IRAN Economy

Raman Financial Group > IRAN Economy

Iran economy is a Dutch diseased economy which is based on petroleum incomes, however with 412 billion Dollars gross domestic product (2016) it is the second major economy in MENA countries after Saudi Arabia. The country economy has experienced verity of transitions. Beginning of 70s was the inception of the high climax of petroleum income dependency which lead to the inflation. At the end of 70s many foreign investors left Iran due to Islamic revolution. The war with Iraq also reduced the productive abilities. The recent events caused a political challenge which lead to fundamental weakness to produce and invest in the country. Rebuilding policies and development plans were one of many transitions which were done after the war finished. In the recent years a huge effort has been done to reduce the petroleum income dependency.

In order to review Iran structures, it is better to divide them into 3 major groups: economic, social and environmental.

1- The economical index group

Economic Growth: The highest and lowest growth rate in Iran is 23.01 and -12.54 percent respectfully. The economic growth in the first half of 1396  (2016) was almost 6 percent without petroleum income and considering the year 1390 (2011) the reference period. (According to Iran statistical center)

Inflation: The highest and lowest inflation rate during the past four decades was: in 70s lowest rate was in 1979 and highest rate was in 1980, in 80s lowest was in 1986 and highest was in 1991, in 90s lowest rate was in 1992 and highest was in 1996, in 2000 lowest rate was in 2006 and highest was in 2009.  During The second five year development plan which executed during Hojatoleslam Hashemi Rafsangani’s State the inflation rate reached to 49.4 percent. Although economic growth had a positive increase during the mentioned state and economic development was sensible, but in 2013 during last years of Dr Ahmadinegad’s state the 40 percent inflation reached to a negative 5.4 percent growth and eventually caused stagflation.

The studies which has been done around the globe indicates the growth of the effective elements on the country economic inflation. The most important of these elements are: recovering state deficit via borrowing from central bank which leads to market liquidity gain, energy carrier’s price growth and omitting of guild and industrial subsidy after balancing policies, risk growth in economic productive actions, weakness in management especially the currency management and devaluation and finally increasing in global product prices.

Occupation: The employment-population ratio studies of the population above 10 years old and more shows that in 2017 summertime almost 11.7 percent of the country population were employed. According to the study results the unemployment rate of women is more than men and also the rate is higher in rural areas than cities. The studies on unemployment rate changes shows that this index has 1 percent reduction comparing to the same time on previous year and almost 0.9 percent reduction comparing to 2017 springtime. The country economic participation in summer of 2017 was more that 41 percent which shows growth comparing to the same time of the previous year and it seems more than 40 percent of the employed ones is working much more than their job standards.

Interest Rate: The interest rate is determined directorial by Money and Credit Council according to diverse sections and economy condition. Due to limitations and capital market weakness and since there is no possibility to transact bonds, most of the saving choice is in form of movable or immovable properties, gold, currency and bank deposits. The interest rate in Iran has been always a significant amount. The highest amount is 20 percent and the lowest is 10 percent. Nowadays maximum interest rate on account for one year is 20 percent. (Central bank of the Islamic republic of Iran)

Transportation: Transportation industry and its sidelong services is one of those parts which has significance role in Iran economy. Almost 6 percent of the employed population and 7.86 percent of the country total production belong to this section. This is the direct share of this industry in the country economy. The studies shows that the mine industry has significant reliance on the transportation industry and on the other hand, the transportation industry is has an intense dependency on the other industrial products.

International Trade: During 2017 most of the exportation products were supplying natural gas and most imported products were rice and corn. Major Iranian product Buyers are China, Iraq, United Arab Emirates and major vendors are China, Iraq and United Arab Emirates. During the first 8 month of the year in 2017 the export and import net value reached to 60 billion and 907 thousand dollars which is 8 percent more than the same time in previous year but at the same time the exchange rate growth was less the 5 percent which causes continual rise in cost of the good sold and reduction of the foreign product costs which eventually leads to increase of importations.

