Iran's
share of the industrial sector in the Gross Domestic Product (GDP)
is about 15 percent. Also, on the basis of the studies carried
out by the World Bank in 1996, the country's value added in the
industrial sector is 0.22 percent of the world's industrial value
added. The ratio has changed in various periods of time in accordance
with the rise and fall of the oil revenues.
On the basis of the studies carried out
by the World Bank in 1996, the industrial sector of Iran had managed
to achieve a 0.22 percent of the world's industrial value added.
Iran makes up 1.23 percent of the total area of the Earth and
the population of Iran is 1.05 percent of the world's total population.
The share of the industrial sector in the Gross Domestic Product
(GDP) of the country is about 15 percent according to the newly
released statistics.
TREND
OF VALUE ADDED
During
the past years the trend of value added has been subject to the
ebbs and flows of the periods of economic prosperity and the fluctuations
in the oil revenues. The industrial value added and its growth
enjoyed a positive trend before the Revolution. By taking the
fixed prices of 1982 as the base, the growth in value added reached
a staggering 1101.3 billion rials in 1977 from 13.2 billion rials
in 1960.
The
industrial sector had to face a serious slump in early 1979 because
of the continuation of developments originating from the Revolution
and the strikes of 1978. The value added diminished in this year
so much during this period that during 1978-80, it was the most
negatively affected after the oil industry. This came into being
because of the economic recession and the difficult complexities
of the industrial sector and the close dependency of the industrial
sector on the hard currency revenues of the government.
There
were other reasons for this economic recession. A dearth of raw
and intermediary materials, extreme cases of mismanagement, and
the absence of any incentive for the private sector to make any
investments in this sector were among the most important contributing
factors. In 1981, following the growth in the value added in large
industrial workshops, the value added in the industrial sector
also began to grow. This growth was the result of the government
contributions to the large industries in order to produce raw
and intermediary materials at official prices.
Nonetheless,
in 1982 circumstances resulting from the war pushed the growth
of the value added into negative figures. In the same breath,
in 1983 the activities of the industrial sector enjoyed a very
favorable growth because of the injection of a considerable amount
of hard currency into the importation of raw materials and machinery
spare parts. In 1984, the performance of the industrial sector
was by far above the average general growth of the economic activities
of the country because of the allocation of hefty amounts of hard
currency to industries and the growth of machinery spare parts
in inventories.
In
1985, the value added of the industrial sector took a nosedive
which was a direct result of severe slumps in large industrial
workshops of the country such as machinery, metal works, chemical
industries, materials and products, paper and cardboard industries
and paper products. The main reason for this severe slump was
the absolute dependency of these industries on foreign raw and
intermediary materials with the direct result of heavy hard currency
outlay requirements.
The
disequilibrium in the growth of the value added of the industries
both before and after the Revolution gives the sad account of
this sector's having failed to be structuralized. A sudden plummeting
of the value added rate in this sector from 18 percent in 1991
to 3.2 percent in 1992 and still going down to minus 0.5 percent
in 1993 was seen to be a direct result of changes in the allocation
of hard currency to this sector and a good indication of how vulnerable
this sector is.
EXPORTS
OF INDUSTRIAL SECTOR
The
trend of industrial exports during the past three months tells
us that up to the Revolution the value of the industrial exports
in comparison with the total exports made up a very small fraction.
In 1974 the Iranian foreign trade in parallel with rapid growth
of the oil revenues and the resulting prosperity in economic activities
was vastly expanded. However, the shortage of raw materials and
an escalating rate of domestic consumption resulted in a drop
in the export of traditional and agricultural products.
Contrary
to this trend, the export of industrial goods enjoyed a very rapid
growth. This was mainly in the form of export of detergents, soaps,
ready made clothing and woven materials, vehicles and glycerin
and chemical materials. In 1976, the industrial exports rose by
16 percent and its share of 25 percent of aggregate exports in
1975 rose to 33 percent. The growth of the industrial exports
in this year was also due to the increase in the export of glycerin
and chemical products.
