6 Trends Shaping Iranian Technology Sector

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6 trends shaping Iran’s tech sector

Written by
Joulan Abdul Khalek ICT Policy Specialist, World Bank
Published

In the past decade, the idea of a nuclear Iran has overshadowed a far more interesting debate about Iran’s non-nuclear economic potential. A potential that could very well redefine the story of political and economic development in both the Middle East and Central Asia.

The most interesting story yet to be told is not about a nuclear bomb but rather about a thousand smaller benign technologies that slowly but surely will change the future of Iran and possibly the region around it. With the prospect of sanctions being lifted, Iran’s commercial technology sector is at a historical crossroads.

Driven by unprecedented government support at the highest levels, Iran could very well become a science and technology leader.

Here are six trends that will shape the future of this sector:

1- Government spending on research and development

Iran’s nuclear program is a subset of a larger government portfolio of scientific spending. Despite sanctions, research and development (R&D) expenditure has been effective in building national capabilities in areas such as nanotechnology, biotechnology, stem-cell research, genetics, chemical engineering, aerospace research, agronomy, laser communication systems, computer science and electronics, among others. The government has singled out technological development among three top national priorities between 2016 and 2021. As sanctions unravel and the government’s fiscal space expands, R&D budgets have been marked for a 400% increase by 2030, reaching 4% of GDP. If these figures materialize, Iran could very well become a leader in the development of commercial technology across sectors.


2- Funding and incubation of start-ups

Iran’s start-up sector has already begun to attract serious attention from technology investors around the globe. With many venture capital companies in the country and a handful of government programmes supporting small and medium enterprises, opening up to foreign investors will make it much easier to develop business in the country. However, Iran’s start-ups are not only in need of cash: they would also benefit from unrestricted access to new technologies across sectors. With international tech companies already racing to set up shop in Iran, the creative horizons of tech entrepreneurs will likely be expanded. What local start-ups could only dream of achieving for years will become a feasible possibility overnight. More sophisticated, flexible and innovative business models will be at the disposal of an Iranian entrepreneur’s start-up palette.

3- Keeping Iran’s talent at home

Despite being among the world’s top spenders on education, business owners in Iran still find it difficult to hire skilled workers. Each year about 20% of government social spending in Iran goes to education, and for more than a decade the country has spent an average of 4.5% of its GDP on this sector. This places Iran among the countries that spend the most on education. Creating a suitable environment for the return of young Iranians has been a top priority for President Hassan Rouhani’s government. While lifting sanctions may encourage some to return, much more needs to be done to ensure that Iran’s technology sector has the young visionaries and pioneers it needs to move forward.

4- Mainstreaming entrepreneurship across society

Innovation is deeply rooted in Iranian culture, but being an entrepreneur is not. Traditional government and private-sector jobs are still viewed by society as the safest bet for making a living. Bringing Iran’s wide variety of scientific research to the market requires more risk taking. But few talented entrepreneurs from middle and low income families have the social safety nets to rely on if they fail. Local NGOs such as the Iran Entrepreneurship Association are trying to address these challenges by organizing awareness campaigns and supporting policies aimed at creating a better entrepreneurial environment for Iran’s youth. One example is a recent nationwide partnership to organize 100 start-up weekends over the next three years. Students and young entrepreneurs can now experiment with their business ideas and receive coaching and guidance before making any serious life decisions.


5- Further reforms to internet access

Iran is home to the largest number of mobile phone and internet users in both the Middle East and Central Asia. Excessive government censorship has created a virtual brain drain in which internet content and resources are hosted abroad instead of staying at home and contributing to economic activity. Despite this reality, partial internet reform has gained pace over the past two years. President Rouhani’s government has reversed decisions limiting internet speeds for residential users and has issued 4G licences to the country’s two main mobile operators. But much more needs to be done if the country is to realize the full commercial potential of tech-sector innovations.

6- Creating an alternative narrative

There is a vast difference between connecting people and empowering them, yet the two often go hand in hand. Both moderates and reformists in Iran have realized the importance of creating a regime-friendly narrative for technological development. It’s clear that Iran’s technology sector has all the necessary ingredients to become world leading. But it is up to the Iranian people and their leaders to decide how they choose to walk the line between tradition and scientific excellence.

Author: Joulan Abdul Khalek, Policy Specialist, World Bank

 

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How sanctions helped Iranian tech industry (Al-Monitor)
As Iran moves to take advantage of the sanctions relief extended under the Joint Comprehensive Plan of Action, the recent drop in crude prices means that Tehran won’t be able to count on soaring oil revenues in the near future. What’s worse, the declining oil prices will affect the energy-intensive domestic industry, which has benefited from the high crude prices as it has been receiving indirect subsidies in the form of cheap fuel. In essence, this means that the energy-intensive Iranian industry is about to lose its competitive advantage in the global market. However, things are not all bleak. Iran has an asset that could potentially partially be relied on to tackle the issue of economic growth in the long term: its high-tech sector.

