Private Sector in Iraq:
The Major Challenge and The Great Opportunity
Dr. Rana Khalid
Executive Director IFPMC-LONDON
Recently, there has been a trend towards the belief that the private sector can play a significant and positive role in the promotion of sustainable peace and economic recovery. It is argued that local businesses have a particularly vital role for the economic regeneration in peace-building. Some of economics experts argue, that the biggest difficulties in increasing this potential, are: a lack of recognition of the private sector’s role (amongst business communities themselves, NGOs, and the international community) and, an absence of understanding of what this role is.
Since the end of the monarchy in Iraq and the emergence of the republics in the 1950s, the private sector has suffered from the control of the government. The growing role of the public sector and its centralisation and dependence on the style of the rentier economy led in return to weaken the private sector. Furthermore, it makes it marginal in the economic map as well as unregulated and far from the advantages of large production in: management, marketing, and investment.
After 2003, Iraq received promises from the international community that the Iraqi economy will be rebuilt to make it more in line with the open market system, global financial and economic systems. But what happened was that Iraq suffered from what we can call “development traps”.
These development traps include:
- The conflict trap:This is when civil wars and coups paralyse countries economically due to excessively high costs. Regarding Iraq, the war, terrorism, political and social instability has created a dramatic impact on the economic development which will need many years to recover from.
- The natural resources trap: These types of traps would be seen in countries that experience conflict or exploitation over their natural resources.
- Bad governance:Bad governance can cripple a country very easily. Especially, in Iraq’s case, over the past 17 years, there has been a strong negative association between the Iraqi government’s fragility and economic development. This can be seen in the fragile state index which stated that: in 2020, Iraq ranked 17th out of 178 countries to be one of the alert countries.
On the other hand, neoclassical growth theory finds that the government’s support to the private sector can aid the acceleration of the economic recovery after periods of instability to reach convergence. This was the case in Japan, Germany, and Vietnam in the 20th century, whose capital stocks returned to their pre-war levels within 10 to 20 years after the conflict had ended. Additionally, other studies found that the economic recovery rate of countries with low levels of development slowed down, because of the weak governmental support to the private sector and businesses. The reason why the support of development from political leaders and stable governments is essential is that it prevents economic systems from breaking down quickly. Accordingly, the current Iraqi government has no other choice but to work diligently to assist the private sector, especially with the collapse of other possible economic options.
What can the private sector offer to the economy in Iraq?
There are several viable ways that the private sector can foster an economic and regional stability.
- Increasing Gross National Product (GNP)
- Increasing the tax base will lessen any debt burdens that the country has
- Creating employment will higher the probability of the economy leveraging its export earnings into a domestic multiplier effect. Consequently, a positive endogenous growth feedback loop will be made.
- The private sector can encourage others to invest in private infrastructure. In the case that foreign enterprises are eager to enter the country, (most often to exploit natural resources) this interest may be used to reinforce private contributions to public infrastructure which would accelerate the usual schedule.
- Can help reduce brain drain by offering employment and making more goods and services available
What happens if the government fails to help the private sector and the economy continues to collapse?
In October 2019, Iraq witnessed a mass explosion that was unseen of in Iraqi history. Following the explosion, the main motivation that brought together all segments of the demonstrators was:
- Deterioration of living conditions
- Shortage of employment opportunities
- Collapse of social security systems
- Rise of poverty
The mismanagement of the economy by the Iraqi governments led people to despair and suffering. This anguish quickly turned into violence. The armed violence was organized in armed groups or militias outside the control of the law or social violence was expressed randomly through demonstrations, protests, and civil disobedience. In both cases, this violence was a threat to the stability and peace that was already fragile in Iraq.
The Government of Al-Kadhimi today represents the last chance for stability in Iraq and there is indeed a regional and international desire to support the government’s effort. It is known by the Al kadhimi government and the Iraqi people, that the international economic support, is the only lifeline left to help Iraq from economic collapse. But this support will depend on the Iraqi government’s ability to achieve minimum good economic management by:
- Fighting corruption
- Restoring confidence in the Iraqi economy
- Revitalising the business sector
- Developing a sensible plan to rebuild the infrastructure needed to help privet sector and business
Reforming the private sector in Iraq is the major challenge that the Al- Kadhimi government is facing. If the prime minister creates a coalition with the financial, industrial, and agricultural elites, this is a success as this is something that no previous government in Iraq has ever considered. The main element of instability and conflicts in Iraq is the political inactivity. An alliance with businessmen in Iraq could be a revolutionary change that restores the political stagnation.
From my point of view, I believe that the private sector can save this country.Recently I visited Iraq, and I noticed that large numbers were becoming more hopeless and dejected. In opposition, several young people (whether entrepreneurs, academics, or businessman) I met, are still optimistic and they have innovative ideas in the field of investment, economy, industry, and agriculture. They are the heart that is still alive, and which must be taken care of. They are the pure seeds that can bring life back to the Iraqi economy. They could be the last real chance left for Iraq and those whom the Iraqi government should protect.