A PEST Analysis for the Business Environment of Iran

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A PEST Analysis For The Business Environment Of Iran
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Category: Business

Autor: hsnrahmati 27 January 2012

Words: 2760 | Pages: 12

A PEST Analysis for the Business Environment of Iran

Islamic Republic of Iran is a country situated is Middle East region. It has a population of 75,330,000 based on population and housing census by Iranian Statistical Center (2011). The area of country is 1,648,195 km2, and GDP (PPP) of country is $827.344 billion for the year 2010, according to International Monetary Fund (IMF) (2010). 98 percent of the population are Muslims, and the country is very rich in natural resources including oil and gas. Iran has the second largest resources in natural gas after Russia and third largest resources of oil in the world. Iran’s economy is highly dependent on oil economy and about 80 percent of the country’s revenue from exports is from oil selling.

All the statistical data are extracted from World Bank reports (www.worldbank.org). Unless is mentioned.

1-1 Political:

After 1979 Islamic revolution Iran’s domestic and international politics is highly affected by Islamic thoughts. However now, 32 years after the Islamic revolution some moderate political and social groups are growing up, but still they do not have substantial effects on the politics, and the power is on the hands of followers of Ayatollah Khomeini, the leader and founder of Islamic revolution on 1979.

1-1-1 Regulation Structure:

The legislative branch of Iranian government for making laws and regulations is Majlis Shoraye Islami (Islamic Consultative Assembly). All of the laws enacted by Islamic Consultative Assembly must be approved by the Guardian Council of the constitution to be made sure that all enacted laws are adapted to the Islamic rules and the constitution. So it means that all of laws are adapted to Islamic (or sharia) rules and every enterprise or firm has to follow the necessities of working in Islamic country. Being affected by the religious and Islamic rules is one aspect of regulation structure in Iran, but on the other hand Iranian business environment suffers from some outdated and old regulation. For example the commercial code of Iran is enacted by the year 1932 and only it had a revision on 1968. Therefore, the majority of Iranian juristics believe that it has serious lacks and is insufficient for today business environment.

In addition, Iran still does not have a strong copyright law to protect the innovative ideas of being copied or imitated by others. however there are some basic or primary laws but they are outdated and old, and they have to be made up to date enough to be able to answer today’s business requisites. In addition, Iran still does not develop an advanced e-commerce code, which is very vital for today’s pervasive e-commerce activities.

1-1-2 Deregulation:

Iran’s economic system is a mixed economic system with more similarities to the socialist economic systems. In the past decades government has tried to control economy by a combination of commanded prices and giving substantial subsidies to fix prices (usually for energy and foods). But in the few past years this policy has changed. More details will be discussed later.

On the other hand Iran has a bureaucratic official system for those who are going to establish a new business. This bureaucratic system is harmful for the economy and business environment in two ways:

Firstly, a bureaucratic system leads to increase in informal or underground business activities, which it makes hard for the government to collect taxes.

Secondly, it causes that Iranian business environment not to be an interesting and encouraging business environment for the investors.

Figure 1: Time series of days required to start a business in Iran (World Bank , 2011)

As we can see in the above chart the required days to start a business had a significant decline trough the last 3 years and...
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