Economy, Domestic Economy

Development Plans Gone Awry

Development Plans Gone AwryDevelopment Plans Gone Awry

Successive Iranian administrations have earned more than $1,000 billion in oil revenues since the 1979 Islamic Revolution. But, instead of saving the revenues in an investment fund, they have spent almost all of it to cover current and capital expenditures.

Analysts believe the government’s development plans lack efficiency. The development and construction laws and regulations, passed by the Majlis in 1974, make it mandatory for such projects to undergo preliminary feasibility studies before execution. But, unfortunately most of the projects planned and implemented by the government over the past 36 years did not prove to be economically feasible.

Experts criticize the Management and Planning Organization (formerly known as the Plan and Budget Organization) for what they call mismanaging government funds by investing them in the construction projects that did not result in sustainable growth.

Instead for implementing construction projects using oil revenues, experts suggest the administration invest in sustainable and productive development projects that would generate sustainable income for the government.

Currently, decisions regarding development projects are centralized and taken with non-economic factors such as the political interests in mind. While oil is widely considered as a capital good, selling it in crude form leads to opportunity costs for the economic system that could only be compensated by investing the revenues in productive projects with reasonable “return on investment.”

A society acquires capital goods by saving wealth which can then be invested in production. In economic terms, one can consider capital goods to be tangible assets that are used to produce other goods or services during a certain period of time.

Return on investment (ROI) is the benefit to the investor resulting from an investment of some resource. A high ROI means the investment gains compare favorably to investment costs. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. In purely economic terms, it is one way of considering profits in relation to capital invested.

An independent economic analyst, Saeed Amirian believes that populist approaches in deciding and implementing development projects over the past decades have been a crucial mistake by former administrations. “Populism drove the governments to start several projects simultaneously while the financial and operational resources of the central and local governments were not enough to support so many projects,” he explains.

It is the responsibility of every government to respect public opinion, but when it comes to making economic decisions, feasibility and other economic measures must be the decision makers’ priority.

The inefficiency of the government’s more than $1,000 billion worth of investments is obvious after a quick review of the country’s economic indicators. High rate of inflation (18.2% in the year ending in November 2014) shows that revenues were also wasted through inefficient monetary policies.

Negative economic growth (-2.2 percent by the end of 2013) indicates the administrations’ failure to increase the level of productive activities, while the high rate of unemployment (10.4% in 2013) shows government inability to generate wealth by increasing productivity.  

Economic problems can only be solved through sustainable economic growth, which is achievable by implementing “feasible investment and development plans.”  The administrations should make every effort to create jobs for the generation born during the 1980s, or otherwise social problems should be expected in the near future. More of the same will simply not do.