Why did Iran’s economy fail to achieve growth over the past decade? This question should be posed to the industrial sector, the main driver of growth.
This was stated by Farshad Fatemi, an economist, in an article for the Persian economic daily Donya-e-Eqtesad. A translation of the text follows:
To understand the importance of the industrial sector in creating economic growth, we need to know that first, the agriculture sector used to register limited and inconsistent growth even when water shortage was not a critical problem. Second, when it comes to achieving growth, the services sector mainly toed the industrial sector. In addition, sub-sectors of services, including hospitality or tourism, have not been able to generial sector can be blamed on various factors.
Today, industries are more interdependent than ever. In recent years, especially after the arrival of Donald Trump in the White House, certain commercial policies were introduced; besides the UK’s exit from the European Union slowed down and at times reversed the globalization process. But we need to bear in mind that most of the world’s industries are interdependent.
Today, it is very likely that the product you are using routinely has been manufactured in Singapore by a Korean company using American machinery, or the same product was manufactured using European technical knowhow while its parts have been made in China and Malaysia, and its international distributor is a company from Turkey.
The idea that “it is possible to have a competitive industry without the need for technical knowhow, industrial cooperation, capital and intermediate goods, marketing power and potential and actual demand in other countries” is delusional. Of course, you might be able to achieve significant success in a specific industry where international competition is not important for decision-makers, but this idea in its entirety is nothing more than a fantasy. For example, although the country has developed missile and drone technology, we should not assume that we’ll be able to be successful in the automobile industry without cooperation with the world. Basically, in some industrial sub-sectors, it is not possible to gain significant growth without having access to a large market.
Problems and Difficulties
Readers might wonder how the industrial sector could register proper growth rates without meeting the above-mentioned conditions in the last decade. The answer is that sanctions restricted the country’s access to some markets, especially that of natural resources (such as crude oil) and markets that provided us with capital goods.
The unavailability of raw materials has reduced the resources sectors’ need to sustain, given the mechanism that Iran’s economy has always been used to. The lack of access to capital goods and technical knowledge has also reduced the competitiveness of Iranian industries. Even industries that still have a decent level of production have failed to grow and develop on par with their foreign competitors as a result of “non-development of competition” or “pressure stemming from large enterprises belonging to the government and public sector”.
Under the circumstances, the process of establishing private enterprises that facilitate the achievement of industrial growth has slowed down.
On the other side, the greater number of the country’s industries is run by the government and semi-governmental enterprises that have lobbying power; they usually have not been able to grow thanks to their structure, and at the same time, they have hindered the growth of enterprises affiliated to the private sector. The economic climate has denied domestic competition and the growth of industrial companies in the past decade more than ever.
In addition, we need to pay attention to the impact of some specific policies and their negative effects on the industrial sector. For example, the policy of manipulating the exchange rate, at a time when the economy was hit by high inflation, has weakened the local industry vis-à-vis foreign rivals. Based on the lessons we have learned from the economy as well as past experiences, we know that producers and manufacturers do not receive forex subsidy, yet the imbalance between costs and revenues (especially for exporters) inflicts irreparable damage on the country’s industry.
In closing, it should be noted that the world’s movement in the opposite direction of the globalization, seen in the last few years, should not mislead the Iranian decision-makers. In the current situation, some countries have decided to slow down the integration process of their economy with the global economy; they have decided to retreat from 90 to 80. There is still a long way to go for us who are standing at 20; we need to get closer to global standards.
