Iran: Country Profile

Country Profile | 25 Nov 2016

The economy is improving. Domestic demand and exports are the main drivers. Since the
removal of sanctions, oil production and exports have rebounded quickly. Increased activity in
agriculture, auto production and transport drive a recovery in the non-oil sector. A process of
fiscal consolidation as well as tensions between the government and the theocracy are drags.
After rising at a moderate pace for several years, growth of real GDP will slip to about 2.0% per
year by 2020.

KEY POINTS
Iran's re-entry into the global economy should drive the economy for a number of years. Real
GDP is forecast to grow by 3.6% in 2016 (up from 2.1% in 2015).
Prices rose by 13.8% in 2015 and inflation will be 8.7% in 2016. Teheran's goal is to ensure
single-digit inflation over the next several years.
The real value of private final consumption fell by 0.7% in 2015 and growth of 1.1% is
predicted for 2016. Improvements in consumer confidence and access to better quality
products via imports support consumer spending.
Forecasts suggest that after rising at a moderate pace for several years, growth of real GDP
will slip to about 2.0% per year by 2020.

Chart 1 Real GDP Growth and Per Capita GDP: 2010-2016

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data for 2016 is forecast. GDP per capita are in constant 2015 prices

FACTS

Area
1,628,600 square kilometres

Currency
Iranian rial (IRR = 100 dinars)

Location
Iran, the largest non-Arab country in the Middle East, occupies the land mass between the
Caucasus in the north (Turkey, Armenia, Azerbaijan and Turkmenistan), the Afghan and
Pakistani borders to the east and southeast, and Iraq to the west. It lies on the coast of the
Persian Gulf, facing Saudi Arabia, Bahrain and the United Arab Emirates.

Capital

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Tehran

GOVERNMENT

Head of State
Supreme Leader Ayatollah Ali Hoseini Khamenei (1989)

Head of Government
President Hassan Rouhani (2013)

Ruling Party
A coalition of conservatives leads the government.

Political Structure
Modern Iran has its foundations in the Islamic revolution led by Ayatollah Seyyed Ruhollah
Khomeini. Political power rests loosely in the clerical and religious hierarchy, which exercises
authority through the 86-member Assembly of Experts. The country's parliament - the Islamic
Consultative Assembly or Majlis - consists of 290 members, which are popularly elected. There
is also a 12-member Council of Guardians, which includes six clerical members appointed by the
head of state, Supreme Leader Ayatollah Ali Khamenei. The council must approve all legislation
coming from parliament and vets all would-be candidates.

Last Elections
In presidential elections in June 2013, Rouhani defeated five other candidates, winning 50.7%
of the votes. Parliamentary elections were held in March and April 2016. The List of Hope, a
reformist movement, won 121 seats and the Principalists Grand Coalition (made up mainly of
hardliners) took 83 seats. People's Voice Coalition won 11 seats and the remaining 73 seats
were won by independents and religious minorities. Many of the latter are thought to be
reform-minded.

Political Stability and Risks

During the period of international sanctions, hundreds of thousands of skilled Iranians left the
country. Many, however, may eventually return now that sanctions will be removed.
Approximately 30 million Iranians live below the poverty line.

International Issues
Iran and western powers have reached an agreement to limit Iran's nuclear programme in
exchange for sanctions relief. Many of the international sanctions were lifted in January 2016.
Sanctions relief will allow important industries such as oil and finance to re-enter the global
economy. However, Washington imposed new sanctions on Iran shortly afterwards for a recent
ballistic missile test. The new sanctions are limited to several entities and individuals linked to
the missile programme, preventing them from using the US banking system. The US will also
maintain significant sanctions related to Iran's support for terrorism and its human rights
record.
Of all its neighbours, Iran enjoys normal relations only with Armenia. Israel accuses Iran of
supporting Hamas, which is regarded by some as a terrorist organisation. Numerous Sunni
countries have followed Saudi Arabia's lead in breaking off ties with Iran after the latter was
strongly critical of the Saudi execution of a leading Shia cleric. In response, Iran has banned all
imports from Saudi Arabia and halted pilgrimages to Mecca.

