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Economy of Iran
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The economy of Iran is dominated by oil and gas exports which constituted 70% of government revenue and 80% of export earnings as of 2008. It has a large public sector, with an estimated 60% of the economy directly controlled and centrally planned by the state. A unique feature of Iran's economy is the large size of the religious foundations, or Bonyads, whose combined budgets are said to make up as much as half that of the central government.
Combination of price controls and subsidies, particularly on food and energy, continue to weigh down the economy, and administrative controls, widespread corruption, and other rigidities undermine the potential for private-sector-led growth.
High oil prices in recent years have enabled Iran to amass nearly US$ 80 billion in foreign exchange reserves.
Yet this increased revenue has not eased economic hardships, which include double-digit unemployment and inflation; inflation climbed to 26% as of December 2008.
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The economy of Iran is dominated by oil and gas exports which constituted 70% of government revenue and 80% of export earnings as of 2008. It has a large public sector, with an estimated 60% of the economy directly controlled and centrally planned by the state. A unique feature of Iran's economy is the large size of the religious foundations, or Bonyads, whose combined budgets are said to make up as much as half that of the central government.
Combination of price controls and subsidies, particularly on food and energy, continue to weigh down the economy, and administrative controls, widespread corruption, and other rigidities undermine the potential for private-sector-led growth.
High oil prices in recent years have enabled Iran to amass nearly US$ 80 billion in foreign exchange reserves.
Yet this increased revenue has not eased economic hardships, which include double-digit unemployment and inflation; inflation climbed to 26% as of December 2008. The economy has seen only moderate growth. Iran's educated population, economic inefficiency, and insufficient foreign and domestic investment have prompted an increasing number of Iranians to seek employment overseas, resulting in significant "brain drain".
History
Pre-revolutionary Iran's economic development was rapid. Traditionally an agricultural society, by the 1970s, Iran had achieved significant industrialization and economic modernization. However, the pace of growth had slowed dramatically by 1978, just before the Islamic revolution.
Iran's long-term objectives since the 1979 revolution have been economic independence, full employment, and a comfortable standard of living for its citizens, but at the end of the 20th century the country's economic future was lined with obstacles. Iran's population more than doubled in a 20-year period, resulting in an increasingly young population. In a traditionally rural and agrarian country, agricultural production has fallen consistently since the 1960s. By the late 1990s, Iran was a major food importer, and economic hardship in the countryside had driven vast numbers of people to migrate to the largest cities.
The rates of literacy and life expectancy in Iran are high for the region, but so, too, is the unemployment rate, and inflation is regularly in the range of 20% annually. Iran remains highly dependent on its one major industry, the extraction of petroleum and natural gas for export, and the government faces increasing difficulty in providing opportunities for a younger, better-educated workforce. This has led to a growing sense of frustration among lower- and middle-class Iranians.
After the end of hostilities with Iraq in 1988, the government tried to develop the country's communication, transportation, manufacturing, health care, education and energy infrastructures (including its prospective nuclear power facilities) and has begun the process of integrating its communication and transportation systems with those of neighboring states. Iran's sustained economic loss because of the war is estimated at $500 billion.
Five-year economic development plan (2005-10)
The fourth Five-Year Economic Development Plan (2005-10) sets the guidelines and points the direction which the trade sector will be taking over the next five years. The focus for the government has been on expanding trade interaction with the global community and pursuing an active presence in international markets. To achieve this would require raising exports substantially. Another area of focus has been to develop free trade zones and turning them into gateways to international markets.
On the domestic front, the priority has been to improve social justice by regulating the domestic market and maintaining a supply of basic commodities. The latter would require improvements to the subsidy distribution system to relieve the government of the huge financial burden of subsidy payments. Another obligation the plan places on the government is to provide economic justification for the pricing of basic commodities and public services.
