Iran - Facts and Figures


Iran Geography

Located in the expanse between the Persian Gulf and the Caspian Sea, Iran borders Armenia, Azerbaijan and Turkmenistan to the north, Afghanistan and Pakistan to the east, and Turkey and Iraq to the west. With an area of 1,648,000 square kilometers, Iran is one of the largest countries in the Middle East. The central plateau is mostly sand or rock desert, and the settled areas are largely confined to the foothills of the mountain ranges - the Alborz in the north and the Zagros in the south and west. The Caspian Sea in the north of Iran is the world's largest lake. Its altitude is about 25 meters below sea level. Meanwhile, in the south, the Persian Gulf and the Sea of Oman provide Iran with its main access to international waters.

Iran History

There is evidence of habitation in Iran as far back as 100,000 BC (the Lower Paleolithic era). Recorded history and civilization in Iran began around 3,000 BC with the Elamites in Khuzestan.

From 728 BC the Medes were a significant civilization but were overthrown in 550 BC by the Persians led by Cyrus. The Persians established a vast empire, which was conquered by Alexander the Great some 300 years later. Alexander's empire was short-lived following his death and Iran was then ruled by native Parthians who created a Greek- speaking empire, which existed between 247 BC and 226 AD. This empire was greatly weakened by prolonged clashes with Rome and it eventually passed into the control of the Sasanians who established Zoroastrianism as the official religion. In 640 AD, the Sasanian Empire was conquered by Arab Muslims and for two centuries Iran was ruled by Khalifas. Thereafter Iran was ruled by various rulers who sought to establish their own independent states in parts of Iran. In 1502, the Safavid dynasty conquered various parts of Iran and established Shi'ite Islam as Iran's official religion. In the late eighteenth century the southward expansion of the Russian empire threatened Britain's empire in the Indian subcontinent. As a result the two nations engaged in trade and diplomatic rivalries in Iran turning it into a semi-colonial state that was economically controlled by them. At the start of the twentieth century internal unrest and a weak dynastic ruler resulted in the convening of a national assembly (the Majles) and the establishment of a constitution in 1906 In the economic turmoil following the First World War, a coup brought Reza Khan to power in 1921. In 1925 he declared himself Shah. Following his collaboration with Nazi Germany in 1941 and the occupation of Iran by allied forces, the Shah was forced to abdicate and his son, Mohammed Reza Shah Pahlavi, assumed control as the new Shah. He sought to ally Iran closely with western powers and embarked on a modernization and
westernization program, which alienated the country's religious leadership. The significant rise in oil prices in 1973-4 fuelled economic growth in Iran but at the cost of high inflation. Economic hardship, corruption in the Shah's family and government, increased westernization and repressive security measures imposed by the government gave rise to significant opposition, which manifested itself in nationwide demonstrations and strikes.
As a result, in 1979, the Shah's government collapsed and he fled the country. Ruhollah Khomeini, a Shi'ite ayatollah in exile since 1963 in Iraq and then in Paris, returned to lead the movement which set up an Islamic Republic in 1979. After the revolution, western influence in Iran was suppressed. Seeking to exploit the situation, Iraq launched an invasion of Iran in 1980. The ensuing war lasted eight years, resulted in massive casualties and had a devastating effect on the economies of both countries. Ayatollah
Khomeini died in 1989 and the then president, Hojatoleslam Seyyed Ali Khamenei, succeeded him. Ali Akbar Hashemi Rafsanjani won the presidential election in August of the same year.

Since 1989, Iran's domestic politics have witnessed a competition for power between conservatives and reformers within the same regime. For eight years, President Rafsanjani sought to implement a program of gradual economic and political reform although his conservative rivals frequently blocked his political initiatives. In the 1996 parliamentary elections the conservative faction lost their overall majority and, in the 1997 presidential election, Seyyed Mohammed Khatami, a strong reformist, won a significant and unexpected majority. President Khatami's supporters also gained overall control in the 2000 parliamentary elections.

