THE
To read the analysis scroll through this site. To learn more about the background policies, click here: Introduction and Policy Recommendations
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The study is by Arash Sarabi, an Iranian native who currently [May 2012] lives in San Francisco; this study presents the Iranian government's economic policies as compared to the MIEPA list of policies as outlined above. The ratings herein are based on the following rating scale:
RATING SCALE
5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 2012. Used herein with permission]
To read a disclaimer about the analysis in this file, scroll to the bottom of the file.
IRAN: ECONOMIC POLICY ANALYSIS BASED ON MIEPA POLICY LIST
RATING SUMMARY
POLICY NUMBER RAW SCORE ADJUSTED SCORE POSSIBLE PERCENTAGE
1 0.5 1.5 15.0 10 %
2 0.5 1.5 15.0 10
3 2.5 7.5 15.0 50
4 3.0 9.0 15.0 60
5 3.0 9.0 15.0 60
6 2.7 8.1 15.0 54
7 3.5 10.5 15.0 70
8 3.4 10.5 15.0 70
9 1.8 5.4 15.0 36
10 4.0 12.0 15.0 80
11 3.8 11.4 15.0 76
12 4.0 8.0 10.0 80
13 4.1 8.2 10.0 82
14 3.5 7.0 10.0 70
15 2.6 5.2 10.0 52
16 3.5 7.0 10.0 70
17 1.0 2.0 10.0 20
18 1.0 2.0 10.0 20
19 1.0 2.0 10.0 20
20 1.0 2.0 10.0 20
21 3.0 6.0 10.0 60
22 3.5 7.0 10.0 70
23 1.0 2.0 10.0 20
24 2.2 4.4 10.0 44
25 2.5 5.0 10.0 50
26 3.0 6.0 10.0 60
27 3.5 7.0 10.0 70
28 1.5 3.0 10.0 30
29 3.5 3.5 5.0 70
30 1.0 1.0 5.0 20
31 4.5 4.5 5.0 90
32 1.5 1.5 5.0 30
33 1.5 1.5 5.0 30
34 3.5 3.5 5.0 70
TOTAL 86.1 185.7 365.0 50.9%
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IRAN : INDIVIDUAL POLICIES
1. Freedom From Internal Control 0.5
The government of Iran is an Islamic theocracy, meaning that all the activities in the country should be in conformance with the laws of Shari’a. That includes the way people dress up (for example mandatory hijab for women), the types of interaction between people, the relationship between men and women, and what is portrayed and published in the media. But even the Islamic laws are bent whenever it is benefiting the political agenda of the government. Citizens can move about freely as long as they don’t have any conflict with these rather unpopular laws.
Personal, Sister, Buseness Owner in Iran.
2. Freedom of Speech 0.5
Iran is a constitutional, Islamic theocracy. Its official religion is the doctrine of the Twelver Jaafari School. Iran's law against blasphemy derives from Sharia. Blasphemers are usually charged with "spreading corruption on earth", or mofsed-e-filarz, which can also be applied to criminal or political crimes. The law against blasphemy complements laws against criticizing the Islamic regime, insulting Islam, and publishing materials that deviate from Islamic standards. Considering all these we can see how the government gives its actions the much needed legitimacy when it shuts down the news papers, blogs, periodicals or even the country’s Internet altogether. In other words in Iran freedom of expression is reserved for a person who fully supports the regime’s view on political and religious issues.
"Annual Report of the United States Commission on International Religious Freedom May 2009". Viewed May 17, 2012 ; Human Rights Tribune. www.humanrights-geneva.info, Viewed May 17, 2012 ; Personal.