Government Finance
In 2015, Iran's public debt amounted to IRR1,839 trillion, equivalent to 15.6% of GDP. Public
debt (in real terms) fell by 6.3% in 2015.
Figures on Iran's budget are vague. The deficit for 2014 was around 2.3% of GDP according to
unofficial sources. In 2015, officials introduced both spending cuts and tax rises, cutting the

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deficit to less than 2% of GDP. The fiscal deficit is projected to be around 1.8% of GDP in
2016/2017. However, the non-oil fiscal deficit in 2016/2017 will reach 8.9% of non-oil GDP
according to the IMF.

Spending on social security and welfare accounted for 42.0% of government expenditure in
2015, followed by spending on education (27.8%).

Chart 2 Public Debt: 2010-2015

Source: Euromonitor International

Note: Data are in constant 2015 prices

ECONOMY

Economic Structure and Major Industries

Agriculture employs 14.8% of the workforce but accounts for less than a tenth of GDP. Farming
is concentrated in the fertile valleys of the north and west. Wheat, barley, rice, cotton and
sugar beet are grown for domestic consumption; there are also timber resources in the north
and west. A severe water shortage has long been a drag on production but the situation could
improve now that water subsidies have been scaled back. Agricultural production increased
significantly in the half of 2016.

Iran's economy relies heavily on oil export revenues, which account for around 80-90% of total
export earnings and 40-50% of the government budget. The oil sector once made up 30-40%
of GDP but its share has been declining since the 1970s. Sanctions introduced in 2012 reduced
Iran's oil exports to about 1 million barrels per day. As these restrictions are scaled back,
Teheran plans to increase its oil production capacity to about 5 million barrels a day.
Expectations of Iran's imminent return to oil markets is pushing prices even lower.

Manufacturing makes up 11.0% of GDP and employs 15.5% of the workforce. State-owned
enterprises account for about 60% of the sector's output. Carmakers are the largest non-oil
industry. Peugeot, a leading supplier before sanctions forced it to pull out, has signed a new
agreement with Iran Khodro to produce cars together. In 2016, the country has already
attracted additional investments in the automotive sector, petrochemicals, business services,
consumer electronics, steel and textiles. Manufacturing output rose by 0.4% in 2015 and the
pace has picked up in 2016.
The service sector accounts for 48.3% of GDP, but currency-exchange restrictions and
excessive bureaucracy have created a volatile environment. Despite the removal of sanctions,
the banking industry is finding it difficult to restore cross-border transactions and accounts.
The percentage of non-performing loans also exceeds 12% of total loans. Nonetheless, Iran has
the largest Islamic financial sector in the world.

Iran has some of the world's largest zinc reserves and the second-largest deposits of copper.
The government owns 90% of the mines and related industries. The real value of mining output
rose by 1.8% in 2015.

Overview of the Economy

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Various types of shocks, as well as policy mismanagement, have complicated Iran's economic
outlook. Chaotic social-programmes and a steep deterioration in the external environment were
other problems. Real GDP contracted in 2012 and 2013 but growth of 4.3% was reported in
2014. Interim sanctions relief provided some support in 2015 although the weak global market
for oil prices was a drag.

The state exerts substantial control over the economy both directly and through semi-private
entities such as foundations, mutual funds, pension funds and companies linked to the
Revolutionary Guard. Estimates vary as to exactly how much of the economy is under state
control, partly because the semi-private sector does not operate in a transparent manner.

Oil export revenues allowed Iran to set up an oil stabilisation fund. However, policy makers
have yet to address effectively the country's high levels of poverty. Iranian budget deficits are
another chronic problem. The oil stabilisation fund has become a source of short-term funding
when revenues deteriorated.

Foreign Trade
Exports (in dollars) fell by 27.2% in 2015 but growth of 2.5% is expected in 2016. Non-oil
exports rose to more than US$21 billion in the three quarters of 2016.

