Iran in Pursuit of Knowledge Economy

EghtesadOnline: The pursuit of transition to a knowledge economy in the context of low foreign direct investment is one of the main challenges facing President Hassan Rouhani since his reelection on May 19, 2017.

News ID: ۷۷۶۸۶۲

10 June 2017

Although the Iranian economy returned to positive growth in 2016 of about 6.4%, this rebound can largely be ascribed to the return to near-capacity oil exports after the UN Security Council’s endorsement of the nuclear agreement in July 2015 led to the easing of international sanctions. According to the World Bank, integration of Iran’s banking sector with the global banking system has been slow since the sanctions were lifted. This has impeded foreign direct investment to Iran and trade, which will be crucial for the development of Iran’s non-oil sector, reads an article recently published in Malaysia Sum. Excepts follow:

Focus on Using Human Capital to Create Wealth

The UNESCO Science Report recalls that the government first set its sights on moving from a resource-based economy to one based on knowledge in its 20-year Vision Plan (2005-25).

This transition became a priority after international sanctions were progressively hardened from 2006 onwards and the oil embargo was tightened, according to Financial Tribune.

In February 2014, Leader Ayatollah Seyyed Ali Khamenei introduced the concept of Resistance Economy, a plan advocating reliance on domestic potentials and a lesser dependence on imports that reasserted key provisions of Vision 2025.

Vision 2025 challenged policymakers to look beyond extractive industries to the country’s human capital for wealth creation. This led to the adoption of incentives to raise the number of university students and academics, on the one hand, and to stimulate problem-solving research and industrial research, on the other.

For instance, in order to ensure that 50% of academic research was oriented toward socioeconomic needs and problem-solving, the Fifth Five-Year Economic Development Plan (2012-17) tied development to the orientation of research projects. It also made provision for research and technology centers to be set up on campus and for universities to develop linkages with industry.

Vision 2025 foresaw an investment of $3.7 trillion by 2025 to finance the transition to a knowledge economy. It was projected that one-third of this amount will come from abroad but, so far, FDI has remained elusive. It has contributed less than 1% of GDP since 2006 and just 0.5% of GDP in 2014.

Much of the $3.7 trillion earmarked in Vision 2025 is to go toward supporting investment in research and development by knowledge-based firms and the commercialization of research results. A law passed in 2010 provides an appropriate mechanism, the Innovation and Prosperity Fund. According to the fund’s president, Behzad Soltani, 4,600 billion rials ($171.4 million) had been allocated to 100 knowledge-based companies by late 2014. Public and private universities wishing to set up private firms may also apply to the fund.

Domestic expenditure on research stood at 0.7% of GDP in 2008 and 0.3% of GDP in 2012. Iranian businesses contributed about 11% of the total in 2008.

The government’s limited budget is being directed toward supporting small innovative businesses, business incubators and science and technology parks—enterprises that employ university graduates.

Surge in University Rolls

In line with the goals of Vision 2025, policymakers have made a concerted effort to increase the number of students and academic researchers.

To this end, the government raised its commitment to higher education to 1% of GDP in 2006. After peaking at this level, higher education spending stood at 0.86% of GDP in 2015.

Higher education spending has resisted better than public expenditure on education overall. The latter peaked at 4.7% of GDP in 2007 before slipping to 2.9% of GDP in 2015.

The result has seen a steep rise in tertiary enrolment. Between 2007 and 2013, student rolls swelled from 2.8 million to 4.4 million in the country’s public and private universities.

Some 45% of students were enrolled in private universities in 2011. There were more women studying than men in 2007, a proportion that has since dropped back slightly to 48%.

Enrolment has progressed in most fields. The most popular in 2013 were social sciences (1.9 million students, of whom 1.1 million were women) and engineering (1.5 million, of whom 373,415 were women). Women also made up two-thirds of medical students.

One in eight graduates go on to enroll in a Master’s/PhD program. This is comparable to the ratio in the Republic of Korea and Thailand (1 in 7) and Japan (1 in 10).

Science, Engineering Attracting More PhD Graduates

The number of PhD graduates has progressed at a similar pace as university enrolment overall. Natural sciences and engineering have proved increasingly popular among both sexes, even if engineering remains a male-dominated field.

In 2012, women made up one-third of PhD graduates, being drawn primarily to health (40% of PhD students), natural sciences (39%), agriculture (33%) and humanities and arts (31%).

According to UNESCO’s Institute for Statistics, 38% of Master’s and PhD students were studying science and engineering fields in 2011.

There has been an interesting evolution in the gender balance among PhD students. Whereas the share of female PhD graduates in health remained stable at 38-39% between 2007 and 2012, it rose in all three other broad fields.

Most spectacular was the leap in female PhD graduates in agricultural sciences from 4% to 33%, but there was also a marked progression in science (from 28% to 39%) and engineering (from 8% to 16% of PhD students).

Surge in Research Pool

According to the Institute for Statistics, the number of (full-time equivalent) researchers rose from 711 to 736 per million inhabitants between 2009 and 2010. This corresponds to an increase of more than 2,000 researchers, from 52,256 to 54,813. The world average is 1,083 per million inhabitants.

One in four (26%) Iranian researchers is a woman, which is close to the world average (28%).

In 2008, half of researchers joined the academia (51.5%), one-third in the government sector (33.6%) and just under one in seven in the business sector (15.0%). Within the business sector, 22% of researchers were women in 2013, the same proportion as in Ireland, Italy and Norway.

The number of firms declaring research activities more than doubled between 2006 and 2011, from 30,935 to 64,642. The increasingly tough sanctions regime oriented the Iranian economy toward the domestic market and, by erecting barriers to foreign imports, encouraged knowledge-based enterprises to localize production.