3. Effective, Fair Police Force 2.5
l l Law enforcement in Iran has 60,000 police personnel served under the Ministry of Interior and Justice, including border patrol personnel. The Police-110 unit specializes in rapid response activities in urban areas and dispersing gatherings deemed dangerous to public order. This police force does a good job in protecting businesses from burglars and criminals, but since the police can meddle in issues that many of which would be considered moral issues or personal choices in many countries, the polices force itself can sometimes be the sorce of fear. It is widely known in Iran that many of infractions can be corrected with bribing the police. Also it is widely known that the police force acts biased toward those with ties to the religious or the political circles.
www.csis.org/media/csis/pubs/060728_gulf_iran.pdf, viewed on May17, 2012 ; Personal
4. Private property 3.0
It could be said that Iran has strict and well defined rules regarding tangible property, these laws are in conformance with local practices. Although these rules are not exactly the same, regarding the followers of the religions that are banned in Iran. The more prevalent property issue in Iran is the lack of enforcement of the laws protecting intellectual property. Another issue is the lack of attention to private privacy and data protection laws. In theory the future “data protection law” would be able to protect personal information and privacy of consumers where transactions over a network, collection, storage, retrieval and dissemination of personal data. However due to constant disapproval and contradicting view points from various governmental parties, approving the data protection law has been constantly delayed.
"No Operation". Presstv.com, Viewed on May 07, 2012 ; Center for Independent Journalism, “Poor Privacy Protection in Iran, Says Privacy International”, viewed May 07 2012 ; Personal.
5. Commercial banks 3.0
Since 2001 the Iranian Government has moved toward liberalizing the banking sector, although progress has been slow. In 1994 Bank Markazi (the central bank) authorized the creation of private credit institutions, and in 1998 authorized foreign banks (many of whom had already established representative offices in Tehran) to offer full banking services in Iran's free-trade zones. The central bank sought to follow this with the recapitalization and partial privatization of the existing commercial banks, seeking to liberalize the sector and encourage the development of a more competitive and efficient industry. Commercial banks are authorized to accept checking and savings deposits and term investment deposits, and they are allowed to use promotional methods to attract deposits. Term investment deposits may be used by banks in a variety of activities such as joint ventures, direct investments, and limited trade partnerships (except to underwrite imports). However, commercial banks are prohibited from investing in the production of luxury and nonessential consumer goods. Commercial banks also may engage in authorized banking operations with state-owned institutions, government-affiliated organizations, and public corporations. The funds received as commissions, fees, and returns constitute bank income and cannot be divided among depositors.
Turquoise Partners: "Iran Investment Monthly" - October 2010, viewed on May 7, 2012 ; Iran Investment Monthly Sep 2010. viewed on May 7, 2012 ; Personal.
6. Communication system 2.7
Iran’s telecommunications industry is almost entirely state-owned, dominated by the Telecommunication Company of Iran (TCI). Fixed-line penetration in 2004 was relatively well-developed by regional standards, standing at 22 lines per 100 people, higher than Egypt with 14 and Saudi Arabia with 15, although behind the UAE with 27. In terms of mobile provision in 2004, however, Iran lagged all the countries mentioned above.
The number of fixed telephone lines is above 24 million, with penetration factor of 33.66%. Besides, there are 18 million private Internet users in Iran (over 23 million when counting public/"Internet cafe" users), making the country first in the Middle East, in terms of number.
The press in Iran is privately owned and reflects a diversity of political and social views. A special court has authority to monitor the print media and may suspend publication or revoke the licenses of papers or journals that a jury finds guilty of publishing antireligious material, slander, or information detrimental to the national interest. Since the late 1990s the court has shut down many pro-reform newspapers and other periodicals.
As of 2010, international connection services are provided exclusively by Infrastructure Company of Iran, a fully owned subsidiary of TCI. Submarine fiber-optic cable to UAE with access to Fiber-Optic Link Around the Globe (FLAG); Trans Asia Europe (TAE) fiber-optic line runs from Azerbaijan through the northern portion of Iran to Turkmenistan with expansion to Georgia and Azerbaijan.
In 1993 Iran became the second country in the Middle East to be connected to the Internet, and since then the government has made significant efforts to improve the nation's ICT infrastructure.Iran's national Internet connectivity infrastructure is based on two major networks: the public switched telephone network (PSTN) and the public data network. The PSTN provides a connection for end-users to Internet service providers (ISPs) over mostly digital lines and supports modem-based connections.
