolved a host of other high level councils tasked with coordination objectives including the
High Council of Money and Credit. Instead the decision making was delegated to ‘Ad- hoc Work Groups’
under direct command of the President. Similar structures were created at the Ostan level .
•
The initiative of ‘touring government’ also put a dent in the planning process . This meant the President
and his cabinet continuously toured the country visiting Ostans where the issues were discussed and a
considerable number of “ cabinet approvals’ were made. These approvals ranged from large projects to
smaller initiatives , some already included in the 4th Plan and some ‘spontaneously’ requested ,
suggested and approved . The critics claim that a large number of the projects did not have appropriate
cost benefit appraisals, nor earmarked budgets. It is not clear what portion of these were implemented.
Economy of Iran
•
The ‘Justice Seeking’ Period : 2005-2013 continued
The economic objectives of the 4th Plan were :
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Stable , fast and continuous GNP growth
Productive employment creation
National and international competitiveness
Knowledge , technology and human resources based diversified economy
Increased productivity
Support to entrepreneurial , innovative and research based initiatives
Food security and self –sufficiency
Harnessing inflation
Housing support to the low income groups
Water management
Converting oil and gas resources to productive resources
Rural development
Support to private and cooperative sectors and to privatization
Promotion of capital and money markets
Environment protection
Economy of Iran
The ‘Justice Seeking’ Period : 2005-2013 continued
•
The major social and economic objectives of the 4th Plan which the new administration
inherited included:
–
Reform in the education system to improve its efficiency and to produce human resources for
meeting the Vision’s goals ; strengthening religious democratic foundations; promotion of social
justice, social security ; support to family , women and youth
–
Legal , judicial and administrative enabling structures and environment ; enhanced public
participation and cooperation
–
Spatial planning to achieve national integrity, social justice , environment protecting, economic
efficiency, Islamic and Iranian identity
–
Strengthening defense and security capacity
–
Stability in foreign policy based on integrity, higher interests and reason ; economic cooperation
with the Islamic world and the regional
Economy of Iran
National Development Fund (NDF)
•
NDF was formed in 2011 ( 1390) pursuant to the provisions of the Article 84 of the 5th
Plan with the major objective of ‘converting part of the oil and gas resources to
productive , sustainable inter- generational capital.
•
it is essentially an evolved Currency Saving Account (CSA) of the 3rd Plan with greater
funds, a broader terms of reference and a different implementation structure that gives
more control to the President .
•
NDF sources of funding include % 20 to 35% of the oil and gas revenues, own operational
profit, foreign borrowing and balance of the CSA . According to the CEO of the fund it is
amongst the top 20 funds of its kind at the global level .
•
NFD is to utilize its resources towards ‘non- governmental production and export loans “
and ‘foreign investment ‘. Resources can also be used to support government budget if the
‘actual oil and gas revenues’ fall below the ‘earmarked’ figures provided this is not to cover
‘current expenditure’ . Funds can also be used for ‘ cases foreseen in the law’.
Economy of Iran
NFD continued
•
The implementation structure includes a Trustees Board , an Executive Board a Chair of the
Executive Board and a Supervisory Board.
•
The Trustees Board- roughly the shareholders council- is the highest decision making body
setting directions and policies and monitoring operations. The TB is composed of the
President, President Management Deputy , two ministers of oil and economy, chair of the
Central Bank of Iran , two Members of the Parliament , the General Prosecutor and non
voting representatives of the Chamber of Commerce and the Cooperatives Chamber. This
gives an automatic 4 to 3 voting a majority to the administration , i.e. the President .
•
The Executive Board- roughly the board of directors- is a five member body nominated by
the TB and appointed by the President . It in turn appoints the Chair- roughly the
management director- who is responsible for conducting the business.
•
The Supervisory Body is composed of the representatives of the National Auditing Bureau ,
National Accounting Bureau and the National Investigation Organization .
Economy of Iran
NFD continued
•
In a questionable decision in 2012 (early 1391) the Trustees Board delegated all its
power to Executive Board which implied that the Parliament and the Central Bank ad
the Judiciary had no say in running the fund . In November same year the Parliament
reversed the decision and changed the composition of the TB to exclude the cabinet
ministers.
•
NFD operation is to be conducted directly and/or through executing ‘correspondent
banks ’ based on agreed contracts. While not very clear on the ‘currency’ of operation it
may be interpreted that the fund should only operate on the basis of its currency of
earning that is USD.
•
In practice the fund’s resources , estimated at USD 42 in November 2012- and
USD54Billion in Sept2013 - have been mostly utilized in Rials and for support to
government projects and to shore up the currency rate.
