Oil-dependent Iraq must ‘diversify rapidly’ as challenges stifle young population

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Earlier in the 20th century, Iraq was an agriculture-dependent new country with only a fledgling oil sector.

Zooming forward to 2020, Iraq is now highly dependent on oil as its principal income, with the government the largest employer and the agriculture sector in crisis.

But the country’s oil and gas sector itself isn’t even highly developed. In a July article by the New York Times, the US paper dubbed Iraq as a “rare country,” since it imports gas despite burning natural gas from oil wells into the air rather than using it.

This wasted and uncultivated gas could power up to 3 million homes and help revive manufacturing once again in a country that still has an ailing public electricity infrastructure.

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Iraq’s agriculture is also suffering. Not only has it been impacted by climate change, but it has also been undermined by cheaper foreign products, especially from sanction-hit Iran, making much produce unprofitable.

The country is not providing enough jobs for its growing population, where female labor force participation is “very low,” explained Frank R. Gunter, author of “The Political Economy of Iraq: Restoring Balance in a Post-Conflict Society.”

“Every year, about 900,000 or up to million Iraqis become old enough to work,” said Gunter, who is also a professor of economics at Lehigh University.

Gunter said that in Baghdad “on most street corners at about 10 a.m. there are groups of young men just standing there talking, smoking cigarettes.” He said the country needs to create about 325,000 jobs a year.

Gunter also pointed out that Iraq faces the further problem of paying back debts that date back to 2006.

Without addressing these issues, unrest is likely to continue. A boom in population combined with a lack of proper employment opportunities, especially for recent graduates, has been one of the root causes of protests that began in October last year. The incessant call by the protesters for a more reliable, sovereign Iraq and the need to revive local manufacturing in a corruption-free country, had led to hundreds of young lives lost and at least 15,000 wounded.

Iraq is revamping business regulations

Despite Iraq’s obvious problems, politicians have not proposed a clear economic roadmap for the country.

The country’s finance minister Ali Allawi told The Associated Press in early October that there is a growing political will for drastic reforms that are especially needed as the global oil industry has been rocked by coronavirus.

However, the government has made some minor steps to reforming its business environment.

A man wearing a protective face mask at Nahr Bin Umar oil field, Iraq. (File photo: Reuters)
A man wearing a protective face mask at Nahr Bin Umar oil field, Iraq. (File photo: Reuters)

So far, Iraq is in the process of revamping its business regulations to march away from its inherited bureaucratic socialism, tracing back to the Ba’ath party from 1968 to 2003.

“Iraq is in process of rewriting its business regulations. But that’s a 10-year process. They don’t have 10 years, you have one year,” explained Gunter.

The professor said Iraq could easily copy the UAE’s blueprint to move ahead instead of this prolonged process amid the dire need to bring more diversification.

“What they [Iraqis] need is to diversify, and diversify rapidly away from oil,” added Gunter, who was the senior civilian economics adviser for Multi-National Corps – Iraq at Camp Victory, Iraq (July 2008 – July 2009).

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With the days of $100 per oil barrel long gone, the black crude sector itself “doesn’t employ a lot of people, maybe about 3 percent of the labor force,” Gunter explained.

Old socialism suppressing entrepreneurship

The legacy of the Napoleonic code legal system in Iraq is stifling young Iraqis from unleashing their entrepreneurial powers.

In countries like the United States, where they exercise common law, regulations allow “everything” except for what the “law forbids.” For instance, the proposal of a new computer app would require the entrepreneurs to find out if there are any laws that would deem it forbidden.

However, with the socialist Napoleonic code, “Everything is forbidden except what the law allows.”

What does that mean for Iraq?

“In Iraq, you are illegal until you can get a law passed saying that your app can now be sold,” Gunter said. “Well, you probably pay bribes to get the approval from an official,” he added, exacerbating the corruption problem.

In his book, Gunter describes how 40 percent of small businesses’ revenues and “not profits’’ go wasted to bribes. In contrast, anyone can open a new business online in about an hour, with a meagre amount of money.

“To do the equivalent in Iraq, it’s going to take over a month, it’s going to cost you thousands of dollars. They may not give you permission. For example, [if] you want to establish a business, you have to have a lawyer on retainer, you have to have an accountant on retainer,” the professor said.

Failure to diversify

Salim Hamra, an Iraqi immigrant based in Toronto and a graduate from the UAE-based Iraqi Public Policy Leadership Program (IPPLP), an initiative led by Iraqis in the diaspora in hopes of creating leaders, believes there are many reasons why Iraq has “failed to diversify.”

Iraqi protesters gather on Al-Jumhuriya Bridge in the capital Baghdad on October 25, 2020. (AFP)
Iraqi protesters gather on Al-Jumhuriya Bridge in the capital Baghdad on October 25, 2020. (AFP)

“I can’t pinpoint one specific issue,” Hamra said. “Iraq’s private sector hasn’t changed in decades. It’s still mainly family-run and private businesses for the most part, the government tried to encourage and support new businesses through its investment law.”

Iraq’s “investment law is written well, not great, but well,” Hamra added.

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“The issue with the law is how it’s implemented in practice, and that seems to be the issue with many things in Iraq, how things are in practice,” Hamra said. “The investment law is supposed to encourage private investors to invest in Iraq by giving land for lease, for example. However, the people who run this program act like it’s a bid for government contracts.

“They sit there and meet investors with [a] ‘What do you have to offer me’ mentality, instead of ‘Here is what Iraq has to offer.’”

Even when trying to create more accountability through a succinct tax system, there is an issue.

“We have tax laws but most people don’t meet the minimum income bracket, so no one pays taxes. We need an efficient tax system to properly diversify our economy,” Hamra added.

Militia groups challenging economy

There are also militia groups, many backed and funded by Tehran, who are challenging the government’s effectiveness in implementing any needed reforms.

“It is fair to point out that the current government has started with some initiatives to liberate the Iraqi economy from corruption and the dominance of the faction’s weapon, but so far the scene does not call for optimism at all,” said Ali Riyadh, an author of two poetry books and a protester who helped with media outreach to get the demonstrators’ voice heard abroad last year.

Anger and pessimism prevail in Iraq.

On Sunday, Nov. 1, protesters marched in the capital Baghdad and several southern cities to renew demands for an end to corruption by Iraq‘s political establishment.

For Gunter, there is hope, especially when he recalled meeting a young man at a Baghdad tech startup incubator who ditched his government job to be an entrepreneur, one of many potential Iraqi youths eager to change a struggling country.

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