Iran is projected to produce 29 million tons of steel by the end of the Fourth Economic Development Plan (2005-2010) and 55 million tons by 2025. The five-year economic development plan also calls for the creation of a "national Internet", a target growth of 15% annually for the railroad network, introduction of foreign banks, a fourfold expansion of petrochemical output to 56 million tons per year, downsizing of the public workforce by 5%, the creation of 700,000 new jobs per year, the generation of 6,000 megawatts (MW) of electricity through nuclear technology by 2010 to meet its increasing demand for energy, and the establishment of 50-60 industrial parks by the end of the fifth Five-Year Socioeconomic Development Plan by 2015. Turning to "Vision 2025", the plan has set an investment target of $3.7 trillion within two decades of which $1.3 trillion should be in the form of foreign investment.
According to the Ministry of Mines and Industry in November 2008:
- Over 300 trillion rials will be invested in the industrial sector by March 2009 (1 dollar is about 10,000 rials).
- The government will implement 1,153 industrial projects at a total cost of 130.2 trillion rials by the end of the Iranian year that began on 20 March 2008.
- Meanwhile, over 90 trillion rials and 70.2 trillion rials will be invested in the sector by the private and state-run companies respectively.
- Cement production capacity will increase from 54 million tons to 64 million tons once eight cement factories become operational.
- Steel production capacity will reach 17 million tons from the previous 10 million tons after the private and state projects come on stream (March 2009) and 40 million tons in 2012.
- Aluminum and copper production will hit 245,000 and 383,000 tons respectively by March 2009.
- The country also plans to increase hard-coal production to 5 million tons in 2012 from 2 million tons in 2008.
Centralization and privatization
The Iranian Government declared its intention to privatize most state industries after the Iran–Iraq War in 1988, in an effort to stimulate the ailing economy. The sale of state-owned factories and companies proceeded slowly, however, mostly because of opposition by a nationalist majority in Majlis, the Iranian parliament. Most industries, comprising 70% of the economy in 2006, remained state-owned. The majority of heavy industry—including steel, petrochemicals, copper, automobiles, and machine tools—was in the public sector, while most light industry was privately owned.
According to Article 44 of the Constitution, the economy of Iran is to consist of three sectors: state, cooperative, and private, and is to be based on systematic and sound planning. The state sector is to include all large-scale industries, foreign trade, major minerals, banking, insurance, power generation, dams and large-scale irrigation networks, radio and television, post, telegraph and telephone services, aviation, shipping, roads, railroads and the like; all these will be publicly owned and administered by the State. The cooperative sector is to include cooperative companies (Bonyads) and enterprises concerned with production and distribution, in urban and rural areas, in accordance with Islamic criteria. 120,000 cooperatives are in operation across the country employing about 15 million people. The private sector consists of those activities concerned with construction, agriculture, animal husbandry, industry, trade, and services that supplement the economic activities of the state and cooperative sectors.
A strict interpretation of the above has never been enforced in the Islamic Republic and the private sector has been able to play a much larger role than is outlined in the Constitution. In recent years, the role of the private sector has been further on the increase. Furthermore, an amendment of the article in 2004 has allowed 80% of state assets to be privatized, 40% of which will be conducted through the "Justice Shares" scheme and the rest through the Bourse Organization. The government will keep the title of the remaining 20%.
Macro-economic trends
In the early 21st century the service sector contributed the largest percentage of the gross domestic product (GDP), followed by industry (mining and manufacturing) and agriculture. In 2008, about 55% of the government's budget came from oil and natural gas revenues, and 31% came from taxes and fees. In 2007 the GDP was estimated at $206.7 billion ($852.6 billion at Purchasing Power Parity (PPP)), or $3,160 per capita ($12,300 at PPP). The informal economy is also important. Because of these figures and the country’s diversified but small industrial base, the United Nations classifies Iran's economy as semideveloped (1998). According to the International Monetary Fund (IMF), Iran will need $70 to $75 a barrel for its crude to balance its budget in 2008-2009.
