The Iranian economy is a mixed economy with central planning and state ownership (of oil and other large enterprises) alongside village agriculture and small-scale private trading and service companies. The economy remains heavily dependent on oil income with oil generating 80% of total foreign exchange receipts and 50% of the Government’s income.
In 2007, Iran’s GDP was estimated at US$278.1 billion. The estimated GDP growth rate was 4.3%. For the past 33 years, Iran has had an annual growth rate of around 3.5% of GDP on a cumulative basis (through 2003). Growth has come largely from fiscal spending and the oil sector, which is subject to the cyclical conditions of global oil prices.
Since 2000, there has been cautious economic reform program by the government aimed at making Iranian industry more competitive internationally, notably by the relaxation and liberalization of trade and foreign-exchange rules.
The current directive has been to expand trade interaction with the global community and pursuing an active presence in international markets. To achieve this would require raising exports substantially. Another area of focus has been to develop free trade zones and turning them into gateways to international markets.
Iranian tax laws are complex and have been applied inconsistently. The government has lowered unified corporation tax rates and aims to simplify tax administration, but progress will continue to be slow, and foreign firms are likely to continue to face some uncertainty when assessing their tax liabilities and foreign ownership policies.
The key sectors of the economy are:
Agro-industries : Iran has a reasonably well-developed agro-industrial base such as rice milling, barley, maize, wheat & pistachio nuts. The government is also keen to expand the sector into a significant export industry, complementing other, more specialist, foodstuff exports such as caviar and pistachios.
Automobiles : Iran has a well-established automotive industry, dating back to the 1960s. Sales and production of passenger cars and light commercial vehicles have increased steadily over the past decade, with Iran Khodro and Saipa the two principal manufacturers. Daewoo, Renault, and Peugeot are among the major foreign investors in the country.
Oil : All oil and gas production, exploration, refining, and transportation came under state control through the Oil Ministry and its subsidiary, the National Iranian Oil Company (NIOC). Iran is currently the second-largest oil producer in OPEC, at 3.9 million barrels per day (b/d). It has been estimated that the oil sector will require between US$25 billion and US$35 billion worth of investment and the employment of enhanced recovery techniques and gas injection if Iran is to reach its objective of 5.8 million b/d by 2015.
Gas : Since 1988, natural gas production has increased at a rapid rate, although it remains considerably below sustainable capacity. The key to its expansion programme is the development of South Pars, a giant offshore gasfield in the Gulf, which is estimated to hold as much as 8-10% of the world’s proven gas reserves.
Petrochemicals : The petrochemicals industry is central to Iran’s efforts to diversify its exports away from its current reliance on oil. The state-owned National Petrochemicals Company has worked hard to position itself in overseas market and has established a strong presence in Asia and Europe. The 2005-009 five-year plan envisages raising production to 56m t/y, more than four times the current level. Meeting this target will, however, rely on Iran’s ability to raise the level of foreign investment in the sector as well as on further progress with the development of South Pars, gas from which has been designated as feedstock for the sector.
Steel : The development of Iran’s steel industry began in the 1960s when the Soviet Union helped Iran establish its first steel mill. Huge expansion, funded by an extensive programme of state investment, took place in the 1990s, focusing on three major complexes at Isfahan, Ahwaz and Mobarakeh, along with a specialised steel complex at Yazd. The investment has yielded a sustained rise in output, with production growing from 5.6m t/y in 1998 to 7.9m t/y in 2003, making Iran the largest producer in the Middle East by a considerable margin according to data from the International Iron and Steel Institute.
Construction : Expatriate Iranians, who returned in large numbers in the early 1990s after the end of the war with Iraq, funneled most of their funds into property; fuelling a boom. It took a hard hit in the mid-1990s due to the diversion of hard currency towards external debt repayment and began an uphill climb since 2000 against the backdrop of strong economic growth and government spending in vital infrastructure.