•
According to the CEO a total of $ 17.25( 32 Billions in 2013) Billions has been ‘locked ‘ up
to end of 2012 for a number of projects including two major oil and gas projects, 25
petrochemical projects, 13 still mills and 22 cement factories.
Economy of Iran
NFD continued
•
NFD activities in its first year has been impacted by the infamous Rials 3000 Billions
banking scandal which led to a considerable slow down in banking activities. This was a
blessing in disguise leading to accumulation of funds in the NFD.
•
The funds investment activities abroad have been negligible and its national activities are
restrained by the need to go through correspondent banks.
•
In the second half of 2012 the Fund resources have been used to finance the import of
goods through the ‘Transactional Currency Room”. In other words the Fund is selling its
resources in currency converting them to rails which the are used to fund national projects
mostly initialed by the government but executed by private and/or semi governmental
bodies, e.g Mehr Housing .
•
While too early to assess the NFD it might be possible to suggest that it appears to have
gone astray from its original goals due to the ‘special’ political and economic conditions of
the country .
Economy of Iran
Privatization
•
The Privatization Organization, created in 2001( 1380) was tasked to
– Develop strategy to promote public participation in the economy
– Develop an enabling program foe the private sector
– Act as a representative agency to sell the state owned companies
– Price , supply and sell state owned companies
– Monitor implementation
•
A ‘High Board of Disposition “ was created to draw up a list of companies for sale and determine the
procedure . Disposition would be carried out though a ) tender , b) negotiation, c ) stock exchange and
d) Trans- Stock Exchange( Farbors)
•
State- owned companies were to be clustered under a number of ‘Mother-Specialized Companies ‘
which would act as the shareholders for the sate owned companies and would enter into arrangements
with the Privatization Organization to dispose of the companies in their portfolio.
•
Success was very limited in the first four years amounting to only Rials 764 Bl. The failure was attributed
to state -owned companies resistance to change ownership, inadequate private sector funding and the
political setting. During this time work began in the High Council of Expediency on a more
comprehensive legislation to wards privatization.
Economy of Iran
Article 44 General Policies Act (GPA)
•
The Article 44 of the Constitution provides for considerable government involvement in the economy.
The High Council of Expediency , which constitutionally could not modify the Article itself , crafted a set
of “general policies’ for the Article which is essence amount to a new interpretation of it , which if
implemented , can provide for a larger share of the private and cooperative sector in the economy and
a much slimmer and efficient state sector .
•
GPA took five years to be crafted and after being reviewed and modified by the Leader and partially
taking into account the views of the Ahmadinejad administration was communicated for
implementation in 2008 ( 1387) .
•
The GPA aims was to increase production and productivity – and justice- though strengthening the
private and cooperative sectors. This was to be done through
–
–
–
–
–
transfer of ownership and management of state- owned companies to the private-including the non governmental
public bodies - and cooperative sectors
De-regularization and facilitating investment activities inter alia through Investment Task Forces at Ostan level
Equality between state , private and cooperative sectors in terms of support and advantages
Increasing the market share of the cooperative sector to at least 25 %
Limiting government to governance tasks and duties and targeted economic operational activities .
Group 1: No govt
Group 2: 20% govt share
Group 3: exclusive to govt
Group 3 : communication mother companies , postal basic network , ‘secret’ productions, oil
and gas companies and mines, CBI and specialized state banks, Central Insurance
Organization and company , major power network, Aviation Organization, Ports and Maritime
Organization, dams and major irrigation networks , radio & TV
Group 2 : Except for Group 3 to include major and mother industries , major mines, banks,
insurance , power production, communication, aviation , roads and transport,
Group 1 : The balance activities
Economy of Iran
GPA continued
•
The GPA sought all dispositions to be completed by 2014/5, that is end of 1393.
•
Economic activities were divided into three broadly defined Groups namely
–
–
–
•
Group 3 : communication mother companies , postal basic network , ‘secret’ productions, oil and gas companies
and mines, CBI and specialized state banks, Central Insurance Organization and company , major power network,
Aviation Organization, Ports and Maritime Organization, dams and major irrigation networks , radio & TV
–
Group 2 : Except for Group 3 to include major and mother industries , major mines, banks, insurance , power
production, communication, aviation , roads and transport,
Group 1 : The balance activities
The state was given the exclusive right of ownership and investment in the group 3. It was
however barred from ownership, management , partnership and investment in Group 1
and was allowed to have only up to % 20 in Group 2. Furthermore the state was to dispose
off and transfer to the private , non governmental public and cooperative sectors all its
companies in Group 1 and 80% of Group 2 by the end of the 4th Plan .
Economy of Iran
GPA continued
•
Important exemption were made to this general rule:
–
–
–
–
–
–
The state could procure basic goods.
