global investment house- kuwait – iran economic & strategic outlook – agriculture & fisheries and construction & real estate sectors
Agriculture and Fisheries Sector
After nearly achieving agricultural self-sufficiency in the 1960s, Iran reached a point in 1979 when most of its food had to be imported. Declining productivity was blamed on the use of modern fertilizers, which had inadvertently scorched the thin Iranian soil. Factors like unresolved land reform issues, a lack of economic incentives to raise surplus crops, and low profit ratios, results in the migration of increasingly large segments of the farm population into urban areas.
The 1979 Revolution sought self-sufficiency in foodstuffs as part of its overall goal of decreased economic dependence on the West. Higher government subsidies for grain and other staples and expanded short- term credit and tax exemptions for farmers complying with government quotas were intended by the new regime to promote self-sufficiency.
Iran’s principal agricultural products in terms of area used for cultivation are wheat and barley. In terms of volume of agricultural production, sugar beets, sainfoin, potatoes, and tomatoes are also significant products. Other major crops produced in Iran include rice, grain corn, cotton, peas, and lentils among others.
Agricultural production fell shortly after the revolution as urbanization rates increased, large landowners left the countryside and the government focused on industrialization. In 1998, a severe drought, which continued until the early 2000’s, adversely affected the production of cereal products and it is estimated by Iran’s Natural Disaster’s Headquarter that the losses from the drought was approximately US$3.5bn in 2000.
More than one-third of the value added in agriculture comes from livestock such as sheep, goats and to lesser extent from cattle. The value of livestock has increased annually after 1981. But the decreases in livestock in the early revolutionary period were such that by 1985 the overall value of livestock was below the 1976 level. Severe shortages of meat and eggs, coupled with high demand and the absence of price controls, encouraged the raising of livestock and were expected to improve livestock availability.
Livestock and its production, in recent years, have improved dramatically showing an increasing trend. Red meat production increased by 2.5% compounded annually over the period 1986 to 2004, while its y-o-y percentage change was 4.4% in 2004. Milk production, chicken meat and eggs exhibited similar upward movements in their production and registered y-o-y percentage increases of 6.4%, 4.3%, and 4.1% respectively and while their CAGR over the same period amounted to 3.6%, 6.2%, and 4.4% respectively.
The Caspian Sea and the Persian Gulf remains the country's two largest fishing areas where a variety of fish in both bodies of water contribute to the fisheries production; However, the caviar industry is, by far the most developed in Iran’s fisheries sector, where Iranian caviar is said to be the finest in the world and commands a high price. The main importers of Iranian caviar are the Soviet Union and the Western European countries. Commercial fishing was controlled by two state-owned enterprises, the Northern Fishing Company operating in the Caspian Sea and the Southern Fisheries Company in the Persian Gulf and the Gulf of Oman. Sturgeon, white salmon, whitefish, carp, bream, pike, and catfish predominate in the Caspian, and sardines, sole, tuna, bream, snapper, mackerel, swordfish, and shrimp predominate in the Persian Gulf. Iran possess a variety of fishing areas with fish production in 2004 increased by 9.7% from the previous year to reach a volume of 556,139 fish, and over the period of 1991-2004 the CAGR was 7.8%.
Construction & Real Estate Sectors
Population increase in the cities caused by internal and external migration into Iran’s largest cities, caused housing shortages. The government addressed this issue by providing government credits for private sector developments in 1990’s. However, most of the country’s effort was spent in urban development, namely Tehran, while those in rural areas were neglected. To that end, the most important real estate market in Iran is Tehran, and it has always been affected by developments in the economy and migration.
Recently, however, recession has been prevailing in construction and housing sector, beginning from 2004/05 in Tehran, continued in 2005/06, and negative spillovers have been observed in other large cities such as Esfahan and Shiraz. The housing price index decreased by 24.2% in 2005/06, and throughout the period 2002/03 to 2005/06, it has increased annually at a compounded rate of 10.9%. The recession was also evident from the average price of floor area in major cities which has continued its declining growth over the period of 2000/2001 to 2004/05.
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Most of the large cities in Iran had witnessed an increase in the average price in housing units in the past few years. However, this increase was at a declining rate. Housing units average price of floor area in Tehran in 2004/05 declined by 2.6% from the previous year after an increase of 24.7% in 2003/04. Housing units average price of floor area in Shiraz registered the highest growth rate in 2004/05 of 18.6% which translates into an annual compound rate of 21.4% for the period of 1996/97 to 2004/06. This increase was 21.5% less than the previous year increase in prices which amounted to 40% in Shiraz. Amongst the other selected large cities in Iran are Mashhad, Esfahan, Qazvin, and Karaj. The average price of floor area of housing units in these cities increased in 2004/05 by 14.7%, 13.5%, 10.7%, and 4.5% respectively. Similar to the analysis preceded for Shiraz, the increasing rates in prices in 2004/05 was also at a declining rate for the mentioned cities.
The number of construction permits issued in urban areas in 2005/06 decreased by 4.5%, and a decline of nearly 7% compounded annually over the four year period of 2002/03 to 2005/06. This reflects the persistence of the real estate depression in Iran; It is also indicative of a slowdown in construction of new buildings in urban areas as compared to the 2002/03 and 2003/04. Inflationary pressures have also played a significant role in the depression of the real estate prices in Iran; Construction Services Price Index, as well as Wholesale Price Index of Construction Materials have increased in 2005/06 by 18% and 6.1% respectively. Both increased annually at compound rates 22.4% and 14% respectively.
In 2003/04, recession forced banks to distance themselves from the housing and construction sector. But in an effort to fulfill their objectives under the Third Development Plan regarding the housing sector, the central bank took measures to sell houses in cooperation with the National Housing and Land Organization; offer financial facilities for buyers constructing housing units with short term loans, and offered banking facilities to second-hand housing units. Issues that need to be resolved in the real estate market are inflationary expectations in the housing market, high construction and raw material cost, and inefficient policies and plans.
