A rare insight into Iran’s indigenous industrialization marvel

The Herat industrial city has 300 factories and most of them have been set up with the help of Iranian technologies”, said Haji Saeed Khatibi – Head of Herat Chamber of Commerce, last month during a meeting with Iranian officials in Tehran. The Herat province in Afghanistan while still at unrest owing to the Talibani presence has been successful in creating meaningful employment opportunities for its residents largely through industrialization promoted and funded by Iran.

This is the kind of influence Iran casts on its neighboring landlocked countries in Central Asia and the Caucasus. Over the last three decades we have known Iran as has been portrayed by the Western media outlets, however, this article would offer an insight into how Iran achieved a laudable success in scaling heights spanning diverse fields of science, aerospace, defense, automobile, and non-oil industries with wholly-indigenous efforts. Moreover, the article also captures the ripple-effects of this spirited industrialization in neighboring landlocked countries.

Unraveling the Iranian identity

The Islamic revolution of 1979 and the rise of the supreme leader Ayatollah Ali Khamanei led to the ostracization of Iran from the global political and the economic spheres. Disgruntled by the overthrow of a pro-Western Shah regime the West opened a media onslaught against Iran to brand the nation theocratic and its people dyed-in-the-wool Islamist hardliners. Subsequently, growth-sapping sanctions were imposed thus systematically isolating Iranians from the global economy.

The sanctions were in many respects inhumane as even the access to critical and life-saving drugs and medicines were blocked by the US and EU lawmakers. Unsurprisingly, the sanctions starved the Iranian Oil industry of much needed investments and technological advancements, thus severely hampering government revenues, fiscal spending, and decimating the Iranian currency. The underlying assumption of these inhumane and growth-sapping sanctions was to galvanize a mass public unrest against the supreme leader and pave the way for the re-installation of a Western backed regime. The sanctions resulted in weakening the purchasing power of Iranians and a notorious wave of brain-drain, which resulted in a massive loss of precocious minds to North America and Western Europe.

Importantly, what is less known and sparsely documented is the fact that the Islamic revolution of 1979 didn’t result in ethnic cleansing of non-Muslim population in the country. The supreme leader Ayatollah Ali Khamanei, while Islamizing every aspect of Iranian identity strongly respected the religious practices of hundreds of thousands of Armenian Christians, Persian Zoroastrians, and Persian Jews. Their safety and religious practices were protected by a special decree, which even allowed the freedom to consume alcohol at home to the non-Muslim communities.

What is more as Christians are continually persecuted in Afghanistan and Pakistan, for instance, Iran is emerging as a preferred location among the Christian refugees escaping ethnic cleansing in Af-Pak. While, the population of Armenian Christians, Persian Zoroastrians and Persian Jews have dwindled due to exodus to Armenia (Armenian Christians), North-West India and Azerbaijan (Zoroastrians) and North America and Israel (Jews) their architecturally magnificent Churches, fire temples and synagogues even today continue to beautify Iranian cities of Shiraz, Isfahan and Tehran. Albeit Iran chose islamization over secularism in 1979 but the change didn’t culminate into profiling of non-Muslim communities as infidels as has been a common affair in numerous Middle Eastern and North-African countries.

Iranian industrial marvel – About hopes, observations and prudence

Iran is listed in the top 15 mineral-rich countries in the world and its Oil has powered factories and industries in key regional economies of India, China, South Korea and Japan. Interestingly, Iran is the only country in the Middle East, Central Asia and the Caucasus to have developed totally indigenous aerospace programmes. In 2009, what could be construed as a landmark moment for Iran’s indigenous Science and technological fields, the country successfully launched its first wholly indigenous data-processing satellite into orbit called Omid (hope).

Later in 2011 Iran launched its second satellite into orbit called Rassad (observation) to elicit images of earth and route them along with telemetry information to ground stations. The success achieved through these launches has bolstered Iran’s aerospace ambitions and reaffirmed the quality of its scientists and technologists.