Full Internet service is available in all major cities and it is very rapidly increasing. Many small towns and even some villages now have full Internet access. The government aims to provide 10% of government and commercial services via the Internet by end-2008 and to equip every school with computers and Internet connections by the same date.The Internet has become an expanding means to accessing information and self-expression among the younger population. Iran is also the world's fourth largest country of bloggers with approx. 60,000 Persian blogs although Internet censorship in Iran is amongst the most restrictive and sophisticated in the world.
"Iranian net censorship powered by US technology - info-tech - 27 June 2005", viewed on May 07, 2012 ; Telecoms And Technology Forecast for Iran". Economist Intelligence Unit. August 18, 2008, viewed on May 07, 2012 ; CIA - The World Factbook". Cia.gov, viewed on May 07, 2012.
7. Transportaion 3.5
Iran has a long paved road system linking most of its towns and all of its cities. In 2007 Iran had 111,000 miles of road of which 66% were paved. Trains operate on 6,942 mile of rail road connecting major ports of Iran its big cities. The majority of transportation in Iran is road based. The government plans to transport 3.5% of the passenger volume and 8.5% of freight of the road transportation to rail based transportation by 2015.
Iran has 54 major airport, 8 international, 21 air border and 25 domestic airports. The government has also planned to increase the capacity of container loading and unloading from 4.4 million to 7 million by the end of 2015.
Tehran’s (capital) metro system transports 2.5 million people daily in the city and other metro systems are expected to become operational in other major cities such as Shiraz, Esfahan and Tabriz.
"CIA - The World Factbook". Cia.gov, viewed on May 05, 2012 ; www.parstimes.com/transportation, viewed on May 05, 2012.
8. Education 3.5
Educational system in Iran is divided to K-12 education and higher education. In 2009, virtually all children of the relevant age group were enrolled in primary school; in the secondary school the percentage increased from 66% in 1995 to 84% in 2009 . As a result, youth literacy increased from 77% to 99% in the same period. Iran is well placed to achieve the MDG target with regard to eliminating gender disparities. The overall literacy rate for Iranian population by 2011 was 91% well ahead of the regional average of 62%(this percentage for developed countries is close to 100%). By 2007 Iran had a student to work force population ratio of 10.2%, standing among the countries with high ratio in the world.
Public Education is free for all Iranians under the Article 3 of the constitution of the Islamic Republic of Iran. Entrance to free higher educational levels becomes extremely competitive, so only the most talented are admitted. There are also private schools and universities that are less competitive but not affordable to most of the population.
www.obs-os.en viewed on May 5, 2012 ; Iran: Country Brief", Development Progress, World Bank, June 2009, retrieved, viewed on May 07, 2012 ; Personal.
9. Social mobility 1.8
Nepotism and favoritism can be found in any culture in the world, and Iran’s culture is no exception to that. In fact this is a prevalent problem that ails the young generation that graduates from the educational system each year. It is extremely difficult for a young graduate to find a job in Iran without having any connections. These connections can be in the political structure, or religious and the business circles. Also it is even more difficult for a person to leave his/her home city and go to capital and find a job without any connections. All these factors help to isolate the individuals in their own socio-economic class which is a hindrance to wealth production. \
Personal ; A business owner in Iran.
10. Freedom From Outside control 4.0
Citizens of Iran indeed feel free from direct control by any citizen or agency of any other country, and are subject only to the laws of their home country. In the past Iran has been under the control of a number of different superpowers including England, Russia, and the United States, that situation dramatically changed after the 1979 revolution, but all the revolution did was to shift the control from foreign powers to a rather corrupt internal despotic regime. Also it could be argued that by subjecting the country to international sanctions as result of the government’s policies, Iranian people still feel the burden of foreign control in their everyday lives.
Personal ; a Business owner in Iran.