In
1977, the exports of industrial goods decreased by 5.8 percent
and as a result its share in the aggregate exports of the country
dropped to 27.5 percent. The reason for the drop in the exports
in that year was a sudden rise in the domestic demand for those
products and the inattention of the producers to the quality of
the produced export products as well as a very good domestic market
for these products. After the Revolution, the export of the industrial
goods took a severe beating and in 1980, in spite of efforts made
to rejuvenate the exports and because of various reasons the export
of non-oil goods was still going down. The existing difficulties
and shortages in the production of export goods coupled with an
increase in the smuggling of these goods, a quickly rising rate
of domestic inflation and as a result an increase in the export
goods production costs, the outbreak of the war and a rise in
the domestic demand for some export goods were among the major
contributing factors. Of course there were other problems such
as the inadequacies in the transportation network and the closures
of some export oriented ports, an increase in the rate of import
taxes levied on Iranian export goods because of the imposed economic
embargo by other countries, as well as the economic slump in the
European countries that contributed to exacerbation of the problem
ever more.
In
this year, the export of industrial goods took a nosedive of 64
percent in view of the country's industrial dependency on the
import of machinery, raw material, enforcement of import restrictions
and a drop in the rate of domestic production. Rapid and intense
fluctuations of the hard currency revenues after the Revolution,
such as what took place in 1986, diverted the attention of the
economists and policy makers as they concentrated ever more on
export of non-oil commodities. During the First Five Year Economic
Development Plan (1989-1993), the expansion of non-oil commodity
exports and during the Second Plan (1995-1999), the acceleration
of such exports with a stress on industrial exports were among
the most important programs implemented in the country.
Within
the context of the Economic Rehabilitation and the Third Economic
Development Plan, the expansion of those industrial exports which
enjoy high value added was once more given the unanimous emphasis.
Although during the life span of the Second Plan the expansion
of non-oil and industrial goods exports was among the main objectives
and there was an upward trend in this sector up to some extent,
all the same, a huge drop was witnessed in it during 1995 to 1997.
The Iranian economic system is a single commodity economic system
and badly dependent on oil revenues. That is the core of the reason
for the inattention to non-oil exports when oil revenues manage
to secure the country's hard currency needs. On the contrary,
when the oil revenues hit a snag, the economic policy makers have
devoted themselves to the expansion of exports of non-oil commodities.
The
trend of the relative share of economic sectors in non-oil goods
exportation gives a good indication of this fact that the export
of agricultural commodities have had the lion share in the exports
of non-oil commodities.
During
1981 to 1999 the share of agriculture in the exports of non-oil
goods made up 72 percent of the aggregate non-oil commodity exports.
By the same token, the industrial exports had 23.8 percent share
in these exports. In view of these latest figures, the growth
rate of relative share of industrial exports, in particular during
the life span of the First Plan, was favorable even though toward
the end of that period 50 percent of the exports of non-oil commodities
were agricultural. However, the downward trend of the relative
share of agricultural exports and the upward trend of the share
of the industrial exports are indicative of a slow but favorable
movement. The average share of industrial goods exports has increased
from 24 percent during 1989-1993 to 47.7 percent for the period
between 1995 and 1999.
INVESTMENTS
IN INDUSTRIAL SECTOR
During
the period for 1965 to 1998 the share of fixed capital formation
in the GDP at the fixed prices of 1982 was subject to more intense
fluctuations and dropped from 16.3 in the period of 1968 to 1977
to 13.9 percent in the period of 1989 to 1998. Fixed investments
in the production sector of industries and mines, which are the
main agents for paving the way for development of the industries
and expansion of non-oil goods exports especially the industrial
ones was 557.3 billion rials at the fixed prices of 1982 in 1975
and dropped to 445.9 billion rials in 1998. This shows a decrease
of 20 percent.
As
the oil prices took an upward trend in 1974 and enjoyed a four
fold increase, the government was blessed with more revenues.