By Mahmoud Pargoo February 4, 2016
For years, Iran has been investing in industry reliant on intensive research and development (R&D). This policy has been a rare point of consensus in Tehran, which often sees controversy over economic policy driven by political rivalries. Indeed, Supreme Leader Ayatollah Ali Khamenei has called for the advancement of a knowledge-based economy, and in this vein, support for domestic high-tech firms. These companies have been benefiting from special tax exemptions, financial incentives and laws to ban imports of products whose equivalents have been produced domestically, among other measures.

The Islamic Republic’s 20-Year National Vision foresees Iran ascending to the top tier “in the areas of economy, science and technology in the western South Asia region (which includes Central Asia, Kyrgyz regions, the Middle East and neighboring countries).” The trend of increasing Iranian non-oil exports in recent years suggests a trajectory toward the latter objective. Indeed, according to the International Monetary Fund, Iranian non-oil revenues as a share of total fiscal revenues during 2012-14 were the highest among all oil-exporting Middle Eastern and North African countries at 56%. Furthermore, as of 2014, 36 science and technology parks hosting more than thousands of companies were operating in Iran. In addition, Iran is projected to increase the share of R&D in its gross domestic product, to 2.5% in the near future.

Sanctions were detrimental to Iran’s high-tech sector's supply chain, they made it difficult for manufacturers to purchase necessary components. Hence, manufacturers had to pay higher prices, with longer production lead times — which ultimately resulted in higher production costs.

However, the sanctions also had a positive impact. For instance, they secured the domestic market for Iranian tech firms. In many cases, the final prices of imported high-tech goods were so high that customers preferred to purchase domestically designed and manufactured goods. Moreover, in relation to government procurements, there was a deliberate policy with compulsory regulations in place to prefer domestic products over imports. Hence, R&D investment in some fields became highly profitable during the sanctions era.

The question now is how the sanctions relief will impact Iran’s high-tech industry.

The answer can be divided into three categories. First, Iranian companies will get easier and more timely access to necessary components, materials and software, which could result in cheaper final product prices as well as shorter lead times. Second, the sanctions relief could help Iranian companies retain skilled technicians for a longer time, as one of the main challenges of R&D-intensive firms in Iran has been that they lose talented staff as part of the disastrous brain drain. Moreover, Iranian experts living abroad may be willing to return and contribute to the domestic high-tech industry if noteworthy change in the working environment takes place. Third, the sanctions relief could expand potential markets for Iranian high-tech firms to go beyond the current markets to more lucrative ones in East Asia and Oceania, Central Asia, Europe and even the Americas. In particular, small- and medium-sized high-tech companies that generally lack strong brands could export their goods in the form of OEM contracts, which is the most viable and lucrative option for many Iranian firms as some of them have been manufacturing products for European brands for years.

Despite the benefits of sanctions relief, the bigger picture is that it is not a panacea for Iran’s R&D-intensive industries. Government policies play a far more important role in the equation. In this vein, the administration of President Hassan Rouhani should guarantee continued easy access to the domestic market for Iranian high-tech firms, since it is their sole lifeline in terms of revenue. Sanctions relief should not be allowed to result in a flood of foreign products at the expense of domestic ones — especially when it comes to procurement by government and semi-governmental companies.

Furthermore, with commercial attaches and offices abroad that could do much more than the existing Trade Promotion Organization of Iran or other similar entities. Besides, retaining long-term competitive advantage in the R&D intensive sectors requires more effective scientific and academic exchanges with the world. In the post-sanctions era, this could come through joint educational and research programs with advanced scientific centers as well as academic exchange programs. Providing a vibrant, cutting-edge scientific environment and lucrative business incentives could ultimately result in the return of Iranian experts, entrepreneurs and investors living abroad, all of whom could help speed up the growth of the high-tech sector.

 

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One of Iranian Science and Tech Parks (Pardis Science & Tech Park):

 

[Nilgiri]

I have a good Iranian friend from my university day and we had many long conversations about Iranian technology sector.

Back then start up culture was just beginning, but lately he has been telling me its really taking off in a big way.

Lot of great Iranian students and professors are in Canada currently....does Iran have a system in place to attract and sponsor such people back to Iran?

My most recent interaction with an Iranian left me impressed again....he is in satellite communication field and is doing his PhD here now for satellite thermal control systems.

Future of Iran is bright with the quantity and quality of its STEM graduates it is producing.