By Marcus George and Zahra Hosseinian
DUBAI (Reuters) - A wealthy Iranian businessman sits in the lobby of one of Dubai's most luxurious hotels, shaking his head as he laments the state of Iran's economy.
"Business is drying up, industry is collapsing. There's zero investment," he said. "I know. I see it with my own eyes."
He is en route from Europe, where he runs a company that makes electrical goods, to Iran, a trip he makes several times a year.
Iranians are reeling under tough economic sanctions imposed by Western countries since the start of the year over the Islamic Republic's pursuit of its nuclear program, which Washington says is a drive to develop a weapons capability.
Inflation is running at 25 percent officially, and could in reality be double that, economists say, and hundreds of thousands have lost their jobs as trade embargoes have curbed export prospects and made it difficult for many Iranian companies to obtain vital raw materials.
Even when they do so, a plunge in the rial currency - which has halved in value over the last 12 months - has pushed up overheads, forcing employers to cut payrolls.
"We're close to seeing mass unemployment in cities and queues for social handouts. There are few alternatives for those people and many will end up on the bread line," said Mehrdad Emadi, an Iranian-born economic adviser to the European Union, who is based in the UK.
A series of conversations conducted by Reuters with Iranians by telephone reveal how widespread unemployment is becoming. They requested that their identities or the names of their employers not be revealed because of the sensitivity of the issue.
Mona, 31, lost her job in the human resources department of a large private contractor in the oil, gas and construction industries six months ago and has struggled to find work since.
The company started to trim its workforce of 6,000 three years ago but conditions sharply deteriorated last year and many staff didn't receive their wages for months.
Mona says she lost her job after she and some of her colleagues wrote a letter to their managers protesting about their withheld wages.
"At first I was only concerned about how to spend my time but soon the reality of the horrible economic situation kicked in," she said by telephone from Tehran.
In her quest for work, she has run through her savings, sold some jewelry to pay the bills and is left feeling helpless and suffering from increasing bouts of depression.
"I have no hope for the future. When you lose hope, you stop caring," she said.
Ali, a 42-year-old mechanical engineer, suffered a similar fate three months ago when he was laid off by a small industrial equipment maker after sanctions made it increasingly difficult for the company to import crucial materials from Europe.
"What could we do? We couldn't get this stuff from China, the quality just isn't good enough," he said by telephone.
The company now employs 400 people, down from more than 1,000 two years ago, and Ali worries it will soon have to close down, like many others.
"So many industrial projects in Iran are grinding to a halt," he said. "No companies are investing. They think there may be war and everything will be lost."
As Israel continues to threaten military action over Iran's nuclear program, European Union states are putting together a new set of sanctions to increase pressure on Tehran, Britain said last week. Iran says its nuclear program is for civilian purposes.
CAR OUTPUT PLUNGES
The International Monetary Fund, in April, said the Iranian economy grew 2 percent last year and predicted it would grow 0.4 percent this year - but it may well be doing a lot worse.
The country was the world's fourth-largest oil producer in 2011 but its crude exports have slumped to about 1 million barrels a day from around 2.4 million last year, according to the U.S. Treasury and other analysts. Iranian officials refute those figures.
The Iranian Statistical Centre put the unemployment rate at 12.9 percent for the first three months of the Iranian year that began in March, more than a percentage point lower than in the previous three months.
Analysts find the statistics impossible to believe.
"The figures aren't even close," said Emadi, who believes the headline unemployment figure is above 20 percent.
Iran-based economists and members of parliament critical of the government, estimate that 500,000-800,000 Iranians have lost their jobs in the past year.
Emadi cites the car industry, the biggest manufacturing sector, as the main cause of the sharp decline in employment, after Iranian media reported a 30 percent drop in car and component production in the past six months.
Iran was the 13th-largest auto maker in the world in 2011, producing 1.6 million vehicles, but higher prices due to the soaring costs of components have caused a drop in demand.
France's Peugeot Citroen halted shipments of vehicle kits for assembly in Iran earlier this year, saying international sanctions barring transactions with the country's banking system made it difficult to obtain sales financing. It denied caving in to U.S. pressure on Iran.
The deteriorating economy has been compounded by the government's withdrawal of generous subsidies on staple goods and fuel in favor of cash handouts over the past 18 months. The government action has been driven in part by a need to rein in its own spending due to foreign sanctions.
As electricity and natural gas prices have more than trebled since the first phase of the subsidies withdrawal plan many businesses and households have struggled to cope and critics accuse the government, specifically President Mahmoud Ahmadinejad, of mishandling the economy at a critical time.
The government's slogan this year is "National Production: supporting Iranian labor and investment", and appears to be a tacit recognition that the country is suffering from being unable to import some key goods.
Iranian officials have exhorted people to buy Iranian and overcome the sanctions, but there are precious few signs of any significant investment being made.
The slump is not just confined to the industrial sector. Nasrin lost her job as a university lecturer 18 months ago and has struggled to find a teaching or research post since. She makes ends meet by getting temporary research jobs, and says she is fortunate because she owns her own apartment.
"If I was not supported by my family, I would be in a miserable state now," she said in an email to Reuters in Dubai. "It's so humiliating for me to turn to some places for work, but I've had to."
Nasrin knows of more than 20 university professors in Tehran alone who have been sacked or forced to retire. She said funding for research projects was drying up and was now dependent on having influential contacts.
Like many frustrated Iranian professionals, she is now intent on leaving the country if she can, a trend that has led to a brain drain in recent years as those that have the money and contacts to do so have gone abroad.
In 2009, the latest available data, Iran was losing more than 150,000 of its educated and skilled citizens annually, according to the IMF.
Back in Dubai, the Iranian businessman stresses just how much the Islamic Republic needs technical expertise and experienced professionals to run its economy, especially now the challenges are so much greater.
"There are millions of intelligent, educated Iranians outside the country. The government needs them, but it doesn't trust anyone," he said.
Asked why his electrical goods company continued to export to Iran, he holds onto the hope that the country will eventually realize its potential.
"Seventy-five million people. A huge market," he said.
"Who knows how long sanctions will last, but Iran is a very wealthy country and we have to be ready for the day things change."
(Writing by Marcus George; Editing by Susan Fenton)
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