The influence of the reformists has, however, been challenged in recent years by the conservatives. In June 2001, President Khatami won a second term in presidential elections held in that year. Although he continues to call for patience among his supporters, international concern has been expressed as to whether the pace of social and political reform is sufficiently fast to satisfy the expectations of the general population.


Iran Administration

Iran is divided into Ostans (or provinces), Ostans into Shahrestan (or sub-provinces) and Sharestan into Dehestans (or rural agglomerations). Based on the latest available information, the country is divided into 28 Ostans, 293 Sharestans and 2,293 Dehestans. Government Iran's constitution, which was approved by a referendum held in April 1979, declares the country to be an Islamic Republic. The legal system in Iran is based on the French Civil Code, but adheres to fundamental Islamic principles. The most senior political body in Iran is the Assembly of Experts composed of clerics elected in a public general election. This body has the role of electing, supervising and, if necessary, dismissing the Vali-e Faqih (supreme Islamic jurisprudent), also known as the Rahbar (leader). The Assembly of Experts is elected for a term of eight years.
The Rahbar appoints a number (currently 25 although the number is not fixed) of the members of the Committee to determine the Expediency of the Islamic Order (or Expediency Council).

The 12-member Council of Guardians supervises elections and determines the constitutionality and conformity to Islamic principles of all laws passed by the Majles. The Council comprises six theologians appointed by the Rahhar and six Islamic jurists nominated by the High Council of the Judiciary and approved by the Majles. The constitution (as amended in 1989) provides for executive, legislative and judicial branches of government. The President who may be elected for a maximum of two four- year terms heads the executive branch. The President selects a Cabinet (or Council of Ministers) with the approval of the Majles and also serves as chairman of the National Security Council, which oversees the country's policies on defense and security. The legislature is a 290-seat, single chamber parliament (known as the Majles or Islamic Consultative Assembly). Members are elected for four-year terms on a multi-member constituency basis. The Majles ratifies all legislation and may impeach the President with a two-thirds majority vote. The Executive cannot dissolve the Majles. The Majles is also empowered to vet ministerial candidates presented by the executive and can summon ministers to account for their behavior or, in extreme cases, impeach ministers. The Expediency Council resolves disputes between the Council of Guardians and the Majles The Judiciary comprises a Supreme Court, Supreme Judicial Council and lower courts. Under the constitution all Islamic judges rely on the civil code. There have been 24 presidential, parliamentary and city council elections in Iran since 1979. The law in accordance with the constitution regulates the establishment of political parties. The two successive laws were enacted by the Majles in 1982 and 1988 and aimed at regulating the establishment of such parties. Accordingly, they are still at a relatively early stage of development.
Other power bases in Iran include the clergy, the bazaar and the bonyad. The clergy has significant power in Iran. Since the revolution, many important posts have been occupied by senior clerics. As with other elements of Iranian society, the clergy itself is divided between reformists and conservatives. The bazaar is the name given to Iran's traditional import-export merchants who significantly influence the economic policy. In 1978, they were instrumental in organizing the strikes that ultimately led to the downfall of the Shah. Since the revolution, the bazaaris have enjoyed a close relationship with the Islamic regime.

