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Four Stubborn Facts that will Determine Iraq’s Future (Part 1)

This is the first of two articles. The first post comprises an analysis of Iraq’s unemployment and anti-corruption challenges. The second article (forthcoming) covers national strategies and electricity tariff reform.

The recent protests in Iraq are another reminder of the systemic problems the country faces: the politicisation of ministries over the years through the informal quota system has led to extremely inadequate service provision, often derailing national strategy. Even where there has been modest success, it has struggled to keep pace with a rapidly growing population. Many Iraqis now want to see dramatic change.

The current government formation process shows little sign this will occur. The modest economic reforms achieved under Abadi (eg. the signing of key international trade conventions like ICSID and the New York Convention, modest State Owned Enterprise consolidation, limited electricity tariff reform) could be undone. Iraq could slide back to the 2007-2014 period of high oil prices and out of control spending, with very little investment.

These two articles will argue that if Iraq sticks to the path of democracy and makes careful adjustments which are already in existing strategic plans, the country’s outlook could improve relatively quickly.

Having said this, there are a number of unshakeable facts that will determine Iraq’s future regardless of who will lead the next government- these articles examine four of those facts. There are others not included here-- a great need for education investment and security sector reform for example, so this will only serve as an introduction to some of the challenges:

1) Without Tackling Unemployment, Many Reform Efforts Will Fail

The World Bank recently released a report on job creation at scale in Iraq. With approximately half a million graduates entering the job market every year, the state’s capacity to absorb newcomers is overwhelmed, even in the highest possible oil price scenarios.[i] The World Bank report is optimistic about some of the job growth opportunities, for example, the report suggests that agriculture should be a key area of focus, boosting, “job creation through SMEs as farm-to-firm related services and processing scale up the agribusiness sector.”[ii]

The report notes how 31% of Iraqis live in rural areas while the sector as a whole accounts for 20% of all employment in Iraq. This is actually a grim situation: as of 2018, increasing numbers of Iraqi farmers are abandoning land and looking to security sector employment, across all Iraqi provinces and wheat harvests are being dramatically cut.[iii] In some provinces, this will provide the impetus for renewed ISIS recruitment (see Peter Schwarzstein, “Climate Change and Water Woes Drove ISIS Recruitment in Iraq”[iv]) although memories of the group’s brutality are still fresh in Sunni majority areas. Equally dangerous is increasing societal militia-ization, already evident in some areas.

At the current time, Iraq is looking to dramatically reduce wheat planting for the next season.[v]Meanwhile, Turkey’s Ilisu dam will have a reservoir storage capacity of 10.4 billion cubic metres when filled.[vi] In a single dam reservoir, this is twice the level of the summer storage estimated in Iraq’s largest reservoir, the Mosul dam.[vii] It is also twice the water required to sustain the Iraqi marshes, a UNESCO World Heritage site.

For job creation to be sustainable in agriculture, which comprises at least 75% of Iraqi water use, the state’s role will have to be massively reduced.[viii] State involvement in the sector is overbearing but fragile: after the oil price collapse, the government was unable to pay farmers for crops used in the inefficient national Public Distribution System (PDS) and ran up debts.

Since PDS reform is ongoing (intended to target more of the poorest Iraqis and cut out those who can afford to sustain their families) it would make sense to simultaneously reform PDS and agriculture and free up the sector for private investment. This shows potential: Saudi and Kuwaiti investors have already expressed strong interest in the sector and at least one Kuwaiti project is underway. Meanwhile, through the summer of 2018, the Iraqi government was still discussing delayed payment for harvest deliveries in Wasit, Dhi Qar and Muthana intended for the PDS.[ix]

The current wasteful system does not bring in required investment for more expensive water saving technology such as drip irrigation and is subject to oil market disruption and as mentioned, up river dam construction. At the current rate, we will see far more Iraqis move to urban areas, bringing the concurrent risk of instability.