The following is the trend chart of the Iranian GDP at market prices estimated by the IMF with figures in millions of Iranian rial. For PPP comparisons, the US dollar is exchanged at 3,149.33 Iranian rials only.
| Year | Gross Domestic Product | PPP ($ Billion) | US dollar Exchange | Inflation Index (2000=100) |
|---|
| 1980 | 6,621,700 | 98.797 | 70.61 Iranian Rials | 2.10 | | 1985 | 16,555,801 | 186.782 | 207.29 Iranian Rials | 4.40 | | 1990 | 34,505,630 | 206.768 | 415.60 Iranian Rials | 11 | | 1995 | 185,927,978 | 206.768 | 2,046.80 Iranian Rials | 43 | | 2000 | 580,473,336 | 373.725 | 6,019.01 Iranian Rials | 100 | | 2005 | 1,768,665,370 | 554.775 | 9,005.01 Iranian Rials | 194 |
Sectors of the economy
Agriculture contributes just over 11% to the gross national product and employs a third of the labor force. The industrial sector—including mining, manufacturing, and construction—contributed 42% of the GDP and employed 31% of the labor force in 2004. Mineral products, notably petroleum, dominate Iran’s exports revenues (80%), but mining employs less than 1% of the country’s labor force. In 2004 the service sector ranked as the largest contributor to the GDP (48%) and employed 44% of workers. In 2005, Iranian women accounted for 33% of the workforce (out of 25 million people). In 2006, the average annual salary for Iranian nationals was $2,700.According to experts, annual economic growth above five per cent would be needed to keep pace with the 900,000 new labor force entrants each year.
Migrant Iranian workers abroad remitted less than $2 billion home in 2006.
There is a minimum national wage applicable to each sector of activity fixed by the Supreme Labor Council. In 2005 the minimum wage, determined by the Supreme Labor Council, was about US$120 per month (US$1,440 per year). Membership in the social security system for all employees is compulsory.
Although Iranian workers have, in theory, a right to form labor unions, there is, in actuality, no union system in the country. Workers are represented ostensibly by the Workers' House, a state-sponsored institution that nevertheless attempts to challenge some state policies. Guild unions operate locally in most areas but are limited largely to issuing credentials and licenses. The right of workers to strike is generally not respected by the state, and since 1979 strikes have often been met by police action.
The comprehensive Labor Law covers all labor relations in Iran, including hiring of local and foreign staff. The Labor Law provides a very broad and inclusive definition of the individuals it covers, and written, oral, temporary and indefinite employment contracts are all recognized.
The Iranian Labor Law is very employee-friendly and makes it extremely difficult to layoff staff. Employing personnel on consecutive six-month contracts is illegal, as is dismissing staff without proof of a serious offence. Labor disputes are settled by a special labor council, which usually rules in favor of the employee.
Social protection covers the employees between the age of 18 and 65 years, and the financing is shared between the employee (7% of the wages), the employer (20-23%) and the State (which supplements the contribution of the employer up to a total value of 3%). Social protection is extended to the self-employed workers, who voluntarily contribute between 12% and 18% of their income depending on the protection sought. The social security makes it possible to ensure the employees against unemployment, the disease, old age (retirement pension), the occupational accidents. Iran did not legislate in favour of a universal social protection, but in 1996, the Center of the statistics of Iran estimates that more than 73% of the Iranian population is covered by social security.
Civil servants, the regular military, law enforcement agencies, and the Islamic Revolutionary Guard Corps, Iran’s second major military organization, have their own pension systems. In 2003 the minimum standard pension was 50% of the worker’s earnings but not less than the amount of the minimum wage. Iran spent 22.5% of its 2003 national budget on social welfare programs. More than 50% of that amount covered pensions.
Welfare programs for the needy are managed by more than 30 individual public agencies, and semi-state organizations called Bonyads, as well as by several private non-governmental organizations. In 2003, the government began to consolidate its welfare organizations in an effort to eliminate redundancy and inefficiency. Bonyads are a consortium of over 120 organizations which are tax-exempt, receive government subsidies and religious donations and answer directly to the Supreme Leader of Iran. They control over 20% of Iran's GDP and they are involved in everything from vast soybean and cotton fields to hotels to soft drinks to auto-manufacturing to shipping lines. Bonyads are overstaffed, corrupt, and generally not profitable. In 2007, Iran had 12 million people living below the poverty line. Six million of these people were not supported by any foundation or organization.