The share of exports in GDP amounted to 16.9% in 2015. The share has been falling over time
due to sanctions. Oil and gas exports are still the backbone of the economy, accounting for
about two-thirds of the total in 2015. Turkey and Iran recently implemented a tariff-reduction
agreement to increase cross-border trade.

Iran's strained relations with the West have been partially offset by strong oil exports to Asian
markets. The Asian region as a whole accounted for 45.3% of total exports in 2015. China
alone made up 22.2% of the total in 2015. After barring food imports from western economies,
Russia plans to significantly boost its imports from Iran.
The current account surplus amounted to 1.4% of GDP in 2015 and it will narrow to 0.4% in
2016.

Chart 3 Total Foreign Trade: 2010-2016

Source: Euromonitor International from national statistics/OECD/IMF

Note: Data for 2016 is forecast.

Economic Prospects
Real GDP is forecast to grow by 3.6% in 2016 (up from 2.1% in 2015). Domestic demand and
exports are the main drivers. Since the removal of sanctions, oil production and exports have
rebounded quickly. Increased activity in agriculture, auto production and transport drive a
recovery in the non-oil sector. A process of fiscal consolidation as well as tensions between
the government and the theocracy are drags.

Prices rose by 13.8% in 2015 and inflation will be 8.7% in 2016. Teheran's goal is to ensure
single-digit inflation over the next several years. The ability to import cheaper products could
aid officials in this regard.

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The real value of private final consumption fell by 0.7% in 2015 and growth of 1.1 is predicted
for 2016. Improvements in consumer confidence and access to better quality products via
imports support consumer spending.

The end of sanctions has seen inflows of FDI soar. According to trade sources, Iran agreed to
22 new investment projects in just the first quarter of 2016. Government officials predict that
inflows of FDI could total at least US$8 billion by March 2017. In comparison, FDI was only
about US$2 billion in 2015. The bulk of this new investment will go into industries such as oil,
gas and transport. New inflows of FDI are not without problems however. Teheran accuses
European credit agencies banks' of demanding premiums on insurance and "unacceptable" terms
in contracts related to political risk.
Unemployment was 11.0% in 2015 and it will drop to 10.9% in 2016. Youth unemployment is
put at 26.0% while unemployment among women is over 20%. Officials expect a rise in the rate
of labour force participation but presently less than 40% of the population is thought to be
economically active (either employed or unemployed and looking for work).

Chart 4 Real GDP Growth: 2010-2016

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data for 2016 are forecast

Evaluation of Market Potential

Forecasts suggest that after rising at a moderate pace for several years, growth of real GDP
will slip to about 2.0% per year by 2020. With sanctions being lifted, higher oil production, a
recovery in exports and lower costs for trade and financial transactions all have positive
benefits. Iran insists that its oil production must return to its pre-sanction share of OPEC oil
(around 4.8 million barrels per day) before it will consider any OPEC-inspired production cuts.
Additional oil production will require significant improvements in infrastructure. Growth of the
private sector will be another crucial part of any rebound. Teheran estimates that the sector
will need up to US$50 billion to recover.

Based on recent estimates, investment is presently about US$20 billion a year below the level
needed for the economy to grow strongly. Thus, the authorities must be careful not to spend
large sums on consumption or wasteful purposes. The removal of price and administrative
controls will be a crucial step if productivity is to be raised. There are concerns that recovery
in the energy sector will mean a delay in diversification efforts.

Iran's energy needs are growing by about 6% per year while growth in capacity is just 2% per
year. The government plans to spend as much as US$185 billion by 2020 to boost its crude oil
output and refining capabilities.

