Domestic Economy

SCI: Industries Remain Propeller of Growth

The strong economic growth of late in Iran owes greatly to the removal of sanctions against the country.The strong economic growth of late in Iran owes greatly to the removal of sanctions against the country.

The industrial sector was the main driver of economic growth during the three quarters of the current Iranian year (started March 20, 2016).

Details of Iran's GDP growth during the period were released by the Statistical Center of Iran, showing the industrial sector grew by 10.5%, according to the SCI website.

The overall economy registered a 7.2% growth and stood at 5% by excluding the oil sector.

The government allocated 160 trillion rials ($4.2 billion) this year to support struggling small- and medium-sized enterprises to stimulate the industrial sector.

Latest reports show 156.8 trillion rials ($4.1 billion) had been granted to 22,893 SMEs in the 11 months to February 18, 2017.

Most of the loans were given to SMEs in Mazandaran Province (987 businesses), Isfahan Province (965 businesses) and Gilan Province (768 businesses).

By definition, enterprises run by under 50 workers and under 100 workers are considered small- and medium-sized respectively, according to Iran’s Small Industries and Industrial Parks Organization.

Some 96% of all licensed Iranian businesses are considered small- and medium-sized. About 88,000 manufacturing units are active in 992 industrial parks across Iran, accounting for 42% of all employment in the industrial sector.

According to ISIPO Chairman Ali Yazdani, the current Iranian administration has allocated 87.9 trillion rials ($2.3 billion) to 8,743 new industrial units for creating 151,000 jobs. These were part of 12,469 requests for facilities to start an enterprise.

Manufacturing has been in recession as a result of sanctions imposed on the economy over Iran’s nuclear program, among other reasons. Economic restrictions blocked Iran’s access to technologies, machinery and raw materials, thereby increasing costs and reducing demand.

The sanctions were coupled with a sharp fall in the price of oil, Iran’s main source of revenues, in 2014. As a result, the government failed to provide financial support to cash-strapped industries to help them emerge from recession.

That seems to have changed recently, slowly but steadily, as Iran managed to have the sanctions lifted in January 2016, as part of a nuclear deal it clinched with world powers earlier in 2015, in return for limiting the scope of its nuclear works. This paved the way for an inflow of foreign investment.

Industrial parks in Iran attracted $1.84 billion in foreign direct investment since 2013, of which $653 million have been invested after the implementation of the nuclear deal.

Foreign investors have signed 47 contracts to establish small- and medium-sized enterprises for creating 2,740 jobs. The contracts have been signed by Turkey, Azerbaijan, Ireland, Japan, Iraq, Afghanistan, Croatia, China, Germany, France, Turkmenistan and the UAE.

According to Gholamreza Soleimani, a deputy head of ISIPO, Iran has lined up 160 projects in industrial parks in need of an aggregate of 3.85 billion worth of FDIs.

Seven of the 47 contracts have been signed since the removal of sanctions. Of all the agreements, 25 projects have become operational.

Early January, Deputy Minister of Industries, Mining and Trade Reza Rahmani said more than 20,000 industrial units have emerged from recession since the beginning of the current Iranian year (March 20, 2016).

Sonya Pouryamin, an advisor to industries minister, said the government has also helped revive factories whose production had come to a halt.

“With the support of the incumbent administration, 3,319 shuttered industrial units have come back on track,” she was quoted as saying earlier this year.

Iran’s industrial sector also saw the highest growth of 9.1% in the first six months of the current fiscal year among other economic sectors of Iran, according to the Statistical Center of Iran.

Agriculture Sector Growth: 5.7%

The agriculture sector was the next fastest growing sector during the nine months, as it registered a strong 5.7% growth.

A thanksgiving ceremony on December 12 was attended by President Hassan Rouhani, who highlighted government measures to ensure food security and self-sufficiency in the agriculture sector.