Government supported efforts to privatise, perhaps subsidising drip irrigation, are fraught with risk (a similar strategy was negatively impacted by corruption in India). However, there is a massive demand in Iraq for the government to invest in farming equipment, repair irrigation infrastructure and build new storage and cold storage facilities. This is perhaps one area where the government could spend savings from PDS reform, employing farmers to work on infrastructure.[x]

There may be no alternative, given the current failure in Iraqi agriculture. Slowly moving subsidies away from the PDS towards more efficient irrigation methods, accompanied by phased market liberalisation, may be worth it to boost rural unemployment.[xi] This could perhaps be a stop-gap measure as Iraq attempts to diversify its economy.

The potential of the sector is further restricted by obstacles on the “farm to firm” side by the number of processes required to start business in Iraq (the latter has seen modest improvement.) Therefore, reform should focus on the business environment before sustainable job creation can be considered in the agriculture sector.

A more realistic prospect outlined by the World Bank is the opportunity for rapid infrastructure related job creation. The emphasis here is integrating reconstruction and stabilisation. Considering the lack of adequate service provision not only in conflict affected provinces but in all of Iraq, in addition to a persistent housing crisis, the World Bank argue for technical and vocational educational training (TVET) for this growth area, with course attendees paid by the state to train instead of being employed in loss making State Owned Enterprises (SOEs). The report outlines the potential for investing oil revenues in job creation through reconstruction and the need for tens of thousands of Iraqis,

“to reconnect houses to basic services, or foremen, mechanics and construction workers to rebuild Iraq’s infrastructure, or drivers to revive its transport system. This demand will balloon as reconstruction gains speed and scale.”

The report suggests rising oil revenues can pay for this in the short term. This may well be true based on most oil market predictions but the very reason why Iraq gave itself a conservative oil budget forecast for 2018 was oil market volatility. The report suggests:

“Each $100m invested in roads and simple infrastructure would be expected to be associated with about 20,000 short-term jobs, and $100m invested in building construction and more complex infrastructure, 4,000 jobs...a reconstruction investment of $7.5bn could provide jobs for one in five Iraqis currently unemployed.”[xii]

The report acknowledges these are only rough estimates, but job creation at this scale through oil revenue expenditure alone would risk resembling Chavezism, given continued uncertainty in the global economy. For comparison, reconstruction of the electricity sector is estimated to cost at least $7 billion.

Furthermore, the absence of an enabling environment for non-oil business would risk making these jobs very short term, eventually resulting in hundreds of thousands of Iraqis with basic skills and not enough job opportunities. As the World Bank note, a large scale TVET for cash program could be notoriously difficult when it comes to matching the training to the demand for skills.

A further danger is the assumption that Iraq is economically “out of the woods” with rising oil prices. Stability still depends on fiscal discipline. PM Haidar al-Abadi recently said that Iraq’s fiscal breakeven price for oil was as high as $67, (still a significant improvement on the $80 2015 estimate) suggesting a concerning expansion in operating costs despite dampened expenditure following the Maliki years.[xiii]

Nonetheless, Ahmed Tabachali has estimated, based on Ministry of Finance data, that Iraq is currently looking at an $18 billion surplus for 2018. The money might be better spent, as Evan Toma argues in a forthcoming paper, on a combination of training and wage subsidisation to “incentivise foreign firms to do business in the country and employ Iraqis.”

Looking further to the future, Iraq should be cautious with such strategies, but the World Bank are probably right that training is a major priority for construction, suggesting that SOEs in these sectors should be targeted for vigorous performance benchmarks with a view to future privatisation. USAID had already been working on reform of SOEs construction, with a view to this goal.[xiv]

When we divide available funds between a potential TVET program, the need to rebuild the education sector and the reconstruction of Mosul and other war affected cities, there is a clear need to carry on restraint to government spending. Al Bayan Centre recently report a modest fall to staff payrolls with official public sector employment falling from a 2015 peak of 3.03 million to 2.89 in 2018.[xv] But the government (as of August 2018) was in talks with the Dhi Qar provincial council to “reopen closed factories,” for job creation, something that risks putting money back into loss making entities.[xvi]

A far better strategy would be to focus on building partnerships for completely new industrial ventures, looking to future world powers such as India and taking advantage of new Chinese strategies (provided they are based on genuine investment and not debt, as with many BRI programs.) Morocco's industrial cities and Ethiopia’s industrial parks could provide a model for this, but again, no country is a charity and Iraq will need to slash the bureaucracy that has hindered foreign participation in its economy. As the U.S. State Department noted in 2017,

“Difficulties with corruption, customs regulations, dysfunctional visa procedures, unreliable dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints from companies operating in Iraq. Shifting and unevenly enforced regulations create additional burdens for investors.”


