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Iran Exports and Imports
Jan. - Feb. 2000, No. 61
By: IE and I Research Department
Text: The most noticeable overall feature of Iran's economy during the year ending 20th March 1999, is the further decline of the economy, as in the year before it, when the GDP growth rate was a mere 1.6% at fixed basic prices. The major reason for the decline during these two years was the fall in oil export revenues.
A review of the GDP trend during the past two decades indicates that the chief cause of the decline in GDP growth in 1998-99, as in 1981-88 and in 1994, have been developments in the international crude oil market.
Public and private expenditures during this year (1998-99), however, had a relatively stable growth.
The rate of growth of gross fixed capital formation began to decline in 1997-98, and continued its heavy decline in 1998- 99.
The main reason for this decline was that the government invested far less in machinery and buildings than it had done in the previous years. This in turn affected private sector investments which further declined capital formation.
As a remedy, the state began to take action towards attraction of foreign investment and financing, and to encourage Iranian capital owners to invest in government bonds and expend savings. Although the government has a generally smaller role in the formation of gross capital, it plays an important role in coordinating the activities of the private sector.
The banking system tried hard to improve the situation through providing loans and
credits, especially in the housing sector. But this had no effect, mainly because of the
low returns in this sector and because of decline in actual savings.
Agriculture
In 1998-99 the value added in the agricultural sector enjoyed a good rate of growth of
8.1%. Sufficient rainfall in the agricultural year of 1997-98 raised the crop yields of
major agricultural items (except tea, cane sugar and tobacco). The growth in the major
crops amounted to 20% over the year before (wheat, barley, rice). This resulted in the
reduction of imports of these goods .
Energy
The year 1998-99 was the most catastrophic, since 1979, with regard to oil revenues, as
the average oil export revenues declined by 35% below the average of the last 20 years.
Estimates indicate that the value added in the oil sector during 1998-99 also declined. In 1998-99 the average crude oil production had a 1.2% growth reaching 3.7m barrels per day. Out of this amount 2.3 m barrels were exported, somewhat less than the year before because of lowered OPEC allocations. The average price of Iranian crude oil during this year was US$ 10.51 per barrel 36% below the average of the year before it (US$ 16.42 per barrel).
Industry and mines
A great deal of effort was made in 1998-99 to make the industry and mines sectors active,
and despite the shortage of financial resources, these sectors showed relatively good
growth rates. The value added of these sectors were 4.9 % and 4.0 % respectively and
preliminary estimates indicate that large-scale industrial units had a growth of about 8%.
In the year under consideration, 1,548 new industrial projects were implemented which cost 4,567.6 billion rials and provided 30,000 jobs. The banking system provided significant credit to this sector.
The petrochemical industry made good progress during the year under study. Many of the projects that had been transferred to the private sector received sufficient loans from the banking system. The National Iranian Petrochemical Co (NPC) completed the first phase of its development program and entered into its second phase. About 11 million tons of petrochemical products were produced by the petrochemical complexes that operated under the umbrella of NPC .
In other industrial sectors, growths were even more impressive. Production of edible oil increased by 23.5% compared to the year before; detergent powders by 20.1 %, sugar, 9.9 %; cement, 4%.
The mining sector, having been given a far freer hand as a result of amendments in laws and regulations, took effective steps towards better exploitation, and attraction of local and foreign investment.
The amendments in the laws on mining included eradication of restrictions on private sector and foreign investment, extension of exploitation period from 6 to 25 years, and other incentives for potential investors.
During 1998-99, production of iron ore and coal increased by 11% and 21 % respectively; production of copper cathode showed an increase of 22.3 %, zinc billets, 61.3% and cast aluminum, 21.2 %.
However, production of steel declined by 7% despite reductions in foreign exchange required for the production process, down to US$ 50 per ton.
Construction and housing
Although the need for housing still exists and the Ministry of Housing and Urban
Development encourages large- scale construction of apartments of 75 sq.m and below, the
value added in this sector dropped by 10.6 % in the year under review.
Considerable reduction in profits of this sector, reduction in real national savings, high costs of construction and reduction in the purchasing power of the grass-roots were the major reasons for this decline which occurred despite the efforts of Bank Maskan (Housing Bank) and the credits it offered.
In the year under review 8% of the development budget, equal to 1,844.5 billion rials, was allocated to construction, state installations and housing, which was 12.3 % below the previous year.
The budget and the government's financial state
When the budget for the year 1998-99 was being drawn up, the export value of each barrel
of oil was US$ 16 and the budget was based on this price. But the actual selling price of
oil during that year fell far below this level. Consequently, and amendment was allowed by
the Islamic consultative Assembly (parliament) to borrow the shortage, some 17,900 billion
rials, from the banking system, and to reduce state expenditures.
The decrease in government revenues meant that only 84% of the budget's foreseen expenditures could be met. The reduction in oil and gas prices lowered the ratio of the revenues from this sector to total government revenues, from 42% in 1997-98 to 31% in 1998-99. On the other hand tax revenues increased by 7.7%.
During the year under review, public payments increased by 9.2% compared to the year before, up to 71,500 billion rials. Current expenditures made up 75% and development expenditures 25% of total government expenditures.
The public budget deficit that year amounted to 22,880 billion rials which equaled 7% of the GDP. About 51% of the deficit was borrowed from the Central Bank, and the rest came from advance sale of oil, foreign loans, government bonds etc.
Balance of Payments
The decline in oil revenues, the recession in the oil market and the shortage of financing
caused by the Asian crisis, forced the Central Bank of Iran to turn to foreign sources for
finance and investment.
In 1997-98, Iran's total exports, including both oil and non-oil goods and services, amounted to 14.5 billion dollars, which was 27.5 % less than the previous year. In the same year Iran's export of oil and gas declined by 36%, down to 9.9 billion dollars, about five billion dollars less than the year before, while non-oil exports increased by 4.5% to reach US$ 3b.
In 1998-99, because the Iranian government's total revenues decreased compared to the
year before, the net balance of payments showed a deficit of 1.9 billion dollars whereas
from 1994 to 1997 the balance had been positive.
Stock exchange
Despite the slowness of economic growth in 1998-99, the Tehran Stock Exchange's activities
began to grow in the second half of the year ending 20 March 1999.