“In the Iranian year 1392 [March 2013-14 when Rouhani became president], Iran produced 97 million tons of agricultural products. This year [started March 20, 2016], agricultural production has already reached 117 million tons,” the president said in an address to the ceremony.

Rouhani noted that over 14 million tons of wheat were produced this year, more than 11.5 million tons of which—worth 145 trillion rials or close to $4 billion in market exchange rates—were purchased by the government.

Iran was the 11th biggest producer of wheat worldwide in 2015 for the third consecutive year, according to the Food and Agriculture Organization of the United Nations.

In its latest report on Iran’s agricultural sector, Business Monitor International estimates that Iran’s wheat production will reach 16 million tons by 2019-20 and wheat yields are expected to improve, because of the use of modern technology, greater access to inputs and a larger area of the country benefiting from irrigation facilities.

Not only did Iran attain self-sufficiency in wheat production this year, but with the production of 1.6 million tons of sugar, the country is no longer in need of importing the product, IRNA reported.

Agriculture Minister Mahmoud Hojjati, who was also present at the ceremony, said by using modern technology and equipment, domestic production can further increase while conserving water and soil resources.

Services Sector Growth: 5.4%

The last category in the SCI report belongs to the services sector, which reportedly grew 5.4%.

The services sector comprises wholesale and retail trade; restaurants and hotels; transport, storage and communications; financing, insurance, real estate and business services; as well as community, social, education, health and personal services.

First Vice President Es’haq Jahangiri said the services sector is the most important field of economic activity in Iran.

Speaking in Iran's Chamber of Guilds Forum back in December, Jahangiri noted that the domestic services sector accounts for 47-48% of Iran’s gross domestic product.

According to an SCI report on Iran’s job market, during the second quarter of the current Iranian year, the services sector employed 49.1% of the country’s population, whereas industrial and agricultural sectors provided 31.5% and 19.4% of Iranians with jobs respectively in summer.

More details on GDP growth for the period of the current Iranian fiscal year have yet to be released, including the growth in oil, construction and mining sectors.

 Oil Sector: Biggest Contributor

The strong economic growth of late in Iran owes largely to the removal of sanctions against the country, especially against its oil sector, as part of the nuclear deal Tehran signed with world powers in 2015, which opened up Iran's economy to the world. In exchange for the sanctions removal, Iran agreed to scale back the scope of its nuclear program.

The SCI report on Iran's economic growth for the first half of the year showed the oil sector registered the highest increase in GDP in the period with a growth of 61.3%. A 55.4% and 67.2% growth was reached in the first and second quarters respectively. 

According to government data, Iran is now pumping more than 3.9 million bpd of crude oil and condensates, and the output is expected to reach the 4 million bpd mark in April, the level it used to ship before the tightening of sanctions. Exports stand at around 2.8 million bpd. Production peaked at 4.2 million bpd for a short spell before the international sanctions were tightened against Tehran in 2011 and 2012. Iran is now the third-largest OPEC producer behind Saudi Arabia and Iraq, which pump around 10 million bpd and 4.5 million bpd respectively.

The SCI's H1 report also showed the construction sector saw the biggest contraction during the six–month period, experiencing a -13% growth, with -25.6% for spring and -2.6% for summer.

The mining sector registered a negative growth of 7.3% with the first and second quarters registering -9.4% and -5.4% respectively.

Iran’s economy emerged from recession two years ago (fiscal year March 2014-15) with a 3% growth. The rebound followed two years of recession when the economy contracted 5.8% and 1.9% back to back, according to the Central Bank of Iran.

The Statistical Center of Iran put last year's (ended March 2016) growth at 0.9%.

The International Monetary Fund has projected in its latest report that Iran’s economic growth will stabilize at 4.5% over the medium-term, as the country’s recovery broadens. Real GDP growth is expected to reach 6.6% in 2016/17 and to ease to 3.3% in 2017/18, as oil production remains close to the OPEC target, according to the report.

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