Economy, Domestic Economy

Productivity to Boost GDP

Productivity to Boost GDP Productivity to Boost GDP
Experts believe an important reason behind low productivity in Iran is the reduction in real wages

The Iranian government believes productivity gains will help meet 2.8% of its 8% annual growth target, the head of the National Productivity Organization of Iran said.

Roya Tabatabaei added that 2.8 percentage points of that growth will come from improved productivity, ISNA reported.

The government has set an 8% annual growth target for the sixth five-year development plan (2016-21). Iran’s gross domestic product in the first quarter of the current fiscal year (started March 20) grew 4.4% compared with last year’s corresponding period, President Hassan Rouhani announced last month.

The economy emerged from recession two years ago with a 3% growth. The rebound followed two years of recession when the economy contracted 5.8% and 1.9% back to back.

The Iranian economy grew 0.9% in the last fiscal year, the Statistical Center of Iran reported.

Agriculture helped Iran from falling back into recession with a 5.4% rise in output. The services sector stalled, as it edged up in output by 0.2% compared to the previous year. Services, however, were far better than industries. The industrial sector contracted 2.2% during the year, as weak consumer spending and lack of adequate financing ate away at output.

It is unclear how the government has calculated a precise figure of 2.8% for the next five years. Productivity is a complex concept consisting of factors like education and training, capital and infrastructure, technological progress, market efficiency and even macro factors like good governance and economic stability. A common measurement of productivity is total factor productivity, which is determined by how efficiently and effectively inputs are utilized in production.

Tabatabaei added that her organization is starting training programs for government agencies and has proposed creating a deputy position in every ministry to coordinate efforts with her organization.

Economy Minister Ali Tayyebnia said a 5% economic growth will be achieved before the Iranian year is out in March 2017, noting that the rise in oil production and export will be the main driver of the growth. The growth forecasts by Iranian officials for the current fiscal year are slightly above World Bank’s 4.2% and 4.6% estimates for 2016 and 2017 respectively. The International Monetary Fund sees a 4-4.5% GDP growth over the medium term.

Tabatabaei had earlier said productivity in Iran has grown minimally by 0.5% over the past 15 years.

“Western sanctions imposed on Iran over its nuclear energy program, lower investments and failure to take advantage of new technologies led to a negative productivity growth rate from 2011 to 2013,” she said.

Experts believe an important reason behind low productivity in Iran is the reduction in real wages. A 2010 paper on labor productivity coordinated by Firouz Fallahi, a professor at Tabriz University, argues that higher wages will encourage workers in Iran to work more intensively.

Over the past few years, inflation has been consistently higher than minimum wage increases. While this trend has put pressure on workers to work more jobs and hours, there seems to have been a concomitant reduction in their efficiency.

Inefficient and outdated machinery and technologies have been another reason behind low productivity. Economic sectors heavily dependent on capital inputs like mining and heavy industries have performed worse.