Health , education and cultural activities were excluded.
Roads and railroads were excluded
Less developed regions were excluded.
Activities permitted by the parliament were excluded.
A ceiling of 5% and 10% were established for legal and real persons ownership of banks shares.
•
The privatization process was similar to what had been practiced before , i.e. a) the list of
companies to be disposed of was to be developed by the Ministry of Economy on the
basis of information provided byline ministries and bodies, b) The Privatization
Organization was to arrange for transfer through tender, negotiation and the stock
exchange mechanism.
•
A major change was to have 40% of the Group 2 to be transferred to the ‘owners’ of the
‘Justice Shares” at a 50% discount and installments through the Investment Companies
formed at the Ostan Level .
Economy of Iran
GPA continued
•
To support and fund the potential buyers the legislation called for mobilization of at least
$ 10 Billions a year credit from abroad plus % 40 of the balance of the Currency Saving
Account to be provided to the non- governmental sector buyers.
•
Income generated from the transfers were to be utilized towards a host of objectives
including cooperatives ( % 30), poverty alleviation, development in less developed regions,
completion of unfinished projects and getting the companies readied for sale.
•
A complex implementation structure was set up including a High Executive Council , a
Disposition Board, a Competition Council and National Centre for Competition.
•
The High Executive Council was to define strategies and policies and monitor. The
Disposition Board - including two voting ministers and non-voting MPs and others-was to
determine what was adequate to transfer at what value and how to sell or transfer.
•
The Competition Council including MPs, judges , economists, businessmen etc was to
promote completion and determine violations in implementation leading to cancellation of
deals.
Economy of Iran
Privatization
Figures in Billion Rials
Year
Transfer
Private sector
Justice Share
84
764
764
85
25390
3655
21735
86
249937
45018
177437
87
72256
41016
88
321998
119922
89
55436
55436
90
245329
48467
91
8826
8826
Total
979935
323105
Debt
27482
31240
142936
59140
196861
342108
314724
Economy of Iran
350000
300000
Series1
Series2
Total
250000
Private Sector
200000
150000
Series3
100000
Series4
Debt
Edalat
50000
0
84
85
86
87
88
89
90
91
92
Economy of Iran
Shares of Private Sector, Justice Shares and Debt Settlement
1
2
32%
3
33%
35%
Economy of Iran
GPA: Privatization continued
•
Privatization has begun but has remained slow and insignificant. The objectives to
complete it by 2014/5 is not achievable.
•
De-regularization , formation of professional guilds and grouping , investment guidelines,
resource mobilization has not been carried out.
•
Inter -governmental transfers and intra -organizational sales appear to be packaged as
privatization.
Economy of Iran
GPA: Privatization continued
•
Funding the Justice Shares initiative is not real privatization and is adding to the control
and intervention of the state.
•
The disposition and the transfer mechanisms appear to have led to criticism regarding the
pricing of the state companies , post- transfer restructuring and operation and
transactions fairness.
•
In late 1391 ‘the private sector’ that is the Chamber of Commerce asked for privatization
to stop till economic conditions returned to normality !
‫‪Economy of Iran‬‬
‫‪The ‘Edalat “ Shares‬‬
‫‪Objectives of Edalat share include :‬‬
‫‪Equitable distribution of national wealth ownership‬‬
‫‪Households self- sufficiency and reduction on dependency on govt.‬‬
‫‪Increased saving‬‬
‫‪Reduction in govt size and private sector enhancement‬‬
‫‪Employment enhancement‬‬
‫‪Effectiveness, efficiency and competiveness in govt activities‬‬
‫‬‫‬‫‬‫‬‫‬‫‬‫‬‫‬‫‬‫‪-‬‬
‫توزیع متعادل ثروت ملی و گسترش مالکیت در سطح عموم ‪ ،‬به منظور تأمین عدالت اجتماعی ‪.‬‬
‫متکی به خود نمودن خانواده های نیازمند و کاهش وابستگی آنان به کمکهای دولت از طریق نهادهای حمایتی‪.‬‬
‫ایجاد درآمد دراز مدت برای خانواده های کم درآمد ‪.‬‬
‫تشویق به پس انداز و سرمایه گذاری منجر به بهبود درآمد خانوارها ‪.‬‬
‫کاهش اندازه بخش دولتی و افزایش سهم بخش خصوصی و تعاونی در اقتصاد کشور از طریق واگذاری سهام شرکت های دولتی ‪.‬‬
‫ارتقاء کارایی بنگاههای اقتصادی و بهره وری منابع اقتصادی ‪ ،‬انسانی و فناوری ‪.‬‬
‫افزایش رقابت پذیری در اقتصاد ملی و شتاب بخشیدن به رشد آن ‪.‬‬
‫افزایش سطح عمومی اشتغال ‪.‬‬
‫کاستن از بار مسئولیت ومدیریت دولت در تصدی فعالیتهای اقتصادی ‪.‬‬
‫کار آمد ترکردن دولت در عرصه وظایف حاکمیتی‬
‫–‬
‫–‬
‫–‬
‫–‬
‫–‬
‫–‬
‫•‬
Economy of Iran
Edalat Shares continued
•
This is an initiative to ‘subsidize’ sale and/or transfer of ‘part of selected state owned’ companies to
‘the lower income groups’ to promote ‘economic justice’.
