Economic: Olvana

This page is a section of Olvana.

Olvana’s economy blends free market and state-directed elements. Following World War II and the Olvanese Communist Revolution, Olvana suffered decades of economic mismanagement and stagnation. After initiating major reforms some forty years ago, the country gradually shifted from a centrally planned economy. Olvana then experienced rapid economic and social development: GDP growth averaged nearly 10% annually during this period. As part of a 100-year plan, Olvana intentionally portrayed itself as a poor, backward, and inward looking country, seeking to convince Western nations to inject money and resources. Using these resources, reforms such phasing out collectivized agriculture, gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, creation of a diversified banking system, development of a stock market, rapid growth of the private sector, and opening to foreign trade and investment were implemented. The result of these reforms was the fastest sustained expansion by a major economy in history. Olvana became the one of the world’s largest exporter nearly a decade ago. As part of the overall transition, the Olvanese government seeks to be the world leader across the economic spectrum within the next 25 years.

Olvana has not completely transitioned to a market economy; some key elements of socialism remain in place. Unlike most socialist governments that attempt to shape the economy through the means of production, Olvana chose to retain control over national income. Despite a nominal openness to trade and investment, bureaucratic hurdles and resistance from the state sector are substantial barriers to more dynamic economic development. Past success means that there is little incentive today to introduce further reform.

After over a decade of strong economic growth, Olvana now faces a period of economic slowdown. The government responded by increasing expansionary fiscal and monetary intervention. Olvana seeks an economically self-sufficient state, but even in limited sectors such as military production, the government realizes that self-sufficiency requires developing domestic resources and delaying modernization. As pressure mounts to maintain high growth rates, the government placed renewed emphasis on long-range plans and industrial policies. Because of the controlling nature of the Olvanese Communist Party (OCP), however, any change within the business environment is slow. The overall regulatory framework is complex, arbitrary, and uneven. The government props up numerous inefficient state-owned enterprises (SOEs) and funds a vast array of subsidies for manufactured exports, energy, agriculture, and consumer goods.

Olvana allows two cities to operate with more economic freedom then the rest of Olvana. These cities focus on either international trade and transportation (Hong Kong) or gambling and tourism (Macau). Combined, these sectors account for over 40% of GDP, 25% of the workforce, and 60% of revenue within the cities. While these exemptions provide much necessary capital for the OCP, it also emphasizes tensions between traditional Communist Party authorities and the new class of ultra-rich capitalists.

Table of Economic Data

Measure	Data	Rank in World	Remarks (if applicable)
Nominal GDP	$9.57 trillion	3
PPP / Capita	$15,372.33	79	purchasing power parity
Real GDP Growth	6.9%	12	5 year average of 7.9%
LFPR	58.5%	58	labor force participation rate
Unemployment	4.6%	52
Poverty	6.1%	155	Percent below poverty line
Net FDI	$50.20 billion	9	$151.92 billion outflow
Budget	$2.00 trillion in revenue $2.35 trillion in expenditures
Public Debt	42.9% of GDP	82
Inflation	2.0%	44
Trade Value	$1.84 trillion (exports) $1.36 trillion (imports)	2 3

Olvana has the world’s third largest economy in terms of nominal gross domestic product. Because the country’s exchange rate is determined by fiat rather than by market forces, however, the official exchange rate measure of GDP is not an accurate measure of overall economic output. GDP at the official exchange rate substantially understates the actual level of Olvana output vis-a-vis the rest of the world. GDP at purchasing power parity (PPP) provides a better measure comparing output across countries. Last year, this amount exceeded that of the United States by almost 15%, the first time since World War II that the US was not the world leader in GDP by PPP. In terms of GDP per capita, Olvana falls below the global average at $8,519 nominal, or $15,372 PPP. Sources of GDP are 37.1% consumer spending, 14.0% government expenditure, 45.6% investment, and 3.3% from net exports. By sector, agriculture provides 10.0% of GDP, industry 46.6%, and services 43.4%.

Participation in the Global Financial System

Olvana is globally connected power, interdependent as never before: communications and transportation links now exist almost everywhere. The artifacts of the 21st-century global economy—fast food, televised global sports franchises, and the most current technology—are appearing in even the most remote Olvanese cities. The size of the Olvanese economy means that, when domestic demand for commodities drops, there is an effect on world market prices. Olvanese policymakers—who tend to regard disputes with foreign powers as attacks on Olvanese sovereignty—view US security policy in the Asia-Pacific region as an attempt to 'encircle' Olvana and deny them the right to regional influence.