Agriculture
About 20% of the land in Iran is arable. The main food-producing areas are in the Caspian region and in the valleys of the northwest. Some northern and western areas support rain-fed agriculture, while other areas require irrigation for successful crop production.
The principal obstacles to agricultural production are primitive farming methods, overworked and underfertilized soil, poor seed, and scarcity of water. About one third of the cultivated land is irrigated; the construction of multipurpose dams and reservoirs along the rivers in the Zagros and Alborz mountains has increased the amount of water available for irrigation. Agricultural programs of modernization, mechanization, and crop and livestock improvement, and programs for the redistribution of land are increasing agricultural production.
Wheat, the most important crop, is grown mainly in the west and northwest; rice is the major crop in the Caspian region. Barley, corn, cotton, sugar beets, tea, hemp, tobacco, fruits (including citrus), potatoes, legumes (beans and lentils), vegetables, fodder plants (alfalfa and clover), spices (including cumin, sumac, and saffron (world's largest producer)), nuts (pistachios (world's largest producer), almonds, and walnuts), and dates are also grown, and livestock is raised. Livestock products include lamb, goat meat, beef, poultry, milk, eggs, butter, cheese, wool, and leather. Honey is collected from beehives, and silk is harvested from silkworm cocoons. The northern slopes of the Alborz mountains are heavily wooded, and forestry products are economically important; the cutting of trees is rigidly controlled by the government, which also has a reforestation program. The rivers that drain into the Caspian Sea are fished for salmon, salmon, carp, trout, pike and sturgeon.
Since 1979 commercial farming has replaced subsistence farming as the dominant mode of agricultural production. By 1997, the gross value of products in Iran's agricultural sector had reached $25 billion. Iran has attained 90% self-sufficiency in essential agricultural products; total rice production fails to meet domestic food requirements, however, making substantial imports necessary. In 2007 Iran reached self-sufficiency in wheat production, and for the first time became a net wheat exporter. By 2003, a quarter of Iran's non-oil exports were agricultural based. Major agricultural exports include fresh and dried fruits, nuts, animal hides, processed foods, and spices.
Manufacturing
Iran has a long tradition of producing artisan goods, including Persian carpets, ceramics, copperware and brassware, glass, leather goods, textiles, and woodwork. Iran’s rich carpet-weaving tradition dates from pre-Islamic times, and it remains an important industry and contributes substantially to rural incomes. There is an estimated population of 1.2 million weavers in Iran producing carpets for domestic markets and international export.
Iran exports more than $500 million worth of hand-woven carpets each year (2008). Textile mills, based on domestic cotton and wool, employed about 400,000 people in 2000 and are centred in Tehran, Esfahan and along the Caspian coast.
Large-scale manufacturing in factories began in the 1920s and developed gradually. During the Iran–Iraq War, Iraq bombed many of Iran’s petrochemical plants, and the large oil refinery at Abadan was badly damaged and forced to halt production. Reconstruction of the refinery began in 1988 and production resumed in 1993. However, the war also stimulated the growth of many small factories producing import-substitution goods and materials needed by the military.
The country’s major manufactured products are petrochemicals (with a fertilizer plant in Shiraz), steel (with mills in Esfahan and Khuzestan), and copper products. Other important manufactures include automobiles (with production crossing the 1 million mark in 2005), home and electric appliances (television sets, refrigerators, washing machines, and other consumer items), telecommunications equipment, cement, industrial machinery (Iran has the largest operational stock of industrial robots in West Asia), paper, rubber products, agricultural products and processed foods (including refined sugar and vegetable oil), leather products and pharmaceuticals. In 2006, 55 pharmaceutical companies in Iran produced more than 96% (quantitatively) of medicines on the market worth $1.2 billion annually.