11. Protection of Domestic Enterprise 3.8
In the year 2010 Iran had the total of 25.34 billion dollars of trade surplus (58.97 billion dollars of import and 84.31 billion dollars in exports). Oil and gas products accounted for more than 80% of the exports. The oil industry which is a national industry is protected by the government, and in the fifth of the five year plans the government has projected to invest 20 billion dollars each year in the industry to boost its oil refining capacity. The second most active industry in Iran is the car industry which accounts for 10% of the country’s GDP and produces cars that meet the European standards for cars. Today Iran is the 12th largest automaker in the world and one of the largest in Asia, Iran also ranked fifth in car production growth standing next to china,Taiwan, Romania and India.To protect this industry Iran’s government set a 100% tariff on all imports of foreign made cars. In year 2007 this tariff was reduced to 90% for light cars and also reduced by 20% for heavy cars, causing the import of foreign made cars to jump from 184 million in 2002 to 1.5 billion in 2007. Another part of the five year plan is to increase investment in the mining industry, for example the government has set an aim to increase steel production from from 10 million tpy to 42 million tpy, also by boosting investment in Iron ore production, increase its output from 50 million tpy to 100 million tpy.
Personal ; “Mining in Iran- CountryMine” InfoMine, Viewed on May 2012 ; Iran’s Automotive Industry Overview” Atieh Bahar, Viewed May 2012
12. Foreign Currency Transaction 4.0
The only national currency used in Iran is Rial, all foreign currencies are needed to be transformed to Rial for any transaction to take place. But since many of the businesses rely on foreign companies for their resources, they keep close track of the price of dollar, and prices of goods and services may vary by the fluctuations in the value of dollar.
Personal, A Business owner in Iran.
13. Border Control 4.1
Drug trafficking is a major challenge for Iran’s government. The geographical location of the country, particularly 1,923 km of eastern border that it has with Afghanistan, the world’s largest illicit Opium and Cannabis producer and with Pakistan has turned it into a major transit country for illicit drugs that usually find their way to the streets of Europe. In response to these challenges the country has built one of the strongest counter narcotics enforcement capabilities in the region and beyond. In 2008, Iran accounted for the highest rate of opium seizures (89%) in the world as well as heroin and morphine (41%) according to the UNODC world drug report 2011. Also when the recent occupation of Iraq took place by the US forces, the border police by preparing ahead, was able to perform a great job in dealing with and organizing the refugees that fled into Iran.
Personal ; United Nations Office on Drugs and Crime (UNODC), Viewed on May 2012
14. Currency 3.5
The only currency used in Iran for the sake of commerce is Rial, which is issued by the central bank of Islamic Republic of Iran. In 1979, 1 Rial equated $0.0141. The value of Iran’s currency declined precipitously after the Islamic revolution because of capital flight from the country. In the year 2011 the exchange rate was 10,800 Rials per US dollar. The recent further decline of rial can be attributed to recent International sanctions imposed on Iran’s central bank spearheaded by the United States.
Personal ; “Publications”. WashingtonInstitute.org 2008, viewed on May 2012
15. Cultural, Language Homogeneity 2.6
In Iran, Parsi or Farsi is the main language which is taught in the educational system all over the country. There are other languages spoken by the minority such as Azari, Kurdish, Luri, Gilaki, Mazandarani, Baluchi, Arabic, Turkmen, Pashto, and Armenian. But all literate speakers of all of these languages can also speak Parsi/Farsi ( 88.7% of the population of Iran were deemed literate by 2010 estimates). As far as the cultural homogeneity goes, Iran’s culture is consisted of many different sub-cultures with their own distinct traditions and sometimes language. More than often we find these cultures rather biased towards each other even though they may not be geographically too far apart. And sometimes some of the people living in these distinct cultures, refrain from doing business with each other, for example people from Tabriz and Isfehan (two large cities in Iran)are not too keen about entering partnership with each other due to stereotypical notions that they have about each other. In addition to that people from the capital city of Tehran are not always treated nicely by the residents of the provinces because of the smugness that is associated with them. Also when people from the provinces enter the capital city they treated with negative bias, especially if they speak Parsi/Farsi with their own accent.