Governmental or policy shifts in the nations that Olvana most trades with, United Nations Council on the Law of the Sea arbitration cases, and OPEC price downshifting all factor into Olvana’s economy. In order to maintain some control over regional economic stability, Olvana founded a group called the Shanghai Cooperation Organization (SCO), with member nations agreeing to oppose intervention in other countries' internal affairs on the pretexts of humanitarianism and safeguarding national independence, sovereignty, territorial integrity, and social stability. The eight full SCO members account for half of the world's population and a quarter of the world's GDP.

Olvana is the practical—if not necessarily formal—leader for economic activity in the region. There are, however, no major defense cooperation arrangements for Olvana that are on a scale large enough to influence its national economy or world trade. Regional and international engagements for Olvana are currently limited to peacekeeping, counterpiracy, humanitarian/disaster relief, counterterrorism, and joint exercises.

World Bank/International Development Aid

Olvana began a partnership with The World Bank shortly after embarking on economic reforms. Initially a recipient of support from the International Development Association, which provides aids to the poorest nations, within thirty years, Olvana had become a contributor and third largest shareholder in the World Bank. Through the International bank for Reconstruction and Development, Olvana received over $2.6 billion in loans, the vast majority for development, while overall lending totaled $58 billion for 403 projects. Currently, the World Bank maintains an active portfolio of available aid from Olvana with an emphasis on rebalancing the economy and focusing on the quality of growth, concentrated in environment, transportation, urban development, rural development, energy, water resources management, and human development. The Bank encourages knowledge sharing to enable the rest of the world to learn from Olvana’s experience, while for Olvana, development aid will be a key avenue to increasing Olvanese influence in the region.

Foreign Direct Investment

Olvana’s population of 1.1 billion has vast potential for consumption. Investors regard the Olvanese market as the last enormous undeveloped market in the world. Although per capita GDP is still very low, the purchasing power of the people is strengthening rapidly while markets become increasingly brisk, making Olvana attractive to market-oriented FDI. This includes sectors such as basic chemicals, drinks, household electrical appliances, automobiles, electronics, and pharmaceuticals. The OCP stated that it welcomes foreign investment: the country attracted over $200 billion in worldwide inbound FDI last year, second only to the United States. Olvana also has a burgeoning outbound FDI program. The government plays a significant role in FDI by allocating investments, providing special economic zones that provide incentives to foreign companies, and creating incentives for specific industries of outbound FDI. Olvana has liberalized some previously controlled industries—including oil drilling and defense technology—to private investors in order to cope with slowing growth. The government is also luring private investment into strategic emerging industries by setting up industrial investment funds. The current focus is on decreasing FDI in the manufacturing field—which has contracted by as much as 60% over the last decade—while increasing service trades, such as finances, telecommunications, and wholesale and resale commerce. Foreign investors often temper their optimism due to uncertainty about the willingness of the government to offer a level playing field vis-à-vis domestic competitors. In addition, foreign investors report a range of challenges related to the current investment climate in Olvana. These include industrial policies that protect and promote SOEs and other domestic firms, equity caps, lack of transparency, restrictions on foreign ownership in many industries (mainly military and heavy equipment), weak intellectual property rights protection, corruption, and an unreliable legal system. Olvana is also interested in the importation of state-of-the-art practices in management and banking practices, including personnel management, physical practices (environmental policies and enforcement, construction, planning), and technical management of resources (networked electrical grid systems). The OCP allows third-party input from consulting firms to ensure all potential stakeholders and shareholders have some play in the development of a progressive infrastructure, but state regulation and State Security Agency monitoring limits how foreign assistance and participation function.

