"Once
the Mullahs are gone it will take 3 generations" - Unknown
History
I doubt I need to comment on the fact that Iran has a history older than all its neighbors, probably even combined. I won't get into Cyrus, Darius and other leaders of the past. I won't even get into religion.
I doubt I need to comment on the fact that Iran has a history older than all its neighbors, probably even combined. I won't get into Cyrus, Darius and other leaders of the past. I won't even get into religion.
I
wanted to take a comparable look and see what the future might behold.
If we were to take an example the only one that may be comparable is/was Eastern Germany, the DDR, controlled by the USSR from 1961-1989. Why is this the best comparison? It was closed a system, where many tried to leave, with a highly bureaucratic overhead, controlling media, concentrating on defense among many of its faults.
If we were to take an example the only one that may be comparable is/was Eastern Germany, the DDR, controlled by the USSR from 1961-1989. Why is this the best comparison? It was closed a system, where many tried to leave, with a highly bureaucratic overhead, controlling media, concentrating on defense among many of its faults.
More
importantly though,before all this, it was a efficient, vibrant economy with a
large pool of skilled labor. It's factories were competitive, the R&D and
universities were among the best in the world. They were run down and didn't
get the investments needed and went bankrupt or closed not long after 1989.
Now I believe that Iran is in the same position today with most of its infrastructure too old, needs investment and only via heavy subsidies and corruption is it able to sustain itself.
What is going in ex-Eastern Germany today? Well, I am sad to report that even with about 30 years of subsidies from Western Germany, a strong currency, land and infrastructure 27 of the 30 poorest counties are still in the East of Germany. I can attest to the fact that the roads and highways are much better than in the west, but not one of the 100 largest companies in Germany is headquartered there. Yes there are some investments, notably from Bosch (battery factory) and Porsche (auto-plant), but these are primarily lower skilled jobs.
Now I believe that Iran is in the same position today with most of its infrastructure too old, needs investment and only via heavy subsidies and corruption is it able to sustain itself.
What is going in ex-Eastern Germany today? Well, I am sad to report that even with about 30 years of subsidies from Western Germany, a strong currency, land and infrastructure 27 of the 30 poorest counties are still in the East of Germany. I can attest to the fact that the roads and highways are much better than in the west, but not one of the 100 largest companies in Germany is headquartered there. Yes there are some investments, notably from Bosch (battery factory) and Porsche (auto-plant), but these are primarily lower skilled jobs.
The
largest companies in East Germany are the Deutsche Bahn, which is
semi-government, a Total refinery, a local gas supplier, plus a local
supermarket chain so not something that is known outside of Germany or even its
area with one exception - Carl Zeiss, which endured during the period of
Soviet Control, because its technology was needed in the space race and
military.
The below map shows a very clear seperation of headquarters of companies in Germany. There are barely a handful of large corporations in the East. It takes decades for large companies to grow, because the requirement of personnel, knowledge, infrastructure, etc. are large and it takes time to grow these networks.
https://www.reddit.com/r/de/comments/lt89h/wichtige_unternehmen_in_deutschland/
https://www.zeit.de/zeit-magazin/2014/45/firmen-deutschlandkarte
Some
others have moved production facilities there, but most of the skilled labor
has moved to Western Germany and that may be part of the reason that the new
states are more right wing, less inviting to outsiders. Which one caused which
is not of relevance here, but is important that even today few choose to move
to Eastern Germany to work and shows Iran the mistakes the German government
has made in this period.
Just like the DDR, Iran has a central focal point, it was Berlin and in this case it is Tehran. With roughly 16 million people of the total of 80 million, roughly 20% of the total population lives there not counting surrounding area. Why is it that the city is so large? It has to do with the fact that both political and economic life intertwine and cannot exist without each other. Every company in Iran, that is of any relevance has its headquarters there and who would assume they are not connected to the political system, when it seems so obvious?
A more spread out economy may improve wealth and economy, although there are bad example like Paris or London, but also better examples or do you know the capital of California, or New York State? Well its not San Francisco or Los Angeles or New York City in the latter. Germany is another good example with Berlin, Hamburg, Munich, Stuttgart or Düsseldorf as economic powerhouses spread throughout all corners of the country.
Iran may have Tabriz, Mashad, Shiraz but even combined they don't come close to Tehran.
https://en.wikipedia.org/wiki/Provinces_of_Iran
https://en.wikipedia.org/wiki/File:Provinces_of_Iran_by_contribution_to_national_GDP.svg
https://en.wikipedia.org/wiki/File:Provinces_of_Iran_by_contribution_to_national_GDP.svg
The
economy is controlled by the government. I was told of the largest 500
companies, all 500 are controlled by the government directly or indirectly.