Personal ; A business man in Iran
16. Political effectiveness 3.5
When it comes to facing disasters and terrorist acts, the government of Iran could be described as effective and quick. In case of natural disasters the Basij (the voluntary armed force) and the army in addition to Helale Ahmar (equivalent of the Red Cross in Iran) are quick to act and usually have permanent bases even in the far-out provinces of Iran. Although the primary reason for the ubiquitous presence of the Army and Basij bases is to quell any possible upheaval or riot, as a secondary function theses forces do an effective job in facing disaster and terrorist acts.
Personal ; A business owner in Iran
17. Institutional stability 1.0
Almost all large institutions in Iran are controlled by the government and because of the complex political structure in Iran, are subject to the political upheavals. In some cases the institutions even adopt self-rule which might not be in line with the rules adopted by another institution. For example the educational system, in setting the curriculum for the students has to comply with the political agenda of the government, which itself is subject to the power games played by the different parts of the ruling party, so a subject can all of a sudden be added to the curriculum deleted from it or modified to great extends in a very short time.
Personal ; A business owner in Iran
18. Honest Government 1.0
The level of corruption in Iran is well beyond the low level that might be perceived as fair (provided that it is minimal and predictable). The local officials are mostly after their own good and most of the times are competing with each other for more power and profit. This state of affairs has the unfortunate effect of generating despair and distrust among the people. In The Transparency International Corruption Perception, Iran is ranked 120th among all the countries in the world. This rather embarrassing rank does not come as a surprise to a native Iranian.
Personal ; A business owner in Iran ; www.transparency.org Viewed on April 2012
19. Common Laws 1.0
People with close ties to the religious circles, more than often are favored by the judiciary branches. Also corruption in the police force and the judiciary system is to such a degree that a combination of bribe and a religious appearance can help you get away with almost anything.Iranian constitution was adopted in 1979 and amended in 1989. Any piece of legislation that is proposed in the parliament needs the approval of the Guardian Council (Shoraye Negahban). This council is made up of twelve highly conservative members who have the authority to veto legislation that they judge to be inconsistent with the constitution or the Shari’a (Islamic Law). This heavy bias towards the Islamic law is also prevalent when it comes to administering the law.
Personal ; A Business owner in Iran.
20. Central Bank 1.0
Iran’s central bank is under the direct control of the government, meaning that the policies of the government have direct effect on the way the central bank manages the currency and the commercial banks. A clear example of this was when President Mahmoud Ahmadinejad ordered the banking system to lower the interest rate on one year deposits from 17.5% to 14%. This decision was later on revised but at the moment the central bank performed what the government demanded from it.
Personal - a friend and business owner.
21. Domestic Budget Management 3.0
Iran’s government expenditure has been historically way above its tax revenues, but at the end it has had for the most part of the last two decades a slight budget surplus. Iran’s government has been able to maintain such spending behavior due to the revenue brought in from selling oil, for example in the fiscal year 2008-2009 the total revenue brought in by selling oil made up 65% of all the government revenue. In recent years the government has tried to increase its tax revenues by overhauling its tax system, but even with these efforts the government still heavily depends on oil revenues for its expenses. For example in year 2007 tax revenues made up 7.26% of the total GDP but government spending was 31% of the GDP. In year 2008 tax revenues made up 7.56% of the governments revenues but the total spending was 29.1 % of the GDP, and in the year 2009 tax revenues where 9.26% of the GDP and total expenditure was 27.8% of the GDP.
CIA Factbook. IranPrimer.org Viewd on April 2012.
22. Government Debt 3.5
The total government debt of Iran has been fluctuating since 1970. In 2008 a sharp rise brought the total debt from -8.35% of the GDP in 2007 to 24.89% of the GDP. In the year 2010 government’s public debt public was estimated at 16.3% of the GDP and its external debt was estimated at 15.24, bringing the total debt to 31.54% of the 2010 GDP.
www.imf.org, viewed April 2012 ; www.economywatch.com, viewed on April 2012
23. Economic Statistics 1.0
One of complains that you are very likely to hear in talking to the business people is the lack of statistical information on the population. In Iran the only organization which holds the to the census data is the government and if one tries to get a hold of those information one has to go through many filters and background checks to finally arrive at some inaccurate and out-dated data. This lack of access to census-like data causes business owners to make mistakes in their decisions and undermines their ability to predict trends and consequently forcing them to go out of business.