•
The ‘Lower income groups’ are the six population decades- 42 millions- with low income groups that
would need to be ‘identified’ and classified . So far govt and municipalities employees and retirees,
farmers and nomads, all those being assisted by revolutionary foundations , unemployed war veterans
and former POW s, women workers providing for their families , reporters, carpet weavers, construction
workers , taxi and bus drivers , those suffering from ‘special diseases ‘, those seeking assistance and a
few other groups are being covered.
•
‘Subsidized sale ‘ means a special deal for the lower two income decades including free transfer of
50% of shares prices ten years repayment for the balance 50% out of the earned profits. For the other
4 income groups the price is to be paid in ten years out of the earned profits .
•
‘ Part of state owned companies “ means up to %40 of ‘profitable’ Group 1 of GPA companies e.g.
Communication Co, Homa, IRISL, Bank Tejarat, Bank Saderat, Iran Khodro et- and up to 80% of other
state owned ‘profitable’ companies. Values of the companies to be determined through stock exchange
and/ or tender.
Economy of Iran
Economy of Iran
Edalat Shares continued
•
Implementation structure includes :
–
Central Distribution HQ composed of a number of govt ministers, Martyrs Foundation, Imam
Committee, Basij, Social Security Organization, Privatization Organization as the Secretariat ,
Registration Organization
–
Ostan Distribution HQ with similar composition
–
Edalat Shares Agent Company- this was later dissolved.
–
Ostan Investment Companies
–
Sharestan Cooperatives
–
Shareholders
Economy of Iran
Edalat Shares continued
•
Implementation process includes
–
Transfer of the selected companies shares to the CDHQ by the Privatization Organization
–
Defining an aggregate Edalat Share apparently based on the portfolio of the value and weight of
the transferred shares. This was to be done by the dissolved Agent Company.
–
Data collection on the potential eligible shares recipients. This is done by the Ostan cooperatives
and Ostan and Central HQ .
–
Central HQ distributes Edalat Shares to the Ostan HQ which in turn distribute the shares to
Cooperatives and to the selected shareholders.
–
Cooperatives represent the shareholders . Cooperatives are therefore the Shareholders
Associations. Ostan Investment Companies represent the cooperatives . Central HQ represent the
OICs and hence the Cooperatives and the shareholders!
Economy of Iran
Edalat Shares continued
•
In practice close to 42 millions have received each a Rials 5000,000 Edalat Share . These are ‘named’
and not tradable yet .
•
It is not clear how this figure has been calculated and how it would be modified as a) new companies
are added to the Edalat portfolio , b) new eligible recipient are identified and c) value of companies
vary.
•
The shareholders received a one time ‘profit ‘ of Rials 800000 in May 2005 ( Ordibehesht 1388 ) . It is
not clear how this was calculated, why it a stopped and when it would be resumed.
•
Identification of eligible recipients has proven cumbersome and open to question. An example is the
recent dispute over the eligibility of construction workers.
•
The Edalat shares have been presented as privatization but the reality is different. Shareholders have no
information on and any say in the management of companies they ‘ own’ . This is not real
privatization.
Economy of Iran
Edalat Shares continued
•
Govt has certainly become larger as result of the initiative . Many layers of bureaucratic structures have
been created to distribute the shares without much influence of pricing and monitoring.
•
The impact of the initiative on wealth distribution and increased saving does appear to be meaningful.
•
The initiative has been created in haste and while welcomed by the poor at start up appears to have lost
its appeal due to uncertainty regarding its profit and value.
•
In the event that the shares become tradable it is expected that most holders would sell off at low
prices . This is not what the designers of the initiative had in mind.
•
The initiative needs to be thoroughly assessed to improve transparency , efficiency and value- if at all to
be continued.
Economy of Iran
Quick Return Small Firms (QRSF)
•
An initiative that began in the first year of Ahmadinejad presidency with the goal of expanding small
firms that reach break- even point and profit making quickly. It continued for almost four years before
it lost its appeal and was practically abandoned.
•
QRSF are firms with a maximum of 50 employees that can make profit in two yeas and return their
loans in three years with a grace period of one year.
