It’s no secret that Iraq is one of the world’s leaders in producing oil that other large markets depend on.
But while that may give the illusion of a strong economy, the private sector in the country is seriously lagging and needs investment to diversify for the betterment of its population.
The truth is that while the country is in the top five in the world when it comes to crude oil production, oil prices have taken a huge hit in recent months due to the coronavirus situation and the country is facing a financial crisis as well. That’s because the country’s oil industry accounts for well over 90% of Iraq’s budget, says Mike Douglas, who is president and CEO of SKA International that supplies fuel globally. Also, only a small percentage of the population — about 1% — works in the oil industry.
Currently, there are a lack of private employment opportunities and a lack of competition to stimulate the market. Previous attempts to stimulate the private sector have mostly been short-term strategies. And while there’s hope to transform the economy by 2030 with a newer, longer-term vision that aims to partner with the private sector, there are many obstacles in the way including security concerns.
Transitioning Focus From Public Sector
The unemployment rate in Iraq has been trending downwards in the past decade, which looks good on the surface. However, consider that public sector employment has grown and along with it more strain on the government budget for payouts.
While there has been some investment in the private sector and some help from the United Nations Industrial Development Organization (UNIDO) and others to help support development of a more diversified private sector in Iraq, growth has stagnated. In short, much of the country’s economy is tied to the state, while investment in private enterprise has been limited partly due to lack of partnerships with outside sources, says Mike Douglas.
According to a 2019 report from Economic and Social Commission for Western Asia (ESCWA), “rigid labor regulations” (including hiring and firing) may be part of the problem faced by the private sector in Iraq. Not only does the organization encourage increasing competitiveness of Iraq’s exports, it also says that more investment is needed in infrastructure to allow greater productivity across the private sector.
A Wealth Of Private Investment Opportunities
Adoption of digital transformation by Iraq has opened up some diversification in economic growth, with digital public-private partnerships at the forefront of helping drive government job creation, particularly for young people that make up a large portion of the country’s population.
Meanwhile, there are a number of investment opportunities in the country, says Mike Douglas of SKA International. They’re largely in the gas and oil sector, but extend beyond that — private investment can help boost the country’s healthcare delivery, as well as help it keep up with telecommunications demands as the number of people using mobile phones in the country surged to more than 36 million in 2018.
Infrastructure remains another sector ripe for investment in the country. While the government has committed money to improvements, private investments are being sought for housing development. Government procurement practices have been a challenge to this kind of foreign investment in the past.
A Long-Term Vision is in Motion, says Mike Douglas
One of the past barriers to private small and medium-business growth in the country has been due to lack of access to loans from traditional routes such as banks. However, a government plan called the “1 Trillion Dinars Initiative” has reportedly provided financing for many entrepreneurs over the past five years – particularly those initiatives that are deemed innovative.
Meanwhile, the Iraqi government has already launched its wider Private Sector Development Strategy 2014-2030, which aims to strengthen the private sector by restructuring larger state-owned entities. The country’s 2030 plan is to support the growth of small and medium-sized businesses, establishing free trade agreements to stimulate investment, and partnering with the private sector to grow – all while moving away from dependence on oil.
However, the current state of the country’s finances have been hit hard by dropping oil prices and COVID-19, which has put further strain on its limited healthcare capacity. The government introduced a private stimulus package in 2019 to address public pressure regarding unemployment and poor living standards, but it remains to be seen how effective these measures will be in the long-term says Mike Douglas.