Automobile manufacturing
As of 2001, there were 13 public and privately owned automakers within Iran, of which two - Iran Khodro and Saipa - accounted for 94% of the total domestic production. Iran Khodro, which produced the most prevalent car brand in the country - the Paykan, which has been replaced in 2005 by the Samand -, was still the largest with 61% of the market in 2001, while Saipa contributed 33% of Iran’s total production in the same year. The other car manufacturers, such as the Bahman Group, Kerman Motors, Kish Khodro, Raniran, Traktorsazi, Shahab Khodro, and others together produced only 6%. These automakers produce a wide range of automobiles including motorbikes, passenger cars, vans, mini trucks, medium sized trucks, heavy duty trucks, minibuses, large size buses and other heavy automobiles used in commercial and private activities in the country. Iran ranked the world's 16th biggest automaker in 2006 and has a fleet of 7 million cars, which translates to almost one car per ten persons in the country (including trucks and buses). Iran car exports are projected to reach $1 billion by March 2009.
Defense industry
Iran's 2005 defense budget was estimated to be $6.3 billion (3.3% of GDP) by London's International Institute for Strategic Studies or $91 per capita. Iran's defense industry has taken great strides in the past 25 years, and now manufactures many types of arms and equipment. Since 1992, Iran's Defense Industries Organization (DIO) has produced its own tanks, armored personnel carriers, guided missiles, submarines, and a fighter plane. As of 2006, Iran had exported weapons to 57 countries, including NATO members, and sold $100 million worth of military equipment abroad.
Construction
The annual turnover in the construction industry amounted to $38.4 billion in 2005. Until the early 1950s the construction industry was limited largely to small domestic companies. Increased income from oil and gas and the availability of easy credit, however, triggered a subsequent building boom that attracted major international construction firms to Iran. This growth continued until the mid-1970s, when, because of a sharp rise in inflation, credit was tightened and the boom collapsed. The construction industry had revived somewhat by the mid-1980s, but housing shortages have remained a serious problem, especially in the large urban centres as well as the poor quality of many constructions, which need anti-seismic reinforcement and/or renovation. Iran has a large dam building industry. Today 70% of the Iranians own homes. Construction is one of the most important sectors in Iran accounting for 20–50% of the total private investment. One of the prime investment targets of well off Iranians as tangible.
Energy, gas, petroleum and petrochemicals
Energy wastage in Iran amounts to six or seven billion dollars (2008). The energy consumption in the country is extraordinarily higher than international standards. Iran recycles 28% of its used oil and gas whereas the figure for certain countries stands at 60%. Iran paid $84 billion in subsidies for oil, gas and electricity in 2008.
Iran holds 10% of the world's proven oil reserves. Iran also has the world's second largest reserves of natural gas (15% of the world's total), mainly in South Pars; these are exploited primarily for domestic use. Since 1913 Iran has been a major oil exporting country. The chief oil fields are found in the central and southwestern parts of the Zagros mountains in western Iran. Oil also is found in northern Iran and in the offshore waters of the Persian Gulf. Domestic oil and gas, along with hydroelectric power facilities, provide the country with power. Iran built its first $1 billion nuclear power plant in Bushehr in March 2009, called Bushehr 1.
In the late 1970s, it ranked as the fourth largest oil producer (OPEC's second largest oil producer) and the second largest oil exporter in the world. Following the 1979 revolution, however, the government reduced daily oil production in accordance with an oil conservation policy. Further production declines occurred as result of damage to oil facilities during the imposed war with Iraq. Oil production began increasing in the late 1980s due to the repair of damaged pipelines and the exploitation of newly discovered offshore oil fields in the Persian Gulf.
Major refineries are located at Abadan (site of the country's first refinery, built 1913), Kermanshah, and Tehran but fail to meet domestic demand for gasoline. The oil refining industry of the country needs a $15 billion investment for its development over the next 5 years to become self-sufficient and end imports. Pipelines move oil from the fields to the refineries and to such exporting ports as Abadan, Bandar-e Mashur, and Kharg Island. In the late 1990s, Iran's state-owned oil and gas industry entered into major exploration and production agreements with foreign consortia, notably in Asalouyeh among other projects.
By 2004, Iran’s annual oil production was 1.4 billion barrels, creating a net profit of $50 billion. Iran manufactures 50-80% of its industrial equipments domestically, including refineries, oil tankers, oil rigs, offshore platforms and exploration instruments. In February 2008 the Iranian Oil Bourse was inaugurated in Kish Island to trade crude oil and petrochemical products. The transactions are made in the Iranian rial and other major currencies (except for USD).
