Economic Indicators

GDP

Fueled by the current level of oil prices, the country’s macroeconomic situation does not look as negative as suspected, and the economic outlook appears positive. Over the past 10 years, the Iranian GDP has witnessed an average 5 to 6% annual growth.  This has increased the GDP from around $115 billion in 2002 to some $285 billion in 2007. 

It is important to note that based on UN’s PPP calculation of the GDP, Iran’s GDP stands at $700 billion, ranking 18th in the world.

Iran’s GDP per capita has also had a significant growth.  From 2003 to 2007, the GDP per capita grew by 100%.  Iran’s Economics Magazine, a private-sector publication by major Iranian economists, forecasts another 45% growth until 2010.  This combined with population characteristics of Iran, are transforming Iran from a “needs” market to a “wants” market.

GDP Distribution – While many believe that Iran is an oil-driven economy, and given the fact that about 75% of the country’s hard currency earnings are generated through oil exports, a closer look at the sector distribution of GDP indicates that it is a relatively diversified economy. Though the oil sector contributes to about 18%, the service sector, with about 40% enjoys the lion share of the GDP.  The chart and table below represents the breakdown of key sectors in the Iranian economy for 2007.  

Chart 2: Iran’s GDP Distribution (Source: Central Bank of Iran)

Agriculture - Agriculture has always been a key economic employer and contributor to Iran’s economy.     As demonstrated by the chart above, agriculture contributed to 13% of the GDP last year.  The sector employs 3% of the labor force and represents 21% of Iran’s exports. The major obstacle for agriculture in Iran is access to water.   Even though only 20% of Iran’s land is desert, only 10% of the country receives adequate rainfall for agriculture.  The majority of arable land is used for production of wheat (50% of land usage) and barely.  Only 15% of the land in Iran is used for production of fruits.

Unemployment – The unofficial unemployment rate currently stands at 14.5%, while official sources put it at 10.4%.  The reason for the difference is the phenomenon of underemployment – this is the mismatch between university graduates and job opportunities in the market.

The unemployment rate is relatively higher among females and, in recent years, in urban areas as opposed to rural areas. Based on the most recent census, the total population aged 10 years and over in Iran numbered approximately 59 million, of which the economically active part was 23.4 million. The remaining was classified as students, homemakers (all men and women not being economically active) or income recipients.

Foreign Reserve – Iran’s foreign reserves principally comprise its foreign exchange balances, which have grown significantly in recent years following the establishment of the Oil Stabilization Fund. The country’s net foreign reserves are about $11.7 billion (April 2008). The reserves have grown in recent years reflecting improved oil earnings and reduced external debt repayment obligations.

Foreign Exchange Rate- Foreign exchange policy in Iran is drafted and implemented by the Central Bank of Iran (CBI).   Since March of 2002 Iran has been using a managed floating exchange rate.  Excess hard currency has also allowed the Central Bank of Iran to bring down and stabilize the exchange rate.  For the past few years the Free Market Rate has been highly stable against the US$ and it currently (May 2008) stands at Rials 9,250 to the US$.

While in the past few years, official policy has tried to implement a “controlled devaluation” of the Rial (by about 3 to 5% per annum) in recent months, the policy has moved towards pegging the Rial against a basket of international currencies (mainly Euro, but also with some deference to the Yen, US$ and Swiss Francs).   Consequently, there will be some affinity between the Rial value and the international ratios between the US$ and other currencies.

Import/Export and Trade Partners

Today Iran’s exports, that account to $96 billion, are dominated by the oil exports (80%), while petrochemicals, carpets and nuts constituted the majority of the remaining.    Iran’s non-oil exports hit $14.5 billion in 2007.

Iran’s import of goods has been growing exponentially since 2000. The volume of imports rose by 189% from 2000 to 2007 to an estimated $52 billion. Industrial raw materials, intermediate goods, capital goods, foodstuffs and other consumer goods, and military supplies constitute the majority of imports.  Further, the official trade statistics do not reflect the large black market for foreign goods.

The government’s policy for fixing the exchange rate, concurrent with their failure to control inflation, has significantly contributed to the growth of imports.   As the price of imported goods is becoming less and less expensive than domestic goods the demand for imports is rising.    At the same time, the cost of production has increased in line with the rising domestic pricing, and the non-oil exporters have had a difficult time competing in export markets.

Planned Economic Reforms

Iran’s planned economic reforms include 1) replacing energy subsidies with targeted social assistance, 2) injecting about $13 billion to recapitalize the banking sector, 3) divesting 80% of the government’s shares in state-owned enterprises in most economic sectors by 2010, and 4) working with the World Bank to improve the business climate.[1]