Finding the Private Sector’s Voice in Iraq

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Article at a glance

  • According to CIPE’s 2012 Iraqi Business Survey, while Iraqi businessmen are guardedly optimistic about economic prospects in the country, private sector actors remain wary of a political and security environment that is unconducive to business.
  • Surveyed businessmen identified corruption as the top non-security threat to the Iraqi private sector, with 26 percent of respondents noting that the key reason corruption prevails is that politicians condone and cover up bribes.
  • Though business opportunities for women have expanded since 2004, more than two-thirds of surveyed businessmen indicated that women did not have equal opportunities to start businesses in Iraq.

Introduction

It is a fundamental CIPE tenet that economic and political freedoms are intertwined, with democracy thriving in free market economies. Market-oriented and democratic institutions share the foundations of fairness, responsibility and transparency; neither can exist without the other. The private sector plays an important role in the development of nascent democracies, contributing to sustainable long term development through the creation of jobs, generation of income, and the resulting improvement in standards of living.

Iraq’s private sector suffered as a result of decades of autocratic rule. After the fall of Hussein’s despotic regime in 2003, CIPE began supporting the transition to democracy in Iraq through a myriad of private sector initiatives. Public private dialogue, provincial business agenda development and advocacy, and capacity-building initiatives for local business associations have all featured prominently throughout CIPE’s successful 10 year cooperation with Iraq’s private sector.

CIPE’s initiatives have helped create lasting impact in Iraq, including increased private sector involvement in the democratic processes, a unified voice for private sector reform, and an increased capacity of private sector actors to advocate for needed reforms. This framework has led to legislative and regulatory changes, strengthened private sector civil society organizations and associations, and increased public support for private sector priorities.

In order to provide a comprehensive understanding of issues private sector actors face in Iraq, CIPE’s programming has included support for the implementation of business barometer surveys. These assessments measure local private sector views on a host of economic, social, and policy issues related to the country’s continuing strides toward a modern, market-oriented economy. Since 2004, CIPE has supported the implementation of five surveys, encompassing the views of business representatives from a variety of sectors and industries throughout Iraq.

CIPE’s 2012 Iraqi Business Survey

CIPE’s most recent survey was completed at the end of 2012. The survey sample was comprised of approximately 110 businesses from nine governorates, with representation from 10 different industries, for a total of 989 private sector respondents.

Business representatives were asked about the current state of the Iraqi economy, and whether the overall business environment had improved compared to the 2011 environment. The results of CIPE’s 2012 Iraqi Business Survey demonstrate that Iraqi businesses are guardedly optimistic about their business prospects, with 74 percent of respondents expressing the view that Iraq’s economic conditions were good in 2012, and 52 percent reporting that the business environment had improved since 2011. When asked about the political context and its prospects for the future, however, the mood was markedly different, with only 37 percent of respondents indicating a positive political situation, and only 41 percent indicating they expected the political situation to improve. Events in late 2013 and to date in 2014 bear out the respondents’ pessimism regarding progress in politics and security.

Growing decentralization has led to variations in rules and the application of those rules in local contexts throughout Iraq. This inconsistency can lead to very different experiences for Iraqis starting and growing businesses depending on their geographic location. Respondents were asked to indicate which governorates they believed had development opportunities that were proportionate to their population. By a margin of more than double, participants indicated that more opportunities exist per capita in the Kurdish region than any other region. While 57 percent of businesses indicated that appropriate opportunities exist for those in the Kurdish region, just 25 percent indicated the same in Baghdad, and 12 percent or less of respondents indicated this was true in other regions. Only 2 percent of businesses indicated they felt that opportunities were evenly distributed throughout the country, a natural by-product of Iraq’s transition from a largely command economy.

Respondents were asked to name the most important factors outside of the security situation that adversely affect the growth of the Iraqi business sector. The most common factor, comprising 20 percent of all responses, was corruption, followed by weak infrastructure at 15 percent. As a followup, respondents were asked their perceptions on the key causes of corruption. The most popular response, at 26 percent, was that the government condones and covers up bribes. Fourteen percent of respondents indicated that corruption stemmed from too many non-transparent regulations. This reflects the widespread confusion stemming from overlapping and contradictory legal and regulatory frameworks from the Baathist era, the Coalitional Provisional Authority and the post 2004 government, which are further compounded by an implementation gap between the laws and their application.

Respondents were asked what was necessary for the success of the business sector, given the state of existing laws and regulations in Iraq. The largest number of respondents, at 36 percent, indicated that the adoption of new business friendly laws and regulations was necessary. Eighteen percent of respondents indicated that better application of existing laws was key to promoting business growth, while another 18 percent indicated that developing effective systems for the application of laws was a necessary step. Seventeen percent of respondents indicated that problems caused by overlapping laws needed to be addressed. Respondents also noted that Iraqi trade laws and regulations are not easily understandable to businesses, again indicating a lack of clarity regarding legal and regulatory frameworks.

