Can Iraq’s ailing economy liberate itself in 2018?
Iraq’s vast oil wealth is undoubtedly the country’s most crucial stimulus for economic productivity but it is not the only one. An ever-shrinking public sector, the constant uptick of domestic debts, endemic corruption, job instability and illicit oil trading have collectively inflicted economic damage little heard about.
Remedying the problem has deepened oil dependence while the potential of Iraq’s non-oil sectors remain untapped. For more than a decade, efforts to free Iraq from terrorism have taken precedence.
Can Iraq liberate itself from the curse of oil as political parties canvass for votes ahead of May’s election?
Oil dependence is no contemporary problem but one the country has mitigated previously with varying success.
The 8-year conflict with Iran in the 1980s, followed by punitive sanctions, a subsequent brain drain and later the calamitous neoliberal policies (2003-04) of occupant forces paralysed non-oil industries. The hardest hit, agriculture, was how Iraq was once considered the “breadbasket of the Middle East.” A decade on and the country continues to rely heavily upon food imports.
Oil makes up about 60% of Iraq’s total gross domestic product, around 90% of state revenue, according to reports by the UN Development Programme and the International Monetary Fund. The non-oil economy barely covers 10%. As oil prices fluctuate, it has become clear that more than oil is needed to incentivise growth. Dependency combined with oil price drops endangers the well-being and potential of Iraq’s resource-abundant economy.
If the petroleum variable were silenced, it would be apparent that Iraq is endowed with enviable agricultural wealth, soil, climate and a twin river system for achieving food self-sufficiency. The revival of traditional farming methods attempted during the late 1980s and 1990s — once enough to soften the blow of dependency — is no longer capable of keeping the economy standing.
Farming centres, crippled by the absence of agricultural equipment and technologies, the neoliberal infused agricultural reforms forcefully imposed under Coalition Provisional Authority (CPA) Order 81 and more recently the exodus of farmers following the Islamic State’s seizure of the Nineveh plains will require decades to heal.
CPA-influenced agricultural reforms left unchallenged by the post-2003 government would accelerate the downward spiral of agricultural productivity. “CPA became the ruling class, allowing not a single farmer a say in their local market,” said Ahmad al-Mahmoud, a senior researcher at the London-based Iraqi opposition group Foreign Relations Bureau.
The ensuing food crisis torpedoed official control and predictions.
External partners of the Iraqi government, the United Nations’ Food and Agriculture Organisation and telecommunications company Zain, participated in a cash-for-work scheme as part of wider trend to outsource and privatise government functions and services offering temporary income to more than 2,000 displaced Iraqis in camp settings. Zain provided mobile phones to help streamline the distribution of cash transfers to scheme participants.
A related environmental problem is the struggle over water. Iraqi water and agricultural official Mansour al-Baiji noted that “after liberation” a war for access to water was dawning “no less dangerous than a guerrilla war” laying blame on Turkey and other upstream countries for reducing the flow of Iraq’s rivers.
Matters have been made worse by the weakening of the Iraqi labour market and market inequality. In 2013, Iraq’s Ministry of Planning surveyed adults participating in the labour force, the majority of whom are male.
The entry of women in the workforce is among the lowest worldwide. The general rate of employment “hovers around 18%” with higher rates among Iraqis aged 15-29, said Joseph Sassoon, an associate professor at Georgetown University’s School of Foreign Service.
Public sector privatisation starting at 2003, alongside the scrapping of compulsory education and rising poverty rates, has meant fewer graduates entering the market, making way for employees with fake academic qualifications.
Outweighing agriculture and food sovereignty problems is corruption, the biggest plague of all.
Smuggling and theft of oil sold cheaply on the international market have taken an enormous bite out of national proceeds. What little remains bidders vie over by handing out attractive electoral funds to competing political actors, directly influencing political outcomes.
The demands of foreign energy firms and investors feed off investor-friendly changes to Iraq’s legislation imposed beneath the CPA’s economic liberalisation programme.
Neighbouring countries have been quick to exploit the abolition of tariffs, custom duties and taxes, flooding the Iraqi market with cheap goods. Labourers within the local industry feel abandoned by their government. The void has been filled by Iran, which sells commodities and building materials in exchange for hard currency.
These practices, Iraq’s vulnerability to price slumps, currency appreciation and an immobilised labour force have held Iraq’s economy hostage and deprived its people of a standard of life reflective of the earnings of a petrostate. Diversifying and tapping into non-oil industries is a well-known potential but fails to satiate the appetite of investors or thieving state officials exploiting Iraq’s oil wealth to line their coffers.
On the monetary side of political life are international banks and foreign lenders wanting Iraq to pump more oil. When those problems are combined with evidence that Iraq has no monetary reserves, the bitter facts become apparent of a country that holds one of the world’s worst economic portfolios with help from its allies and regional friends.
Nazli Tarzi is an independent journalist, whose writings and films focus on Iraq’s ancient history and contemporary political scene.
This article was originally published in The Arab Weekly.