Private Sector Integral to Sustainable Economic Growth

Based on the latest report by the Central Bank of Iran, the economy experienced a 7.4% growth during the first half of the current fiscal year (started March 20) compared with the corresponding period of last year.

The report does not elaborate on sector-by-sector growth rates, saying the details will be released soon. Yet there is evidence that the two sectors of oil and agriculture account for the lion’s share of the growth over the period.

“Data on Iran’s macroeconomic indicators, including the 7.4% economic growth over H1, as well as the fall of inflation to below 10%, are apparently harbingers of a prosperous economic future,” renowned economist Mousa Ghaninejad wrote in the Persian daily Donya-e-Eqtesad.

“Based on what the announcers of GDP growth rate have said, this growth was mainly the result of increased oil exports and a boost in agricultural production. Yet, in order to sustain the economic growth, we should not rely on these two sectors.”

  Unreliable Source of Income

Iran’s oil export volume, he said, is nearing its maximum limit. Moreover, global crude oil prices, according to experts, are not expected to rise significantly.

Iran is now pumping close to 4 million barrels of crude oil and condensates per year, almost level with its pre-sanctions production peak, according to government data.

As part of a historic OPEC accord reached last month to cut crude supplies to prop up prices, Iran agreed to maintain its output ceiling at 3.8 million barrels per day through the first six months of 2017.

“Dependence on oil revenues, which is always accompanied by fluctuations, has caused instability in the domestic economy. Therefore, they cannot guarantee a continued economic growth in the future.”

   Agro Self-Sufficiency Under Scrutiny

Ghaninejad believes that the growth in agriculture sector and the self-sufficiency achieved in wheat production are not necessarily good news for the national economy either.

“The rise in agro production owes to hefty subsidies paid by the government, which is a waste of resources and most certainly, not a sign of increased productivity.”

In the current Iranian year (started March 20), more than 14 million tons of wheat were produced, over 11.5 million tons of which, worth 145 trillion rials (close to $4 billion at market exchange rate), were purchased at guaranteed prices by the government.

This made Iran self-sufficient in wheat production and a thanksgiving ceremony was held on December 22 to celebrate the success.

Previously, Iran had experienced self-sufficiency during March 2004-5, but due to a change of policies in the previous admiistration, the country started importing the crop during August 2005-13.

According to a report by Financial Times, Iran became the biggest importer of wheat in 2009.

Ghaninejad also thinks that in view of the acute problem of water shortage in Iran, encouraging the cultivation of water-intensive crops is strategically against national interest and therefore must be abandoned.

Iran’s annual water consumption tops 97 billion cubic meters, while the country only has 88 bcu of renewable sources, according to former agriculture minister, Isa Kalantari, who is also the director of Urmia Lake Restoration Project and environmental advisor to First Vice President Es’haq Jahangiri.

“That means our annual water consumption is 110%, whereas it should be closer to 40% of our available water per year,” he said.

Environmentalists, social scientists and the cross-section of academia and media have for years appealed to the masses to cut water consumption and called on officials to undertake meaningful reforms, but to no avail.

There is strong consensus that if water consumption patterns do not change in the near future, many parts of the country will turn into barren desert while entire towns and villages will become uninhabitable.

“Imprudent measures taken over the past four decades on the pretext of reaching self-sufficiency and granting support to farmers, including the wasteful allocation of different forms of subsidies and cheap foreign exchange to agro production, reckless exploitation of water resources and the cheap energy supplied to the sector, have brought our water-stressed country to the brink of the crisis it is facing now,” Ghaninejad said.

   Private Sector Holds the Key

Based on the above-mentioned, the economist noted that if the oil and agriculture sectors are not considered engines of economic growth, and in view of the government’s tight financial resources, a thriving and active private sector becomes an indispensible part of high and stable economic growth in the future.

Yet, he believes that the government policies concerning the private sector are fundamentally flawed.

“Assuming that the only problem they face is a shortage of liquidity and working capital, officials have taken unreasonable and conflicting measures with regard to the private sector, which has only complicated their condition,” he said.

“What the government actually does is to punish the productive economic entities by increasing tax pressure and other bureaucratic impediments on the one hand, and encouraging the unproductive ones by granting them banking facilities on the other.”

This sums up the populist and short-term plans of government officials, in Ghaninejad’s opinion, who believes such policies have led to the deterioration of the business environment.

He says active economic players have come to believe that the government is helping out the incompetent economic entities at their own expense. “It is more than natural for profiteers and rent-seekers to take hold of the reins of Iran’s economy in such an atmosphere and gradually put entrepreneurs at a disadvantage by creating an environment that is not at all conducive to growth,” he said.

Such important and job-creating sectors as construction, industries and services have either experienced a meager growth during the first half of the year or remained in recession.

“The government should change its ways, reevaluate its policies and opt for a more strategic and rational approach to help spur economic growth that sustains in the years to come,” he concluded.   

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