6 trends shaping Iran’s tech sector

In the past decade, the idea of a nuclear Iran has overshadowed a far more interesting debate about Iran’s non-nuclear economic potential. A potential that, if realized, could very well redefine the story of political and economic development in both the Middle East and Central Asia.

The most interesting story yet to be told is not about a nuclear bomb but rather about a thousand smaller benign technologies that slowly but surely will change the future of Iran and possibly the region around it. With the prospect of sanctions being lifted, Iran’s commercial technology sector is at a historical crossroads.

Driven by unprecedented government support at the highest levels, Iran could very well become a regional science and technology leader. But in a country where 60% of the population is below the age of 30, innovation cannot materialize without some form of social liberation. It is along these lines that the paradox of Iran’s scientific and technological capabilities will develop.

Here are six trends that will shape the future of this sector:

1. Government spending on research and development

Iran’s nuclear programme is a subset of a larger government portfolio of scientific spending. Despite sanctions, research and development (R&D) expenditure has been effective in building national capabilities in areas such as nanotechnology, biotechnology, stem-cell research, genetics, chemical engineering, aerospace research, agronomy, laser communication systems, computer science and electronics, among others. The government has singled out technological development among three top national priorities between 2016 and 2021. As sanctions unravel and the government’s fiscal space expands, R&D budgets have been marked for a 400% increase by 2030, reaching 4% of GDP. If these figures materialize, Iran could very well become a regional leader in the development of commercial technology across sectors.

2. Funding and incubation of start-ups

Iran’s start-up sector has already begun to attract serious attention from technology investors around the globe. With only three venture capital companies in the country and a handful of government programmes supporting small and medium enterprises, opening up to foreign investors will make it much easier to develop business in the country. However, Iran’s start-ups are not only in need of cash: they would also benefit from unrestricted access to new technologies across sectors. With international tech companies already racing to set up shop in Iran, the creative horizons of tech entrepreneurs will likely be expanded. What local start-ups could only dream of achieving for years will become a feasible possibility overnight. More sophisticated, flexible and innovative business models will be at the disposal of an Iranian entrepreneur’s start-up palette.

3. Keeping Iran’s talent at home 

Despite being among the world’s top spenders on education, business owners in Iran still find it difficult to hire skilled workers. Each year about 20% of government social spending in Iran goes to education, and for more than a decade the country has spent an average of 4.5% of its GDP on this sector. This places Iran among the countries that spend the most on education. But on the flip side, the country also struggles with one of the highest brain-drain rates in the world. Every year around 150,000 specialists emigrate, costing the country double (by some estimates) what it makes from selling oil. Creating a suitable environment for the return of young Iranians has been a top priority for President Hassan Rouhani’s government. While lifting sanctions may encourage some to return, much more needs to be done to ensure that Iran’s technology sector has the young visionaries and pioneers it needs to move forward.

4. Mainstreaming entrepreneurship across society

Innovation is deeply rooted in Iranian culture, but being an entrepreneur is not. Traditional government and private-sector jobs are still viewed by society as the safest bet for making a living. Bringing Iran’s wide variety of scientific research to the market requires more risk taking. But few talented entrepreneurs from middle and low income families have the social safety nets to rely on if they fail. Local NGOs such as the Iran Entrepreneurship Association are trying to address these challenges by organizing awareness campaigns and supporting policies aimed at creating a better entrepreneurial environment for Iran’s youth. One example is a recent nationwide partnership to organize 100 start-up weekends over the next three years. Students and young entrepreneurs can now experiment with their business ideas and receive coaching and guidance before making any serious life decisions.

5. Further reforms to internet access

Iran is home to the largest number of mobile phone and internet users in both the Middle East and Central Asia. Yet it remains to be one of the least digitally empowered countries in the world. Excessive government censorship has created a virtual brain drain in which internet content and resources are hosted abroad instead of staying at home and contributing to economic activity. But beyond censorship, high-priced and low-quality communication services make it difficult for businesses to connect with their customers at home and in neighbouring countries. Despite this reality, partial internet reform has gained pace over the past two years. President Rouhani’s government has reversed decisions limiting internet speeds for residential users and has issued 3G and 4G licences to the country’s two main mobile operators. But much more needs to be done if the country is to realize the full commercial potential of tech-sector innovations.

6. Creating an alternative narrative 

There is a vast difference between connecting people and empowering them, yet the two often go hand in hand. Both moderates and reformists in Iran have realized the importance of creating a regime-friendly narrative for technological development. It’s clear that Iran’s technology sector has all the necessary ingredients to become world leading. But it is up to the Iranian people and their leaders to decide how they choose to walk the line between tradition and scientific excellence.

Have you read?
What next for Iran’s economy
Why the Middle East has to embrace start-up culture
10 lessons from a start-up entrepreneur

Author: Joulan Abdul Khalek, Policy Specialist, World Bank

Image: A computer engineer checks equipment at an internet service provider in Tehran February 15, 2011. REUTERS/Caren Firouz