The bonyads are charitable organizations established after the revolution to help the oppressed and the poor. Each bonyad has a particular function; for example the largest bonyad - Bonyad-e-Mostazafan va Janbazan (Foundation of the Oppressed and War Veterans) - is responsible for taking care of those disabled during the revolution and the war with Iraq. Other bonyads are responsible for housing the poor, for providing furniture and living arrangements for newly wed young couples and for creating employment opportunities for unemployed people in rural areas. Today, the bonyads are large conglomerates contributing significantly to the Iranian economy. Since the election of President Khatami in 1997 the government has sought to reform the bonyads. For example, in the past few years the bonyads have been required to submit to regular audits, have become subject to tax and are now subject to the privatization law. Approximately 60 companies owned by the bonyads have been divested and there are plans to divest a further 50 in the near future. International Relations The primary goals of Iranian foreign policy are to end the country's international isolation and to normalize relations with the outside world. Iran's trade relationships with mainland Europe (particularly Germany, France and Italy) are good and have been strengthened by visits undertaken by President Khatami. On 17th June, 2002, the EU foreign ministers agreed to commence trade and co-operation talks with Iran with a view to entering a formal Trade and Co-operation Agreement that would, upon its completion, be ratified by the European parliament. Ties with the United Kingdom have also strengthened.
Iran has also recently been supported by a number of central and east Asian states, which have developed into important trading partners. Iran is a founding member, along with Pakistan and Turkey, of the Economic Co-operation Organization ("ECO"), now a 10- member grouping of central Asian states. Relations with Japan were strengthened following a visit by President Khatami to Tokyo in late 2000 and the conclusion of a series of financial and commercial deals.
Iran's relationship with the United States is still poor. Since his appointment, President Khatami had sought to improve these relations by a televised address to the US people through CNN in 1998. Initially this resulted in a gradual improvement in US attitudes culminating in the removal of the ban on the import of Iranian luxury goods in March 2000 and an expression of regret by the then US Secretary of State for past US interference in Iranian internal affairs. However, in August 2001, US sanctions on non-US firms investing in the Iranian oil and gas sector were extended for a further five years and this, coupled with other accusations publicly made by senior U.S. officials, has resulted in a significant deterioration in Iran's public relations with the United Slates.
Following the revolution, Iran's Arab neighbors were concerned both by the war with Iraq as well as by the threat posed to them by Iran's populist revolution. However, since the cease-fire with Iraq, Iran's relations with the Arab world (apart from Iraq) have improved, assisted by Iraq's invasion of Kuwait in 1990, which demonstrated the greater threat posed by an unfettered Iraq. In particular, Iran has been able to improve ties with Saudi Arabia and has developed commercial relationships with the United Arab Emirates and other GCC countries.
Iran's relationship with Russia has also developed significantly. Russia continues to support the construction of Iran's nuclear power station. Iran has entered into a large number of bilateral trade agreements and double taxation treaties with countries in Europe (including France, Germany and Italy), Central and East Asia and elsewhere.
Iran is a member of the Organization of Petroleum Importing Countries (OPEC) and ECO.
Iran is also a member of a number of international organizations including the United Nations and its subsidiary organizations, the International Monetary Fund and the World Bank. Iran made the initial proposal behind the designation by the United Nations of the year 2001 as an "International Year of Dialogue", which sought to promote peaceful resolution of disputes between member nations. Iran is currently seeking membership of the World Trade Organization.

Population
The years following the 1979 revolution saw a rapid increase in the population of Iran. The latest official figures for the Iranian year that ended in March 2001 show that the annual growth has now been stabilized at about 1.1%. The present population size, provided by the Iran's Statistic Center, is about 65.5 million.

Demography
What appears very important in Iran's population figures is the fact that 51% of the country' s population is under 20 years old. This demographic structure exerts pressure on the Iranian government to reform the Iranian economy in such a way as to meet the needs of the expanding workforce. Even though over the past few years the population growth has slowed, due to the demographic structures, the rate is still high and according to some estimates Iran will have close to 100 million people by the year 2050.

Urbanization
Another interesting development is the urbanization of the country. Traditionally a rural society, Iran has developed into a modern urban society over the past 30 years. In 1956, 69% of the population lived in rural areas; today, 63% are urban dwellers and more than 50% of the urban population has already grown up in an urban environment. With urbanization, Iran is developing the need for modern systems and products, among other things.

Ethnics
Iran's unique location at the crossroads of Arabia, Turkey and Central Asia has resulted in many ethnic groups being found within its borders. Just over half of the population is of Persian origin, while a quarter are Turkish-speaking Azeris of Azerbaijan. A large group of Kurds, and smaller minorities of Lors, Bakhtyaris, Arabs, Armenians, Turkmen and Baluchis also exist in certain regions. There are four main religions in Iran: Islam, Christianity, Judaism and Zoroastrianism.