Oil revenues and unemployment

In the national picture Ali al-Mawlawi notes that unofficial state employment in the form of contractors and temporary workers at SOEs is still a great pressure on the state salary bill, while MOF data suggests that salary bill has climbed as oil revenues have risen. Therefore, if Iraq considers any expanded payrolls for reconstruction (rather than say, security jobs or SOE jobs) it must be extremely careful in where this spending goes, and promises of [xviii] an extra 10,000 jobs for tribesmen at West Qurna oil field are not sustainable long term.

For perspective, the 10,000 jobs promised at West Qurna are a drop in the ocean if a 2013 estimate that there are 150,000 unemployed men around the oil field is correct.[xix] To understand the statistic that oil only employs 1% of the Iraqi workforce, there are only 2216 people directly employed in the Ministry of Oil’s bureaucracy as of 2018.[xx] Basra Provincial Council claimed this year that there were, in total, 139,000 Iraqis and 50,000 foreigners employed in the oil industry in the province.[xxi] Meanwhile, Shell (when they operated Majnoon) cut their foreign workforce to just 200 in 2016, out of around 2000 Iraqis.[xxii] For more labour intensive foreign oil operations, there were an estimated 10,000 Chinese oil workers in Iraq in 2014, a number that has likely been cut significantly now.[xxiii]

If correct, this means that Najaf and Karbala employ almost as many people just in religious tourism as the entire oil industry in the biggest oil producing province. As a job creator, Iraqis would do well to stop thinking of oil as a potential source of employment; while Iraq has created many talented local energy sector workers and will continue to do so, it simply isn’t going to provide enough jobs, even locally.

Another area Iraq could employ more people in is tourism. Iraq has a track record of creating employment in religious tourism, but the rest of the sector has never taken off despite good security across much of southern Iraq, even during the war with ISIS. Foreign visitors to the Iraqi marshes can attest this, but the marshes now face a tragic future with every summer bringing virtual destruction to this once idyllic community.

A world class tourism experience across southern and central Iraq could involve visits to the Basra museum and the Nasiriyah museum, the Ziggurat of Ur, the vast 9th century Al Ukhaidar fortress, the ruins of ancient Babylon with scenic vistas from one of Saddam Hussein’s former palaces on the Tigris, and the world’s largest brick built Arch of Ctesiphon, from the ancient Persian city of the same name.[xxiv] The tour could then continue to Najaf and Karbala with their vast holy shrines which are without doubt two of the wonders of the world.

This brief description cannot even cover the wealth of history and places to visit across Iraq. A tourist industry could easily employ another 100,000 Iraqis more than currently employed in Najaf and Karbala. Many new tourists would also come from countries with a high per capita income.

Tourism would also enable Iraq to project its “soft power” on a global scale, but in order to do this, Iraq needs its own soft power campaign to win over foreigners who associate the country with extreme danger. It would have the vital secondary effect of encouraging business visitors and boosting Iraq’s global brand.

Until the relevant Iraqi ministries can coordinate and make a special effort to welcome foreigners, along with an international media campaign, it is hard to see tourism in Iraq expanding beyond religious tourism. For now, reducing pilgrim fees for the holy sites is a good start (voted for by cabinet in August) as visitors will have more funds to spend on the local economy.[xxv] But the investment environment needs to be radically simplified to allow for hotel construction and other services to thrive.