BUSINESS ENVIRONMENT
The business environment is difficult but the present administration has begun to take steps to
improve it. A major reform of the subsidy programme is nearing completion. Domestic fuel prices
have been adjusted upwards by 20-40%. Authorities have also established a one-stop window
for businesses and simplified administrative procedures. Officials intend to clear government
arrears, recapitalise banks and strengthen supervisory powers. They also plan an increase in

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VAT and elimination of tax exemptions. The removal of the foreign exchange restrictions and
multiple currency practices in 2016 is another welcome step.
Moves toward greater privatisation have typically been piecemeal but that could be changing.
Teheran has announced that it plans to sell the Telecommunication Company of Iran, which has
been controlled by the Revolutionary Guards since 2009. Other companies could soon join the
list as sanctions are lifted.
Table 1 Indicators of Business Environment: 2016
Ease of Doing Business Rank (out of 189) 118

Starting a Business
Time (days) 15
Procedures (number) 8

Dealing with Construction Permits

Time (days) 97
Procedures (number) 15

Getting Electricity
Time (days) 77
Cost (% of income per capita) 823

Registering Property
Time (days) 12
Cost (% of property value) 6.1

Employing Workers
Paid annual leave for a worker with 1 year of tenure (in working days) 24

Tax Rate
Total tax rate (% profit) 44.1
Labour tax and contributions (% of commercial profits) 25.9
Time (hours per year) 344
Payments (number per year) 20
VAT (%) 6

Exporting

Time to export: Border Compliance (hours) 107

Cost to export: Border Compliance (US$) 565

Importing

Time to import: Border Compliance (hours) 148

Cost to import: Border Compliance (US$) 660

Protecting Minority Investors

Strength of minority investor protection index (0-10) 4

Resolving Insolvency
Time (years) 4.5
Cost (% of estate) 15

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 Getting Credit
Strength of legal rights index (0-12) 2

Enforcing Contracts
Time (days) 505
Cost (% of claim) 17
Source: Euromonitor International based on the World Bank

Notes: Data is sourced from the World Bank's Doing Business 2016. Doing Business presents
quantitative indicators on business regulations and the protection of property rights - and their
effect on businesses, especially small and medium-size domestic firms. The data for all sets of
indicators in Doing Business 2016 are from June 2014 until June 2015 (except for paying taxes
data which refers to January-December 2014). Rankings are based on data sets across 189
countries.

ENERGY
Iran holds 158 billion barrels of proven oil reserves, roughly 10% of the world's total. There are
40 oil fields, 27 of which are onshore. The vast majority of crude oil reserves are located in the
south-western part of the country near the Iraqi border and the Persian Gulf. Existing oilfields
have a very high rate of natural decline and are in need of upgrading and modernisation.
Recovery rates are below the world average. Oil production has been falling as sanctions take a
greater toll. In 2015, Iran produced 174 million tonnes of oil equivalent. Iran expects to
increase production by 500,000 barrels a day following the removal of sanctions and to reach
pre-sanctions level within seven months.
Iran contains an estimated 34.0 trillion cubic metres of proven natural gas reserves - the
world's second largest after Russia. However, the sector is underdeveloped and used mostly to
meet domestic demand. Production totalled 153 million tonnes of oil equivalent in 2015.
Energy efficiency (defined as GDP per tonne of energy used) is much lower than that of other
countries in the region but is rapidly improving. Energy efficiency increased at an average rate
of 14.5% per year in 2010-2015.

Chart 5 Primary Consumption of Energy (% of total): 2015

Source: Euromonitor International from BP Amoco, BP Statistical Review of World Energy

SOCIETY

Population
Iran is in the midst of a moderate population boom. Total population was 79.1 million in 2015,
an increase of 12.6 million since 2000. The median age in 2015 was 29.6 years, up from 20.8
years in 2000.

The country's fertility rate is falling rapidly but has only recently dropped below replacement
level. The potential workforce (those between 15 and 64 years) will be growing faster than the
total population for several more decades. With a steady influx of new job seekers, it is difficult
to create the necessary jobs.

Chart 6 Age Pyramid in 2015 and 2030

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Source: Euromonitor International from national statistics/UN

Income and Expenditure

The savings ratio is falling but is still much higher than the regional average. Savings were
30.2% of disposable income in 2015 and the ratio will rise to 31.7% in 2016.
Consumer expenditure per capita totalled IRR71,656 thousand (US$2,470) in 2015. The
indicator will fall by 0.3% in real terms in 2016. Education, communications and health goods
and medical services are expected to show the strongest growth in expenditure categories in
2015-2030.