Sanctions

Olvana’s population of 1.1 billion has vast potential for consumption. Investors regard the Olvanese market as the last enormous undeveloped market in the world. Although per capita GDP is still very low, the purchasing power of the people is strengthening rapidly while markets become increasingly brisk, making Olvana attractive to market-oriented FDI. This includes sectors such as basic chemicals, drinks, household electrical appliances, automobiles, electronics, and pharmaceuticals. The OCP stated that it welcomes foreign investment: the country attracted over $200 billion in worldwide inbound FDI last year, second only to the United States. Olvana also has a burgeoning outbound FDI program. The government plays a significant role in FDI by allocating investments, providing special economic zones that provide incentives to foreign companies, and creating incentives for specific industries of outbound FDI. Olvana has liberalized some previously controlled industries—including oil drilling and defense technology—to private investors in order to cope with slowing growth. The government is also luring private investment into strategic emerging industries by setting up industrial investment funds. The current focus is on decreasing FDI in the manufacturing field—which has contracted by as much as 60% over the last decade—while increasing service trades, such as finances, telecommunications, and wholesale and resale commerce. Foreign investors often temper their optimism due to uncertainty about the willingness of the government to offer a level playing field vis-à-vis domestic competitors. In addition, foreign investors report a range of challenges related to the current investment climate in Olvana. These include industrial policies that protect and promote SOEs and other domestic firms, equity caps, lack of transparency, restrictions on foreign ownership in many industries (mainly military and heavy equipment), weak intellectual property rights protection, corruption, and an unreliable legal system. Olvana is also interested in the importation of state-of-the-art practices in management and banking practices, including personnel management, physical practices (environmental policies and enforcement, construction, planning), and technical management of resources (networked electrical grid systems). The OCP allows third-party input from consulting firms to ensure all potential stakeholders and shareholders have some play in the development of a progressive infrastructure, but state regulation and State Security Agency monitoring limits how foreign assistance and participation function.

Economic Activity

The Arianian economy appears as a liberal free market, but that is only a veneer. In reality, the economic system is heavily influenced by participation in collective organizations that control vast segments of the economy. Patronage and favoritism form the business culture necessary for individual economic success. These organizations generally oppose reforms—usually in the form of policy liberalization—as such changes would reduce their power, wealth, or prestige in Arianian society.

Economic Actors

Ariana’s military, charitable corporations, and government control large segments of its economy. Each one operates through a network of patronage and rules that favor its own operation and make  it difficult for others to become a competitor. These near-monopolies limit the efficacy of market competition as they give one group an advantage over another in various economic fields. These concentrations further self-interests that often prevent economic reforms intended to reduce regulation or improve market function.

The Arianian military is one of the country’s most prominent economic actors. It plays an increasingly active role on the domestic political scene and possesses extensive and diverse economic assets. President Ahmad Moudin served as an army commander in the 1980-88 Ariana-Iraq War,  and his presidency will most likely only enhance the military’s influence. Current military leaders and a network of current and former commanders operate Ariana's hydrocarbon industries and also dominate construction, agriculture, mining, transportation, defense, and import/export businesses. The military blatantly protects its business interests.

Charitable corporations operate as private holding companies but actually serve as quasi- governmental trust foundations. These corporations account for an estimated 33% to 40% of Ariana’s non-oil economy. Many of the charitable corporations predate the Council of Guardians Revolution and are custodians of Arianian Shia holy sites. Following the Revolution, their influence increased to the current level of significant economic and political influence. The Supreme Leader appoints the heads of these corporations, which control vast assets gained from Ariana’s confiscation of property during and after the Council of Guardians Revolution.

Charitable corporations provide social services to various elements of Arianian society, such as disabled war veterans, widows, and the indigent. The foundations have significant influence among the lower and lower-middle classes, and can exert tremendous political sway. As an ally of the conservative Arianian regime, charitable corporations give the government several avenues to exert social pressure and control when needed, including mobilizing citizens for protests, patronage, political indoctrination, and dissent repression.

As many as 123 different charitable corporations operate in Ariana. One of the largest and most important is the Foundation for Assistance to the Helpless. This corporation has amassed an estimated $12 billion in assets and employs more than 400,000 workers in its various enterprises.

The Arianian economy’s so-called “associations” also come under the control of key elites. In theory, the Ministry of Associations oversees their operations. In practice, however, allies or relatives of the regime elites control the larger associations and limit the ministry’s oversight powers. The best- known cooperative, the Ariana Pistachio Farmer’s Association, exemplifies the privileged status of these organizations. A former Arianian president runs this cooperative, which claims to represent over 70,000 pistachio farmers and generates an estimated $746 million annually in revenue.