Instances with the recent example of a arrested son-in-law of a minister and a
$50 million embezzlement are common. As in many of these cases the list of
beneficiaries are extensive and spread throughout the elite inside and outside
the country.
When
it comes to bureaucracy there doesn't seem to be an improvement before or after
the revolution, probably pointing to a cultural habit or routine with the
government.
What
does all this tell us about the future economic potential in Iran? It tells us
that Iran will not be able to catch up to the world economy on its own, without
FDI and the likeliness of Iranian companies themselves gaining a name for
themselves is even lower.
It
will take at least 30-50 years, depending how future governments will control
investments and the economiy. The case against local production of vehicles
shows a clear sign of failure after roughly 35 years of production not being
sustainable and no technologies to show for it or price competitiveness to be
able to export.
Population and Brain Drain
Today just about 80 million people live in Iran, and more importantly about 3-5 million living outside Iran (according to Wikipedia).
Importantly, it is the cream of the crop, the best of the best, the studied, worldview individuals, which without a country has no future. To make a point in case in 2018, 159 of the top 160 of Sharif University (the #1 in Iran) left Iran for further studies or take jobs in other countries.
A report by the International Monetary Fund in 2009 indicated that Iran tops the list of countries losing their academic elite, with an annual loss of 150,000 to 180,000 specialists. It's equivalent to a capital loss of $50 billion (4.). In 2012 Iranian media report that close to 62 percent of Iran's academic elite have left Iran to pursue their education at top foreign universities (4.)
Further, the population growth has stopped with around 37 million in 1979 (time of the revolution and 82 million in 2019 (2.), with around 90-100 million expected in 2050. (3.)
If
the elite continues to leave the economy may end up like many in Africa, as
there aren't enough skilled persons to take over.
Trade and Banking Sector
Iran applied to join the WTO in September 1996, however there has been no agreement so far at the WTO to start the accession negotiation process (EU, 2012). “Iran today” a show by Press TV (2011, 2012) discussed how Iran is still trying to work on achieving WTO status and how they are changing the tax and business landscape to suit. In line with this the subsidy reforms implemented in 2010 and still ongoing have had an effect on the trade (Press TV, 2012).
Negotiations for a Trade and Cooperation Agreement (TCA) between the EU and Iran initiated in 2002 have been on hold since August 2005, when Iran resumed its nuclear activities. Trade with Iran is subject to the EU general import regime, since Iran is not a member of the WTO and there is no bilateral agreement between the EU and Iran. Under the EU-sanctions, trade with Iran is still possible for the goods which are not subject to sanctions, but payments have become difficult to carry out since the designation of the Iranian Central Bank. (EU, 2012).
The UAE has been an important connection for Iran to the outside world. Between the year 2000-2010 it has been used to circumvent sanctions, but legal barriers have recently been effective in curbing dealings with Iran (Sadjadpour, 2011, p. 7). Much of the trade between Dubai and Tehran appears to be licit, but the volume of re-exports and the lack of export regulations make it very difficult to distinguish legal trade from illegal (Sadjadpour, 2011, p. 21).
Sadjadpour (2011) remarks that the U.S. Estimates that thousands of Iranians are running businesses by simply facilitating re/export in both directions as it has become more important for exports as well as imports.
Since the renewed sanctions from May 2018 most of the these routes used between 2008-2018 have run dry with the UAE having done less and less business or closing businesses of Iranian. Many have moved to Turkey or simply moved over to get their goods from China from increased pressure.
To further add to restrains are the limits to foreign cash, which has been tightly controlled since the beginning of 2018. It isn't that its much stricter, it simply is a fact of it happening again and many companies or countries aren't willing to get burned again after they had just started doing business again.
The Iranian banks aren't helping. It's not just that the banks are closed off from the world, even within Iran their reputation is horrible with continued cases of fraud and corruption. Further banks stay away from making investments in the private sector as the stock market yields much higher returns, stifling growth. To be able to attain financing customers need to provide guarantees to the sum of the financing in many cases.
The most important point is, that to work internationally the banks need to be independently reviewed by third parties to get a rating. To attain such they need to provide balance sheets, which for most banks do not exist or do not picture realities.
Trade and Banking Sector
Iran applied to join the WTO in September 1996, however there has been no agreement so far at the WTO to start the accession negotiation process (EU, 2012). “Iran today” a show by Press TV (2011, 2012) discussed how Iran is still trying to work on achieving WTO status and how they are changing the tax and business landscape to suit. In line with this the subsidy reforms implemented in 2010 and still ongoing have had an effect on the trade (Press TV, 2012).