Iran Economy
GDP
Following a sharp decline in output immediately after the revolution and a significant increase in oil prices in 1979, the economy enjoyed moderate growth up to 1985. However, following the 1988 ceasefire, substantial rehabilitation and reconstruction projects, expansionist monetary policies and an overvalued exchange rate, coupled with rationing and pricing controls, led to economic distortions. Growth resumed in the early 1990s partially fuelled by short-term external borrowing. The resultant need to repay debt restricted imports of crucial production inputs and contributed to weaker GDP growth in the mid-1990s. GDP growth was further impacted by weak oil prices in 1997-1998 and, in 1999, by reduced oil exports to comply with OPEC quotas and the impact of drought on agricultural production before increased exports and a stable oil price stimulated GDP growth in 2000.
Iran's GDP for 2001/02 was about $107 billion, up 4.8% compared to the previous year.
The country's GDP per capita for 2001/02 was $1,631.

GDP Distribution
The structure of Iran's GDP continues to be determined by its reliance on oil. As the recipient of crude oil revenues, the State remains the dominant economic actor. The oil sector's share of GDP has declined from between 30-40% in the 1970s to between its more recent levels of 10-20%, principally as a result of policy decisions taken at the time of the revolution to reduce production and exports and diversify the production base of the country as well as a lack of investment in the oil sector. However, oil revenue still provides approximately 80% of export earnings and nearly half of government revenue. As a result, this sector is the prime recipient of foreign and domestic investment. Iran currently produces oil to the limit of its OPEC quotas.

In 1997/98, real GDP rose by 3.4% reflecting a moderate increase in the non-oil sector and a substantial decline in the oil sector as a result of the decline in world oil prices. In 1998/99, real GDP grew by 3.9% principally as a result of growth in the agriculture and services sectors with oil recording only a small increase and manufacturing and mining recording nearly zero growth. In 1999/00, growth in real GDP was 1.6%. The manufacturing and mining sector grew by 10.6% as a result of increased construction activity and the services sector grew by 3.8% as a result of an increase in transportation, warehousing and communication. The oil sector recorded a decline in growth of 6% and agriculture a decline of 9.4% as a result of a drought in that year in the east and southeast parts of the country.
In 2000/01, real GDP grew by 5.7% with the oil sector growing by 8.4% as production increased in line with OPEC quotas and prices strengthened. Manufacturing and construction and services also recorded significant growth. In 2001/02, real GDP grew by 4.8% with manufacturing and construction growing by 10.0% and 12.3% respectively. Agriculture and services each grew by approximately 5%, whilst oil declined by 8.4% reflecting reduced production in line with agreed OPEC quota reductions designed to achieve price stability.
A recent report of the Iranian Management & Planning Organization estimates for 2002/03 an increase of the non-oil sector by 7.4% and a decline of the oil sector by 6% due to a reduction of Iran's OPEC quota by 500,000 barrels. The growth of the industries and mines sector is estimated at 11.2%. Furthermore, domestic investment is expected to have grown by 11.8%.
Growth rates in the oil sector have been significantly impacted by changes in the price of oil and the level of production as Iran conforms to revised OPEC quotas from time to time. In the non-oil sector State investment in agriculture and wider production export-based items produced significant growth in this sector over much of the 1990s although successive years of drought in 1999 through to 2001 caused a contraction in real terms in 1999 and restricted growth in subsequent years. The manufacturing and mining sector has grown strongly in recent years led principally by increased construction activity and increased imports of raw material. The services sector has also seen consistent growth in recent years but has been affected by currency exchange restrictions, excessive bureaucracy and uncertain long-term planning.

Inflation
Inflation in Iran, measured by the consumer price index in urban areas, has been in double figures since 1991 and peaked at approximately 50% in 1995. In recent years monetary expansion due to financing the budget deficit, the depreciation of the market exchange rate, the removal of some subsidies and the suppression of imports have all contributed to rising prices. In 1997/98, average annual inflation was 17.4%. This increased slightly to 18.1% and 20.1% in 1998/99 and 1999/00 respectively before falling sharply to 12.6% in 2000/01 reflecting improved economic conditions and enhanced public confidence in the stability of economy as well as the implementation of non-expansionary monetary and fiscal policies. In 2001/02, the downward trend in inflation continued and at the end of the year it stood at 11.4%.
The exchange rate reform in March 2002 and constant high levels of liquidity growth resulted in an inflation rate around 15% in 2002/03, based on a report released by the Iranian Management & Planning Organization.

