In this paper, we try to present an optimal quantitative picture of macro economic and industrial variables of Iran with regard to the industrial development variant on the basis of the country’s macro economic and industrial performance in relation to developed and developing economies. Here we have studies projections about the trend of variables during two decades (2002-2021) by taking advantage of econometric model presented in this article.

It must be noted that long-term projections emphasize determination of temporal trend of variables from the status quo to optimal situation, which can be used for recognizing various aspects of economic reforms.

Realization of the above per capita income requires the gross domestic product to quadruple within the next 20 years. In this case, average annual growth of GDP during 2000s and 2010s will reach 7.9% and 7.1%, respectively.

If growth of added value in such economic sectors as agriculture, construction and service underwent its natural course and added value of the oil sector was determined on the basis of assumptions pertaining to production and the price of oil, in that case, the industrial sector must be capable of supplying necessary economic added value for the realization of target GDP. Considering this point, the average annual growth of added value of the industrial sector must be 10% and 9.8% during two decades of 2000s and 2010s, respectively. Comparing this figure with the corresponding figure of the past decade, which equaled 4.9%, indicates accelerated growth needed by this sector during forthcoming decades. Share of the added value of various sectors in GDP also shows that share of the industrial sector must increase from 16% in 2001 to 25% in 2021.

To materialize the above pictures, average annual growth rate of investment, which was 4.4% during the past decade, must exceed 10% in 2000s and 9% in 2010s. This trend will increase share of investment in GDP from 15.5% in 2002 to 22% in 2021. The private investments will play an important role in the industrial development process. Therefore, average growth of private investments will increase from 5.8% during the past decade to 10.2% and 10.3% during the next two decades, respectively. Investments by the state-run sector will also increase to 9.9% and 6.5%, respectively, within framework of new role of the government in future industrial development of the country after negative growths during recent years.

Table 1. Oil sector assumptions for industrial development variant

In view of development of economic activities in various sectors and its effect on developments of the demand side of workforce market, the average unemployment rate during the next two decades will decrease from 14.7% in 2001 (based on Statistics Center figures) to 12.3% and 11.3%, respectively. The significant point is that in this variant, apart from cultural and social factors having an effect of a hike in women’s participation rate, growth in per capita income as a positive point, will also increase the supply of a female workforce.

Projections on workforce productivity trend show that this factor, as an important determinant of economic growth in the industrial sector, must be developed through developing education, improving technology, interacting with global economy, organizing activities and rationalizing real salaries in such a way that productivity in 2021 must be increased by twofold compared to 2001.

As was stated for assumptions related to policymaking approaches to industrial development, economic stability and macro economic policies compatible with the industrial development are considered as important necessities. Based on experimental and theoretical models, stability of macro economy whose most important index is a low inflation rate would pave the way for the economic development while a high and fluctuating inflation rate would negatively affect long-term growth. Considering the financial, monetary and forex stability in discussed optimal picture, it is observed that the inflation rate will decrease from 14.5% in 2002 to 11% in 2021. Average inflation rate in the two decades of 2000s and 2010s has been projected at 12.6% and 12%, respectively. Financial stability of the government can also be possible through rationalizing structure of expenses in line with new role of the government in the process of the industrial development as well as improving structure of the tax system. Therefore, the ratio of current and developmental expenses of the government to GDP will remain fixed at about 21% during the next two decades with the ratio of tax revenues to GDP increasing from 7% in 2001 to 9% and 10.5% in 2011 and 2021, respectively.

In an optimal picture of Iran’s industrial development, role of commerce based on industrial exports would be determining as the most important factor for financing industrial imports as well as a factor for promoting industrial competitiveness. Industrial development as experienced in East Asian countries shows that this factor has played an important part. According to figures presented by the United Nations Industrial Development Organization (UNIDO) in 1999, average per capita industrial exports (the ratio of industrial exports to industrial employment) of Japan, South Korea, Malaysia and Taiwan equaled $50,000 and the figure was $25,000 for Hong Kong, Thailand and Philippines.