•
The objective of the QRSF was essentially to create jobs quickly . It sough to produce 3 million jobs at a
cost of $ 47 Billions in four years.
•
The stated objectives include
–
–
–
–
–
–
Equitable distribution of resources amongst regions , in particular to the deprived areas.
Equitable distribution of resources amongst people , in particular to the more deprived.
In crease in non- oil production and export
Enhancing economic activities
Enhancing bank loan effectiveness
Prompting entrepreneurship and job creation
Economy of Iran
Quick Return Small Firms (QRSF) continued
•
State banks were obligated to earmark up to %50 of their credit facilities to the QRSFs . Banks were
required to adjust loans to larger firms to allow for the % 50 earmarking .
•
Loans limit was set at Rials 10,000,000 for general projects and Rials 30,000, 000 for food projects
•
Applicants were encouraged to submit applications, together with economic feasibility studies, to the
Employment Work Groups at Ostan level for approval. Application approved by the Work Groups were
sent to the banks for funding.
•
Banks were obliged to extend loans at subsidized rates . Subsidy was dependent on the type of activities
(up to 54.5 for agriculture) , region ( up to % 4 for highly deprived areas) and return time ( %1 or each
ten percent faster than schedule completion .
•
Priority was provided for war veterans, POWs, martyrs families.
•
Self employment projects were also covered.
Economy of Iran
Quick Return Small Firms (QRSF) continued
Much praised at the start up the initiative appears to have run into major challenges. Information on
the outcome are scarce and biased but it may be summed up as :
–
Some 714, 000 applications in the first two years were processed with 433,000 approved for
funding.
–
Some Rials 320 ,000 Billion ( app $ 32 Billions ) have been loaned.
–
Job creation has been much lower than the target – estimates vary from less than 200000 to
900000 . Jobs not sustained in many projects.
–
Projects have ‘deviated’ from stated objectives. Deviation range from %4, claimed by govt, to %30
by Inspector General , to % 70 by critics.
–
The cost per- job created is amazingly high : some $ 50,000 per- job on average
–
The initiative has been blamed for increasing the ‘liquidity ‘ and hence the inflation.
–
The initiative has considerably increased the uncollectable debt of the borrowers to the banking
system.
Economy of Iran
Economy of Iran
Economy of Iran
Targeted Subsides
•
Subsidies, direct and indirect, hidden or transparent, have been a part and parcel of the Iranian economy
and major burden on the govt budgets since the start of ‘modernization.‘ No reliable estimate of the
magnitude of the subsidies is at hand but some put it around 1/3 to 1/4 of the annual budgets.
•
Subsidies have rendered the Iranian economy hugely energy inefficient, have biased in favour of cities
and the rich vis-à-vis the villages and the poor and have reduced incentives for being competitive.
•
Most if not all economist agree that the subsidies are a second best and need to be phased out . The
World Bank and the liberals have been a champion of the cause of cutting out the subsidies
everywhere.
•
Attempts have been made during Rafsanjani and Khatami administration towards this end without
much impact and always opposed by the conservatives- Price Stabilization Act is one such opposition .
•
Ahmadiejad administration, enjoying the support of all major centers of power in the country, in early
2009 ( winter 87) submitted the Targeted Subsides Act to the Parliament. It was approved a year later (
winter 88) after much debate. The implementation however began only almost a year later in
December 2010 ( Azar 89)
•
In June 2007 ( Tir 2006) petrol was rationed in n effort to curb the consumption and a prelude to the
TSA .
Economy of Iran
Targeted Subsides
•
The debate in the parliament focused on the pace and magnitude of the phase out and the degree of
control by the President . He wanted a fast programme of three years to cut out all energy subsidieswhich implied a considerable ‘earned revenue’ which would allow for large hand out. He also wanted
total control . Parliament , concerned with the resulting inflationary pressures – as well as loss of its
own influence- was pushing for a slower pace and for more control mechanisms.
•
The Parliament had the upper hand in the debate and the approved Act called for the phase out in five
years and a smaller than requested ‘ earned revenue- an annual earned revenue of Tomans 20 ,000
Billions. In practice this proved merely an academic debate. The President delayed the implementation
by one year , sharply cut the subsidies and/or increased the prices to enable a larger hand out.
•
The Act called for phase out of subsidies to 14 goods and services:
–
–
–
–
Petrol , kerosene etc up to % 90 Persian Gulf FOB by end of 5th Plan
Gas to % 75 of export prices by end of 5th Plan
Water and Power to ‘ at cost prices’ by end of 5th Plan
Wheat, rice , milk , cooking oil, sugar, post , air- tickets and train ticket to at cost prices by end of
5th Plan
Economy of Iran
Targeted Subsides
•
The ‘ earned revenue’ , that is the estimated difference between the pre and post sale of the
subsidized items was to be deposited in a special account in the Central bank of Iran.
