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Giving Iraq Stability and Progress
Treat the Causes of Iraq’s Governance and
Development “Disease,” Rather Than Focusing on Its
Violent “Symptoms”
By Anthony H. Cordesman
April 11, 2023
…
Reducing the Barriers to Private Investment and Private Sector Development and Banking Reform
The conference tacitly recognized how serious these problems are in reforming government over-employment and an unproductive state sector. It focused on reducing the barriers to private investment and competition with the state own enterprises...barriers that create a nightmare of regulation, legal constraints, corrupt extortion, time delays, and bureaucratic procedures.
A World Bank report on the Iraqi economy in 2022 notes that Iraq’s oil production – its largest are of private enterprise -- has little impact on employment or job creation,13
The oil sector employs less than one percent of the Iraqi workforce, despite its large share in the economy, while the public sector employs 37.9 percent of the workforce, acting as the main source of job creation in the formal sector.
Years of conflict, political instability and weak governance have disincentivized investments and stunted the growth of the private sector, which remains largely informal, mostly dominated by the poor and vulnerable segments of the workforce.
A United States government report on the investment climate in Iraq notes some positive elements, but adds additional warnings,14
The GOI’s ability to tender projects is fundamentally weak and often lacks incentives preferred by industry.
Across the board, there are institutional capacity issues regarding due diligence, project awards, approvals, implementation, financing, and payment.
There are also many procurement-related scams and reselling in the market.
For tenders solely executed at the provincial level or in the IKR, the tender process may differ and is reportedly easier to navigate in many instances.
The provincial procurement law has made procurement at that level easier.
...Investors in Iraq continue to face extreme challenges resolving issues with GOI entities, including procurement disputes, receiving timely payments, and winning public tenders.
Difficulties with corruption, customs regulations, irregular and high tax liabilities, unclear visa and residency permit procedures, arbitrary application of e-regulations, lack of alternative dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints from companies operating in Iraq.
Shifting and unevenly enforced regulations create additional burdens for investors.
The GOI currently operates 192 state-owned enterprises (SOEs), a legacy from decades of statist economic policy.
…
... A significant barrier in the Iraqi private sector and economy is the banking
infrastructure.
The Central Bank of Iraq estimated that 99.8% of Iraq’s $122 billion personal consumption expenditures were made in cash in 2019.
Our recent look into the e-commerce sector indicates that there has been a significant uptake in digital payments since then.
Despite that, Iraq remains a predominantly cash economy.
Focus on improving the user experience when it comes to banking in general and
online payments, in particular, is critical to building a digital economy in Iraq.
The user experience for a startup setting a digital payment gateway or a user paying
online still ranks far below that of our regional counterparts.
http://iraqieconomists.net/en/wp-content/uploads/sites/3/2023/04/230411_Cordesman_Iraq_Stability.pdf#%5B%7B%22num%22%3A132%2C%22gen%22%3A0%7D%2C%7B%22name%22%3A%22XYZ%22%7D%2C70%2C582%2C0%5D
Treat the Causes of Iraq’s Governance and
Development “Disease,” Rather Than Focusing on Its
Violent “Symptoms”
By Anthony H. Cordesman
April 11, 2023
…
Reducing the Barriers to Private Investment and Private Sector Development and Banking Reform
The conference tacitly recognized how serious these problems are in reforming government over-employment and an unproductive state sector. It focused on reducing the barriers to private investment and competition with the state own enterprises...barriers that create a nightmare of regulation, legal constraints, corrupt extortion, time delays, and bureaucratic procedures.
A World Bank report on the Iraqi economy in 2022 notes that Iraq’s oil production – its largest are of private enterprise -- has little impact on employment or job creation,13
The oil sector employs less than one percent of the Iraqi workforce, despite its large share in the economy, while the public sector employs 37.9 percent of the workforce, acting as the main source of job creation in the formal sector.
Years of conflict, political instability and weak governance have disincentivized investments and stunted the growth of the private sector, which remains largely informal, mostly dominated by the poor and vulnerable segments of the workforce.
A United States government report on the investment climate in Iraq notes some positive elements, but adds additional warnings,14
The GOI’s ability to tender projects is fundamentally weak and often lacks incentives preferred by industry.
Across the board, there are institutional capacity issues regarding due diligence, project awards, approvals, implementation, financing, and payment.
There are also many procurement-related scams and reselling in the market.
For tenders solely executed at the provincial level or in the IKR, the tender process may differ and is reportedly easier to navigate in many instances.
The provincial procurement law has made procurement at that level easier.
...Investors in Iraq continue to face extreme challenges resolving issues with GOI entities, including procurement disputes, receiving timely payments, and winning public tenders.
Difficulties with corruption, customs regulations, irregular and high tax liabilities, unclear visa and residency permit procedures, arbitrary application of e-regulations, lack of alternative dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints from companies operating in Iraq.
Shifting and unevenly enforced regulations create additional burdens for investors.
The GOI currently operates 192 state-owned enterprises (SOEs), a legacy from decades of statist economic policy.
…
... A significant barrier in the Iraqi private sector and economy is the banking
infrastructure.
The Central Bank of Iraq estimated that 99.8% of Iraq’s $122 billion personal consumption expenditures were made in cash in 2019.
Our recent look into the e-commerce sector indicates that there has been a significant uptake in digital payments since then.
Despite that, Iraq remains a predominantly cash economy.
Focus on improving the user experience when it comes to banking in general and
online payments, in particular, is critical to building a digital economy in Iraq.
The user experience for a startup setting a digital payment gateway or a user paying
online still ranks far below that of our regional counterparts.
http://iraqieconomists.net/en/wp-content/uploads/sites/3/2023/04/230411_Cordesman_Iraq_Stability.pdf#%5B%7B%22num%22%3A132%2C%22gen%22%3A0%7D%2C%7B%22name%22%3A%22XYZ%22%7D%2C70%2C582%2C0%5D