In view of income, production and investment developments in this variant, total needed imports for 2010s and 2020s have been estimated at $35.5 billion and $65 billion (at the fixed price for 2001) respectively and total exports have been estimated at $34 billion and $54.9 billion, respectively. Assumption pertaining to oil production, consumption and exports show that forex revenues earned through oil exports, despite increase in oil production capacity to 7.62 million barrels per day in 2021, will only supply 43% of needed imports.

Table 2: Trend of important macro economic indexes with regard to the industrial development variant (2001-2021)

This indicates the necessity for developing industrial exports, on the one hand, and attracting international financial resources, especially as foreign direct investment (FDI), on the other hand. The value of non-oil exports in 2010s and 2020s has been estimated at $12.8 billion and $25 billion, respectively. However, it must be noted that Iran’s industrial exports by the end of the two decades would be much lower compared to current industrial exports of East Asian counties. As you will see in the next section, Iran’s industrial employment in 2021 is projected at about 2.8 million people. If we consider the lower limit of per capita industrial exports of East Asian countries at $25,000, Iran’s industrial exports in 2021 must be about $70 billion instead of $25 billion.

Trade balance will be facing a shortage during 2010s. Therefore, paving the way for attraction of foreign direct investment will be very important both for taking advantage of international financial resources and, more importantly, for transfer of technology and technical know-how, promoting competitiveness and establishment of export markets.

To assess the possibility of taking advantage of international financial resources, the picture of net flow of long-term investments to developing countries can be taken into consideration. According to World Bank’s Global Economic Prospects report, inflow of such investments to developing nations equaled $265 billion in 1999, making up about 4.37% of their GDP. The figure for Asian countries (China, South Korea, Malaysia, Thailand ...) equaled $72.5 billion, accounting for 2.93% of the GDP. Composition of long-term financial resources shows that about 70-80% of them consisted of foreign direct investment. Therefore, in view of the above realities and the long-term trend of Iran’s economic development in terms of industrial development, the limits of net flow of financial resources can be delineated. As we said before, Iran’s GDP in terms of dollars (on the basis of the parity rate) will increase from $112 billion in 2001 to $245 billion and $486 billion during 2010s and 2020s, respectively. If we assume net annual flow of financial resources to be about 2% of GDP, these figures can increase by up to $4.9 billion and $10.1 billion for the said years respectively. If 70% of these resources were made up of foreign direct investment, the minimum annual quantitative goal for taking advantage of this kind of investment would start from $3 billion in 2006 to peak at $7 billion in 2021.

Based on the above studies, Table 2 shows the future trend of the most important macro economic indexes with regard to the industrial development by 2021.

To attain positive achievements with regard to the industrial development at the level of macro economy, average annual growth of the industrial added value which was 4.9% during 1990s, must be increased to 10% and 9.8% during 2000s and 2010s, respectively. Realization of such a growth can enhance the share of the industrial added value in GDP to about 25% in 2021.

With regard to the industrial development, changes in the composition of industrial activities on the basis of capital, intermediate, long-lasting consumer and short-lived consumer industries are important. It was previously noted that the most important change in these trends, would be a declining trend of share of short-lived consumer industries vis-à-vis an increasing share of capital and intermediate industries, so that, share of the added value of short-lived; long-lasting, as well as capital and intermediate industries would stand at 26.3%, 18.8% and 55.1%, respectively. Also, the growing trend of the added value for various industries shows that average growth of short-lived and long-lasting consumer industries in 1990s experienced its lowest figures during the past three decades standing at 2% and 3.5%, respectively. Meanwhile, during the same decade, capital and intermediate industries grew by an average of 8.6%. This performance indicates that capital and intermediate industries were not determining in growth of consumer industries despite having the highest share of growth in the industrial added value. Meanwhile, it is expected that a large part of capital and intermediate industries should be developed through an industrial deepening process in relation to consumer industries and for the establishment of the industrial bonds.

When determining composition of industrial activities with regard to the above variant, apart from developments of the supply side, developments of the demand side should also be taken into account due to their importance in the industrial development. Also, attention has been paid to relationship between developing capital and intermediate industries and development of consumer industries for deepening of the industrial bonds. The results show that short-lived and long-lasting consumer industries should have a more rapid pace during future decades compared to the past, so that, average annual growth of short-lived consumer industries must increase from 2% in 1990s to 9.3% and 8.2% in 2000s and 2010s, respectively. Long-lasting consumer industries will grow more rapidly compared to the short-lived consumer industries with their average growth increasing from 3.5% in 1990s to 11.3% and 11.7% during the two decades, respectively. The capital and intermediate industries will continue their 8.6% annual growth registered for 1990s to increase moderately averaging an annual 9.9% growth in 2000s and 9.4% in 2010s.