While Turkey too has its aerospace programme in place but it is largely dependent on the exchange of know-how from the Western and Israeli scientists. Iran’s aerospace programme is exceptional when viewed in light of brain-drain and sanctions and thus is a stamp of authentication on Iran’s policy of ”Self-Reliance” to usher advancements in science, technology and industrialization. Riding high on the back of spirited successes of the previous launches Iran is slated to put another GPS enabled and higher precision satellite into orbit called Tadbir (prudence) sometime in 2014. (source: Iran to put Tadbir satellite into orbit soon, Press TV).

Iran’s advancements in military hardware hit the pinnacle in the last month when Major General Mohammed Ali Jafaari, Iranian Revolutionary Guard Corps (IRGC) unveiled Iran’s most sophisticated Unmanned Aerial Combat Vehicle Shahed-129 to the outside world. Shahed- 129 is designed to carry weapons, cover radius of 1,700 kilometers and remain airborne for 24 hours.

The marvel of Shahed- 129 was further affirmed when defense experts compared it with the Israeli-made Hermes 900. Unsurprisingly, Shahed-129 was the creation of IRGC’s Aerospace division. (Source: Iran boasts UAV self-sufficiency, Defense news).

Motoring Iranian influence

The Automobiles sector is another area where Iran has built formidable strength, indigenously. Iran’s automobiles sector is indisputably the biggest car producer in MENA region. With an annual production of 1.6 million cars the sector constitutes 10% of Iranian GDP. Iran’s largest carmaker Iran Khodro (IKCO) has sizeable foothold in some of the key emerging markets like Russia and a slew of frontier economies of Ukraine, Middle East and South America.

IKCO’s latest sedan Runna will be targeted not only at the domestic markets but also at buyers in Russia, Belarus, Ukraine, Iraq and Tunisia. IKCO’s latest product Runna, is a watershed moment for the Iranian automobile industry, as it complies with global standards on emission, safety, durability, and quality (Hatchback Runna in IKCO production and export portfolio, Fars News Agency).

In what could be viewed as a sign of Iran’s globalizing automobiles industry, IKCO would expand Runna’s production in Azerbaijan, Belarus, Egypt, Senegal, Syria, and Venezuela. Interestingly, IKCO has collaboration with a Venezuelan carmaker, Venirauto.

The collaboration is of particular interest to IKCO as that could potentially pave the way for the launch of Runna into Mercosur markets of Brazil, Argentina, Paraguay, Uruguay, and Venezuela. Mercosur is a mouth-watering opportunity for the Iranian auto industry as a whole as that would expose Iranian cars to a market comprising 265 million people and a cumulative GDP of $980 billion.

However the spectacular automobile industry has its own share of problems. Iranian carmakers Sapia and IKCO have a cumulative debt overhang of close to $10 billion direct fallout of the crippling US-led sanctions. The automakers hope that a possible rapprochement between Iran and the US would improve the financial metrics of the industry.

Importance of Iran in Central Asia and Caucasus

Iran shares ageless cultural and religious affinity with most of the Central Asian and Caucasian republics. Prominently, Iran shares old and rich cultural heritage with Azerbaijan and Armenia in the Caucasus and Turkmenistan, Tajikistan and Afghanistan in Central Asia. It is noteworthy that Iran’s relationship with its neighbors was primarily driven by culture and economics.

In a way Iran has been very considerate as well as protective about the countries that share cultural heritage with it. This concern morphed into a worrisome development in the aftermath of the USSR collapse. The sudden collapse of the USSR meant that most of the newly independent Central Asian and Caucasian republics had little time to frame trade and foreign policy in order to deal with emerging opportunities and risks.

The then Iranian leader Ali Akbar Hashemi Rafsanjani expressed concern over the possible exploitation of the newly independent resource-rich countries by the Western multinational corporations. In February 1992 Rafsanjani formed Economic Cooperation Organization involving all the Central Asian republics minus Kazakhstan along with Azerbaijan, Turkey and Pakistan. The primary intent of the ECO was to offer financial support and improve market access to the landlocked Central Asian and Caucasian republics. The biggest strength of the Islamic republic of Iran is its geostrategic position. Iran’s coastal belt covers the 1,450 kilometer of Persian Gulf in addition to 480 kilometer of the Arabian Sea.

