Rouhani tackles unfinished projects

Iran has been struggling with a major unemployment challenge for the last two decades. Various governments have come up with schemes and initiatives to tackle it, but in most cases without tangible or sustainable results. One of the remedies that the government of former President Mahmoud Ahmadinejad developed was to extend loans to businesses to create rapid job opportunities including loans for so-called “self-employment schemes.” In retrospect, it's clear that the scheme was a major failure, especially as the net employment effect was close to zero. One reason for the failure was the fact that many existing companies developed a scheme to secure cheap loans from the government by making their employees redundant and then re-employing them with the actual loan promised by the government. Furthermore, most of the new ventures that were set up with the financial support of this scheme faced financial or operational bottlenecks and were never finalized. 

According to a 2012 report by the Central Bank of Iran, in the first five years of the existence of the “self-employment loans,” Iranian banks covered some 93% of the capital needed for such job creation schemes. However, a large number of such projects were never completed. Consequently, the current administration is faced with the staggering number of 50,000 small and medium-sized enterprises left unfinished. It should also be noted that a significant segment of the government’s debt to the country’s banks consists of such loans, which were extended based on government instructions as well as debt relating to cash handout payments within the subsidy reforms.

Presently, President Hassan Rouhani's government needs to both settle the old debts to the banks and also decide how to approach the unfinished projects. According to Ali Akbar Labbafi, former deputy minister of Cooperatives, Labor and Social Affairs, these 50,000 business units would require an investment of 500,000 billion rials ($20 billion) to be completed, with the potential of creating up to 700,000 new jobs.

In fact, one of the priorities of the new administration is to utilize the existing and unfinished opportunities in the economy to create jobs. However, resuscitating these businesses also requires that capable entrepreneurs translate the unfinished units into complete businesses and then start making money to repay the original loans and other facilities. For example, in the fiscal year 1391 (which ended March 20, 2013), the government had allocated 650,000 billion rials ($26 billion) for investment in unfinished projects and businesses. However, there was no tangible outcome in terms of new employment or completed projects.