Iran's 2035 Vision

After studying the capabilities of Iran after the lifting of sanctions and insisting on carrying out reform policies by 2035, an analytical report claims that Iran possesses the potential for a trillion-dollar growth in GDP and for the employment of 9 million persons.The report prepared by the authors of the "McKinsey" Research Institute has mentioned six strength points for Iran's economy. They consist of "economic diversification", "scientific education", "growing consumer class", "high urbanization rate," "entrepreneurial culture" and "strategic position for cross-border issues". To activate these six advantages, there should be four driving forces of "optimization of natural resources' efficiency", "competitiveness of big industries", "modernization and expansion of physical and digital infrastructures" along with "enhancement of strengths for the growth of sectors such as ICT and financial services". According to the authors of the report, achieving a-trillion-dollar- economic growth potential and obtaining 9 million job opportunities for Iran require strengthening the rapid growth of the key factors including measures to "increase the attractiveness for foreign investors", "ensure macroeconomic stability", "strengthen and deepen its financial system and international relations", etc. The "McKinsey" Research Institute in a detailed report has reviewed the economic potentials of Iran during the post period of Joint Comprehensive Plan of Action and, having referred to the six specific strengths of Iran's economy, predicted that Iran taking corrective measures would reach a-trillion-dollar GDP growth and 9 million job opportunities by the next two decades. Based on the analysis of this institute, "economic diversification", "scientific education", "growing consumer class", "high urbanization rate," "entrepreneurial culture" and "strategic position for cross-border issues" are 6 advantage of Iran's economy which make it possible for this country to achieve an economic boom in the era of returning to the global economy. According to published study, in addition to macroeconomic modifications, four other driving forces shall be activated to reach this end. First, the efficiency of natural resources shall be optimized .Second, local large manufacturing industries such as auto industry, original materials and daily consumed goods shall become internationally competitive. Third, Iran has moved towards a knowledge-based economy and empowering the strengths speeds up the growth of some sectors such as ICT and financial services. Finally, physical and digital infrastructures shall be modernized and expanded.

McKinsey's reports on Iran's economy

McKinsey Global Institute, which is one of the internationally most prominent consulting and private institutes in an analytical study entitled "Iran: a trillion-dollar growth opportunity" has assessed Iran's economic position and its economic potentials. In its preface, the report has pointed out to Iran's economic vision after nuclear deal implementation and, stating that "Iran now has the opportunity to reconnect with the international community after lifting some sanctions", has posed some questions about different aspects of the economic opportunities after Iran's Joint Comprehensive Plan of Action and about how to use this opportunity. According to the text, economic marginalization caused by the sanctions resulted in Iran's unbalanced growth and its lag behind the productivity and globalization improvement wave so that Iran's GDP which was as much as Turkey in 1989 become half of the Turkey's GPD in 2014. It is also mentioned that, after detailed review of 18 economic sectors of Iran, they came to the conclusion that Iran has the capacity to add a trillion (a thousand billion) dollars to its GDP and to create 9 million new jobs opportunities. According to the analysis of the leading McKinsey institute, to realize this potential, "domestic companies have the greatest impact on future growth; however, international companies will also play a significant role .In addition to investment, they import technology and knowledge management and this would lead to a dramatic improvement in productivity." According to the text, achieving a-trillion-dollar- economic growth potential for Iran requires strengthening the rapid growth of the key factors including measures to "increase the attractiveness for foreign investors", "ensure macroeconomic stability", "strengthen and deepen its financial system and international relations", "increased productivity" and "improve industrial infrastructure". In this regard, the study conducted by the McKinsey institute adds that "despite the importance of political and economic outcomes, we refrain from commenting on political issues in this report."

Six strength points of Iran's economy

According to the published report, in order to achieve its objectives in the field of reconnecting to the global economy, accelerating the growth of GDP and employment, meeting the demands of its growing young and urban population, Iran can befit from six main strength points as mentioned below:

  • Economic diversification: "Iran's economy is far beyond oil and gas." Referring to huge oil and gas reserves of Iran and the relatively low cost of extracting fossil fuels, the authors explain that Iran's economy is of a high diversity and is not heavily dependent upon oil and gas. They further referred to business sectors such as retailing, properties, real estate and professional services, having a greater contribution in comparison to oil and gas. In this report an unusual feature of Iran's economy is "its heavy reliance on domestic producers of goods and services, from cosmetics to pharmaceuticals and electronic facilities ".
  • Scientific education: "Iran educates as many engineer as the United States does." According to McKinsey, Iran's second strength point is high level of participation in higher education, which is higher than the UK, France and Germany. More than a third of students are graduated in engineering and this fact locates Iran among the first five countries in the world and almost on an equal level with the United States. According to this report, technical knowledge is a powerful factor driving productivity and employment.
  • The growing consumer class: "More than half of Iranian households have an annual income higher than 20 thousand dollars." Stating that the size and dynamics of the consumer class are an important predicting factor in the growth of emerging economies, this research explains that about 56 percent of households have an annual income of 20 thousand dollars (based on purchasing power parity); therefore, they can be called "consumer households". This ratio is twice as much as the ratios associated with China and India. Among the BRIC countries, Russia is only at this level.
  • High urbanization rate: "Tehran's GDP rate is higher than Rio de Janeiro." The report regards the role of dynamic cities important for economic growth and mentions that at least half of the global growth will be related to the emerging economies by next 25 years. Regarding its 8 metropolitan cities with a population over a million like Tehran which has higher population density and higher production compared with Rio de Janeiro, the report explains that Iran's degree of urbanization is higher than this country's GDP rate and there is high growth potentials in this regard.
  • Entrepreneurial culture: "It has a centuries-old business culture that is still alive." In this report, a positive approach is adopted towards entrepreneurship and it has regarded the innovation of Iranian entrepreneurs evident in various dimensions. According to the report, the limits of international companies to operate in Iran have also helped Iranian entrepreneurs to initiate their own business in order to bridge the gaps.
  • Strategic position for cross-border issues: "Iran can again become the focus of regional trade." The sixth positive point about Iran addressed in the McKinsey's report is Iran's geography (size and position) which has made the country historically an important stopover on the East-West and North-South business routes. According to the text, Iran has joint borders with 7 countries having a population of 430 million people and 40 million households and its specific geographical characteristic can provide this country with an important regional opportunity to become the focus of regional trade.

A trillion-dollar growth opportunity

Explaining the possible mechanisms to have a trillion-dollar growth in GDP and employment opportunity for 9 million people, this report has emphasized on four growth driving forces as well as macro-economic reforms to improve the business environment. According to the report, optimization of the efficiency of natural resources, especially oil and gas, is the first driving force. Second, local large manufacturing industries such as auto industry, original materials and daily consumed goods shall become internationally competitive. Third, Iran shall move towards a knowledge-based economy and speeds up the strength growth for some sectors such as ICT and financial services. Finally, physical and digital infrastructures shall be modernized and expanded. McKinsey's analysis states that Iran would reach an average annual economic growth of 3.6 percent by the next twenty years through activating this four driving forces and the implementation of macroeconomic reforms and this growth would evenly be in different economic sectors and strengthen the resiliency of Iran's economy against external shocks. With this growth rate, labor productivity would also go up to the annual average rate of 4.3 percent. This will be similar to the experience of Turkey from 1980 to 2012.The report claims that such a growth requires about 3.5-trillion-dollar investment, a trillion dollars of which should probably be provided by other countries.