•
The earned revenue was to be used for three major recipient groups , i.e. households, industry ad the
government in form of targeted subsidies and assistance to the households ( % 50), the industry ( %
30) and to the government ( % 20) . The administration was given a leeway of % 10 inter- groups transfer.
•
The support to the households was to cover ‘all household depending on their income’. The support
could be in form of direct hand outs, housing support, enabling activities and social security.
•
The support to industry- and to govt - was towards energy optimization , modification of technology and
grants to cover financial losses attributed to energy price rise .
•
The administration was required to reflect the earned revenue and the support to the three groups in its
annual budgets.
•
The administration was allowed to create anew set up the Targeted Subsidies Organization (TSO) to
carry out the task provided it recruited no new personnel.
Economy of Iran
Targeted Subsides
•
To identify the eligibles a national call was issued. The applicants were required to provide information
on income and property including car ownership. A total of 75 Millions up to 2012 registered . Which
apparently included the Iranian living out of the country.
•
The applicants were grouped in 3 Income Clusters with the apparent goal of providing different direct
subsidies but the idea was dropped in face of criticism. The administration decided to provide
subsidies to all eligible applicants.
•
Energy prices were increased considerably: petrol almost 7 times and gas 9 times and comparable
increase for other energy items. Certain subsidized rations were however foreseen to assist those with
low consumption rates.
•
A monthly rate of Toman 45000 direct subsidy was decided to be paid to the heads of families. The
rate was later increased to around T50,000 to allow for bread subsidy. The rate was far above what the
Parliament had in mind . Payment of this rate to the 75 millions eligible implied and ‘earned revenue’
of more than twice the parliament approved rate.
•
The administration ‘banned’ any price increase for an undefined period. The ban meant heavy fines
and other penalties for producers who would hike up prices.
Economy of Iran
Targeted Subsides
•
In its first year the initiative was considered as a success: Energy consumption rates fell up to %20, the
illicit traffic of oil products appeared to stop, the inflation did not soar as much as much feared and
the lower income large and rural families seemed content to receive fairly large monthly hand outs.
•
The challenges however emerged in the second year :
–
It became clear that the ‘earned revenues’ were much smaller than the administration had hoped
for. Consequently the administration opted for not paying the subsidies to the industry and to
the governmental bodies. It also did not pay for health and for unemployment insurance which
were required by the Act
–
Faced with the budgetary constraints the administration began ‘borrowing’ from the CBI and
utilizing fund s earmarked for other purposes to fund the monthly hand outs. Up to Nov 2012 the
Subsidy Organization accumulated debt to the CBI and the Treasury amounted to Tomans 14 000
Billions and each month an additional Tomans 700 Billions is created.
–
The price controls could not hold on as energy bills pushed up cots of production feeding into the
inflationary pressures.
–
Consumption levels began to creep up to pre Act levels . This was in part due to the consumption
culture and in part attributable to the unchanged relative price structures.
Economy of Iran
Targeted Subsides
•
The inflation, inflamed by the sanctions imposed on the country, practically killed the initiative when
it led to the huge depreciation in Rials value in mid 2012. After two years the energy prices in hard
currency returned to their pre- Act levels. Consummation also retuned to its pre Act level and the illicit
traffic of oil products re – emerged.
•
What is left of the first phase of the TSA is the monthly hand- outs which now have little purchasing
power. The objective of social justice seems far way while millions have now become partly dependent
on the hand outs. The country has inherited a large bureaucratic structure that is engaged in a not much
productive activity.
•
The Targeted Subsidies Act is now in suspense. The Parliament is adamant that a second phase
involving major price hikes would only add to the inflationary pressures . The Parliament is also
concerned that the Administration may use the resulting ‘ increased’ hand outs would help the
electoral chances of the President team. The administration on the other hand wishers to complete the
job – and gain more popularity.
•
The TSA was a bold move supported by all that was poorly implemented. The information and
analytical background was inadequate leading to the initial over- estimation of the ‘earned revenues”.
The administration violated the approved Act by not sticking to the provisions concerning the target
groups, pace and processes. In fairness the administration also had to grapple with the impacts of the
sanctions which only magnified its own deeds.
Economy of Iran
Mehr Housing
•
Began in 2007 ( mid 196) with the aim of proving affordable housing to targeted groups . The aim was
to build 2,600,000 units of average sq 70 till end of Ahmadinejad administration ,i.e. June 2013 .
