Economy, Domestic Economy

Economic Heavy Lifting Required

Economic Heavy Lifting RequiredEconomic Heavy Lifting Required

No one doubts that Iran has potential. With almost 80 million people, it is the world’s 17th-most-populous market.

The country has competent farmers, carmakers, drug firms and a fairly sophisticated services sector, making it less dependent on oil, now at rock-bottom prices, than other big producers such as Iraq and the Persian Gulf states.

The government’s target of 8% growth over the next five years is less unrealistic than many rivals’ five-year plans. Economists talk of Iran being able to imitate Turkey’s transformation in the late 1990s, wrote The Economist.

“But by itself, sanctions relief will not transform the ailing economy. There are deep underlying problems,” says Mohammad Khoshchehreh, a professor at Tehran University. “Sanctions are just part of it; there is a history of mismanagement, too.”

Today Iran’s most pressing problems include double-digit inflation, slow growth, low productivity and a stubbornly high unemployment rate of 10.6%. President Hassan Rouhani inherited these problems from his predecessor, Mahmoud Ahmadinejad, and has improved things. His election stoked confidence and he has returned to more orthodox economic policies.

Growth rebounded to 4.3% in 2014, a big improvement on the 6.6% contraction in 2012.

President Rouhani scrapped a populist housing program, under which poor people were given free land to build on and the central bank printed money to provide them with mortgages.

Inflation has duly fallen from around 40% to around 15%. However, growth is expected to stall again, thanks to low oil prices. The flabby state sector needs a lot more trimming and the private sector yearns to be unleashed.

Sasan Rahnema, an Iranian businessman who returned from America in 2005, says there are more firms in Iran worth putting money into; he calls it a “cool situation”. But most investors are still tentative.

Rahnema has invested in Cafe Bazaar, an app store for Iran, and Divar, a classified-advertising site.

The government wants more foreign investment to boost its hard-currency reserves. But that would not be the main benefit of an open economy without sanctions.

“It is more important for us to have managerial assistance, know-how, communication with the outside world and economic opening,” says a worker in Tehran’s financial sector.

Rahnema says the end of sanctions will be a mixed blessing for the average Iranian businessman.

“We have to improve all-round quality to be able to compete with foreign firms,” he says.

The low oil prices could have benign side effects for Iran.

“The lower the price of oil, the weaker the government gets and the stronger the private sector,” says an analyst in Tehran. “I’d like it to fall to $20 a barrel.”