Iran Economic Structure

The Islamic Republic of Iran is a transition economy that’s being gradually transformed, from a centrally planned economy to a free market. The evolution has been a slow and painful process, marked by inefficient state policies, poor management of resources and international conflicts and sanctions.

The Islamic Republic of Iran is a transition economy that’s being gradually transformed, from a centrally planned economy to a free market. The evolution has been a slow and painful process, marked by inefficient state policies, poor management of resources and international conflicts and sanctions.

Despite an increasing desire to privatise the economy, private sector activity in Iran is typically limited to small-scale workshops, farming, and services – while burgeoning industries such as oil and natural gas are typically state owned. Price controls and subsidies also burden the economy, undermining its potential for private sector-led growth.

The Iranian government is keen on foreign investment. However Iran ranks among the bottom 10 states in the 2011 Economic Freedom Index and 69th out of 139 states in the Global Competitiveness Report. In the midst of an uncertain business climate and threats of international sanctions, US$7.584 billion worth of FDI was pumped into Iran in 2010, particularly in Iran’s oil and natural gas industries. The investment boosted Iran’s FDI 86 percent and ranked the country 6th in the world as the most attractive country for investment (according to the Iran Chamber of Commerce, Industries and Mines).

Economic Geography

Iran has historically been a significant country in global trade owing to its location in the Middle East and Central Eurasia. Countries including Azerbaijan, Armenia, Turkey, Iraq, Pakistan, Afghanistan and Turkmenistanlie are situated along Iran’s borders. Iran also has access to four seas: the Caspian Sea in the north and the Persian Gulf, the Gulf of Oman and the Arabian Sea in the south.

Its close proximity to North Africa makes Iran part of the MENA region that collectively controls 60 percent of the world’s oil reserves and 45 percent of the world’s natural gas reserves. Iran has an abundance of natural resources; particularly oil, natural gas and mineral resources – much of Iran’s natural resources untapped. Iran’s proven oil and natural gas reserves are ranked 3rd and 2nd highest in the world respectively.

Iran also possesses the world’s largest zinc reserves and the second largest reserves of copper. Other mineral deposits found in Iran include iron, uranium, lead, chromite, manganese, coal and gold.

Population and Labour Force

Iran’s population rose 1.248 percent in 2010 from the previous year and presently stands at 77.891 million – with 24.1 percent of the population aged 14 years and below, 70.9 percent aged 15 to 64, and 5 percent aged 64 and above.

Among Iran’s population, 25.7 million make up the labour force. 14.6 percent are currently unemployed according to data provided by the Iranian government –  25 percent of the labour force is employed in the agriculture sector, 31 percent in the industry sector and 45 percent in the service sector.

Iran’s labour force faces a “brain drain” as the most talented and educated citizens leave the country to look for better employment opportunities, and in large numbers. According to a study by the IMF, more than 180,000 Iranians leave the country every year with no intention to return. Iran had the highest “brain drain” rate among the 90 countries included in the study. The emigrants are highly skilled and educated, seeking suitable jobs and wishing to escape from Iran’s social codes imposed by the Iranian government during the Islamic Revolution in 1979.

In recent years, the Iranian government introduced measures in order to address this issue. The Iran National Science Foundation and Iran National Geniuses Foundation were estabilshed to provide work, and serve as research facilities for academics and highly skilled workers.

Industry Sectors

Iran’s industry and service sectors contributed 44.3 percent and 44.9 percent to Iran’s GDP in 2010 respectively. In comparison, the agriculture sector contributed 10.8 percent to Iran’s GDP.

Iran’s current industries include:

• petroleum and petrochemicals 
• fertilizers and caustic soda
• textiles
• cement and other construction materials
• food processing (particularly sugar refining and vegetable oil production)
• ferrous and non-ferrous metal fabrication
• armaments

Despite diverse industries, Iran is remains reliant on oil and natural gas revenues.  The oil industry alone accounts for 60 percent of the government’s budget. The country also possesses rich and abundant mineral deposits. The Iranian government has begun to develop its mining industry through foreign investment.