Personal - A friend and business owner
24. Protection of Public Health and safety 2.2
The health status of Iranians has significantly improved over the last two decade. Iran has been able to extend public health preventive services through the establishment of an extensive primary health care network. Programs such as needle exchange, condom promotion, methadone maintenance, peer education and psychological support have been prevailing throughout the country. Iran also has one of the highest percentage of population in the middle east with access to drinking water. Iran’s government has made numerous efforts to provide health services to the people living in the rural and out of reach place. But despite all these efforts it must be said that when it comes to comparing some of the public health indicators such TB and infant mortality rates, with developed countries such as the United States and Japan, Iran is still far behind. For example Iran’s infant mortality rate for the year 2012 was estimated at 41.11 per 1000 live births. These figures for countries such as The United States and Japan were 5.98 and 2.21 per 1000 lives births respectively. TB case detection rate was estimated at 81.00 per 100,000 persons, and this rate for The US and Japan was 3.4 and 21.00 per 100,000 persons respectively.
www.unicef.org, viewed on April 2012 ; www.cia.gov, viewed on April 2012 ; Economist Intelligence unit Aug 2008, viewed on April 2012.
25. High Wage Policies 2.5
Iran is classed as a middle income class country and has made significant progress in provision of health and education services in the period covered by Millennium Development Goals. In 2010, Iran’s average monthly income was about $500(GNI per capita in 2009: $10,900 by PPP). There is a minimum national wage applicable to each sector of activity fixed by the Supreme Labor Council. In 2009 this was about $263 per month. The World Bank reports that in 2001 approximately 20% of household income was spent on food, 32% on fuel, 12% on health care, and 8% on education. In 2010, Iran’s department of statistics announced that 10 million Iranians live under the absolute poverty line and 30 million under the relative poverty line. The reason for this is that the minimum wage is not usually adopted by the employers and the employees are content with those wages and simply happy to have a job. Complaints taken to the labor union can take months to be processed and most workers are discouraged from doing that because of the complicated bureaucratic system and the corruption accompanying it. One of the reasons that workers put up with these conditions is the high value society places on being content and also the form of the families. In Iran most of the families are in the form of extended families which live in one house. These houses and most of the property of the family is inherited from past generation, with this consideration we can explain the relative low number of homeless persons in spite of the large number of people living below the poverty line.
Radio Zamaneh May 2010, viewed March 2012 ; Press TV June 2009, Viewed March 2012 ; Iran - encyclopedia of nations Oct 2010, viewed March 2012 ; Personal
26. Environmental protection 3.0
For nearly four decades, Iran has worked to implement environmental protection policies. In 1972 the Environmental Protection Organization (EPO) was formed and two years later the group became affiliated with the prime minister’s office. The merger earned the group national support, both politically and financially. Also under the article 50 of the Iranian constitution, economic and any other activity, which results in pollution or irremediable destruction of the environment is prohibited. The major environmental problems that Iran faces are air pollution, water contamination by industries and desertification. To address air pollution problems the EPO has made numerous efforts such as, converting diesel buses to compressed natural gas, inspecting and regulating automobile emissions and limiting the amount of traffic allowed to the capital city of Tehran by the Restricted Traffic Zone program. Iran has also made many efforts to address water pollution and desertification. In the past the efforts of EPO were thwarted for the most part by its lack of enforcing power and corruption from inside. This condition has been improving in the recent years with the increase of the power of th EPO and also encouragement and subsidies given to the industries which comply with its regulations. Although it must be mentioned that the enforcing power of the EPO is undermined when its target is large government owned industries, such as the oil industry.
Personal View ; www.parstimes.com/law/Iran_law.html, Viewed March 2012 ; Iran Daily - Domestic Economy - 07/01/07, viewed on March 2012.