In the long term, it’s possible the West’s institutional capacity building efforts have just been too ambitious with the resources they have had, and should have been much more focused on creating an environment for job creation. This was the conclusion of a 2013 report on many failed development efforts in South Sudan:

“the most ideal development sequence in Southern Sudan...focuses on initiating economic growth itself as entry point, rather than seeking to reform a country’s entire institutional environment. Moderate changes are advocated to kick start growth; from that point, any capacity and institutional constraints can be addressed on an as-needed basis.”[xxvi]

2) It Will Take a National Effort to Beat Corruption

Rick Messick has highlighted how anti-corruption campaigns often discuss the “political will” to fight corruption, but (by many accounts) have no understanding of how to create momentum for this. This is often because corruption is pervasive and becomes “weaponized” against political opponents, while powerful figures go along with Western or U.N. anti-corruption programs without actually implementing meaningful change. In the absence of a workable plan, being “tough on corruption” is at best weak political rhetoric and at worst, cover for the abuse of office.

While Iraqis across the political spectrum regularly denounce corruption, the multi-sector nature of abuse in the country suggests that many who condemn it also partake in it, even unwittingly. This point was argued by Ali Hadi al Musawi when he wrote, “the reason why corruption is so deeply entrenched is because its beneficiaries are not limited to a small group of powerful elites, but rather, extend to a wide and deep set of patronage networks that include millions of ordinary Iraqis.”[xxvii]

Musawi argues that corruption among some segments of Iraqi society, for example, politically run ministries, is so culturally normalised as to rot ministry performance--the height of the “quota systems” worst aspect. Few are held accountable for poor performance. It should be no surprise that these deeply rooted problems are resistant to foreign efforts at reforming through capacity building workshops. Likewise, the 2013 UNDP survey on corruption in Iraq highlighted how, “35 percent of civil servants hired after 2009 did not have to undergo formal interviews or written exams,” due to help from powerful connections in obtaining their jobs. [xxviii]

The same survey highlighted how 20% of civil servants said that political party affiliation was important for a government job, although 27% said qualifications were more important. This points to one reason why public service delivery has been substandard in Iraq, therefore a focus on “technocratic ministers” is misplaced, as one Iraqi politician remarked in 2016, “We need to think about changing the system and the entire architecture and hierarchy of the ministries”.[xxix] At the same time, more committees to investigate will not work--they will simply become weak units in a broken system.

Arguably, there is already some political will to fight corruption-- Moqtada al Sadr’s removal of Baha al Araji, who had faced corruption charges dating from 2012 involving funds from the Central Bank of Iraq, was an attempt to set a standard. Critics of his movement will say this is far too symbolic.[xxx] This came after Abadi’s uncovering of massive payroll fraud in the Ministry of Defence in 2015, totalling at least 50,000 “ghost soldiers.” In 2017, PM Abadi instructed BSA and COI officials to be “harsh” with those accused of corruption. That year, former Trade Minister Adel Falah al Sudani was finally brought to justice and extradited from Lebanon, following charges dating back to 2009 when he allegedly stole up to $400 million by abusing the Public Distribution System (PDS), probably one of the worst incidents of corruption in post 2003 Iraq, with the possible exception of the $52 million ADE 651 fake bomb detectors fiasco.

Arguments over the ADE 651’s effectiveness in Iraq (it was proven to be a fake device following numerous international investigations) led to its continued use until at least July 2016.[xxxi] At the ministry staff level, Iraq has also shown some progress in uncovering and reporting corruption, with “criminal cases” reported to the COI rising from 6,779 in 2009 to 11,671 in 2011, with actual convictions in that period rising from 257 in 2009 to 1,661 in 2011.[xxxii] Even still, the disparity between investigations and convictions is concerning. For 2017, the COI report between January and September listed a similar number of criminal case investigations (10,888) and 834 convictions.[xxxiii]

In most cases, it would appear political will to confront corruption only emerges when it has spiralled out of control and threatens the state’s survival. In Nigeria, corruption was briefly reduced following the grand theft of General Sani Abacha’s administration, where billions of dollars were taken out of the country. Perhaps the revulsion that has finally brought Sudani to justice is a sign things may be changing in Iraq, but it needs to accelerate into a national campaign.

