Nearly three years ago, Ayatollah Ali Khamenei, Iran’s rahbar (leader), announced a five-year plan for 2010-15 with a target of 8 percent annual economic growth. But while the International Monetary Fund projects growth of 2.5 percent in 2011 and 3.4 percent in 2012 — arguably reasonable given international sanctions — this is well below enough to produce jobs for all the young people at the center of political unrest following the disputed 2009 presidential election.
The Middle East is a region of young people. Overall, 60 percent of Arabs are under 25, and the median age of the Arab world is 22, compared with 28 worldwide, ranging from 31.6 in Qatar to 17.4 in Yemen.
But while Iran has a median age of 27.1, fully 35 percent of its population is aged between 15 and 29, the world’s highest recorded ratio of a group keen to move into jobs and forward with careers. This demographic anomaly follows a baby boom in the early years following the 1979 revolution and during the 1980-1988 war with Iraq, followed by successful population control beginning around 1989. For some years, conservative political strategists in Tehran looked with hope at the ageing baby boomers. They felt they would become concerned with the economic issues of settling down with a family and abandon demands for social reform that was such a persistent problem for former President Mohammad Khatami. Djavad Salehi-Isfahani, professor of economics at Virginia Polytechnic Institute and State University, has studied Iran’s ‘youth bulge’ in depth and believes the conservatives should have been more careful in what they wished for.
“It is not clear the government is better prepared to deliver on jobs than it was on social freedoms,” he told Executive. “In fact, providing greater social freedoms is easy in a way because it requires doing less, whereas providing jobs requires doing more.” Salehi-Isfahani believes Iran’s population changes are readily visible. “A visitor to Iran in the 1980s would have easily noticed the prevalence of children,” he wrote in a recent paper. “After 1995 [as the baby-boomers aged] the proportion of youth began increasing… To a visitor today, youth instead of children would be the most noticeable in Iran’s streets.”
The demographics mean that between 1996 and 2006, Iran’s working population (15-64) grew by 3.9 percent annually, over twice the rate of overall population growth. “Although the economy enjoyed robust growth during this period, it was unable to keep up with the rapid inflow of new workers,” wrote Salehi-Isfahani. “The economy grew by about 5 percent per year and created 5.9 million new jobs… but the overall unemployment rate increased from 9.8 percent to 12.7 percent.”
It is an interface between economics and demographics, rather than a youth bulge in itself, that tends to fuel frustration and unrest. “Youth bulges in East Asia have produced high economic growth rather than protests,” Ragui Assaad, professor of planning and public affairs at the University of Minnesota, told Executive. “A youth bulge becomes a problem only in combination with other factors, in particular economic policies that discriminate against youth and result in them not being able to find jobs.”
In Iran, improved education opportunities after the 1979 revolution hardly helped. Rather than serving as a route to well-paid jobs, education helped produce an imbalance between the supply of graduates and the demand for graduate-level skills.
Setting aside oil money
With a large state sector funded by oil income, the country has failed to develop vibrant companies in the private sector. The 2010-15 five-year plan envisaged “eliminating the government’s dependence on oil and gas revenue for current expenditure” by 2015, but last year income from oil exports at $73 billion equaled half of government revenues, according to the United States Department of Energy.
The five-year plan also envisaged ring-fencing 20 percent of oil income. While successive governments have pledged to ring-fence oil revenues for soft loans to the private sector, in practice the monies have proved too tempting a treasure chest for governments and parliament to fund pet projects or meet budget shortfalls. Under President Mahmoud Ahmadinejad, the government has become more opaque. Tighter sanctions and talk of American and Israeli infiltrators have led officials to treat figures for two ring-fenced funds as a security secret. The first fund, the Hesabe Zakhireye Arzi, the Foreign Exchange Reserve Fund (FERF, but known also as the Oil Stabilisation Fund), was established under President Khatami. A second fund, the Sandoghe Tose’e Melli (National Development Fund, NDF) was established in 2010, and as so often in Iran, there is factional fighting over its control.
“There is ambiguity about the future of FERF, since its balance is supposed to be turned to the new Sandoghe Tose’e Melli (NDF),” a leading Iranian business journalist told Executive. “Plus, it’s caught up in politics. The NDF was originally designed by [Akbar] Rafsanjani [the former president and critic of Ahmadinejad] and his friends to parallel FERF, away from the control of the president. But who knows? Perhaps Ahmadinejad will control the NDF as well.”
Government critics have alleged that not all ring-fenced money has gone into either fund. At the time the current budget was introduced (for the Iranian year ending March 2012) Jafar Qaderi, deputy chairman of parliament’s planning and budget committee, claimed $11.7 billion was unaccounted for.
Lack of investment in productive sectors, and the retention of government jobs by older workers, restricts opportunities for labor-market entrants. In human terms, the result is what academics call ‘wait-hood’, or, in other words, people forced to live at home with their parents.
“One in five youth in their late 20s is unemployed and one in two is unmarried and lives with his or her parents,” wrote Salehi-Isfahani. “After spending their school years in gruelling preparation for various national exams, they are told they must wait several more years before they can take full advantage of the opportunities that their nation offers its adult citizens and to be able to actively participate in running their country.”
The good news for Iran’s authorities is that the ‘youth bulge’ — unlike in many Arab countries — will gradually become a bulge of the middle-aged. By 2020, Iran’s youth ratio will fall to under 25 percent, a level found in economically advanced countries. Even by 2015, the 20 to 24 age group will have shrunk by 75 percent, to 5.2 million.
Even so, the lasting effects of ‘wait-hood’ are unknown. In his paper Salehi-Isfahani wondered how Iranian youth are to be prepared to take over their society without training: “As they wait to climb into the driver’s seat, are they gaining the necessary experience for the tasks that lie ahead, or are they instead slowly losing not only their skills but also their hope and optimism?”
One answer is to increase productive investment, but Salehi-Isfahani is skeptical. “This depends partly on how sanctions develop, as any tightening makes it difficult to see how investment can take off,” he said. But he suggests it also depended on how Iran’s domestic political struggles play out, especially with a presidential election due in 2013. “If the election is not credible and someone like Ali Larijani [a close ally of Ayatollah Khamenei] is elected [or] selected, then chances are not good for the private sector.”
Improvement, Salehi-Isfahani suggested, requires a better international situation and a more adaptable president, like Tehran mayor Mohammad-Bagher Ghalibaf: “The good scenario would be if sanctions level off or are lessened, and someone like Ghalibaf is elected president in an atmosphere of national reconciliation.”