This naturally gave rise to a huge investment outlay on the part
of the government. This latest development came at a time when
the private sector could not only make investments in such sectors
as automobile industry and equipment manufacturing, but this sector
was also allowed to invest in establishment of banks and insurance
companies in participation with foreign companies before the Revolution.
Right
after the victory of the Revolution, the early political instabilities,
the changing of the Constitution and the inclusion of Article
44 based on the fact of nationalization of the banks, insurance
companies and later on the passing of a law for protection of
industries which boosted the intervention of the government, private
companies were also nationalized. During the period of 1989 to
1993 the formation of fixed gross domestic capital of the industry
and mines sector enjoyed an average growth rate of 29.1 percent
per annum. During this period a total of 32 billion dollars was
injected into the industrial sector of which 44 percent was in
the form of investments in this sector.
In
fact the foreign loans and credits which were put at the disposal
of the economy during this period (reconstruction period) had
a very decisive and effective role in the stimulation of investments
and utilization of the idle industrial capacities, even though
there were not many specific varieties effected. In order to make
up for the previous failures, the government gave in to making
heavy investments. Later on, the rate of investments in recent
years has always headed downward. Ever since 1995, the growth
rate has been heavily negative. The trend in investment is an
indicative of the fact that long term investments which generate
real revenue have by and large faced some difficulties and pinches
after the Revolution and a suitable climate for the growth and
expansion of these investments, in particular, in the industrial
sector has accompanied some constraints. Of course, one should
note the fact that uncontrolled and wild growth can not go on
for ever and sooner or later they will turn into negative growth.
INVESTMENTS
BY THE GOVERNMENT
In the Iranian economy, because of a host
of different reasons, such as restrictive laws and absence of
a dynamic private sector, investments have always been influenced
by the investments on the part of the government sector. The latter
is also hugely affected by the governmental expenditure budgets
within the framework of the general budget.
In
this line, a part of the government expenditure budget is annually
used under the nomenclature of economic affairs, and under the
economic affairs heading there is another nomenclature by the
name of industries, which gives an indication of the allocation
of government expenditure budget within the collection of economic
affairs as well as industries.
The
share of the economic affairs from the government expenditure
payments during the period after the Revolution in comparison
to what it was before the Revolution has decreased dramatically.
The share of the industries, however, has faced a lot of ups and
downs and has dropped from 20 percent during 1971 to 1980, as
we have witnessed in recent years, to 5 percent in the period
for 1991 to 2000.
The
reason for this drop has been attributed to non-developmental
mentality toward the economy and sensitivity of the state economy
to fluctuations of the crude oil prices. In spite of a considerable
increase in the revenues resulting from the exports of the crude
oil, the share of industries in receiving government expenditures
for the economic affairs was a mere 0.6 percent in 1999 and this
is the least for the period of 1971 to 2000.
The
figures for the year 2000 budget indicate that an amount of 24,935
billion rials has been allocated to development, which compared
to the budget of the previous year shows a decrease of 25.2 percent.
This is taking place at a time when the revenues resulting from
the sale of crude oil which is the main source of government revenues
have become twice as much as that for the previous year. Naturally,
the decrease in the volume of industrial investments of the government
can effectively reflect the economic incentives and in particular
the inclination of the private sector for more investment. The
amount of national investment and industrial investments in comparison
with those in other countries and the productive capability of
the country is a small figure, which indicates the weakness in
mobilization of the sources on the one hand and it shows the unsuitability
of resource allocations and capital formation in the industrial
sector on the other hand.
EMPLOYMENT
IN INDUSTRIES
From
a quantitative point of view, during the years from 1976 to 1994
the number of job holders in the industrial sector has on the
average increased by 52 thousand people annually. The share of
this sector in the aggregate employment picture of the country
has dropped from 19 percent in 1976 to 13.2 percent in 1977 and
then through a rising trend again reached 18.9 percent in 1994.