Mining
Iran’s mining industry is under-developed. Mineral production contributes only 0.6% to the country’s GDP. Add other mining-related industries and this figure increases to just 4%. Many factors have contributed to this, namely lack of suitable infrastructure, legal barriers, exploration difficulties, and government control over all resources.
Although the petroleum industry provides the majority of economic revenues, about 75% of all mining sector employees work in mines producing minerals other than oil and natural gas. These include coal, iron ore, copper, lead, zinc, chromium, barite, salt, gypsum, molybdenum, strontium, silica, uranium, and gold (most as a coproduct of the Sar Cheshmeh copper complex operations). The mines at Sar Cheshmeh in Kerman Province contain the world's second largest lode of copper ore. Large iron ore deposits lie in central Iran, near Bafq, Yazd, and Kerman. The government owns 90% of all mines and related large industries in Iran and is seeking foreign investment for the development of the mining sector. In the steel and copper sectors alone, the government is seeking to raise around $1.1 billion in foreign financing.
Services
Urbanization has contributed to significant growth in the service sector. Important service industries include public services (including education), commerce, personal services, professional services, and tourism. Iran's national science budget is about $900 million (2005) and it has not been subject to any significant increase since 15 years ago. Iran allocates around 0.4% of its GDP to R&D, which ranks it "far behind industrialized societies".
The constitution entitles Iranians to basic health care. In the early 2000s, about 65% of the population was covered by the voluntary national health insurance system. Although over 85% of the population use an insurance system to reimburse their drug expenses, the government heavily subsidises pharmaceutical production/importation in order to increase affordability of medicines and vaccines. The total market value of Iran’s health and medical sector was almost $240 billion in 2002 and was forecast to rise to $310 billion by 2007.
Despite efforts in the 1990s toward economic liberalization, government spending—including expenditures by quasi-governmental foundations (Bonyad) that dominate the economy—has been high. Estimates of service sector spending in Iran are regularly more than two-fifths of the GDP, and much of that is government-related spending, including military expenditures, government salaries, and social service disbursements.
The tourist industry declined dramatically during the war with Iraq in the 1980s but has subsequently revived. About 1,659,000 foreign tourists visited Iran in 2004; most came from Asian countries, including the republics of Central Asia, while a small share came from the countries of the European Union and North America. The most popular tourist destinations are Esfahan, Mashhad, and Shiraz. In the early 2000s the industry still faced serious limitations in infrastructure, communications, regulatory norms, and personnel training. The majority of the 300,000 tourist visas granted in 2003 were obtained by Asian Muslims, who presumably intended to visit important pilgrimage sites in Mashhad and Qom. Several organized tours from Germany, France, and other European countries come to Iran annually to visit archaeological sites and monuments. Iran currently ranks 68th in tourism revenues worldwide. Iran with attractive natural and historical sites is rated among the 10 most touristic countries in the world. Close to 1.8% of national employment is generated in the tourism sector which is slated to increase to 10% in the next five years.
Banking system
The government makes loans and credits available to industrial and agricultural projects, primarily through banks. Iran’s unit of currency is the rial. The official exchange rate averaged 8,614 rials to the U.S. dollar in 2004. However, rials are exchanged on the unofficial market at a higher rate. In 1979, the government nationalized all private banks and announced the establishment of a banking system whereby, in accordance with Islamic law, interest on loans was replaced with handling fees; the system went into effect in the mid-1980s.
The banking system consists of the central bank also known as Bank Markazi, which issues currency and oversees all state and private banks; several commercial banks that are headquartered in Tehran but have branches throughout the country; two development banks; and a housing bank that specializes in home mortgages. Accounts of the state-owned commercial banks are dominated by loans to state and Bonyad enterprises, large-scale private firms and four thousand wealthy/connected individuals who don't always repay their loans. The government began to privatize the banking sector in 2001, when it issued licenses to two new privately owned banks. Iranian reserves in foreign banks in mid-February 2008 reached over $81 billion.
