COUNTRY PROFILE OF IRAN
IRANIAN ECONOMY FROM APRIL 1999 TO APRIL 2000
In studying the various sectors of the Iranian economy, we observe an increase in oil and gas income to the ceiling of 16 billion dollars in 1378 (1999-2000), recession in agriculture and industry sectors, a 22.5 growth rate of unemployment up to September 1999, stagnation of development projects due to the increase in the government's current expenses to the tune of 23 percent and the stagnation of investments to the tune of 37,143 rial per person. Export of non-oil commodities in the said period amounted to 3.5 billion dollars including 0.8 billion dollars worth of petrochemical and steel products exported abroad the major part of which was spent on importing raw materials needed by steel and petrochemical plants. Over 600 million dollars worth of shares were traded at Tehran Stock Exchange in the said year.
GROSS DOMESTIC PRODUCT
The gross domestic product (GDP) at the current prices of 1377 (March 1997 to March 1998) amounted to 327,600 trillion rial registering an 18 percent increase over the previous year. This was while, the monetary value of GDP at the fixed prices in the same year stood at 15,445 billion rial which was two percent more than a year before. Although no official statistics have been released for the year 1378 (from March 1998 to March 1999), according to the governor of the Central Bank of Iran, the GDP grew by 2.4 percent in 1378 compared to the previous year. Therefore, one can come to this conclusion that the GDP at fixed prices has amounted to 15,815 billion rial. The limited growth of GDP in Iran despite the upward trend of oil revenues since the second quarter of last year indicates the existence of some infra structural shortcomings because economic growth for 1999 in the world has been estimated at 2.6 percent in the industrialized countries and at 3.2 percent in the developing countries.
INCOMES FROM OIL EXPORTS
Following the slump in oil prices on international markets in 1377 (1998) when the price of oil reached a record low of 10 dollars per barrel, the members of the Organization of Petroleum Exporting Countries (OPEC) decided to decrease their production ceiling and as a result the quota of the Islamic Republic of Iran was confined to 3.3 million barrels and given its domestic consumption of 1.2 million barrels per day its exportable crude dropped to around 2 million barrels per day. Following recovery of oil prices and stability of oil markets, Iran's oil revenues began to increase to an extent that according to statistics released so far its revenues from oil and gas exports now stand at 16 billion dollars which shows a substantial growth compared with the previous year. The surplus incomes from oil exports have been spent on compensating the losses inflicted by drought on the country and subsequent sharp decline in production of crops and on repaying foreign debts.
GOVERNMENT BUDGET
The general budget of the government for 1378 (1999) stood at 94,181.9 billion rial which showed a 16 percent growth compared to the budget of the previous year. The composition of the government budget was such that because of excessive expansion of the government's executive structure its current expenses had a more growth than others, registering a 23 percent increase over the previous year. This is while that development budget did not grow so much due to stagnation of reconstruction efforts and reached 32,795.6 billion rial. The figure showed an increase of six percent compared to the previous year. In other words, the development budget constituted only 34 percent of the general budget which compared to the previous year's ratio of 38 percent registered a negative growth. The decline in the development budget directly reflected the slow implementation of infra structural projects to an extent that periodical visits and statistics released by organizations concerned bear testimony to an extensive recession in development and infra structural efforts.
The trend of budget allocation in the development sector intensified the concerns of economic officials so much so that based on statistics concerning the period ending in the month of Shahrivar (Aug. 23-Sept. 22), of the total development budget of 32,795.6 billion rial for 1999, only 11,840 billion rial has been paid. If this trend is generalized to cover the last months of the year, one can come to the conclusion that the development budget constituted only 23 percent of the general budget, something which is questionable and for which officials concerned should find answers given the fact that the government's foreign exchange revenues have increased considerably. IMPORTS
Based on the statistics released by the Customs Administration, a total of 13.3 billion dollars worth of goods arrived in the country in 1999 via Iranian ports and other entrance points. The Table number one offers more details about this. As shown by the statistics in Table 1 a major part of goods imported to the country were basic consumer goods such as wheat, barley, corn, rice, sugar, vegetable oil and so on to an extent that these basic consumer commodities totally worth 2.1 billion dollars practically accounted for 16 percent of the country's total imports. Other imported consumer goods such as iron ware, paper and cardboard had a considerable share in the country's total imports. The import of investment goods including machinery and equipment for production amounted to 3.8 billion dollars, constituting 28.6 percent of the total imports.