The growth in the number of job holders in industries during this
period was about 56 percent. Once more during the same period
the employment levels on the country wide scale has increased
by 58 percent and in the service industries the increase has reached
115.3 percent. However, the employment in the agricultural sector,
industries and mines, that is the most important economic generators
of the country, has been 22.3 and 39.2 percent respectively.
These
figures go a long way to show that long term and real revenue
generating investments have by far not been made in the country.
All in all, these investments are facing a lot of difficulties
and pinches and a suitable climate for the growth and expansion
of these investments and boosting of the employment levels in
the different sectors of industry have failed to materialize.
In
this regard, the statistics of large industrial workshops of the
country (those with more than 10 employees) indicate the fact
that the industrial sector has not been successful in absorbing
manpower and investments. That is to say, the move has been in
the direction of labor saving in large industrial workshops of
the country.
Unexplored
Existing Industrial Potentials
According
to a recent study on 129 active industrial firms in Iran, more
than 108 units have abandoned over half of their technical capacities
and only eight of them proved to have over 70 percent technical
efficiency. These constitute the productive units active in fields
of basic copper products; livestock feed; rope, string, threads
and lace; boxes, cartons and other cardboard-made stuff and wrapping
papers for packaging; plastic raw materials and artificial rubber;
leather tanning and perfection; tires and tubes, and tires recapping
and rehabilitation; and synthetic fibers. In this survey, tea
industry with 90 percent unemployed capacity ranks first in the
country's highest-rate inefficient industries.
An
important indicator to evaluate efficiency of a particular industry
is calculation of ratio of actual capacity in that industry on
its potential one. This indicator shows how much the industry
can utilize its potentials.
Based
on studies conducted on 129 industries active throughout the country,
the scale of technical efficiency in only eight industries is
over 70 percent and in 21 others is just more than 50 percent.
The highest efficiency rate belongs to production
of basic copper products to the scale of 100 percent. The production
of livestock feed; rope, string, threads and lace; boxes, cartons
and other cardboard-made stuff and wrapping papers for packaging;
plastic materials in primary form and artificial rubber; tanning
and processing of leather; production of tires and tubes, and
recapping and rehabilitation of tires; and production of synthetic
fibers, are all forming the state industrial units with over 70
percent efficiency. In other words, there exists less than 30
percent unemployed potentials in such industries.
In
this classification, the tea industry; motor-vehicle part and
accessory manufacture; and production of Kelim, pileless carpet
and handwoven coarse; indicate lower than 10 percent efficiency,
showing a 90 percent abandoned potentials in these industries.
One
of the most important industries which is holding a high share
in export-value scale in Iran, is the handwoven Persian rug and
carpet; but this indicates only 18 percent efficiency.
Technical
efficiency in newspaper, magazine and periodical publications
is 87 percent.
The
inefficiency in an industrial activity has its roots in technical,
legal, market-structure, managerial and ultimately in nonstructural
causes.
For example, the low efficiency in our tea
industry is resulted from the seasonal and storing problems which
turn to emerge as technical consequences.
In
other words, technical problems are a reflection of other factors.
Even the structural and legal issues turn to look as technical
obstacles. This calls for an infrastructural improvement suitable
for delineation of legitimate economic space.
Another
problem facing the Iranian industry is that, in spite of various
problems and barriers, they should benefit from much support which
they receive but somehow such support has reversally formed some
new obstacles themselves followed by social expenses which in
turn are accompanied with constant inefficiency.
Iranian
Cement, A Growing Industry
In
the third decade of the last century, Iran took great strides
towards modernization and economic development. Numerous railway,
dam, road, public welfare and hospital projects were undertaken
towards meeting the nation's basic needs and raising its level
of comfort. Many industrial sectors were firmly established, particularly
those of textiles and food processing.
Still,
many products had yet to imported from Europe, mainly Germany,
whose products were very popular among the then pro-Germany Iranians.
Iran
was rich in mineral resources that could make excellent building
materials, but it lacked modern technology. In 1935, Iran's first
cement production plan was set up to help in the construction
of the many infrastructure projects.