The Tehran Stock Exchange trades the shares of more than 400 registered companies. The stock market capitalisation of listed companies in Iran was valued at $70 billion in 2008. According to experts, the economy of Iran has many investment opportunities, particularly on its stock exchange. Iran's electronic commerce will reach 10,000 billion rials ($1 billion) by March 2009.
Communications and IT
The government runs the broadcast media, which includes five national radio stations and five national television networks, as well as dozens of local radio and television stations. In 2000 there were 252 radios and 158 television sets in use for every 1,000 residents. There were 219 telephone lines and 110 personal computers for every 1,000 residents. Computers for home use became more affordable in the mid-1990s, and since then demand for access to the Internet has increased rapidly, where Iran has now the world's fourth largest number of bloggers. In 1998 the Ministry of Post, Telegraph & Telephone (renamed Ministry of Information & Communication Technology) began selling Internet accounts to the general public. In 2006, the Iranian telecom industry's revenues were estimated at $1.2 billion.
According to the Electronic Journal on Information Systems in Developing Countries (EJISDC), the information and communications technology (ICT) sector had a 1.1-1.3% share of GDP in 2002. About 150,000 people are employed in the ICT sector, including around 20,000 in the software industry. There were 1,200 registered information technology (IT) companies in 2002, 200 of which were involved in software development. Software exports stood around $50 million in 2008.
Transport
Iran has an extensive paved road system linking most of its towns and all of its cities. In 2007 the country had 178,152 kilometers (111,000 mi) of roads, of which 66% were paved. There were 55 passenger cars for every 1,000 inhabitants. Trains operated on 11,106 km (6,942 mi) of railroad track.
The country’s major port of entry is Bandar-Abbas on the Strait of Hormuz. After arriving in Iran, imported goods are distributed throughout the country by trucks and freight trains. The Tehran-Bandar-Abbas railroad, opened in 1995, connects Bandar-Abbas to the railroad system of Central Asia via Tehran and Mashhad. Other major ports include Bandar Anzali and Bandar e-Torkeman on the Caspian Sea and Korramshahr and Bandar Imam Khomeini on the Persian Gulf. Dozens of cities have airports that serve passenger and cargo planes. Iran Air, the national airline, was founded in 1962 and operates domestic and international flights. All large cities have mass transit systems using buses, and several private companies provide bus service between cities. Tehran, Mashhad, Shiraz, Tabriz, Ahvaz and Esfahan are in the process of constructing underground mass transit rail lines. More than one million people work in the transportation sector, accounting for 9% of GDP (2008).
Foreign trade and economic relations
Petroleum constitutes the bulk of Iran's exports (80%), valued at $46.9 billion in 2006. Iran's non-oil exports stood at $16.3 billion in the year ending March 20, 2007, a rise of 47.2% from the previous period. Pistachios, liquefied propane, methanol (methyl alcohol,) hand-woven carpets and automobiles are the core items of Iran's non-oil exports. Iran'
s export of technical and engineering services in 2007-08 was $2.7 billion; 40% of the export of technical services pertains to Central Asia and the Caucasus. About 30%, equivalent to $350 million, to Iraq, and close to 20% ($205 million) to Africa and North Africa. The total volume of imports to Iran rose by 189% from $13.7 billion in 2000 to an estimated $39.7 billion in 2005.
Iran's major commercial partners are China, India, Germany, South Korea, Japan, France, Russia and Italy. Iran's trade with India crossed US$13 billion in 2007, an 80% increase in trade volume within a year. From 1950 until 1978, the United States was Iran's foremost economic and military partner; thus participating greatly in the modernization of its infrastructure and industry. After the Iranian Revolution in 1979 though, the United States ended its economic and diplomatic ties, banned Iranian oil imports and froze $12 billion of its assets. In 1996, the U.S. Government passed the Iran and Libya Sanctions Act (ILSA) which prohibits U.S. (and non-U.S. companies) from investing and trading with Iran for more than $20 million annually, with the exception, since 2000, for items like pharmaceuticals, medical equipment, caviar and Persian rugs.
Since the mid 90's, Iran has increased its economic cooperation with other developing countries in "south-south integration" including Syria, India, China, South Africa, Cuba and Venezuela. Iran is expanding its trade ties with Turkey and Pakistan and shares with its partners the common objective for the creation of a single economic market in West and Central Asia called ECO.