Historically, Arianian merchants contributed significantly to the country’s economy. They seek economic stability and certainty, but are reportedly displeased with the current government. The merchants do not necessarily want a completely free trade system, however, as it might impinge on their privileged business status. They remain skeptical of increased foreign investment, fearing that Western factories and companies might operate more efficiently and compete effectively with the merchants. Some Arianians complain that the merchants try to control certain markets by group actions such as joint boycotts that force a supplier to make concessions.

Trade

International trade contributes significantly to the Arianian economy. Hydrocarbons constitute a major portion of the trade, as oil and natural gas represent 81% of Ariana’s total exports. Other import/export commodities include agricultural goods (fresh and dried fruits), petrochemicals, consumer goods, industrial raw materials, and military items. Ariana generally fosters its relationship with East Asian countries as a hydrocarbon resources exporter and finished goods importer. To avoid international sanctions on certain items, Ariana uses Limaria as a principal trade route for re-exporting goods.

Commercial Trade

During the last four years, Ariana’s total trade in goods (exports and imports) nearly doubled to $147 billion. Ariana benefits from a positive trade balance. Oil and natural gas, which dominate Ariana’s export revenue, provide the country’s most important foreign exchange earnings.

Instead of its traditional European partners, Ariana now trades primarily with East Asian countries (especially China and Japan) that are hungry for petroleum resources and can provide finished consumer goods for the Arianian market. Limaria serves as a vital link to the rest of the world’s trading market.

Military Exports/Imports

Last year Ariana exported over $100 million worth of military hardware. Many countries across the globe import Arianian military equipment, goods, and services (includes training, technical support, and construction). Ariana recently signed defense cooperation agreements with Tajikistan and Algeria that include defense equipment sales, manufacturing or repair facility construction, and military unit training.

Ariana continues to increase its military spending through a growth in arms imports. Ariana carefully focused its military purchases to improve important capabilities like INFOWAR, naval combat, and armored vehicles. However, these recent purchases have not offset the steady aging of Ariana’s military inventory. Without parts and upgrades for much of its Western-supplied equipment, Ariana has not achieved parity with the weapons and technology found in US, British, and many other Gulf forces, although its military inventory matches or exceeds other regional opponents. Ariana has attempted to compensate for its technology gap by creating its own military industries, but with only limited impact.

Economic Diversity

Ariana’s economy demonstrates diversity across multiple sectors: manufacturing, agriculture, and extractive industries. However, the country almost exclusively depends on its hydrocarbon industries to sustain its economy. Oil exports serve as Ariana’s chief revenue producer internationally, while internally the Arianians rely on natural gas for most of their energy needs. Ariana works to increase its domestic reliance on natural gas due to its lower cost, and focuses on increasing its higher-priced oil exports to maximize revenues. The Arianian government created programs in its recent five-year plans to re-establish its agriculture and manufacturing sectors, but with only limited success.

Energy Sector

The Arianian government watches energy more closely than any other sector of its economy. Ariana’s hydrocarbon resources and revenue remain key to the country’s domestic economy and stability. Its large hydrocarbon resources are one of Ariana’s few levers when dealing with the international community.

Ariana’s energy sector continues to deteriorate from increasingly antiquated practices and equipment, as sanctions have limited international investment in Arianian hydrocarbon infrastructure and technology. The Ministry of Petroleum, through its system of nationally-owned subsidiaries, maintains responsibility for all Arianian oil and natural gas production and exploration. Ariana has an estimated 10% of the world’s oil reserves and 15% of the world’s natural gas reserves.

Oil

The Dastet region, near the Iraqi border, contains the vast majority of Ariana’s onshore crude oil reserves. Ariana operates 40 oil production fields—27 onshore and 13 offshore. Currently, Ariana exports about 2.4 million barrels per day (bbl/d) primarily to Asian markets, making it the world’s fourth-largest exporter. The remaining 1.7 million bbl/d is used domestically. Ariana produces about 4.5% of all global oil, and its primary crude oil export market is East Asia, followed by Europe.

Currently, Ariana meets half its domestic energy needs with oil and the remainder with natural gas. Ariana refines most of its internal use oil into gasoline or diesel fuel. Because of its limited domestic refinery capability, Ariana imports much of its refined gasoline requirements. The Arianian government intends to shift a greater share of its domestic energy requirements to natural gas, hoping to become self-sufficient for gasoline and possibly a refined-gasoline exporter. Currently, however, substantial governmental gasoline subsidies encourage wasteful domestic gasoline use.