From
1950 on wards there was another surge of development in the form
of a number of development plans which necessitated large constructions,
i.e. huge quantities of cement. Consequently, more and more cement
factories were put not, only by the state but by the private sector
as well.
As
the standard of living of the Iranian public rose, so did their
need for better housing, and hence residential housing projects
became a big business in Iran. During the 70s, it reached its
peak and a black market for cement unavoidably emerged.
The
number of cement plans, which had been 6 in the 50s, producing
1,260 tons per day (tpd) rose to 12 in the 60s, producing 5,700
tpd, and to 20 in the 70s, producing 43,300 tpd. In the 80s, because
of the difficulties created by the war with Iraq, only four more
cement factories were built adding 8,300 tpd to the country's
cement production capacity. After the war, during the 90s, a further
10 plans were created producing and additional 16,500 tpd of cement.
By then there were 29 plans with 51 production lines producing
74,060 tpd (23.3m tons of cement from 22.5m tons of clinker a
year, out of a nominal capacity of 26.9m tons of clinker).
Production
of cement requires lime, silica, gypsum, and iron ore, as raw
materials most of which are abundantly found in Iran. The final
products are clinker (unmilled cement). Ordinary cement and white
cement.
Iran's
cement plans are situated in the various provinces of Iran, first
to satisfy the province's needs: any surplus would then go to
other provinces or be exported.
Iran's
largest cement plans are those of Fars (992,000 tons a year),
Khuzestan (1,060,000), Tabriz (1,485,000), Behbahan (858,000),
Dorood (1,245,000), Gharb (624,000) and Hormozgan (1,029,000).
Most
cement production companies have managed to find suitable export
markets, total exports amounting to 5.3% of cement and 1.6% of
clinker production of the country, but some plans such as Khash,
being remotely situated, do not have easy access to other provinces
nor to the ports, and are therefore working below capacity.
Considering
the increasing need of the country for more housing units, roads,
dams and irrigation networks the creation of a further 19 plans
with 34,300 tpd nominal capacity was begun in 1998-99 . When these
come into production, and providing the country's export marketing
stratifies bear fruits, Iran shall be exporting 2-2.5m tons of
cement and clinker each year. A market research has revealed that
the close-by countries such as the UAK, Kuwait, Qatar and Bahrain
totally import 1.4m tons of cement and 3.2m tons of clinker each
year which Iran could easily supply.
Iran's
cheap energy as oil and gas, and its abundant raw materials needed
for cement production mean that the cost of production of Iranian
cement shall be lower than most other countries. So, Iran should
be able to easily compete in the international market of cement.
Besides, the neighboring countries named above lack the necessary
raw materials and buy clinker which they turn into cement in their
own mills. These is no reason why they should not buy cement from
Iran, at such a close distance.
Iranian
Cement Exports - 1999
|
Plan
name
|
Exports
(tons per year)
|
| Behbahan
Cement |
243152 |
| Ardebil
Cement |
140120 |
| Urumieh
Cement |
105660 |
| Saveh
Cement(White) |
97963 |
| Abyek
Cement |
74701 |
| Hormozgan
Cement |
64140 |
| Khash
Cement |
52494 |
| Dorood
Cement |
51729 |
| Soofian
Cement |
51485 |
| Kordestan
Cement |
50470 |
| Khuzestan
Cement |
49863 |
| Kerman
Cement |
36756 |
| Shahrood
Cement |
34850 |
| Sepahan
Cement |
32165 |
| Hegmatan
Cement |
29866 |
| Tabriz
Cement |
21946 |
| Gharb
Cement |
20069 |
| Khazzar
Cement |
18704 |
| Esfahan
Cement |
17140 |
| Shargh
Cement |
13621 |
| Gha'en
Cement |
13280 |
| Shomal
Cement |
13163 |
| Ilam
Cement |
12800 |
| Shomal
Cement(White) |
4702 |
| Total |
1,250,839 |
