The Islamic Republic of Iran has developed the science and technology skills necessary to be a global player in more than oil and gas, but must invest more in innovation to compete effectively in the global economy, according to an UNCTAD report.

Since 2005, when UNCTAD last assessed the country’s policies on science, technology, and innovation (STI), Iran has had one of the world’s fastest growing scientific outputs, climbing from 34th to 16th position in terms of scientific publications. Its population now has the world’s second-highest number of engineering graduates per capita, says UNCTAD’s new Science, Technology and Innovation Policy Review for Iran.

“Iran’s impressive human resources position it well to seize the opportunity of reconnecting with the global economy, and its policies on science, technology, and innovation will be critical to its success,” said Shamika Sirimanne, Director of UNCTAD’s Division on Technology and Logistics. “UNCTAD is happy to support and to work with Iran at this important moment in their history.”

Iran has shown it can do top-notch research and work with technology, even in emerging sectors like nanotech, but the challenge now is to commercialize this knowledge, the report finds.

In place since 1980 and strengthened in 2008, sanctions may have limited Iran’s access to foreign finance, technologies and markets, but they also forced the country to become self-reliant. Iran is now the most economically diverse oil-producing country in western Asia.

“The Iran STI Policy Review, prepared by UNCTAD, is a constructive effort to provide Iran with an assessment of its policies and actions,” said Sourena Sattari, Iran’s Vice President for Science and Technology. “The report proposes some policy recommendations to increase STI effectiveness in creating more economic and social impacts and to fully benefit from our STI capabilities.”

With global trade growing at its slowest pace since the financial crisis began, businesses are seeking new opportunities for growth, and Iran’s $400 billion economy holds the promise of a lucrative market of nearly 80 million consumers.

Tehran has taken important steps since 2005 to put in place the right policies on science, technology and innovation, the report says, but needs to better align these with other key policy areas such as trade, investment, industrial development, education, and competition.

Foreign direct investment, for example, will be most useful for Iran if it leads to genuine collaboration on technology and innovation, rather than just an increase in productivity. Iran has set up institutions to promote technological development and innovation, but could do more. Some key institutions remain too focused on production, the report says.

However, Iran has increasingly shifted its focus from research and education toward technological development and a stronger emphasis on innovation. The economy has seen 2,700 knowledge-based firms worth $6.6 billion spring up in recent years.

But new knowledge-based firms cannot transform the economy on their own. Large established industries, such as oil and gas, automobiles and steel, should also invest more in innovation.

One of the report’s recommendations is to increase spending on research and development to 2.5 percent of gross domestic product, with an emphasis on increased private sector spending. Currently, the figure sits below one percent, most of which comes from government or state-owned companies.

“Research and development is important, but is not a silver bullet,” said Michael Lim, an UNCTAD economist and one of the report’s authors. “Iranian companies can boost their competitiveness by improving design capacity and softer, non-technical skills like marketing and management.”

To create an environment where innovation and creativity can flourish, Iran needs to strengthen systems that support innovation. This entails promoting collaboration between industry and universities and research institutes, and strengthening the business environment.