Following the recent nuclear agreement with the Islamic Republic and the prospects of a post-sanctions Iran, great expectations regarding the rapid pace of growth in the Middle East and North Africa’s second largest economy^[1] generated much excitement. However, the question remains whether the realities of Iranian politics call for a more reflective and comprehensive approach.

In reality, while economic growth in closed political systems is possible, it is often dependent on a number of specific elements, such as natural resources and low labour costs. Conversely, maintaining growth in a globalized economy depends on a number of factors that guarantee sustainability. In effect, achieving the potential of economies such as Iran’s will require moving beyond operating in a political vacuum.

Some of the prerequisites to such advancement, overall growth and higher living standards, are dependent on elements that are categorically different to cheap labour or access to an abundance of natural resources. They include good governance, universal access to education and employment, gender equality and the prohibition of human rights violations such as child labour. These and other prerequisites are favourable to just and equitable economic activity and fair distribution of wealth. As set out by our authors, the experience in other economies point to the fact that in the absence of such prerequisites the chances of economic prosperity diminish. Iran is no exception to this rule.

In order to ensure these building blocks of economic advancement are in place, stakeholders must examine the role of government; more specifically, the role of the legislative, judicial and administrative branches in the implementation of authority over all citizens. The more a government represents the will of the majority while recognising and protecting the well-being of minorities, the higher the chances of maximising growth, ensuring just, fair and sustainable economic development. Furthermore, when governments are accountable and transparent, the fair distribution of wealth and opportunities is more likely to benefit all citizens.

This is of particular relevance to Iran, where government actors and agencies continue to play a significant role in the economy, resulting in the emergence of a major quasi-private sector. Born from the state sector, those engaged in the quasi-private establishment enjoy a unique position. They benefit from support and privileges offered by the state whilst also enjoying private sector freedoms.

The intermingling of such interests and access has lead to a host of significant impediments to conducting business. According to the 2016 edition of World Bank’s Doing Business Report, Iran ranks at 118 out of 189 countries included in the annual study.^[2] This may serve as an indicator for potential foreign investors that if economic engagement – for the sake of political relations - with Iran is a must, the potential for growth in the private genuine private sector might be diminished as corruption may continue to spread; ultimately diminishing any return on potential investments.  

Therefore, it is of particular relevance to examine the prerequisites for economic engagement not only in relation to Iran, but in relation to Iran’s citizens given they are directly affected by government policy and the limits on participation in all sectors of the Iranian economy which ultimately have negative impacts on the foreign investment climate in Iran.

Chief among these prerequisites are the state’s obligation to respect and protect the rights of all citizens, the corporate sector’s commitment to comply with all laws and regulations essential to the protection of human rights, and the provision of effective remedies by both state and corporate actors in case of possible breaches. The human rights record of the Islamic Republic and its detrimental impact on the country’s economic activities has resulted in deep concern on the part of the international community, and is manifested in developments such as the United Nation’s special mandate on the situation of human rights in Iran, with Ahmed Shaheed as the special rapporteur.

How a government regards and treats its citizens comes down simply inclusivity. The more inclusive a government is towards its citizens, the stronger the standards of accountability and transparency and the greater the number of citizens it treats fairly. Conversely, the more policies a government sets in place to restrict inclusivity and equality, the less it will be accountable and transparent. Consequently, when there is an exclusion of some, the government will receive less support, contribution and participation toward welfare of the nation from those potentially important excluded groups. Democratic values and economic growth do not prosper in an exclusive environment given segments of the population are denied access (to power, influence, rights and freedoms) be it for political, religious, ethnic or other reasons. Furthermore, indigenous economic prosperity is likely to be inhibited, because the government will only be able to draw from a small pool of human resources.

The symbiotic relationship between inclusivity and transparency pivots around the relationship between a government and its citizens and is directly impacted by varying levels of trust between them. By and large, responsible governments evoke a culture of responsibility among their citizens. Likewise, when governments refuse to maintain a culture of transparency, citizens too seek to shield their activities from public scrutiny, leading to corruption or passive dissent. It is in the context of a lack of inclusivity that fundamental rights are not guaranteed and genuine, sustainable development can not occur.

In economic terms, Iran is a country with great potential for further development. It has a wealth of natural resources, most notably its enviable reserves of oil and gas, primarily owned and controlled by the government. However, more recent history highlights the country’s inability to produce sustainable development without engaging all of its human resources, i.e. its citizens, who are willing to shoulder the weight of growth for all society. As a result, the Iranian economy has become a hostage to oil prices and the availability of other natural resources, creating a situation in which growth depends on government spending based on hydro-carbon receipts. In the past few years however, there has been a renewed attempt by the Iranian government to rely more on tax rather than merely on oil revenues. This fiscal reorientation is mainly the result of slumping oil prices and the realization that taxation is the healthiest financial relationship between a government and citizens. However, in the absence of inclusivity, if tax wealth is not fairly redistributed among citizens, or if some citizens are denied the chance to participate in the economy, such wealth cannot bring about sustainable growth.