Negotiations for a Trade and Cooperation Agreement (TCA) between the EU and Iran initiated in 2002 have been on hold since August 2005, when Iran resumed its nuclear activities. Trade with Iran is subject to the EU general import regime, since Iran is not a member of the WTO and there is no bilateral agreement between the EU and Iran. Under the EU-sanctions, trade with Iran is still possible for the goods which are not subject to sanctions, but payments have become difficult to carry out since the designation of the Iranian Central Bank. (EU, 2012).
The UAE has been an important connection for Iran to the outside world. Between the year 2000-2010 it has been used to circumvent sanctions, but legal barriers have recently been effective in curbing dealings with Iran (Sadjadpour, 2011, p. 7). Much of the trade between Dubai and Tehran appears to be licit, but the volume of re-exports and the lack of export regulations make it very difficult to distinguish legal trade from illegal (Sadjadpour, 2011, p. 21).
Sadjadpour (2011) remarks that the U.S. Estimates that thousands of Iranians are running businesses by simply facilitating re/export in both directions as it has become more important for exports as well as imports.
Since the renewed sanctions from May 2018 most of the these routes used between 2008-2018 have run dry with the UAE having done less and less business or closing businesses of Iranian. Many have moved to Turkey or simply moved over to get their goods from China from increased pressure.
To further add to restrains are the limits to foreign cash, which has been tightly controlled since the beginning of 2018. It isn't that its much stricter, it simply is a fact of it happening again and many companies or countries aren't willing to get burned again after they had just started doing business again.
The Iranian banks aren't helping. It's not just that the banks are closed off from the world, even within Iran their reputation is horrible with continued cases of fraud and corruption. Further banks stay away from making investments in the private sector as the stock market yields much higher returns, stifling growth. To be able to attain financing customers need to provide guarantees to the sum of the financing in many cases.
The most important point is, that to work internationally the banks need to be independently reviewed by third parties to get a rating. To attain such they need to provide balance sheets, which for most banks do not exist or do not picture realities.
All this shows again the similarities of Eastern Germany prior to 1989 and the rocky road ahead trying to get its trade back in order. The banking sector will also take a hard hit in the future, as in Germany's case there aren't any large banks left in the East of Germany.
The
currency needs its own post, but it's clear to see what has happened to buying
power and its economy just by looking at this graph:
https://bonbast.com/graph/usd/2014-05-01/2019-07-10
Future
The
country is closed off, the educated elite is leaving, banks aren't connected to
the world and the industry is controlled by the government directly or indirectly,
the currency isn't traded or trusted and the economy continues to slide into a
deeper recession.
If
Trump loses the 2020 elections I assume that Iran will start reconnecting to
the world from 2023/24 and it would take another 3-5 years for it to be on
levels last seen until 2010/11. If Trump wins the election we are looking past
2030. I say that with the view on discussions starting in 2003 with an
agreement in 2015, which started working in 2016, where business only just
started at the end of 2018 to start.
I
further assume, there will be a higher exodus of families and individuals not
just the elite anymore out of pure necessity.
Conclusion
With
the example of the ex- DDR (Eastern Germany), as noted even 30 years after the
border is gone, it still hasn't caught up to the West and won't for the
foreseeable future, even though they have the same language, currency and banks
and culture.
What
does it mean for Iran? As the first quote notes: It will likely take 3
generations for Iran to catch up to the world, and depending on political will
may end up no better than countries such as Egypt or South Africa.
Bibliography
1. https://www.wiwo.de/unternehmen/dienstleister/25-jahre-wiedervereinigung-das-sind-die-groessten-ostdeutschen-unternehmen/12400420.html
2. https://www.worldometers.info/world-population/iran-population/
3. https://www.populationpyramid.net/iran-islamic-republic-of/2050/
4. http://www.payvand.com/news/12/may/1297.html
5. Sadjadpour, K., 2011. The Battle of Dubai. The Battle of Dubai - the united arab emirates and the u.s.-iran Cold War, July 2011, 46.
Bibliography
1. https://www.wiwo.de/unternehmen/dienstleister/25-jahre-wiedervereinigung-das-sind-die-groessten-ostdeutschen-unternehmen/12400420.html
2. https://www.worldometers.info/world-population/iran-population/
3. https://www.populationpyramid.net/iran-islamic-republic-of/2050/
4. http://www.payvand.com/news/12/may/1297.html
5. Sadjadpour, K., 2011. The Battle of Dubai. The Battle of Dubai - the united arab emirates and the u.s.-iran Cold War, July 2011, 46.
6.
http://www.payvand.com/news/19/may/1043.html
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