The Iraqi government is growing in size, steadily moving towards pre-2003 levels, according to this NY Times piece by Campbell Robertson. Not only the growth in the size of the government is putting pressures on the budget, it is also a sign of another worrisome trend – the inability of the private sector to generate jobs and provide opportunities outside of the public sector.
One interesting stat:
In 2006, 31 percent of Iraq’s labor force was working in the public sector, according to the agency for statistics in the Ministry of Planning. The agency expects that figure to reach 35 percent this year, about 5 percentage points short of where the C.I.A. estimated it to be on the eve of the 2003 invasion.
As the article puts it, the problems of private sector growth and job creation are linked to the security situation and the lack of credit. While these are certainly important factors, another key point is missing in the analysis - institutions.
CIPE’s own survey of the Iraqi business community revealed that its was legal and regulatory climate as well as governance concerns that private sector saw as impediments to its own growth, especially as many felt that the security situation did improve last year. More specifically, outside of security, the top concerns for Iraqi companies were:
- Not applying laws and regulations (i.e. lack of enforcement)
- High fees
- Lack of respect for property rights
- Difficulties in obtaining loans
- Challenges of communications
Certainly, the government has its hands full. Still, thinking more broadly about improving the business climate across the board – not just providing loans – and taking tough steps to actually improve it, is a viable solution to the employment problem in Iraq. And, considering the growing pressures of its own size, its in the best interest of the government to do so.
Even among those who would agree, the big question is “how”. Where do you start once you agree that tough steps must be taken? One great example from Iraq itself is what happened in the Kurdish Region.
The leaders of the chambers of commerce and business associations within the Kurdish Region came together and decided that it was their “obligation and duty to assume responsibilities towards the private sector in the Region.” They spent months discussing and analyzing the private sector issues in the region, gathering data, working with expert consultants and talking to local businesses. The fruit of this effort is an agenda comprising eleven economic sectors, which are considered pivotal—by all parties involved—to advance and promote the economy. The sectors covered were Housing and Contracting, Agriculture, Manufacturing, Infrastructure, Tourism, Financial, Transportation, ICT, Healthcare, Education, and Commercial.
These sectors all have common issues that need addressing, such as
• Crumbling infrastructure, including water, sewage, roads, rail, power & overall planning framework
• Underdeveloped financial services, including banking services, insurance, stock exchange, tax system/collections
• Absence of sound statistics and scientific, economic and demographic analyses
• Cognitive gap between educational system and market skill needs
It’s important to move beyond problem identification, though, so the group also made recommendations, many of which will need even more specific follow-up to see implemented. For example regarding banking, the coalition recommends that the government “promote the establishment of more private banks, address the issue of development and privatization or restructuring of government banks, and implement the role of the Central Bank, Hareem Branch, by putting in place policies for extending credit, setting interest rates, and establishing oversight for banks and bank governance.” That’s a great goal and a major step. The next steps are all about seeing it through.
These business leaders are setting a great example and are well on their way. CIPE is working throughout the whole country to help further this kind of effort. In fact, with support from the U.S. Embassy in Baghdad, we’ve just kicked off a new project with the Provincial Investment Councils that focuses on central and southern regional efforts.