The improper composition of imports and spending a large portion of the country's hard currency incomes for supply of consumer goods needed by the public has made the revision of agricultural policies inevitable.
UNEMPLOYMENT
The low level of investments, sharp drop in the government's development budget, the reluctance of the private sector to make productive investments and inclination towards commercial and middleman activities had negative impacts on the creation of new jobs so much so that the rate of unemployment for the period ending in Shahrivar (Aug. 23-Sept. 22) was put at 16 percent which registered a 22.5 percent rise compared with the previous year.
Non-statistical observations point to the existence of extensive hidden unemployment in the country, suggesting that the real rate of unemployment in the country is much more than official statistics. The problem of unemployment and the need to contain its ever increasing growth rate is among the prime concerns of the government and this is why that according to the stipulation of the Third Five Year Economic Development Plan, the government has predicted creation of 750,000 new jobs in the country annually. To attain this goal, the country needs to achieve a 6 percent economic growth rate per year which in turn requires that the ratio of investment to the GDP be doubled, something whose possibility is very remote.
The points mentioned above covered major problems facing the Iranian economy in 1378 and since it is of great importance to deal with other aspects of the issue, the following part of the article has been devoted to studies on conditions prevailing in various sectors of economy, physical aspects of economy, achievements and setbacks in 1999.
INDUSTRY SECTOR
Industry has played a key role in the economic development of developing countries and this is why development policies have always been based on increasing industrial investments. In the Islamic Republic of Iran, administrative structure is such that the whole industry sector has not been put under a single category. The following is a review of various industrial sectors:
PETROCHEMICAL INDUSTRIES
Petrochemical industries are among the industries which enjoy special advantages over other industries in oil rich countries including Iran. For this reason, the majority of oil rich countries have paid more attention to this industry and given investment priority to this sector. The Islamic Republic of Iran was unable to pay attention to this industry for nearly ten years as a result of problems arising from the war with Iraq. The end of the Iraq-Iran war (1980) provided this industry with an opportunity to absorb a great deal of investments to an extent that the monetary value of petrochemical products produced domestically now stands at 2.5 billion dollars of which 500 million dollars is exported. In other words, petrochemical industries account for one sixth of the country's total non-oil exports. The production of petrochemical plants in Iran now stands at 13 million tons per year which compared to the 40 million ton production of Saudi Arabia, seems a small figure. Since a new management took over the National Iranian Petrochemical Company, investments for development of petrochemical industries have increased so much so that in 1999 letters of credit were opened for implementation of some important plans for production of synthetic fibers and complex industrial polymers. The Table number two offers more details in this regard. It is noteworthy that simultaneous with implementation of these plans, projects such as a methanol plan on the Kharg Island with an annual capacity of 600,000 tons came on stream in January. The plant was partly financed by national bonds released and sold to the public for this purpose.
An interesting point with regards to the petrochemical industries is that for the first time a public share-holding company named Petrochemical Industries Investment Company was established which now has 50,000 share holders. The company managed to receive a 30 million dollar loan from the Islamic Development Bank (affiliated to the Organization of the Islamic Conference) to implement a large project for production of P.E.T. a raw material used for production of disposable dishes which are now being imported to the country at high prices. This is considered very important in this industry and a prelude to future moves.
MINES AND METALS SUBDIVISION
The second section of the industries which enjoys relatively abundant advantages in Iran and which plays a key role in the structure of industrial production is the Mines and Metals Ministry subdivision. This subdivision includes such strategic industries as steel, aluminum and copper. Considerable achievements were not made in the production of such goods in 1999. The production of steel remained unchanged at 6.2 million tons which is far from the 10.5 million ton target predicted in the Second Five Year Development Plan. Nonetheless, a very fundamental incident took place in this industry last year which was unprecedented in its history and that was the signing of important contracts worth over one billion dollars for implementation of extension plans at Isfahan and Mobarakeh steel mills and for establishment of a plant which is unique in the Middle East for production of wide steel sheets. This is while that 25 years after the discovery of coal mines in Tabas in the northeastern Province of Khorassan, a contract was signed for purchase of equipment needed for extraction of coal from those mines. This will help put an end to the import of coal for steel industries in the future. At the same time, a second hand steel mill was purchased from Bulgaria at a relatively low price. The executive affairs concerning this project will start soon. The only negative point in the development of steel industries in 1999 was the failure to sign a contract for establishment of Hormuzgan steel complex with an annual production capacity of 2 million tons. It is hoped that this project will bear fruit in the current Iranian calendar year (began March 2000). All projects and plans under way in the steel industries will raise the production of steel in the Islamic Republic of Iran to 15 million tons a year once they come on stream and this is considered a great achievement in this field. But due to an increase in domestic consumption, it is not possible to export a great deal of this product and this necessitates new plans for establishment of new steel mills in the southern parts of the country for export of this product abroad.