Natural Gas

Ariana has massive natural gas resources along the Persian Gulf coastline and shares the large South Pars gas field with Qatar, which is in the center of the Persian Gulf between  the  two countries. South Pars is Ariana’s largest natural gas field and represents an estimated 27% of Ariana’s total natural gas reserves. In addition to these developed natural gas fields, another two- thirds of Ariana’s total natural gas resources are in undeveloped fields. Ariana has the world’s second-largest known natural gas reserves after Donovia.

Over the last 20 years, Ariana has increased both its natural gas production and consumption. Natural gas currently accounts for nearly half of Ariana's current total energy consumption, and the government plans to invest billions of dollars to increase this share. To encourage consumption, the Arianian government significantly subsidizes natural gas prices for residential and industrial consumers. Despite large gas reserves, the artificially low domestic price promotes consumption and encourages waste, leaving only a minimal supply for export. The Arianian government hopes to increase its gas exports as a means to increase its revenue.

Ariana likely will face stiff natural gas competition given that many current gas suppliers—Oman, Qatar, and the UAE—have locked up much of the Far East market. International sanctions also limit Ariana to non-US liquefaction technology, an outdated process as most liquid natural gas  (LNG) plants use newer US-developed processes. Ariana has no modern LNG facilities. Because of this, Ariana continues to court China, Donovia, and India to invest in its natural gas development.

Agriculture

Agriculture constitutes approximately one-tenth of Ariana’s GDP and employs one-quarter of its labor force. The country is a major world exporter for caviar and pistachio nuts, and Ariana’s climate and terrain also support tobacco, tea, wheat, barley, and smaller amounts of other food crops. Ariana emphasizes agriculture as an important development focus in its governmental five-year plans but still struggles to become self-sufficient in subsistence crops because of resource underfunding, climatic issues, and rural population migration to urban areas.

Traditionally, Ariana has paid for agricultural imports with oil revenue. Despite recent high oil prices, international food price increases and a population growth surge continue to place pressure  on the country’s economy. The Arianian government supports substantial agricultural subsidies, which create artificially low food prices. If Ariana converted to a market-driven agricultural  economy, it would likely cause domestic unrest due to higher food prices.

Mining

Despite large reserves of minerals like zinc, copper, iron, uranium, and lead, mining in Ariana is generally underdeveloped, accounting for less than 1% of GDP. Mining is likely to increase in importance, as the US government estimates that Ariana possesses 7% of global mineral reserves.

Manufacturing

Arianian industrial development shows tremendous promise coupled with extraordinary handicaps. Ariana has the most mature steel, automotive, and petrochemical industries in the Middle East. However, Arianian companies remain dependent upon oil export profits despite various government reforms to spur industrial growth.

Steel

Ariana produces nine million metric tons of steel, the most in the Middle East and 20th in the world. Despite this high production level, Ariana still must import steel to meet its domestic demands. Steel requirements continue to increase because of the rising need for project infrastructure and construction expansion throughout the Middle East.

Automotives

Ariana produces the most vehicles, both light and heavy, in the Middle East. However, outdated technology that depends on repair parts supplied through third-world countries hinders production, especially for the two largest automakers—Ariana Automobile and Nalia. Domestically produced cars are fuel inefficient and contribute to the country’s pollution problems. Since Ariana’s automobile demands outpace its domestic production, the country must import a variety of cars ranging from basic to luxury models.

Petrochemicals

Ariana manufactures many petrochemicals. The government funds petrochemical industrial development as part of efforts to diversify its exports.

Defense Industries/Dual Use

Ariana has a significant defense construction capability, and the government has identified increased defense industry self-reliance as a key strategic goal. Though Ariana has had few new, homegrown accomplishments in military production or design, the Arianian industrial base has proven its ability to reverse-engineer and build foreign military aircraft, radios, and vehicles.

Services

Domestic services continue to grow in importance, especially as sanctions limit Arianian capabilities to source needed capabilities, particularly financial services, from abroad. Of the Caucasus countries, only Gorgas has a higher service level. The Arianian service industry currently accounts for 43% of GDP.