Iraq Business Survey Trends

In 2004, when the first CIPE supported Iraq business survey was completed, 69 percent of the business representatives surveyed were optimistic about Iraq’s future, with 82 percent of respondents indicating they believed Iraq’s economy would grow over the next two years. Since that time, there has been a consistent downslide in the optimism of Iraq’s private sector. Respondents have consistently identified security, corruption, and legislative and regulatory issues as challenges to the growth and success of Iraq’s private sector. By 2007, 78 percent of respondents indicated a belief that Iraq’s economy would grow over the next two years, and 2011 saw a further decrease in optimism, down to 75 percent of respondents. By 2012, only 58 percent of respondents indicated they expected Iraq’s economy to grow over the next two years, possibly indicating that any improvements over the years have fallen below expectations, and have not led to significant positive impact.

Opportunities for women in Iraq have expanded in the past 10 years, with women’s entrepreneurship initiatives increasing and microfinancing opportunities on the rise. Despite this improvement, CIPE’s business surveys show that women in Iraq are largely left out of the business arena. In 2004, 50 percent of respondents surveyed did not employ any women. Even higher numbers appeared throughout the surveys that followed, with 68 percent indicating they employed no women in 2007, 80 percent in 2011, and 65 percent in 2012. The 2012 survey further indicated challenges to women in business, with more than two-thirds of the respondents in the 2012 survey indicating that they did not feel there were equal opportunities for women to start private businesses, while only 11 percent saw equal opportunities for women to finance a business.

In 2007, over 50 percent of respondents identified corruption as a serious issue, indicating that more needed to be done to combat it. Twenty-four percent of respondents indicated a belief that corruption was adding 10 to 20 percent to the cost of doing business. Thirty-nine percent of respondents indicated the number was between 20 and 40 percent, while 20 percent of respondents expressed a belief that corruption added at least 40 percent to the cost of doing business in Iraq.

By 2011, those numbers changed substantially, with only 12 percent of respondents indicating that corruption added between 20 and 39 percent to their cost of doing business, while 19 percent indicated the number was between 40 and 69 percent, and 20 percent indicated it was even higher — between 70 and 100 percent. Sixty-one percent of respondents indicated that corruption was the most important factor hindering business growth in Iraq.

In 2012, again 50 percent of respondents indicated that corruption was a significant problem in Iraq, however, an overwhelming 67 percent of respondents indicated they did not have an estimate for the cost of corruption. Just 10 percent of respondents indicated that corruption added a cost of between 40 and 69 percent, and only 6 percent indicated a cost between 70 and 100 percent. This non-response rate is clearly significant, possibly representing an increased apathy resulting from a lack of significant change in this area since 2004.

The Future

With a ranking of 151 out of 189 on the World Bank’s 2014 Ease of Doing Business Report (its best ranking since 2009), Iraq appears to be moving in the right direction. Unfortunately, some key business demonstrated decline or stagnation — some significantly. While indicators such as dealing with construction permits and access to electricity improved, others such as registering property, acquiring credit, and protecting investors did not, indicating that Iraq’s government still faces an uphill battle in creating the institutional support necessary to allow broad participation in the private sector.

Over the past 10 years, Iraq has faced many challenges, yet continues to push toward a fully functioning democracy. Roadblocks remain on the path to a market economy, including some the same challenges facing the private sector in 2004, such as the need for legislative and regulatory reform, and corruption. With security issues once again headlining the priorities of the Iraq government, the resolution of these challenges may be further delayed in the pursuit of a safe and secure Iraq. However, with increasing international interest in investing in Iraq and the increased capacity of Iraq’s private sector actors, the country continues to move slowly but steadily toward the goal of a fully-functioning market economy.

Jenna Mace is a Program Officer for the Middle East and North Africa team at CIPE where her portfolio includes Iraq, Saudi Arabia and Bahrain. Prior to joining CIPE, she worked in Baghdad on a Legislative Strengthening Project. She holds a JD from the University of Western Ontario in Canada, and is a member of the New York State Bar.

The views expressed by the author are her own and do not necessarily represent the views of the Center for International Private Enterprise (CIPE). CIPE grants permission to reprint, translate, and/or publish original articles from its Economic Reform Feature Service provided that (1) proper attribution is given to the original author and to CIPE and (2) CIPE is notified where the article is placed and a copy is provided to CIPE’s Washington office.

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The Center for International Private Enterprise (CIPE) strengthens democracy around the globe through private enterprise and market-oriented reform. CIPE is one of the four core institutes of the National Endowment for Democracy and an affiliate of the U.S. Chamber of Commerce. Since 1983, CIPE has worked with business leaders, policymakers, and journalists to build the civic institutions vital to a democratic society. CIPE’s key program areas include anti-corruption, advocacy, business associations, corporate governance, democratic governance, access to information, the informal sector and property rights, and women and youth.

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