27.Strong Army 3.5
Iranian military forces are divided into three categories; Iranian Federal Army, The Revolutionary Guard and Basidje. Iranian Federal army is the major defending force against the intruders and consists of ground troops, air force, navy, and the reserve. The total active personnel for the federal army and the revolutionary guard counts up to 665,000 persons. The total military spending for 2008 was estimated at about 2.7% of the GDP. On Feb 2012, president Mahmoud Ahmadinejad presented the administration draft of national budget bill for Iranian calendar year 1391, which shows an increase of 127% for the defense budget.
The third category of Iranian Armed forces is the Basidje, which is a paramilitary volunteer force, controlled by the Islamic revolutionary guard. Iranian sources claim a membership of 12.6 million, including women of which perhaps 3 million are combat capable. By the year 1992 Iran was capable of building its own tanks, armed personnel carriers, radar systems, submarines, and fighter planes. Th most important aspect of Iranian army is the martyrdom culture and the strong nationalistic feeling of its constituents. I personally believe with this attitude Iran can withstand any military attack, short of a nuclear one.
“SIPRI Publication” viewed on March 2012 ; Fars news Feb 2009, viewed on march 2012 ; Personal
28. Foreign Trade impact 1.5
In 2011 exports amounted for 23.77% of the GDP, the share of the imports was 16.5% of the GDP. Adding these two numbers we arrive at the figure for the total foreign trade which is 40.27% of the 2011 GDP. In comparison to countries with well managed economies in which share of foreign trade is balanced around one third (33%) of the GDP, Iran relies heavily on foreign trade. Being an oil rich country Iran has been able to enter trade with many different countries in need of energy.This has been for the most part desirable since oil prices rose sharply after the formation of the OPEC, and have been rising ever since. But this heavy reliance on foreign trade (especially oil) acts as a double edge sword, for it makes the country vulnerable to outside forces. Since 2006, after the disputes over Iran’s intentions for enriching Uranium, the US has been enforcing sanctions on Iran one after another and finally these sanctions started targeting Iran’s oil trade which accounts for more than 80% of Iran’s exports. These sanctions have without a doubt delivered a shock to Iran’s economy, causing the value of Iran’s currency (Rial) to plummet against the dollar and undermining one of the most important sources of income for the government.
Wold Economic Outlook Database, International Monetary Fund. September 2011. Viewed on march 2012 ; Personal.
29.Management of Foreign Currency 3.5
Accumulation of large balances of either surplus or deficit of foreign currencies have multiplied effects on the economy because of the fractional banking system. In this regard Iran has been able to keep these balances below ten percent of its GDP since 1999. In 2011 the total GDP for the country was estimated at 357.2 billion dollars, in the same year Iran earned 84.92 billion dollars from exports which include oil products (more than 80%), cement, construction material, fabrics, food, fruits, Iron Ore, Coal, medicine and hand crafts. This number was equal to 23.77% of the 2011 GDP. Iran also spent 58.97 billion dollars on imports which mostly include agricultural goods, IT and telecom, construction material, industrial equipment and chemicals. Imports amounted to 16.5% of the 2001 GDP. The balance of foreign currency in Iran for the 2011 fiscal year was 7.26% of its GDP.
Memorandum - The foreign trade regime of the Islamic republic of Iran. Ministry of Commerce.(2001). viewed on March 2012.
30. Layers of Collective Action 1.0
In Iran most of the appointees to local governments are selected either through capital leadership or the local religious leaders, meaning that it frequently happens that a manager or a local governor does not even live in his area of control and has almost no related education to perform the job he has been assigned to. Having strong ties with the clergy and professing strong adherence to the doctrines of the revolution are valued more than proficiency and competence. Unfortunately this forces the educated people to flock out of the country whenever they get the chance to, which in itself has brought about a phenomenon aptly dubbed as “Brain Drain”. The young educated people are willing to leave their country in order to go to a place where their skills are appreciated and their personal beliefs are not scrutinized.