Total consumer expenditure (in real terms) will rise by 0.9% in 2016. In the period 2015-2030,
total consumer expenditure will grow at an average annual rate of 0.8%. It will increase by a
cumulative value of 12.6% during that period. Total consumer expenditure will be 49.6% of GDP
in 2016.

Disposable income per capita totalled IRR112,790 thousand (US$3,888) in 2015 and it will
increase by 2.0% (in real terms) in 2016.

During the period 2015-2030, total disposable income will increase by a cumulative value of
23.4% in real terms - growing at an average annual rate of 1.4%.

Chart 7 Per Capita Annual Disposable Income, Spending and Savings Ratio: 2010-2016

Source: Euromonitor International from national statistics/trade sources/OECD

Note: Data for 2016 is forecast. Per capita income and spending are in constant 2015 prices

Statistical Summary
2011 2012 2013 2014 2015 2016
Inflation
(% 20.6 27.0 39.5 17.5 13.8 8.6
change)

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Exchange
rate (per 10,616.31 12,169.85 18,427.67 25,913.97 29,011.49 30,916.50
US$)
Lending
11.0 11.0 11.0 14.0 14.2 17.4
rate
GDP (%
real 3.7 -6.6 -1.9 4.3 -0.1 4.7
growth)
GDP
(national
6,285,255,000.0 7,149,594,000.0 9,421,214,000.0 11,033,666,000.0 11,578,071,812.2 12,623,860,923.8
currency
millions)
GDP (US$
592,037.8 587,484.4 511,253.6 425,780.6 399,085.7 408,321.2
millions)
Birth rate
18.3 18.2 17.9 17.5 17.1 16.5
(per '000)
Death rate
4.8 4.8 4.7 4.6 4.6 4.6
(per '000)
No. of
households 21,185.6 22,023.2 22,843.3 23,622.5 24,336.2 25,003.2
('000)
Total
exports
147,156.0 107,409.0 91,793.0 94,178.0 68,566.0 72,615.6
(US$
millions)
Total
imports
62,057.0 57,291.0 46,495.0 55,058.0 43,717.0 43,355.3
(US$
millions)
Tourism
receipts
2,670.8 2,417.7 2,936.1 - - -
(US$
millions)
Tourism
spending
13,776.7 12,150.3 14,385.8 - - -
(US$
millions)
Urban
population 53,527.5 54,649.2 55,788.3 56,923.6 58,038.2 59,127.0
('000)
Urban
population 71.2 71.8 72.3 72.8 73.4 73.9
(%)
Population
aged 0-14 23.4 23.4 23.5 23.5 23.6 23.7
(%)
Population
aged 15-64 71.7 71.7 71.6 71.5 71.3 71.1
(%)
Population
aged 65 4.9 4.9 4.9 5.0 5.1 5.2
(%)
Male
population 50.5 50.4 50.4 50.4 50.4 50.3
(%)
Female
population 49.5 49.6 49.6 49.6 49.6 49.7
(%)
Life
expectancy
73.1 73.6 74.0 74.3 74.5 74.7
male
(years)

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 Life
expectancy
75.8 76.1 76.3 76.5 76.7 76.9
female
(years)
Infant
mortality
(deaths per 15.8 15.1 14.5 14.1 13.7 13.3
'000 live
births)
Adult
literacy 83.9 84.3 85.1 86.0 86.8 87.0
(%)

Imports and Exports

2016 Share 2016 Share
Major export destinations (%) Major import sources (%)
Imports (cif) from Africa and
Exports (fob) to Asia Pacific 43.7 37.6
the Middle East
Exports (fob) to Other
37.8 Imports (cif) from Asia Pacific 34.5
Countries
Exports (fob) to Europe 11.4 Imports (cif) from Europe 21.0
Exports (fob) to Africa and the Imports (cif) from Latin
6.8 3.5
Middle East America
Imports (cif) from Other
Exports (fob) to North America 0.1 2.8
Countries
Imports (cif) from North
Exports (fob) to Australasia 0.1 0.4
America

Euromonitor International 2017

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