As a matter of fact Iran shared its geostrategic advantage with its neighbors by connecting the landlocked economies with its warm-weather sea port, thus easing access to lucrative markets of Turkey and Western Europe. One of the important Iranian initiatives toward improving the market access of landlocked economies was the Sarakhs (Iran) – Tejand (Turkmenistan) rail link, which linked the Soviet era rail link of Central Asia with that of Iran.

This provided unfettered market access to the landlocked economies and was indeed a watershed moment in the history of Central Asian countries. Importantly, Iran through its investments in rail links and industrial units in Central Asia freed these republics from their reliance on Russia for trade and movement of goods. Another crucial facet of these investments was it all materialized at a time when Iranian economy was on a terminal decline owing to crippling western sanctions. Iran’s efforts in improving infrastructure and market access for countries like Tajikistan was duly appreciated by the multilateral institutions like World Bank.

The most recent example of Iranian contribution to industrialization was in March 2012, when a group of Iranian companies evinced interest of building an industrial town in Rudaki district in Tajikistan near its capital city of Dushanbe. Tajikistan’s Ministry of Economic Development and Trade (MEDT) announced that the project would result in the construction of 50 industrial enterprises spanning different sectors and capabilities ranging from aluminum, cotton, fruit processing, construction materials, solar panels, power transfers, electricity usage meters and light bulbs.

The project is estimated to cost $2bn according to Tajik MEDT and is likely to create 20,000 jobs. Projects like industrial town in Rudaki, Tajikistan and the Heart industrial city in Afghanistan exhibits the invaluable contributions of Iran toward the rise of industrialization in landlocked economies in much of Central Asia and Caucasia.

The Next 11

Way back in 2007 Goldman Sachs created “Next 11”, a constellation of 11 economies that are likely to emerge as the next BRICS. The group includes Turkey, South Korea, Indonesia, Nigeria, Philippines, Pakistan, Bangladesh, Egypt, Mexico, Vietnam, and Iran. Yes, the unusual inclusion of Iran seemed baffling for the global investment fraternity.

However, the inclusion of Iran should not come as a surprise. Iran’s reforms in financial markets have been equally impressive. Another exceptional feature of Iran’s ascendancy has been its development of both Islamic finance market and traditional stock exchange driven market. Little is known that Tehran Stock Exchange’s all-share (TEPIX) index have witnessed a 200% gains between 2009 to 2011.

Importantly, this rally materialized due to massive privatization drive of Irani banks by the government. The subsequent IPOs unleashed an impressive rally in stock prices that surpassed gains even in more developed markets like India’s Sensex index.

Interestingly, retail participation has also improved since 2009 driven by the launch of open-ended mutual funds. Around 50 such funds are currently marketed by home-based asset management companies, brokerages, and investment banks. Tehran Stock Exchange has 2 million active retail accounts. Iran is also the biggest market for Islamic finance products constituting 42% of the global Islamic finance market, almost double the size of Saudi Arabia and Turkey, according to a study conducted by Kuwait Fund House last year.

Apart from financial assets Iran also boasts of a home-grown commodities exchange, Iran Mercantile Exchange (IME). The Iran Mercantile Exchange trades spot contracts of agricultural commodities, metals, gold, and petrochemicals. The IME is located in the offshore center of Kish islands in the Persian Gulf. The IME officials are also mulling over launching a crude oil contract to be priced in Iranian Rials. As per the exchange circular by the end of September 2013 IME transacted over 2.2 million tons of goods valued at more than $1.5 billion, which is 17% higher than the previous month volumes.

The development of Tehran Stock Exchange and Iran Mercantile Exchange with possible collaboration with European and American bourses post rapprochement would result in creation of new products and improved market depth.

After spending over 30 long years under brutal economic sanctions imposed by the US and EU a hope has galvanized that the present leadership of Hassan Rouhani would set Iran free from economic and political isolation, thus re-integrating Iran with the global economy.

Ever since the country fell in the black hole of universal isolation economically and politically, the international media focus has largely been on its links with Hezbollah and Hamas, and its unstinting support for the regime of Bashar Al-Assad in Syria, accused of gassing its civilians with poisonous chemicals.

Hence, this work was an honest attempt to educate readers about a country governed by a culture that is more than 2000 years old and is certainly much more than just Hezbollah, Hamas, and Nuclear programme.