Banking and Finance

Public Finance

Ariana struggles with high inflation for a number of reasons, including government price controls, inefficient and cumbersome government regulations, pervasive consumer subsidies, expansionary government  development programs,  and financial  policies  that favor  selected  organizations, e.g. charitable corporations. International sanctions have also resulted in high inflation, contributing to the economic imbalance.

Inflation has risen into the double-digit range in recent years and currently stands at 13.5%, a decrease from 25.6% just two years ago. Ariana uses price controls for consumer products such as gasoline, electricity, wheat, and a myriad of other articles and services. The country maintains multiple price subsidies as a result of the Council of Guardians Revolution and its ambition to provide social services for Arianians. Although inflation is prevalent throughout the Middle Eastern countries (usually around 10%), Ariana possesses the second-highest inflation rate behind Iraq.

Despite the subsidies, inflation hurts average Arianian citizens, particularly those in rural areas. Prices for food and services continue to rise, making the cost of living ever higher. Rural voters supported Ahmad Moudin for president because his populist message appealed to lower-class people who suffer from high inflation. President Moudin attempted to address high inflation rates by capping bank loan interest rates, but raised the financial sector’s ire. Whenever the government attempts to reduce subsidies and force the people to pay more for commodities, the Arianian people demonstrate in the streets until the government rescinds the reductions.

Taxation

Ariana’s tax law is complex, and governmental officials apply the tax code inconsistently. The country has a high income tax rate that maxes out at 35% and a moderate corporate tax rate of up to 25%. In recent years, the government enacted some modest structural tax reforms to help integrate Ariana into the global market and to attract investment. However, the government still issues many tax privileges to special interest groups such as charitable corporations. The national sales tax currently stands at 3%.

Currency Reserves

Ariana’s international currency reserves, including PWF assets, have continued to increase in recent years. International currency reserve levels often are tied to international oil prices. Ariana’s international reserves grew from $70.8 billion two years ago to $85.2 billion this year. In retribution for American efforts to limit its access to the foreign investment system, Ariana rejected payments in US dollars and moved to other currencies, such as the euro and yen.

Private Banking

Ariana’s financial sector remains dominated by large, state-owned banks with extensive regulations, overlapping bureaucracies, and policies that inhibit the efficient trade of capital. The appearance of a modern banking system is misleading despite Ariana’s establishment of private banks and increased accessibility of banking functions for the populace. The government’s policy of preferential treatment for semi-governmental foundations and its limitation on the free functioning of financial markets  will continue to hamper the financial system’s ability to contribute to economic growth. Consequently, the populace struggles with high interest rates only made bearable by considerable product subsidies that keep prices artificially low. The governmental restrictions, borne from  distrust of foreign intervention, limit any large-scale investment by foreign firms. The Moudin Administration will continue its current monetary policy, which is well-liked by his populist political base but hampers any significant financial reform.

Banking System

The country’s state-owned banks, which hold 90% of deposits, include six commercial banks, four specialized banks, and one postal bank. The Arianian government has licensed six private banks in the past decade. All must operate under Islamic law principles.

Ariana’s Central Bank, the Bank Naket, calls itself an independent institution. However, the government directly manipulates all commercial lending and investment. The Bank Naket cannot establish its own policies and has no influence over the government’s direction. In addition, the Central Bank only has limited options to combat inflationary pressures. The Central Bank must obtain approval from the Arianian parliament in order to issue participation papers.

State-owned banks function poorly as financial intermediaries, and private banks are hampered by extensive regulations and the government’s populist policies, including subsidized credit for specific regions. Four years ago, President Ahmad Moudin capped lending rates at 12% for state-owned banks and 13% for commercial banks, despite strong opposition from the Bank Naket. With interest rates below the inflation rate, many banks found themselves under financial duress. Additionally, state-owned enterprises and quasi-government agencies, such as charitable corporations, can obtain low-interest loans that further undermine commercial bank viability. Some believe the financial system stifles domestic business and lowers Ariana’s attractiveness to foreign businesses.

Stock/Capital

The Arianian Stock Exchange (ASE), which began operating in 1967 with six companies, has over 300 members today. The ASE can only conduct capitalization for the automotive, mining, petrochemical, and financial sectors. Six years ago the ASE began allowing foreign investment, but these investors can only hold a maximum of 10% of the shares for any company. Additionally, foreign investors cannot withdraw their capital until three years after purchase.