•
Houses were to be constructed in the satellite towns of major cities ( 1 million plus), cities and villages
with lion share going to the urban areas.
•
The eligibles were to be the married couples who owned no land or house and resided in the target city
for at least five years . Single women head of families , handicapped and academic elite also were
eligible.
•
Land was to be provided free of charge by the government in form of 90 years leasehold. Government
also had the central role of applications verification; liaison and coordination and monitoring as well as
providing subsidized loans to the buyers and constructors.
•
The selected applicants were to pay Tomans 5 to 10 Millions to designated accounts . The banking
system was obliged to provide Tomans 20 to 25 Millions for each unit as a loan to the constructors. This
loan was to be ‘transferred ‘ to the buyers upon completion of construction period. Loans were hevily
subsidized , i.e %9 for Tehran, % 7 for Ostans capitals and % 40 for other cased
•
Construction period was to be one year .Each sq m was to cost around Tomans 300,000.
Economy of Iran
Mehr Housing
•
During the second term of Ahmanejad presidency the Mehr Housing initiative gathered considerable
momentum. Up to end of 2012 some 1,5 millions units were under construction and/or delivered.
•
The administration considers the initiative its outstanding success having resulted in housing for tens of
thousands in a relatively short time at low cost .
•
The critics however strongly disagree reasoning :
–
The location of the supplied housing does not match the demand with excess housing in smaller
cities and little impact on the market in the larger cities.
–
The supplied land in some instances has been in the environmentally protected or sensitive areas,
in disaster prone or far away from centers of economic activities
–
The built housing lack adequate infra structure including water, gas , education and recruitment
services and transportation.
Economy of Iran
Mehr Housing
•
–
The legal issue of ownership is yet to be defined. The state has leasehold but the applicants are
not assured of ownership and transaction rights
–
Cost and prices have due to inflationary pressures and inadequate initial cost estimates have
considerably increased . Constructers have threatened to walk out while applicants bitterly
complain regarding the cost vis-a-vis quality.
–
The population composition of the large complexes is not in synch with desires of the applicants .
–
Quality of built units is not always up to standards.
–
The funding of the initiative has burdened the banking system and has forced government to seek
resources from the National Development Fund.
–
Government has become engaged in activities that are the domain of the private sector.
It is early to make a reasonable judgment on the pros and cons of the initiative but it is clear that good
intentions have been always accompanied with through thinking.
Economy of Iran
Economy of Iran
Tax Reforms
•
Reducing the dependence of the development plans and annual budgets on oil revenue through increase
in the tax revenue has always been an aim of various plans and government policies. Ahmadinejad
administration was more successful than his predecessors to address this important issue.
•
The idea of Value Added Tax (VAT) was first raised by the Mosavi government in 1987 ( 1366) but was
withdrawn when the need for price stability became prominent. In 1991 ( 1370) The World Bank advised
Iran to introduce the VAT . Six years later a comprehensive study was carried out leading to a Bill
presented to the Parliament in 2000 ( 1381). This was approved in ( 2007) 1386 by the Parliament a year
later by the Council of the Guardians. In other words it took some 20 years from the idea to and
approved act.
•
Value Added Act calls for gradual increase in VAT and its expansion to various goods and services. In its
first years it led to strikes by gold and textile and iron traders mostly due to unclear interpretation of
the law and it likely impact on earnings. The VAT seems to have been embraced by the business
community although several double counting are feeding into price increases.
•
The administration in late 2012 has begun negotiation with the parliament to introduce a new tax bill
that would target wealth and total income as tax base in the hope of increasing oil revenues in lieu of
the falling oil revenues. T is unlikely that the bill would see a quick pass.
Economy of Iran
The ‘Justice Seeking’ Period : End Outcome
•
Although the period is yet to complete one might draw certain conclusion regarding the economic
developments :
–
The 1404 Vision document, 4th Plan and the 5th plan were effectively abandoned . Even the
annual budgets , submitted with delay to the Parliament using controversial format, were not
followed.
–
Unprecedented oil revenues in the first six years are a major feature . It has been suggested that
the oil revenues of the period , some $ 600 , equal the total oil revenues from 1905 thru 2005.
While this is an overstatement as the Dollar purchasing power has markedly fallen during the
century it nevertheless points to the fact that the faced had plenty to spend.
–
No stones has remained unturned and bold initiatives have been introduced dealing with a
plethora of major economic issues ranging from taxes to subsidies to oil revenues. These initiatives
represent a peculiar mix of liberal and World Bank supported policies such as subsides
elimination to socialist ideas such as Edalat shares.
–
The ultimate outcome is not at par with the resources spent . Most of the initiatives have run into
difficulties due to mixture of poor design, inadequate implementing and monitoring structures,
wrong timing and external factors.