Personal Family Experience
31. Pro Business Climate 4.5
In Iran, Bazar is the traditional form of the Market. Businessmen operating in this market form a very influential and powerful group. Although these persons might not have relative academic education, they prosper by acting on the knowledge that has been handed down to them from their fathers. Traditionally the society gives these people a high status, for in the past most of the powerful businessmen were involved in funding charities and helping the needy. Also they have been historically involved in many social movements. Although these businessmen might not be stereotyped as philanthropic nowadays, they still receive high degrees of respect from all classes of society, and this respect is due to the power that accompanies wealth.
Personal family observation
32. Government Enterprises 1.5
Article 44 of the Iranian Constitution stipulates that the country’s economy should consist of state, cooperative and private sectors based on systematic and sound planning. This article heavily favors the public ownership of the economy in it’s details. But the strict interpretation of this article has never been enforced in Iran; the private sector has played a much larger role in than of that outlined in the constitution. Also a 2004 Ammendment to the constitution allows 80% of the state assets to be privatized, 40% of these sales are through “Justice Shares” scheme and the rest through the Tehran Stock Exchange. But the catch here is that the largest of these private entities are closely connected to the government and act in unison with it’s agenda. For instance Iranian Revolutionary Guard Corps (IRGC) are thought to control about one third of Iran’s economy through a series of subsidiaries and trusts, additionally they answer directly to the Supreme leader of Islamic Republic of Iran.
“Profile: Iran’s Revolutionary Guard” BBC Oct 2007, viewed March 2012 ; “120,000 Cooperatives Operating in Iran” Iran Daily June 2008, viewed March 2012.
33. International Security Agreements 1.5
The ability of a country to counter military threats is closely related to the desire of the potential entrepreneurs to invest in that country. Having mutual defense treaties with other is a sound policy in insuring safe grounds for starting business. After the Islamic revolution of 1979, Iran which was the utmost military power in the region, faced a military embargo imposed by the US. As an effect of this Iran lost the military support of the neighboring countries. Nevertheless the country kept purchasing arms from countries such as Russia, China, and North Korea. By 1992 Iran was capable of building it’s own tanks, armed personnel carriers, radar systems, guided missiles, submarines, and fighter planes. Recently Iran succeeded in expanding the range of it’s missile to 3000 km.
Recent disputes over Iran’s intentions Uranium enrichment has spurred talks of a military attack on Iran either by Israel or the US or a coalition of both. Although Iran’s government has not budged against these threats, the psychological effects of an impending war has had a negative effect on the entrepreneurs in regards to their willingness to start a new business.
NTI: Country Overviews: Iran; Missile Chronology. Viewed on March 2012 ; FarsNews “ Air Unit Added to Iran’s Armed Forces. Personal family observation
34. Protection of Domestic Enterprises from Government Mandates 3.5
By the end of Iran-Iraq war in 1989, a movement called ‘Economic Adjustment’ began. The aim of this movement was to transfer large productive units of economy to the entrepreneurs of the private sector. Despite this movement Iran’s economy is comprised of a very large public sector and some 50% of the economy is still centrally planned. Many of the business owners who have strong ties with the religious and the political structure are involved in importing goods from countries such as China, Germany, South Korea, Italy, and Russia. This state of affairs has resulted in the closure of many factories and massive layoffs. The factories that are in production face stiff competition from the importers. To reduce the costs of production factory owners started laying off their workers in large numbers as redundant and began to hire workers on contract than permanent positions, so they can refrain from giving them fringe benefits. Also the wages and salaries of the workers are not increased regularly to counter the effects of inflation which by a 2011 estimation is 16.3%. To that effect by a 2006 estimation 21.8% of Iran’s population lives below the poverty line. Although some of the practices of these factory and business owners are completely against the labor laws, well connected and wealthy people can always get away with them through partisanship or bribe.
Brookings Institute, Djavad Salehi Aug 2003, viewed March 2012 ; Iran and the MDGS, United Nations Development Program ; Personal Experience.
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