In recent decades, despite periods of massive oil revenue inflow, the development of Iran’s human resources has not been a priority for the administration and its budgetary allocations. The result is an alarming case of ‘brain drain’ where citizens are either forced to leave Iran to seek opportunities elsewhere, or, they are barred from economic participation due to government policies that discriminate against one or more segments of the population, including women and minorities.

Consequently, the private sector remains feeble and the government’s human resource development budget as share of its GDP has been consistently shrinking in the past decade due to budgetary deficits. In today’s world, without robust infrastructure developed by the government or a independent and responsible private sector, the future would be bleak for any country.

The negative impacts of the lack of accountability and transparency is the main source of spread of corruption. In the 2015 Transparency International Corruption Perceptions Index^[3], Iran scores only 27 out of 100 and ranks as low as 130 among the 168 countries assessed. Apart from being a testament to the lack of government accountability and transparency, this measure of the government’s denial of fundamental rights raises serious questions that warrant scrutiny by conscientious and concerned citizens, as well as the international community.

As Brian Grim explains in his essay, research has shown that violations of freedom of religion and restrictions imposed on citizens by any government may result in further conflict, more corruption, less innovation, and lower degrees of development. Any state that functions in such conditions misses opportunities to develop and prosper.

Given the importance of diversity to development, ethnic and religious minorities offer significant potential for Iran’s economic development. Minorities, like others, possess talents and skills that when combined with opportunities facing today’s Iran can result in potentially substantial growth. The exclusion of minorities by the state boomerangs in the form of discontent and alienation, depriving the nation of their contribution to prosperity and growth. As impoverished minorities become a burden on a government’s financial resources, state authorities may incur losses and face hostility. On the other hand, levels of poverty and crime rates grow, students may be forced to leave their education, and population displacement in search of work may lead to the creation of more poor peripheries around major cities. Furthermore, citizens’ ability to access healthcare may decline and as a result place further burdens on the state.

Women are half the Iranian population and based on general census of 2011, almost one in every three women are between the ages of 20 and 34^[4]. Although there has been a recent drop, nearly half of university students are women. When it comes to employment, in 2005 just over half of female university graduates could find jobs, whereas in 2013 it was three out of ten (for men it was eight out of ten, dropping to 7 in 2013)^[5]. In general, the economic participation rate for women dropped to 12.5 in 2013 and experts have noted that this continues to decline^[6].

According to the Gender Gap Index 2015 of World Economic Forum, Iran ranks 141 among 145 countries^[7]. In 2006, Iran ranked 108 among 115 countries. This fall is directly related to government policies implemented during this period that promote a culture of male dominance while directly or indirectly providing for the gradual exclusion, and in some cases elimination of women from important areas of economic activity. Examples of such measures include Iran’s gender-based policies placing quotas or bans on women university applicants as well as proposed bills aimed at increasing Iran’s population that restrict women’s participation in the public sphere.

Today we live in an interconnected world, hence the term ‘international community’. As in any other community, it is the responsibility of the members to participate in economic affairs with the primary aim of caring for well-being of others. Recent history, especially in the Middle East, has shown us how swiftly ramifications of exclusion, alienation and conflict can turn into shrapnel that inflicts wounds on all, regardless of rank or position. Iran is emerging from a period of isolation and struggling to reintegrate into international community.

Many see ample opportunities for dialogue, constructive engagement as well as trade and investment. However, evidence points to signs of cautious and conditioned approaches on the part of foreign investors. This is cautious approach must be encouraged at the international level. To avoid the traditional pitfalls that ultimately diminish returns on investment the international community, corporations and policymakers must approach economic engagement with Iran on the basis of principles enunciated in the UN Guiding Principles on Business and Human Rights^[8].

The approach offered by some, including those authors who have contributed to this issue, point to the fact that real and sustainable economic growth that can turn forecasts of return on investment to reality is dependent on a major shift in policy. The responsibility for making this shift falls on the shoulders of both policymakers in Iran and at the international level including business and political leaders, as well as influencers including the media and civil society . The Iranian authorities must embrace inclusivity and uphold their duty to safeguard the rights of all their citizens, including women and minorities. The international community must ensure that economic relations occur in a healthy environment that benefits all Iranians, not only the dominant few. Then, and only then, can genuine, sustainable economic advancement be achieved.

In light of this, the editors of the Iran Human Rights Review: Economy offer the following policy recommendations: