Discussion Chapter on "Construction Industry in Iran Problems and Possible Solutions"

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[EXCERPT] . . . .

Construction Discussion

Clearly, a great deal of planning, effort, and careful coordination will be necessary in order to achieve real and meaningful changes in the Iranian construction industry, and it is not at all clear that practical solutions can be developed to addressed all of the identified problems. Cultural issues as well as ongoing long-term economic trends in the country will continue to plague the construction industry with secondary problems that limit the capacity for real growth and production in the industry, and Iran's isolation in the geopolitical sphere is not conducive to quick improvements or changes in many of these underlying problems. At the same time, there is a substantial demand for construction in Iran as the country continues to modernize in certain respects, and as tensions with the Western world increasingly suggest a coming break with the current administration and the appearance of real and lasting changes in Iranian politics and society. For the time being, however, the problems facing the construction industry that were identified in the research demand ongoing attention, mitigation, and negotiation in order for what construction potential and capacity there is in Iran to be fulfilled as efficiently and as profitably as possible.

Inflation is one of the problems that there is little to be done about, as it is a sign of the general state of the Iranian economy and its position in the wider global economy. An annual rate of inflation of no les than twenty-five percent is of course far higher than would be desired even for a fast-growing and modernizing economy, which Iran is in some ways (though it has moved backwards in other respects), and with such rapid inflation it is clear that currency adjustments are a necessity within the country -- that is, the inflation is occurring for a reason, and a fundamental balance needs to be restored to the Iranian economy to address this underlying reason, therefore while inflation causes direct problems for the construction industry it will be of benefit to the Iranian economy as a whole over the long-term. This is because the problem nearly impossible to address in any direct fashion, as the currency adjustment is needed to spur overall growth and only creates substantial problems in industries that cannot operate on immediate terms, such as the construction industry. As influencing the national economy in a way that inflation is significantly limited is impossible and perhaps undesirable in the long-term, other means of dealing with this issue must be developed.

Mitigating the effects of rapid inflation on the construction industry rather than trying to eliminate the cause of these effects would likely be a more advantageous and practical approach to this identified barrier to full construction industry growth and capacity fulfillment. Developing better cost estimates with more realistic and accurate projections of inflation and/or developing floating contracts that allow expenses to track changes in currency value would be an ideal way to allow for appropriate construction initiatives to be undertaken while at the same time ensuring funding from developers, assuming their own revenue streams can be accurately predicted. There is likely to be a great deal of cultural resistance to such contracts, which are antithetical to values and practices that require a commitment to deals negotiated well in advance, however there is also a growing frustration with current systems and a clear need to introduce radical changes in order to overcome these obstacles and allow the construction industry in Iran to reach its full potential. Because the problem of rampant inflation cannot be addressed directly, it will be necessary to employ these or other alternative solutions to mitigate or side-step the direct problems inflation causes for the construction industry.

Iran's economic growth is itself a major part of the problem facing the country's construction industry, especially given the high rate of inflation. As noted above, many other modern nations experiencing high levels of inflation, such as China and India, are also experiencing economic growth that is quite substantial and can be seen as more directly linked to the inflation rate, while in Iran growth is only occurring at round two percent annually across the economy as a whole. What growth is occurring in the Iranian economy is largely on the black market or is in other ways unrelated to final figures, and this is helping to drive inflation rates without economic growth. Construction would help to fuel real growth and overall productivity, but the issue of low growth and high inflation to begin with makes capital procurement difficult, and foreign investment is limited because of the country's stance on certain geopolitical issues and its ongoing flirtation with nuclear weapons programs. Again, there is vey little that can be done to address these issues directly, and in this case there is not really an effective way to sidestep the problem -- if capital to be used for development and specifically for construction in Iran is not available domestically or internationally, then there is nowhere else to turn. Continuing pressure from the global community and from Iranian businesses will likely liberalize the government and free the Iranian economy to some degree over the next decade, but this cannot be counted on as a certainty and does not present a solution for the current problems.

The economic problems and the cultural, political, and social isolation that ran is experiencing do not only create direct problems for the construction industry, but through other effects these features have on Iranian society they create other indirect problems that limit the potential of the Iranian construction industry. Specifically, the limited training and education available in the industry and the substandard building materials utilized or available in many projects are a direct result of the limits in trade that Iran has been placed under due to its geopolitical stance, and thus there is no simple way to address these problems, either. Better and stronger building materials that are actually in keeping with international standards regarding safety are often simply unavailable in the Iranian market, and come at great cost when they are available, and this situation will not change until trade relations between Iran and the rest of the world are normalized. Again, it appears as though the country might begin moving in this direction over the next decade, but this does not affect the current situation nor provide any solutions for current problems -- construction that takes place in Iran is likely to be completed using substandard materials. Because emigration to the country is so severely limited and opportunities for Iranians to acquire useful knowledge outside the country is also highly restricted by both practical (i.e. financial) and governmental forces, projects will likely persist in using unskilled labor, as well.

Experience and standards come into play in the design aspects of the construction industry in Iran as well, with a lack of expertise in engineering and design software significantly limiting capabilities. In light of the existing capital problems, the enhanced efficiency that such software enables would be of great benefit, and provides some means for alleviating the problems associated with substandard materials and uneducated labor, as well. Education is necessary for effective software use too, though, and this continues to have a dampening effect on the true capabilities of the Iranian construction industry. Initiatives to improve software knowledge and use within the country is something that could achieve very cost-effective results and be implemented with a minimal amount of bureaucratic red tape and resource expenditure, and it might be appropriate for industry organizations to pool resources and create a development program to spark the spread of software use among the industry. While this will not change knowledge levels or material availability, it could very realistically lead to the better use of existing materials and labor in the construction of more cost… READ MORE

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