Since 2003, Iran has increasingly invested in the economy and reconstruction of its neighboring countries like in Iraq and Afghanistan. In Dubai, UAE, it is estimated that Iranian expatriates are handling over 20% of its domestic economy with an equal proportion of its population. Money is invested in the local real estate market and import-export businesses, collectively known as the Bazaar, and geared towards providing Iran and other countries with the demanded consumer goods. In 2006, the combined net worth of the Iranian citizens abroad was about 1.3 trillion dollars.
Since 2006, Iran's Nuclear Program has become the subject of contention with the West because of suspicions regarding Iran's military intentions. This has led the UN Security Council to impose sanctions against Iran on select companies linked to this program, thus furthering its economic isolation on the international scene.
Foreign direct investment
In the 1990s and early 2000s, some indirect oilfield development agreements were made with foreign firms. Buyback contracts in the oil sector, for instance, were arranged in which the contractor funded all the investments, and then received remuneration from the National Iranian Oil Company (NIOC) in the form of an allocated production share, then transferred operation of the field to NIOC after a set number of years, at which time the contract was completed.
Foreign investment has been hindered by unfavorable or complex operating requirements and by international sanctions, although in the early 2000s the Iranian government liberalized investment regulations. Iran absorbed $24.3 billion of foreign investment from Iranian calendar year 1993 to 2007. Foreign transactions with Iran amounted to $150 billion worth of major contracts between 2000 and 2007, including private and government lines of credit. In 2007, Iran had $62 billion worth of assets abroad.
Firms from over 50 countries have invested in Iran, with Asia and Europe receiving the largest share. Asian firms have invested over $11.6 billion in 190 Iranian projects, with those from the United Arab Emirates (UAE) leading the way, followed by Singapore, Indonesia and Oman. Over 20 European countries, particularly Germany, the Netherlands and Spain, made investments worth over $10.9 billion in 253 projects. The UK, Turkey, Italy and France also have had a great share in Iranian investments. Companies from Canada, Panama, the USA and Jamaica are also involved in seven economic projects in Iran, valued over $1.4 billion. Investors from Mauritius, Liberia and South Africa have invested a combined total of $8 billion in Iran. In addition, Australia has invested $682 million in an Iranian project.
Foreign investors have concentrated their activity in a few sectors of the economy: energy, vehicle manufacture, copper mining, construction, utilities, petrochemicals, clothing, food and beverages, telecom, and pharmaceuticals.
Iran and the World Trade Organization
Iran has an observer status at the World Trade Organization (WTO) since 2005. The United States has consistently blocked Iran's bid to join the WTO since Tehran first asked for membership several years ago.
Yet, if Iran does eventually gain membership status in the WTO, among other prerequisites, copyright laws will have to be obeyed in Iran. This would require a major overhaul of business and trade operations in Iran, a change which many experts believe would be a price too heavy for Iran's economy to pay at the present time. Still, Iran is hoping to attract billions of dollars worth of foreign investment while creating a more favorable investment climate, such as reduced restrictions and duties on imports and the creation of free trade zones like in Qeshm, Chabahar and Kish Island.
Further reading
- - (US) National Foreign Trade Council (2008)
- - Iran daily (2008)
- - Iran daily (2008)
- - Dr. Abbas Bakhtiar (2008)
- - Global Investment House (2007)
- - Dr. Abbas Bakhtiar (2007)
See also
External links
- (Forecast, factsheet, economic data & structure)
- (oil, gas, electricity, data, profile, analysis, weblinks/resources)
- - many practical information and sector specific reports, with useful websites and resources
- - Information on the Foreign Investment Promotion and Protection Act (FIPPA) and Taxes (in English)
- - Official site with information on Iran's Free Trade Zones
- - American Enterprise Institute (list of major international companies investing in Iran broken down by their nationality, sector of activity and amount invested)
- - BBC (population, land, infrastructure)
- - Social and economic indicators for Iran
- - Comprehensive list of resources on the Internet relating to Iran and its economy
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