In recent years, the ASE demonstrated considerable volatility. The ASE index performed robustly and tripled during the three-year period prior to President Ahmad Moudin’s election, but declined immediately afterward. Four years later, the ASE stabilized 20% lower than before Ahmad Moudin’s election. ASE market capitalization now stands at $46 billion. Ahmad Moudin’s government hopes that privatization plans will help revive the ASE, though potential foreign investors are concerned about liquidity, transparency, the poor legal environment, and international sanctions.

Informal Finance

The hawala system, an informal trust-based money transfer system commonly found in Muslim countries, offers an alternative to the Arianian formal banking system for loans. These transactions work on an honor system without paper transactions or promissory notes. Because of the lack of paperwork, terrorists use the system to fund their activities.

Following recent US and UN financial sanctions, Arianians have increased their use of hawala. Many Arianians view it as a more efficient means to transfer money since it avoids the added expenses of the formal financial system. Some analysts argue that increased hawala use demonstrates the effectiveness of international sanctions, though others say it circumvents the sanctions and renders them useless.

Employment Status

Despite inefficient business and market regimes and the bulge of young adults entering the labor pool, the Arianian employment environment actually shows signs of improvement due to private industry growth. Even the increased number of Arianian women who recently entered the labor market did not increase the country’s unemployment rate. Employment status is high in Ariana.

Labor Market

Although Ariana’s population growth rate began to slow in 1991, those born during the prior decade now find themselves reaching adulthood, and their presence puts a strain on the labor market. For the past quarter-century, the number of Arianians entering the labor force has continued to increase, while the number leaving has remained constant. In addition, Ariana shows a decided shift in the attitudes toward employment of women. Immediately following the Council of Guardians Revolution, women who worked outside the home dropped from a high of 12.9% in 1979 to a low of 8.2% in 1989. After that, the trend reversed; currently 14.8% of Arianian women work outside the home. Many Arianian women now acquire a higher education than in previous generations and begin a career before marriage. Analysts project that the number of Arianians entering the labor market will soon begin to decline. Within four years, new Arianian workers will return to levels last seen in 1991. The number of men leaving the labor force due to age (usually 64) will increase over the next decade. Just five years ago, 1.3 million Arianians turned 64, but within another half-decade, two million men will reach that age.

Employment

Arianian unemployment continued to decrease in the past decade despite an increase in the number of young adults. Employment rose at a 3.6% rate in the early years of the decade, more rapidly than the overall labor market increase. This employment abundance came from the private sector and through privatization of industries, in contrast to the years immediately after the Revolution when public sector jobs accounted for the majority of employment. Public sector jobs continue to decline, currently representing about one-quarter of total employment.

Unemployment

The unemployment rate dropped from approximately 16% in 2001 to 10.2% in 2006, and currently stands at 11.8%. Growth in recent years has primarily been due to private sector jobs. Public sector job growth has been hampered by cumbersome regulations and a job market that restricts labor movement between industries. Arianian industrial GDP growth occurs more slowly than in other countries with more efficient financial systems.

Illegal Economic Activity

Both legal and illegal organizations use illegal activities such as smuggling, black market, and piracy to finance other activities. While the Arianian government frowns on this corruption and works to prevent it, the government is hampered by the sheer prevalence of illegal activity. As long as it does not threaten the government’s legitimacy, this type of illegal activity will continue. The illegal economy is exemplified by a vast network smuggling subsidized products throughout Ariana, with gasoline as one of the top commodities. Some experts estimate that smugglers move 3.5 to 4.5 million liters of gasoline and two million liters of diesel fuel daily to countries with high gasoline prices—mainly Afghanistan, Pakistan, Kalaria, and even Iraqi Kurdistan.

Summary

Complex economic interplay between the Caucasus countries binds them together. Limaria, Gorgas, and Atropia were strongly affected by the reduction of Donovian influence two decades ago. The oil- rich countries of Ariana and Atropia must use their Limarian and Gorgan neighbors to transship hydrocarbon resources to other countries. Limaria and Gorgas must develop a free-standing economy despite significant corruption, lack of developed industries, and natural resource shortages. Over all of this, Donovia seeks to limit Arianian influence and return to its former position as unquestioned regional hegemon. This economic interdependence will likely drive regional conflicts as the nations struggle amongst themselves to exploit riches created by oil and natural gas.