2- The Environmental Index Group

Natural Resources: Iran is known to have lots of natural resources (mine) actually some experts believe that this country has more mines than petroleum resources. Having more than 55 billion ton mineral reserves and a verity of 64 mineral species Iran is considered as one of the significant and well known countries among others. Iran is located on the central area of Alpine-Himalayan orogeny which is started on the East Europe and passes along Turkey, Iran, and Afghanistan to Tibet and carry on almost to Burma and Indonesia. Being in this area (orogeny) which is the meeting area of two super continent of the earth and contain 15 percent of the known resources of the earth made Iran a country with major capacities and very resourceful.

Water: The central bank study “The study on the international indicators of water and a perspective on water crisis in the 2050” shows that recently Iran faces a serious water crisis and considering unalterable water resources, population growth and water management neglecting (not choosing the right decisions during water management) the current unwanted water situation would escalate and Its negative effects on economic and safety indicators would be inevitable. (central bank of the Islamic republic of Iran)

Agriculture: Almost one third of Iran territory has agriculture capabilities but most of the Iran soil is left without cultivation due to incompatible soil and improper water distribution. Only 12 percent of Iran varsity is under agriculture activities however only one third of this cultivate areas are using irrigated farming and the rest uses dry land method (non-irrigated cultivation). The agriculture section suffers a lot from non-mechanized and old irrigation cultivation techniques. North and Northwest of Iran have fertile soil. Considering one of the superior countries in cultivating section in MENA area, it’s been a long time that Iran is aching for being self-sufficient in the food industry. The self-containment programs for wheat has been started in 1990 but the increase of production costs made it almost impossible to put a stop on the importation of that. Meantime the cultivating resources in Iran only covers 90 percent of the need for food inside the country and to achieve this they use almost 90 percent of water resources in the country.

Energy: According to the information in the renewable energy organization website, Iran is one of the countries with high potential in producing solar energy since there are 300 sunny days in almost two third of the country with average glow of 4.5 to 5.5 kilo watt hours per square in a day. The country is determine to produce 7500 Megawatt electricity from solar energy until 2030 which this amount would be seven times more that the electricity which would produce from  Bushehr nuclear powerhouse.

3- Social Index Group

Population: The first national population and housing census in Iran was done in 1987. Unexpectable population growth during 1977 to 1987, the need to understand the changing process of the population after 1977 and many population displacement after the imposed war has changed the census structure in a great deal which were almost none–negligible. That’s why Statistical Center of Iran acted to do the census with descriptive statistic earlier than the usual 10 years period. The latest national population and housing census  was done in 2016 all over the country due to the governmental act which emphasis on doing such census in 5 years period. Right now Iran population has passed than 80 million and at the end of  2017 September the population reached more than 80 million and 307 thousands. Total Fertility Rate (TFR) in Iran is 1.8 percent and statistical plan vice of the statistic center of Iran warned that if the rate remains steady at this point the country population growth rate would be zero till 2051. 

Poverty: According to the published reports in Tehran chamber of commerce in 2017 and ministry of roads and urban development Islamic republic of Iran, 33 percent of Iran population is living under poverty line. The same report indicate that middle class families should save one third of their income for 1396 years in order to buy a house. According to the Tehran chamber of commerce report, if we consider the center of statistic of Iran reports as basis of economic analysis, then there would be 400 million Rials Income difference between the first Decile and tenth Decile.

Production and Consumption Patterns: People in Iran tend to waste national resources in a great deal. According to the published statistics the consumption per capita of the water, energy , drugs, bread and other food materials and also time  and using the production elements to do a certain job or produce a certain product is high above than the  international standards.

Economic Corruption: Transparency international in the latest world country classification which is based on the Corruptions Perception Index, has stated that Iran ranked reduced to one step and now is 131, this indicates that Iran rate in economic corruption is less than the past.

Competition Index: The world economic forum in the competition report of 2017-18 stated that Iran competition rank between 137 countries around the world has upraised 7 steps and this country jumped from 76 to 69 rate. Iran had progress in securing the basic requirements of the competition including institutes sub-indexes, infrastructures, macroeconomic environment, health and education which changed its rate from 61 to 55. Performance accelerators index which include: higher education, merchandise market efficiency, occupation market efficiency, occupation market development, technical preparation and the market size also changed its rate from 89 to 83. Iran also had an improvement in the innovation elements and complexity indexes and its rate has been changed 20 steps higher from 101 to 81.