Just came across this brief update on USAID’s activities in Iraq. My impression – they are addressing both short-term, immediate needs of the Iraqi community (water program, for example) and long-term institutional objectives (providing training to business leaders).
“We are working hard to help these chambers of commerce become vibrant, functional organizations,” said Maj. Carlos Molina, a civil-military operations economic development officer from the 4th Brigade Combat Team of the Army’s 3rd Infantry Division. “[USAID’s Private Sector Development] project is a perfect fit for our needs as it is focused on growing the private sector in Iraq and already provides excellent training for small businesses in a number of key areas.”
Archive of these weekly updates (in both English and Arabic) is available here. Also, more information on USAID’s efforts to help Iraqis develop a viable private sector can be found here. It is good to see that USAID is paying a lot of attention to the economic aspects of the country’s reconstruction.
To continue on the topic of private sector development, today, Dr. Kamal Field of the Iraq Institute for Economic Reform spoke at CIPE about economic aspects of Iraq reconstruction. His presentation will be posted on the Economic Reform Roundtables section of CIPE’s website soon. The major topics of the discussion were Iraq’s dependency on oil and whether the country will be able to finance the reconstruction as the aid flows will decline [significantly] in the coming months. Lack of diversification in the economy and overdependency of citizens on the public sector to provide jobs all mean that if Iraq is to address the most pressing challenges (including security and unemployment) it has to take the necessary steps to spur the development of private enterprise in the country.
I certainly would like to see the money Iraq gets from selling oil go to structural reforms so that a proper institutional base can be created and the country can begin to diversify its economy into other sectors. However, in many developing countries there is often a tendency to use natural resource money to provide social services (subsidize prices, industries, etc.) and I fear that this is what might happen in Iraq. At least, this is what’s happening in Russia. The danger is that while you are spending all the money to provide social services (which is nonetheless very important, especially in a country like Iraq) resources are not used to increase the long-term sustainability of the economy.
With government’s attention focused on only one economic sector, that sector becomes a dominant source of cash for the budget and the pie of wealth becomes pretty much fixed [i.e. dependent on the performance of that one sector of the economy]. There is also a danger that much of political debate in such a case would be focused on redistributing the fixed pie of wealth, rather than increasing its size. The real challenge, of course, is finding the right balance between taking care of the immediate needs (such as getting security situation under control, providing electricity and running water) and investing in the future (setting up a private sector economy which can attract investment, both foreign and domestic).
For updates on CIPE’s activities in Iraq click here.
Published Date: January 06, 2006