In parallel with these measures taken so far, other plans for production of steel with high value added got under way which once operational within the next two years will make the country self-sufficient in production of color and galvanized tin-coated sheets and will enable it to export a portion of domestic production abroad.
As for production of aluminum, no specific measure was taken despite the existence of abundant advantages in the country. The production of aluminum remained almost unchanged at 120,000 tons. Because of financial problems, the extension plans for Almahdi aluminum smelter got stuck.
As for production of copper, the only copper smelter of the country in Sarcheshmeh, Kerman Province, managed to get close to its nominal capacity. With completion of copper producing plants in East Azarbaijan and Kerman provinces, the country's copper output is expected to double its present level in the next three years. The only setback observed in the mines and metals sector stemmed from the non-implementation of plans for production of graphite electrodes which is the main raw material for production of steel. This is while negotiations for signing a contract for production of ferrous chrome for the purpose of export failed.
INDUSTRIES MINISTRY SUBDIVISION
The Industries Ministry subdivision covers a wide range of industries some of which including those producing household appliances faced a drop in output due to excessive imports of such goods from abroad. No particular move was seen for establishment of new industrial units and according to estimates, the foreign exchange budget allocated to new investment projects were not absorbed mainly due to the liquidity problems facing the manufacturing units. As for commissioning of new plans, no considerable cases except electro motor plant of Khorassan and flue glass factory of Saveh, were observed. All in all, the performance of this section of industries with regards to establishment of new manufacturing units and finding the missing links of domestic production in 1999 can be assessed as negative. In spite of this, the opening of letters of credit for the smelling unit of Esfarayen steel complex and paper plan of Khorramshahr, southern Iran, are regarded as major successes of this section of industries in creating new production capacities.
AGRICULTURE SECTOR
The drought crisis in 1377-8 (1998-99) had extensive damage on the agriculture sector to an extent that the imports of barley, wheat and corn drastically rose, absorbing a large portion of the country's foreign exchange revenues. Given the amount of precipitation in 1378-79 (1999-2000) farming year, it seems that the drought crisis will persist this year. Initial estimation indicates heavy damage to wheat farms in Khuzestan, Sistan and Baluchestan and Kermanshah provinces. The only promising point in the agriculture sector was the inauguration of the first ever sugar cane plant in Khuzestan Province by President Mohammad Khatami during the Ten-Day Dawn period (February 1-11) marking the anniversary of the victory of the Islamic Revolution. However, foreign exchange problems and shortage of financial resources have shrouded the largest sugar cane project with clouds of ambiguities and uncertainties. This requires the officials concerned to take serious measures to solve this problem.
PRIVATIZATION
The immense structure of the public sector and its inefficiency have made transfer of a number of state-owned companies to the private sector inevitable. In two consecutive years, the government embarked on including article 35 in its annual budget laws while no remarkable achievement was observed. The total value of shares offered by the government organizations and the public sector to the Tehran Stock Exchange reached 2,034,842 billion rial which compared to the 500,000 billion rial worth of the assets of state-owned companies is a small figure.
The table number three offers more details about this issue. A negative point in this regard was that government organs such as retirement funds, Social Security Organization and investment companies affiliated to banks were major purchasers of these shares which means that privatization in the real sense of the word has not been carried out.
In order to solve problems in ceding shares of state-owned companies, both the government and the Islamic Consultative Assembly (parliament) tried by annexing some legal points to the law of the Third Five Year Development Plan, to pave the way for mass transfer of the state-owned companies to the private sector and full implementation of privatization policy. But such efforts failed due to the opposition of the Guardian Council, thus adding to the existing ambiguities.
CAPITAL MARKET The Tehran Stock Exchange left behind a brisk year last year with transactions made there reaching all time high of 500,000 billion rial. The current value of the shares of companies admitted to the Tehran Stock Exchange reached a record high of 43,000 billion rial. The price index of shares (TEPIX) with a growth of 43 percent rose to 2,206.2 points while 14 new companies joined the list of companies admitted to the Tehran Stock Exchange.
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