Economy of Iran
The ‘Justice Seeking’ Period : End Outcome
•
It seemed that the administration never wished to hear out the others. One example is the letters by a
group of prominent economists on the likely outcome of the initiatives that the administration
practically ignored.
•
Government involvement, size and budget inflated during the period. Privatization was very limited,
the government control over the banks including the Central Bank increased.
•
The administration whished to portray itself as the servant of and answerable only to the people. This
meant by-passing and/or de-structuring the normal channels of decision making and monitoring. This
led to concentration of authority in the executive force and in the person of the President.
•
The ‘ nomenclature ‘ that emerged after the revolution strengthened its ranks through recruitment of
high level officials of the new administration and the novo rich mostly those in contact with and close to
the administration- including the security and disciplinary and armed forces .
Economy of Iran
The ‘Justice Seeking’ Period : End Outcome
•
The economic thinking of the period is a mixture of messianic, liberal , Keynesian , socialist
and engineering ideas and approaches. “Expenditure ‘ was seen to be the panacea during
the period. Throwing money at economic challenges was the ultimate solution.
•
Unprecedented number of projects , many without much appraisal and assessment were
approved and started- and abandoned. The country turned into a big ‘workshop’, to quote
the President but it was never clear that these many projects made economic sense.
•
The administration who claimed to be the ‘cleanest’ in history was mired in a number of
corruption cases in the last years of the period. The administration never owned the
corruption cases.
•
The ‘people’ or more precisely the lower income groups that the administration wished to
speak and govern on whose behalf did not gain much in terms of representation as NGOs,
guilds, associations and parties significantly lost ground during this period .
Economy of Iran
The ‘Justice Seeking’ Period : End Outcome
•
The foreign policy of the administration did not create many friends amongst the
developed countries leading to increased political and economic pressure on the country
including sanction. This also meant low foreign investment. Its focus on Latin America and
Africa and on liberation movements was costly and did not lead to the immediate
markets for Iranian goods.
•
The administration which was wholeheartedly supported by the conservatives and the
establishment at the start ran into serious opposition from these centres of power towards
the end. This opposition was partly based on policy differences and partly on the issue of
power sharing. The dispute over the interpretation of the Constitution and the degree of
Presidential power and control was a telling example of the differences .
•
In its last year in office the administration bequeathed an economy grappling with slow
GNP growth ; increased state control , import , inflation and unemployment and a hugely
depreciated national currency. The cherished goal of social justice did not appear to have
been reached. The social support for the administration was on the decrease .The social
capital, already impacted by the disputed election of 2009, was also on the downturn .
Economy of Iran
Moderation and Wisdom
Economy of Iran
Change of Guards
•
In June 2013 a coalition of moderate conservatives and reformists unexpectedly won
the presidential election.
•
A key factor in helping the coalition was the economic condition at the end of the
Justice Seeking period. Once again the population registered a ‘protest vote” .
•
The new administration economic policy is yet to be fully defined . For the time being the
new team is taking stock. A 100 Day Programme is evolving pending a longer terms
strategy .
•
There are however already a number of developments in the economic scenery some of
which point to changes while other s indicate continuity.
Economy of Iran
Immediate Changes
•
The economic management team has ‘wholly’ been replaced . The new team appears to
be less maverick, more gradualist and more amenable to conventional economic theories
and principles. A key appointment is that of the Miniof Economic & Financial Affairs , keen
on inflation control . Others include names from Rafsanjani and Khatami period .
•
Yet is difficult and too early to suggest a return to neo -classics and market oriented
policies. Shock policy making however appears to be on the way out.
•
A host of new data has been released heralding enhanced transparency and emphasizing
the failure of the previous period, e.g. figures on growth, unemployment, agriculture
production etc.
•
Plan & Management Organization , High Council of Economy and High Council of Money
and Credit are being re-established and/or re -empowered. In other words autocratic
economic policy making is on way out.
•
Dialogue with private sector is being stressed : head of the Chamber of Commerce has
chair in the President Office, State –private Sector Dialogue- Room has been empowered
Economy of Iran
Continued policies
• No change in interest rate yet.
• No change in two tiered currency while the “Reference Rate” is being
essentially abandoned .
• Subsidies still being under the Targeted Subsidies Act.
• Mehr Housing Continued.
• Imports eased to take pressure off the market.
Economy of Iran
What is in store ?
•
No miracle is expected .
•
Administration unable to introduce needed austerity measures. Balanced budgetting to be
pursued though
•
More privatization.
•
Economic conditions hugely influenced by foreign policy.
•
Cash consumer subsidies be limited in target groups.
•
Mehr Housing to be shelved/ reshaped .
•
Interest rate to be revised up.