Iran's Bonyads: Economic Strengths and Weaknesses 6 Aug 2006
by Kenneth Katzman

There is a consensus among experts that Iran's economy has improved substantially in the past two years, but this is primarily the result of increased oil prices that mask its underlying weaknesses. Oil revenues account for about 80%-90% of Iran's export earnings and almost 50% of the government budget. Powerful political interests block some reforms, while others are not implemented because of fear of mass unrest. Some of Iran's economic difficulties have been caused by the ideology of the Islamic Revolution of 1979, which espoused an end to Iran's dependence on great powers.

A major weakness of Iran's economy lies in the fact that an informal network known as 'bonyads' (foundations) controls a large portion of it. These organizations are exempt from official oversight as key religious leaders and former or current government officials control them. They enjoy virtual tax exemption and customs privileges, preferential access to credit and foreign exchange, and regulatory protection from private sector competition. Using these privileges, some 'bonyads' have been able to carve out virtual monopolies in the import and distribution of several categories of items, and are said to account for an estimated 33%-40% of Iran's total GDP. Several 'bonyads', the heads of which are appointed by Supreme Leader Khamenei, control vast assets given to them by the state. If combined, they are said to employ as many as 5 million Iranians and provide social welfare services to perhaps several million more. The 'bonyads', therefore, have a large constituency and are able to build support for the regime among the working and lower classes.

The most controversial allegation about the 'bonyads' has been whether or not their funds have been used to procure weapons of mass destruction (WMD) technology. This allegation has long surrounded the largest 'bonyad', the Foundation for the Oppressed and Disabled, primarily because this bonyad has been run by hardliners and former officials of the Revolutionary Guard (such as, Mohsen Rafiq-Dust, a former Minister of the Revolutionary Guard). As the 'bonyads' are not formally part of Iran's government, they can operate outside official scrutiny of foreign governments, and could therefore illicitly procure equipment that might not be approved for export to Iran. The major 'bonyads' are the following:    

"The Foundation for the Oppressed and Disabled ('Bonyad Mostazafin va Janbazan'): The largest and most important of the bonyads, it took over much of the assets of the former Shah and his associates who fled Iran after the Islamic Revolution. Mohammad Forouzandeh, the chief of staff of the Revolutionary Guard in the late 1980s and later Defense Minister, heads it. It now manages over 400 companies and factories, with a total value estimated by Iranian experts at as much as $12 billion, and it is considered the largest economic entity after the government. The Foundation is active in several major sectors, including shipping (Bonyad Shipping Co.), metals, petrochemicals, construction materials, dams, towers, farming, horticulture,  tourism, transportation, hotels (including two major hotels in Tehran), and commercial services. It produces the best selling soft drink in Iran, called Zam Zam. The Foundation uses the profits from these ventures to assist 120,000 families of veterans and victims of the 1980-88 Iran-Iraq war, as well as large segments of the poor.

Martyr's Foundation (Bonyad Shahid). This foundation also assists families of those killed or maimed in the Iran-Iraq war. It owns several companies involved in mining, agriculture, construction, import, and export.

 The Shrine of Imam Reza Foundation. Based in Mashhad in northeastern Iran, it used donations from 8 million pilgrims to the Shrine of Imam Reza to buy up 90% of the arable land in its area. The largest employer in Khorasan Province (Mashhad is its capital), the Foundation runs 56 companies, including a Coca-Cola factory and two universities, and has diversified also into automobile manufacturing. Ayatollah Abbas Vaez-Tabasi, who is on the powerful Expediency Council that is headed by former President Akbar Hashemi-Rafsanjani, heads it. Vaez-Tabasi's son is married to a daughter of the Supreme Leader Khamenei.

 The Noor Foundation. It reportedly imports sugar, pharmaceuticals, and construction equipment, and has substantial real estate holdings. Mohsen RafiqDust, the first Minister of the Revolutionary Guard, who later was head of the Foundation of the Oppressed, heads it. RafiqDust is on the Expediency Council.

 15 Khordad Foundation. In 1989, it offered $1 million to anyone who killed Salman Rushdie, author of the Satanic Verses that Ayatollah Khomeini called blasphemous. The Foundation is named after the date in 1963 when Khomeini began revolutionary activities against the then Shah.

 Isargaran Foundation. Said to be controlled by ex-Revolutionary Guard officers, it provides services to the families of those killed or taken prisoner in the Iran-Iraq war.

The so-called 'cooperatives' are another sector of the economy that has come under the control of important elites. There is a Ministry of Cooperatives that oversees the operations of cooperatives, but allies or relatives of regime heavyweights run the larger cooperatives and the Ministry's oversight powers are limited. The cousin of Rafsanjani runs the most well known cooperative, the Rafsanjani Pistachio Growers Cooperative. The cooperative claims to represent over 70,000 pistachio farmers. The control over this sector has given Rafsanjani substantial opportunities for patronage, although obviously his wealth did not prevent his loss in the 2005 presidential election. 

Some have noted that the Revolutionary Guard, the part of the armed forces that is most loyal to the clerical leadership, is playing an increasing role in the economy. President Ahmadinejad was a commander in the Guard during the 1980-88 Iran-Iraq war and his presidency has enhanced the Guard's influence. Its motivations for expanding its economic role are apparently to provide rewards for senior officers, and to generate revenue to supplement the budget allocated to the Guard by the government. 

The Guard has formed contracting firms to bid on government projects, using its strong political influence to win business. In one recent example, one of the firms owned by the Guard, called 'Ghorb,' is being awarded a $2.3 billion deal to develop two phases of Iran's large South Pars gas field. Most of the other phases have been awarded to well-known multi-national energy firms, and the work given to Ghorb had originally been awarded to Norway's Aker Kvaerner, but was re-tendered. This suggests that the Guard exerted political influence to win the contract and take it away from what most industry experts would consider a more capable firm. 

Many Iranian officials acknowledge the weaknesses of Iran's economy, and argue for reform. However, differences among Iranian leaders,  in part caused by their different constituencies, undoubtedly has contributed to the relative deadlock on broad structural reform of the economy.  The connections between the various 'bonyads', the Revolutionary Guard, and the upper reaches of the regime are too strong to permit curbing their influence in the economy. The economic strength of the 'bonyads' and the cooperatives translate into political strength for the clerics and politicians that run them. On the other hand, these economic mechanisms are keeping Iran's poor fairly well-sustained and, in the view of some, represent useful and necessary institutions even if they reduce the transparency of Iran's economy.

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