Literature Review Chapter: Construction Industry in Iran Problems and Possible Solutions

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Construction Industry in Iran: Problems and Possible Solutions

The Construction Industry in Iran has been plagued by problems. The literature that has been created on this issue addresses the issues that Iran is facing in its construction industry, and discusses the major elements that are holding back those who want to build in the country. The delays in construction projects are long, and they are affecting the morale of workers and the patience of people who have contracted their projects out and wish to see them completed. In order to find solutions to the Iranian construction problems, it is first important to analyze all of them individually in order to determine which are the most significant and which are not as important in the overall scheme of things. All of the literature that is reviewed here will focus on the delays that are seen in the Iranian construction industry, but also on the reasons behind those delays. It is one thing to point out that there are delays commonly seen in the construction process, but it is another thing entirely to dig deeper into the issue and begin to explore why the delays occur.

Finding out what kinds of things are causing the delays in the construction industry in Iran is the first step toward discovering and working to implement possible solutions for those delays. This literature review will focus only on the issues, and will not look at the potential solutions that could be seen in the construction industry in Iran. That is a topic for another time. However, the literature will provide the researcher with vital information upon which he can base suggestions for solving problems at a later date. With this in mind, the literature review will be broken into sections specific to each one of the main problems that is currently being seen in the construction industry in Iran.

Economic Issues and Financing

Among the most significant problems are the economic issues and financing difficulties that are seen in the construction industry in Iran (Eshtehardian & Nasr Azadani, 2011). Inflation is a serious problem there, and the rate of inflation has been growing at around 25% per year at a minimum. That is a staggering number when one considers that in light of other areas of the world, where the inflation rates in modern countries often grow between 1.5% and 4% per year. Any amount of inflation can lead to rising costs for both labor and materials, so it is easy to see that a very high inflation rate would equal problems with the costs of doing business. Because Iran's inflation rate is high and growing all the time, projects can have trouble getting started and can run out of money before they are ever finished. In addition to the high inflation, the rate of economic growth is low in Iran, so the two work with each other and against those who want to start construction projects. While places like South Korea, India, and China - along with other developing countries - see their rates of economic growth hovering between 5% and 11%, the rate of economic growth in Iran is near 2% (Eshtehardian & Nasr Azadani, 2011).

Obviously, that growth rate is in stark contrast to other countries that are developing, and results in Iran struggling between low economic growth and high inflation - both of which are very detrimental to the construction industry. These kinds of economic problems also result in an average per capita income that is much lower than some of Iran's neighbors. For example, in Europe the median income is $24,000, where in Iran the median income is only $9,000. Most people in the Western world and in developed countries would wonder how anyone could live on only $9,000 per year and still have food and shelter. In developing countries things are a bit different, and many people have low incomes. Still, with a median income that is less than $10,000 along with the inflation and other issues, Iran is clearly struggling economically. Any time there are economic problems or an economic downturn in a country, construction of new buildings and homes is one of the first things to slow down, because people simply do not have the money to build (Frimpong, Oluwoye, & Crawford, 2003; Khoshaghazi, 2005).

Most countries have a private sector, where businesses that are run by individuals and not by the government grow and flourish (Frimpong, Oluwoye, & Crawford, 2003). It is possible to have such a business in Iran, but the private sector is weak. With all of the other economic difficulties, it is easy to see why this would be the case. It is also another reason why the construction industry in Iran is struggling right now and why there are so many problems within it. Businesses are not able to stay open long if they do not make money, and small businesses that open in the private sector often close because they are not making the kind of money for which they hope. Additionally, those people who want to start businesses do not have the capital to do so because there are so many people who make very little money. It becomes difficult to save up for anything unless one acquires money from an inheritance or something else that provides them with start-up capital for their business. The lack of a strong private sector really hurts Iran where the economy is concerned, and that in turn hurts the construction industry.

Financing is available for those who want to build homes and buildings, but there are actually too many methods (Khoshaghazi, 2005). Too much to choose from breeds indecision and confusion, which are both problems for people trying to make a decision as to which financing method would be right for them. They might end up choosing a method that is actually detrimental to them financially, and that can be a serious problem because people who struggle with their finances can get in over their heads quite easily if they get involved with a company that will take advantage of what they do not know about financing. They may have trouble deciding which company or method of financing to use, and they may end up regretting their choice if they find that they should have gone with a different method. Getting financing and getting the construction company to work with the financing company to get something built can be a long and very frustrating process. Many Iranians choose to avoid financing because of the hassles it creates (Asnasshari, Knight, & Hurst, 2010; Assaf & Al-Hejji, 2006).

Financing, like much of the economy in Iran, is tied to the sale of oil and gas around the world (Babai, 2011). If oil and gas are selling for a high price throughout the world, Iran has money. If the prices worldwide drop sharply, there is suddenly much less money with which to work. Because Iran has not built an economy that is strong in more than one area, it flounders easily when there are lower prices for oil and gas throughout the world. That is not to say that Iran should get its money from somewhere else, but diversity in income sources would be helpful. However, right now Iran must work with what it has available, and that is rich reserves of oil and gas. The money that is generally used to finance construction projects in Iran comes from the sale of oil and gas, so a worldwide downturn in the price can stop people from financing projects and can dry up money that was previously promised for projects that are already ongoing (Babai, 2011). That can lead to the delays that are so often seen in the construction industry in Iran, and cause frustration for the companies that are doing the building and for the people who have contracted to have the buildings constructed.

Education

In the construction industry, there are many issues with mismatching skills and needs. The training that is provided is not really the training that most people need to work on the projects that are ongoing or that will be started in the future. That means that the workforce in the construction industry in Iran is often unclear about what it is doing and may not have the appropriate skills for the buildings that are being erected. With this being the case, it is very important that proper training is available. The projects that are researched and that discuss industry needs are often also inaccurate, leading to more poor training that will not help the construction workers get the job done. Most of the workers in this industry are unskilled Afghan refugees, and if they do not have the proper training the buildings they create will not be safe (Eshtehardian & Nasr Azadani, 2011). Inspecting the buildings and fixing mistakes that were made in the construction of those buildings also causes many of the delays that are seen in the construction industry in… [END OF PREVIEW]

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