One of the determining factors for rapid growth of the industrial products is high growth of the industrial investment. In view of the above trends, annual average growth of investment in the industrial sector, which was 4.8% in 1990s, must increase to an annual average of 10.5% and 9.7% in 2000s and 2010s, respectively. Naturally, realization of this volume of investment would need development of prerequisites for private investments.

The composition of the industrial development in various industries indicates rapid growth of investment during 2000s and its relative stability during 2010s. The striking point is rapid growth of short-lived and long-standing consumer industries in comparison to the capital and intermediate industries.

It should be noted that based on past performance, the trend of share of capital deposits of short-lived consumer industries in total capital deposits of the industrial sector has been decreasing while share of capital deposits of the capital and intermediate industries has been increasing.

Considering developments in production and workforce productivity in the industry, industrial employment is expected to increase from 938,000 in 2001 to 1.6 million and 2.8 million in 2011 and 2021, respectively. In view of the rate of utilization of capacity and productivity and the production share of capital and intermediate industries those industries will generate more jobs in comparison to consumer industries, which indicate improved productivity in consumer industries, especially short-lived consumer industries.

Considering the determining factors for investment such as production changes, capital imports and the rate of utilization of capacity, the temporal trend of growth of this variable with regard to the variant of persistence of the status quo will be declining and its annual average is projected at about 4.6% while with regard to the industrial development variant, this increase to a persistent 10% growth.

Projecting Iran’s macro economic variables with regard to the variant of persistence of the status quo, shows that low economic growth rate based on natural resources as well as soaring unemployment rate—resulting from a young population and high supply of manpower—will deteriorate as two main challenges of the Iranian economy and perpetuate the economic stagnation. Inflation and a higher-than-20% unemployment rate during the concluding years of the current decade accompanied by increasing instability in financial situation of the government, will lead to economic and social imbalances. Under such circumstances, due to gradual plummeting of forex revenues from oil sales, on the one hand, and inadequate persistence of domestic and foreign demand for the country’s industrial products, on the other hand, and under inflationary conditions that would lead to increase in production costs and reduce families’ purchasing power, the growth of the industrial added value will slacken. Therefore, annual average growth of the said variable during this decade will hit 5.8%. Composition of the industrial production within the framework of consumer industries as well as capital and intermediate industries also is indicative of gradual decline in growth of consumer industries, especially short-lived consumer industries in comparison to capital and intermediate industries. This issue proves lack of development of the industrial bonds, on the one hand, and persistence of stagnation in consumer industries, on the other hand.

With regard to the industrial development, realization of an 8% annual average growth rate for GDP would require a 10% annual growth in added value. Realization of this issue can increase share of the industrial added value in GDP to about 25% in 2021. In this regard, short-lived and long-lasting consumer industries must grow more rapidly during next decades in comparison to past decades, so that average annual growth of short-lived consumer industries must increase from 2% in 1990s to 9.3% and 8.2% in 2000s and 2010s, respectively. Long-lasting consumer industries must also grow more rapidly compared to short-lived consumer industries and their average growth must increase from 3.5% in 1990s to 11.3% and 11.7% within next two decades, respectively. Continuing their annual 8.6% growth of 1990s, capital and intermediate industries must grow by an annual average of 9.9% in 2000s and 9.4% in 2010s. Growth in the industrial sector investment, which has been projected at 5.3% with regard to the variant of persistence of the status quo, must hit an annual average of 10.5% and 9.7% in 2000s and 2010s, respectively, with regard to the industrial growth variant. Naturally, realization of this investment would require development of private investments. One of the major developments in the industrial development variant compared to the variant of persistence of the status quo is changes in workforce productivity in the industrial sector. Workforce productivity will go on with its slow past growth of 1.8% while the figure must increase by more than 5% in the industrial development variant.