Liquidity
In general, the Iranian monetary policy has been aimed at curbing the liquidity and hence controlling the inflation. Despite a target liquidity growth of 16.4% in 2001/02, a range of factors, including the need to accommodate higher than expected economic growth and to finance the Rial resources of the budget, the liquidity grew by 28.8% over the mentioned year. The target liquidity growth for 2002/03 has been 15.7%, while first estimates of the Iranian Management & Planning Organization indicate that it grew again by approximately 30%.

Unemployment
The unemployment rate for 2001/02 was 15.7%. The unemployment rate is relatively higher among females and, in recent years, in urban areas as opposed to rural areas. It is very likely that the official unemployment figures understate its true position as a result of the methodology used in the surveys.
Based on the most recent census, the total population aged 10 years and over in Iran numbered approximately 45 million, of which the economically active part was approximately 16 million (estimated by December 2001 to have increased to 18.6 million). The remaining 29 million were classified as students, homemakers (all men or women not being economically active) or income recipients (those not being economically active students or home-makers, who received a pension or other income).
Employment among the economically active population (those aged 10 years or over who are either employed or unemployed but actively seeking work) was 86.9% in 1997/98. This increased to 87.5% in 1998 before falling in 1999/00 and 2000/01 to 86.5% and 85.8%, respectively.

Approximately one-half of Iran's population at the time of the last census was under 20 years of age, a fact that is expected to result in increased pressure on employment rates in the future. The government has sought to address this by financing job creation projects and implementing measures to raise production and investment.
Notwithstanding these initiatives, the existing labor law makes it extremely difficult to terminate established employment contracts and the combined tax and social security costs of employment are equivalent to approximately two-thirds of each employee's wage.

Foreign Exchange
Iran's exchange rate system used to be based on multi-layered system, where state and para-state enterprises would benefit from the preferred rate and hence creating an unhealthy competition environment. However, as of March 2002, the multi-tiered system has been replaced by a unified single market driven exchange rate. The official rate on 24 March 2003 was 8,140 Rials for US$1. Foreign Debt In March 2002, Iran's foreign debt was about $8 billion, constituting only a mere 7% of the GDP, confirming a healthy economy. During 2002/03 it has slightly increased to $8.7 billion. In addition, Iran had in March 2003 contingent liabilities in the amount of $14.7 billion for purchased goods and services that have not yet been paid for. Furthermore, a recent report released by the Iranian Management & Planning Organization puts the amount of authorized buy-back transactions at $43.7 billion out of which so far contracts worth $28.9 billion have been signed.
Foreign Reserves Iran's foreign reserves principally comprise its foreign exchange balances, which have grown significantly in recent years following the establishment of the Oil Stabilization Fund. The country's net foreign reserves in September 2002 stood at $12.6 billion, while its gross foreign reserves amounted to $32 billion. The reserves have grown in recent years reflecting improved oil earnings and reduced external debt repayment obligations, as rescheduled external debt has been paid.

Credit rating
Moody's, the US credit rating agency announced in September 2000 that it has raised the outlook on Iran's B2 foreign currency ceiling from 'stable' to 'positive'. The slight upgrading of Iran's credit rating had been anticipated by many analysts. Iran had received its B2 rating in the middle of 1999, at a time when the oil price was around US$ 10 per barrel, the elections for the new parliament along with the risk of political instability were coming up and Iran was busy rescheduling its foreign debt payments. In addition, it was the first credit rating Iran had received since the Islamic Revolution of 1979. Moody's has justified the upgrading with two major developments in Iran. First, the improving financial situation of the country "due to the strengthening and stabilisation of the country's external accounts and debt service capacity as a result of higher oil prices"; and second "economic reforms that are likely to proceed further contribution to an enhancement of Iran's growth potential over the medium-term".
It has to be noted, however, that in early June 2002, Moody's withdrew its Iran rating due to concerns that the issuance of a rating on Iran might be inconsistent with US sanctions.

