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Iran: Inefficiencies Of An Oil Economy

Overview of Economy
The Iranian economy is a mixture of central planning, state ownership of oil and other large enterprises, village agriculture, and small-scale private ventures.   The economy has been growing steadily for last several years, thanks mainly to rising oil prices.   The Gross Domestic Product (GDP) growth rate was 5.6% in 2004, 5.4% in 2005, and is estimated to have remained stagnant at 5.4% in 2006 (Federation of International Trade Associations, 2007). The economist intelligence unit forecasts a growth rate of 4.6% for 2007 because of softening of the global oil prices, but is expected to decline in the future (Appendix A).   In order to diversify its economy and become less dependent on oil sector, the government is opening selected key sectors to foreign investors but the progress has been slow.   Iran's sensitive political environment, due to its dispute with the international community over nuclear activities, is the main hurdle in attracting foreign investments (Beehner, 2006).   Iran has a well educated population with literacy rate (77%) above the regional standard (72%) (Appendix B), but social tensions are also high because of a growing unemployment rate estimated at 15% of the active population (Ezrati, 2006).
The Federation of International Trade Associations (FITA) reported that the agriculture sector contributes nearly 10% to the GDP but employs one-third of the active population.   Only 10% of the land is arable and primitive farming methods are used. Iran is rich in mineral resources, mainly copper (5% of the global reserves), oil (4th largest producer in the world) and gas (2nd largest producer in the world).   The oil sector generates almost 50% of the total state revenue.   The industrial and oil sector contributes more than 50% to the GDP.   The services sector is growing and contributes more than 45% to the GDP (Appendix C).
Iran is a member of the Organization of Petroleum Exporting Countries (OPEC). The share of foreign trade in...