Opinion |

What Could Doom Iran's Leaders to Follow Egypt Into the Abyss

When strong economic growth failed to trickle down to ordinary people, Egypt's regime came crashing down

David Rosenberg
David Rosenberg
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File photo: Thousands of Egyptians attending a demonstration at Tahrir Square in Cairo, Egypt in March 2011 in what became a revolution that overthrew then-president Hosni Mubarak.
File photo: Thousands of Egyptians attending a demonstration at Tahrir Square in Cairo, Egypt in March 2011 in what became a revolution that overthrew then-president Hosni Mubarak.Credit: AP
David Rosenberg
David Rosenberg

Donald Trump has every reason to be gleeful about the protests that have erupted in Iran in recent days, and his ham-fisted foreign policy even deserves some of the credit for it.

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Who the protestors are, how much support they have and what their agenda remain unclear. Economic grievances and disgust with corruption seem to be at the heart of it, but the most daring of the protestors were chanting “Death to the dictator” and “Clerics should get lost.” Some were even caught on camera praising the long-dead Shah. They weren’t demanding some tame reform of the system – they were demanding that Ali Khamenei and his regime be brought down.

Most likely the protestors themselves don’t quite know what they want, but they do know what they resent, and it's resentment that brings people out to the streets.

What will keep them out there, and what represents a real threat to the regime is the economy. There, Iran’s situation is not good.

Actually, Iran’s economy looks eerily similar to Egypt’s in the run-up to the 2011 revolution that toppled Hosni Mubarak.

People gather to protest over high cost of living in Tehran, Iran on December 30, 2017.Credit: STRINGER / Anadolu Agency

You feed me, I vote for you

The Egyptian economy also registered strong growth until its revolution, expanding at a rate of 4.5% to 7% a year. But for the great majority of Egyptians, the top line figure was nothing but a number. The economy was not growing fast enough to keep up with the expanding population, and what growth there was being captured by a corrupt crony class.

On the eve of the revolution, Egypt’s unemployment rate was 10% and youth unemployment was 25%.

The official figures understated the extent of the problem because there was a lot of hidden unemployment, i.e., people in make-work jobs, especially in the public sector.

Young men – the demographic that takes to the streets when they’re angry – couldn’t find work, so they couldn’t marry and set up homes. Their loyalty to the regime wasn’t patriotic, it was transactional: Make sure I can earn a living and I’ll support whoever is power. In 2011, for many Egyptians, the deal was off.

Iran in 2017 looks striking similar, to the degree you can draw a picture at all, since Iranian statistics are reported late and often incomplete.

On the surface everything looks good. When sanctions ended following the signing of the 2016 nuclear accord, Iran’s economy took off. After several years of declining, gross domestic product jumped 12.4% in the 12 months to March 20 (Iran’s fiscal year). Oil and gas production soared by 62% as Iran was again free to export the only thing (apart from carpets and pistachios) that the world wants to buy from it.

The official jobless rate as of last spring was 12.4% but for Iranians under 25, the rate was more than double that. In fact, it’s probably much higher since the government set a low bar for what constitutes employment, which is as little as one hour of labor a week. The real jobless rate could be 30% or 40%.

Pumping oil boosts the size of the economy, but it doesn’t create much demand for labor, especially as Iran has not been pumping oil but selling off the stuff it had been warehousing in tankers during the sanctions era.

The rest of the economy, meanwhile, has been performing poorly: Non-oil growth was just 3.3% last year. Some 1.2 million Iranians entered the labor force last year but there were just 700,000 new jobs for them to fill.

And, here’s where Trump can take some credit (and no doubt he will).

The investment boom that was supposed to follow the end of sanctions hasn’t materialized, in part because the U.S. has discouraged it. Trump hasn’t re-imposed sanctions, but he has frightened banks and other businesses enough to hold off investing.

Trump, however, only deserves part of the credit. Iran itself is mostly responsible for its failures.

Its economy isn’t globally competitive: Iran ranks 69th in the World Economic Forum’s Global Competitiveness Index. The government is corrupt and inefficient, and the banking system is isolated from the global economy and weighed down by bad debt. The Iranian Revolutionary Guard Corps has a lock-hold on big parts of the economy and it’s in no rush to give it up, certainly not to foreigners.

At the top of the Iranian regime, ideological war still rages about how far Iran should go in joining the world economy. The hardliners are perfectly content to export oil and gas, but they’re less willing to host McDonald’s restaurants or surrender power and influence to big foreign investors. Iran’s reformist president, Hassan Rohani, promised better times after the nuclear deal was signed and his hardline opponents would be happy to prove him wrong.

None of this necessarily means Iran will go the way Egypt did seven years ago. All the economic ingredients you need to bake the cake of revolution are there, but that doesn’t mean they will come together this time. Yet, unless fundamentals change – and it doesn’t look like they will – there will be another time, and another, and eventually, the cake will come together.

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