Nigeria’s brief success reducing corruption also benefited from strong external pressure from the international Financial Action Task Force (FATF) and a new anti corruption body formed in 2002, headed by the determined Nuhu Ribadu, the Economic and Financial Crimes Commission.[xxxiv] The EFCC claimed to have recovered $11 billion and brought 30 senior political figures to court, but there were only six convictions and the body was later accused of selective investigations.[xxxv]

If there is a lesson here, it is that Iraq must use the current national focus on corruption to seriously strengthen the Board of Supreme Audit (BoSA) and the Commission of Integrity (COI.) This will still be a struggle in the absence of current high level convictions, which are hard to imagine with the existing political scene.

In November 2017, COI and UNDP launched a nationwide anti-corruption campaign involving “nearly 300 NGOs,” a worthy endeavor that could, if designed in consultation with country experts and Iraqi stakeholders, have some grass roots success. But the question remains whether we, or the Iraqi government can generate real political will, or incentivise anti-corruption investigations. In the wider system, in early 2018 COI head Hassan Al-Yasseri resigned from his post (having tried to resign in 2016, which was rejected by PM Abadi.) Yasseri had previously complained that in 2016 only 15 % of the 12,000 cases of suspected corruption investigated by the COI had been taken up by the judiciary.[xxxvi] He also lamented, in the COI’s annual report for 2017, that parliament had not pushed forward legislation intended to enhance transparency.

The World Bank is currently re-visiting a plan to have all public sector projects listed on an online database, similar to the suggestion of the Task Force for the Future of Iraq, which recommended an online transparency solution based on Chile’s successful e-procurement program, ChileCompra.[xxxvii] The implementation of such a scheme (a previous effort for government financial management by USAID and Bearingpoint was assessed as over-ambitious and overly technical) will be a major test of any will to fight corruption.

Given this lack of will to create an enabling environment for anti-corruption bodies in government, it might be more effective to frame the fight against corruption as an existential challenge to the political elite, rather than a development focused view of improving government efficiency.

This was the case in Vietnam, when government officials responded to local unrest in the 1990s with the view that, “the Party would lose power if corruption was not eliminated.”[xxxviii] Until the country’s first anti-corruption law in 2005, research on corruption in Vietnam paints a picture of systemic corruption and it is likely that only policies that encouraged high foreign direct investment, in addition to widespread public anger at corruption, enabled Vietnam to survive this curse.[xxxix]

Iraq currently has the worst of both worlds: corruption raises the cost and risk of doing business anywhere, but with low foreign investment, systemic corruption means a destructive scramble for a shrinking “pie” of oil revenues. High foreign investment perhaps explains why China, South Korea and Vietnam achieved high growth and poverty reduction despite struggling with corruption.

It would be easy to say that anti-corruption professionals need to be more intensively trained, financially supported, strongly backed by the U.N. and well protected; the 2013 survey on public sector corruption in Iraq reported how “66.3% of all civil servants would not feel adequately protected if they were to report an act of corruption.”[xl] But this will only result in tactical advances and many corrupt individuals will remain protected. Equally important is a national campaign, wide in scope and ambition.

The good news is that any well-resourced national campaign to raise awareness of systemic corruption would likely be well received by many civil servants: according to the UNDP study from 2013, “a quarter of civil servants in Iraq (22.9 percent) state that they would like to learn more about anti-corruption and integrity in their work.”[xli] International efforts would therefore be well placed not only to help anti-corruption awareness within ministries, but as a well resourced national campaign, shifting the debate away from the understandable but rather unhelpful focus on “technocratic ministers.”


[i] Joel Wing: Growth in Education and Unrest in Iraq. 20.07.2018.

[ii] World Bank: A Primer on Job Creation in Iraq.

[iii] Maha Al Dayan and Raya Jalabi: How Iraq’s Agricultural Heartland is Dying of Thirst. Reuters Investigates July 25th 2018.

[iv] Peter Schwartzstein: Climate Change and Water Woes Drove ISIS Recruiting in Iraq. The National Geographic. November 2017.