Fitch
On 10 May 2002 Fitch Ratings (UK) Ltd., the international rating agency, has assigned the Islamic Republic of Iran Long-term foreign currency and local currency ratings of 'B+' and a Short-term rating of 'B'. These ratings apply to senior unsecured debt issues of the Islamic Republic of Iran. The Outlook on the Long-term ratings is Stable. Related Press Release reads as follows:

Iran is among the world's largest oil producers, and the economy has benefited markedly from higher prices over the past two years. In 2001 GDP grew by about 5 per cent. and the current account and fiscal surpluses are estimated at 5 per cent. and 3 per cent. of GDP, respectively. The current account has been in surplus for seven of the past eight years, leading to a continual accumulation of foreign exchange reserves, the establishment of an Oil Stabilisation Fund (OSF) in 2000 and a steady reduction in gross external debt - all with positive rating implications. As a share of GDP (7 per cent.) and foreign exchange receipts (CXR, 28 per cent.), Iran's external debt compares exceptionally well not only to its rating peers, but in fact to all sovereigns rated by Fitch. Only Taiwan (A+) has a lower debt/CXR ratio, and no sovereign has a lower ratio of debt to GDP. Iran's position as a large net external creditor is also one of its fundamental rating strengths, comparing favourably with other sub-investment rated sovereigns. Finally, in a major step forward in the economic reform process, the multiple exchange rate regime was discontinued in March 2002 in favour of a single rate determined in a new inter-bank market. Against these rating strengths, Iran faces serious rating weaknesses associated with the structure of the economy. State control extends to most major industries, including banking where lending is directed to particular sectors, consistent with objectives outlined in the Five-Year Development Plan. The role of the state is also evident in an extensive subsidy system that costs the government an estimated 20 per cent. of GDP annually, although exchange rate unification should reduce subsidies and increase fiscal transparency. The oil sector generates 80 per cent. of export receipts and 50 per cent. of government revenues, exposing the economy to oil price volatility even with the OSF. Foreign exchange reserves of about USD15bn and an estimated OSF balance of USD9bn provide a sizeable short-term cushion. Diversification efforts have yielded few results and are not likely to succeed in the absence of foreign investment. Finally, mounting demographic pressures presage the need for large-scale employment generation, which does not appear forthcoming.

The sovereign ratings are constrained primarily by the interaction of complex international and domestic political developments. Iran borders some of the world's most potentially volatile countries, and stakes in the region's geo-politics are exceptionally high. Tensions have heightened across the Middle East in recent months, reinforcing Fitch's view that international security issues and their implications for Iran remain unpredictable and prone to change quickly. Moreover, relations with the United States, which continues to impose strict bilateral economic sanctions, have deteriorated with the intensification of the Israeli- Palestinian conflict. Although US views on Iran are not necessarily shared by other members of the international community, Fitch believes they are a significant element of Iran's international risk profile.

Domestic political risks centre on active debates between reformers and conservatives on the degree of political, social and economic liberalisation that should be fostered within the Islamic Republic. Given the turbulent regional environment and the current US stance toward Iran, Fitch believes the reform debates could be affected by international developments, possibly prompting conservative elements to take an even less conciliatory approach, and there is a risk that this could be extended towards external credits. It should be noted, however, that Iran has had ongoing international commercial relationships in which debt payments have not been affected by domestic politics. Fitch does not judge domestic political risks to be a threat to the regime at present, but opines that reforms could be caught up in broader debates.

Export Credit Agencies
With regards to Export Credit Agency (ECA) covered financing , the Club of Berne (co- ordinating the policies of all ECAs of the OECD region) has lowered in 2001 Iran's country risk from category 5 to 4 (a rating of 7 is assigned to the highest risk countries).
Sovereign Eurobond Iran's first sovereign Eurobond in the amount of Euro 625 million, issued in July 2002 had at the date of issuance a yield of 8.95% and was heavily oversubscribed. The second Eurobond in the amount of Euro 375 million issued in December 2002 had a coupon of 7.75%.