The first phase of modern industrial development occurred under Reza Shah in the 1930s. When Mohammad Reza Shah succeeded his father in 1941, he began a planning process designed to hasten economic modernization. During the mid-1950s, the state encouraged and supported the building of fertilizer, sugar-refining, cement, textile, and milling plants. By the late 1950s, the government had provided a role for private business by authorizing generous credits from the Plan Organization.

Industrialization led to a rapid increase in manufacturing output. Many new industries were established between 1962 and 1972. The impressive new range of domestic manufacturing enterprises included iron and steel, machine tools, agricultural implements, tractors, communications equipment, television sets, refrigerators, car and bus assembly, and petrochemical products.

Higher oil revenues in the 1970s accelerated economic development. A number of large-scale industrial projects were undertaken during the period of the Fifth Development Plan (1973-78), with government investments concentrated in petrochemicals and basic metal industries as well as crude oil production. Domestic and international private investment was projected to furnish 64 percent of a planned total of US$11 billion for manufacturing investments between FY 1973 and FY 1977. The economy proved incapable of absorbing such feverish growth, however; some projects were postponed, and completion dates were extended for others. Nevertheless, industrial production grew at close to 20 percent per year, and a diversified industrial base was established. By FY 1975, manufacturing and mining (excluding electric power and construction) contributed about 10 percent of GDP.

Shortages of skilled labor and equipment adversely affected production from 1977 onward. Business failures and a generally declining economy led to strikes and political instability in 1978 and 1979. The flight of capital and factory owners after the 1979 Revolution led to the nationalization of industries in the summer of 1979. The decline of the industrial sector was hastened by the war with Iraq; Iraqi bombing of petrochemical and steel plants in Abadan, Ahvaz, and Bandar-e Khomeini in 1980 and 1981 caused further disruption. Recovery began in 1982, but only among smaller industries. Efforts to revive the larger industrial and petrochemical plants began in 1982 and 1983. As a result of technical advances, the Esfahan steel mill was expected to produce 700,000 tons of iron rods in FY 1987--enough to meet domestic needs. In May 1987, Iran's minister of mines and metals reported that twenty exploration projects were underway, aimed at supplying raw materials for the country's steel plants.

The war with Iraq slowed industrial production but also created a new industry, the manufacture of prosthetics. In August 1986, the head of the Iranian Rehabilitation Agency stated that more than 2 million handicapped individuals had sought the rehabilitation services offered by his agency in 1985 but that the agency was capable of serving only 40,000 newly handicapped persons annually. In response to this need, Iran reportedly planned to increase to six the number of factories producing artificial limbs and other prosthetic devices.

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