[v] Khalid Al Ansary: Iraq Wheat Farmers May Slash Plantings as Drought Returns. Bloomberg. July 25th 2018.

[vi] Turkish MFA, Ilisu dam information.

[vii] Xinhua.Net: Iraq Plays Down Fears of Low Tigris River. 03.06.2018

[viii] Inside Iraqi Politics issue 181

[ix] World Bank: Decentralisation and Subnational Service Delivery in Iraq.

[x] UN FAO: Iraq Agriculture Damage and Loss Needs Assessment.

[xi] International Water Management Institute: Towards Accelerating Adoption of Drip Irrigation in Madhya Pradesh. December 2011.

[xii] World Bank: Jobs in Iraq: a primer on job creation in the short-term. June 2018.

[xiii] Inside Iraqi Politics issue 181

[xiv] U.S. State Department: Iraq Investment Climate Statement 2015.

[xv] LSE Middle East Centre: Analysing Growth Trends in Public Sector Employment in Iraq. Ali al Mawlawi.

[xvi] Inside Iraqi Politics issue 182.

[xvii] U.S. State Department: Iraq Investment Climate 2017.

[xviii] Rudaw: Iraqi PM Abadi Allocates $3 Billion to Quell Protests. 14.07. 2018.

[xix] Peg Mackay, Aref Mohammed: Iraqi Tribes Say Lukoil Project Must Fuel Better Life. Reuters. 31.10.13.

[xx] LSE Middle East Centre: Analysing Growth Trends in Public Sector Employment in Iraq. Ali al Mawlawi.

[xxi] Albawaba: Basra Oil Protests Grow, Iraqi Tribes Demand Jobs. 12.07.2018.

[xxii] Anthony Mcauley. Shell Cutting Back Manpower Sharply at Iraq’s Majnoon Oil Field. The National 21. 05.2016

[xxiii] China’s Iraq Oil Problem. Fortune Magazine. 30.06.2014.

[xxiv] Jollyon Attwoll. Iraq Targets Tourists with Restoration. The Telegraph. 30.05.2013

[xxv] Inside Iraqi Politics issue 183

[xxvi] Larson, Greg; Biar Ajak, Peter; Pritchett, Lant (2013) : South Sudan's capability trap: Building a state with disruptive innovation, WIDER Working Paper, No. 2013/120

[xxvii] 1001 Iraqi Thoughts: The People Versus the Ruling Elite: A Timely Corrective. August 2018.

[xxviii] UNODC Report on Corruption and Integrity in Iraq 2013

[xxix] Jane Arraf: Moqtada al Sadr’s Green Zone Demonstration. Al Jazeera. 29.03.2016.

[xxx] Joel Wing: Iraq’s Sadrist Deputy Premier Sacraficial Lamb to anti-Corruption Protests. Musings on Iraq. August 2015.

[xxxi] Reuters: Iraqi PM Orders Police to Stop Using Fake Bomb Detectors. 03.07.2016

[xxxii] UNODC Report on Corruption and Integrity in Iraq 2013

[xxxiii] COI Accomplishments for the Period January 2017-September 30th 2017.

[xxxiv] Global Anti-Corruption Blog: The Political Will to Fight Corruption: Lessons from Nigeria. 31.12.2014.

[xxxv] Human Rights Watch: Corruption on Trial? The Record of Nigeria’s Economic and Financial Crimes Commission. 25.08.2011.

[xxxvi] Michael Georgy: Iraq’s Anti Corruption Czar: The job so tough they won’t let you quit. Reuters. 03.04.2017

[xxxvii] Task Force on The Future of Iraq Report.

[xxxviii] Scott Fritzen (2005) Beyond “Political Will”: How Institutional Context Shapes the Implementation of Anti-Corruption Policies, Policy and Society, 24:3, 79-96

[xxxix] World Bank: Vietnam Continues to Reduce Poverty, According to World Bank Report. 05.04.2018.

[xl] UNODC Report on Corruption and Integrity in Iraq 2013


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