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Iran’s Economy: SWOT Analysis

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Published: Mon, 20 Aug 2018

Strengths:

  1. Location between the Middle East and Central Asia, with access to the Persian Gulf and Caspian Sea
  2. Iran is the eighteenth largest country in the world
  3. The economy of Iran is the twenty-fifth largest in the world by GDP (nominal) and the eighteenth largest economy in the world by purchasing power parity (PPP)
  4. world’s second largest proven oil reserves, after Saudi Arabia,
  5. world’s second largest proven gas reserves after Russia
  6. It is OPEC’s (Organization of the Petroleum Exporting Countries) 2nd largest oil exporter and is an energy superpower.
  7. Subsidy reform has cut domestic consumption of oil and gas and provides more for export
  8. Oil and gas aside, Iran is rich in other resources and has a strong agricultural sector
  9. Easy Access to markets of neighboring countries
  10. Iran has one of the highest urban growth rates in the world. From 1950 to 2002, the urban proportion of the population increased from 27% to 60%
  11. TSE (Tehran Stock Exchange) has been one of the world’s best performing stock exchanges in recent years.
  12. The Foreign Investment Promotion and Protection Act (FIPPA) gives some protection to foreign investors and relatively good terms for the repatriation of profits
  13. Although stifled in the years since the revolution, Iranians are known for their entrepreneurial skills, which is potentially a strong pull for foreign investors.
  14. excellent reverse engineering capabilities and technical innovation
  15. A large army including elite units
  16. two thirds of Iran’s population under the age of 25
  17. Young, motivated and active work force
  18. Iran is a diverse country, consisting of people of many religious and ethnic backgrounds
  19. Iran is home to one of the richest artistic traditions in world history and encompasses many disciplines, including architecture, painting, weaving, pottery, calligraphy, metalworking and stonemasonry.
  20. Existing historical tourist attractions for improving regional tourism
  21. The culture of Iran is a mix of ancient pre-Islamic culture and Islamic culture

Weaknesses:

  1. One product economy (economic growth only rely on oil and gas industry)
  2. Little international or multinational involvement.
  3. International sanctions make investment and financing transactions difficult.
  4. International sanctions discourage foreign oil companies from bringing much needed technical knowledge and equipment to maintain oil output levels.
  5. International Sanctions are eating into Iran’s oil revenues, increasing the chances of severe social unrest.
  6. International sanctions in banking system, means that the sector is underdeveloped and under-competitive
  7. After a concerted effort to reduce public debt in recent years there are signs that it is once again rising
  8. Iran has only a few allies in the region
  9. Foreign firms are unable to own hydrocarbon resources in Iran
  10. Unfavorable contract structures limit profitability for foreign investors.
  11. Inability of controlling exchange rates
  12. Limited financial or operational freedom
  13. Lack of infrastructures in different economical parts
  14. The beginning of the country’s subsidy reform program has lowered its growth prospects and accelerated inflation.
  15. Progress on privatization front remains slow despite some recent encouraging signs
  16. Structures of state-run firms are inefficient, which slows down the production process.
  17. Strict government control is highly restrictive to innovation
  18. Lack of funds in commerce and agriculture section
  19. Lack of transportation vehicles
  20. traditional production methods due to lack of advanced technologies
  21. Bureaucracy constricts entirely state-run industries.
  22. Poor research facilities (despite ability to reverse-engineer).
  23. Decision making ultimately rests with the Supreme Leader
  24. Iran has one of the poorest human rights records in the region

Opportunities:

  1. There is a possibility of regional dominance in the short term due to the country’s size and influence
  2. The gas sector is underdeveloped and there is considerable room to maximize this source of revenue.
  3. government subsidized foundations that dominate Iran’s non-oil economy
  4. Any normalization of relations between Iran on one hand and the USA and its allies on the other could provide the impetus for a huge reform of the banking sector.
  5. The government has granted a number of licenses to new private banks in recent years; these private banks are growing far faster than their state-owned counterparts.
  6. A growing population, combined with a shortage of housing, provides opportunities for investment in residential construction.
  7. Widespread deployment of enhanced oil recovery (EOR) techniques could significantly boost output.
  8. Considerable untapped gas export potential
  9. US setbacks in Iraq and Afghanistan have given Iran an opportunity to assert greater strategic influence in the region
  10. Iran still has option to resolve nuclear crisis diplomatically
  11. Iran retains support in the international community, notably from China and Russia, which both oppose sanctions.
  12. Opportunities for export if restrictions are lifted.
  13. A growing realization that international assistance may be required to develop industry could see further involvement in the future.
  14. Being neighbor with underdeveloped countries of Afghanistan and Pakistan
  15. Good climate for agriculture and providing the base for expanding of these products
  16. Having young, motivated and active workforce
  17. Having border markets provide basis for cross‐border interactions
  18. Existing special economical region and providing the base for economic growth
  19. Having major productive benefits in mine and industry sections
  20. Having good universities and colleges to improve professional work force in the region
  21. Expanding native culture of region and country to other neighboring countries

Threats:

  1. Lack of privatization will continue to stifle the industry.
  2. Concentration on high-profile programs will detract from more essential ground forces research.
  3. Ongoing tension over Iran’s nuclear program raises the prospect of further US and UN Security Council sanctions
  4. Ethnic tensions are on the rise
  5. High youth unemployment.
  6. A decline in world oil prices would have a considerable impact on the economy.
  7. There is a serious risk of capital flight due to fears of conflict or sanctions.
  8. UN and EU sanctions on Iran pose a significant threat to the participation of foreign firms in the oil and gas sector.
  9. Non-performing loan ratios are dangerously high; there are serious concerns over the solvency of state-owned banks over the long term.
  10. Government-mandated lending to poorer Iranians at low interest rates means that banks have limited control over their lending policies.
  11. UN, US and EU sanctions on Iran’s banking and energy sectors are making it difficult for foreign companies to undertake financial transactions with Iranian entities, and risky to invest in the hydrocarbons sector.
  12. The risk of internal political instability
  13. Long-term fall in domestic oil production
  14. Changes in OPEC/national energy policy
  15. Strong regional competition
  16. Political issues make procurement decisions extremely slow.
  17. Slow pace of development.
  18. Inefficient workforce acts as a further drain on resources
  19. Not having enough infrastructures for expanding different economical sections
  20. Safety threats and consequently less investing
  21. Religious and tribal networks
  22. Immigration of professional workforce
  23. Having unsuitable weather like 120 day sand storm
  24. Lack of advanced technologies

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