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Ali is an economist and political analyst, working at a private UK-based company. He worked previously at the World Health Organisation and has an MSc in Development Studies from SOAS. You can follow him on Twitter (@alialsaffar).

The Glass is Half Empty

I thought I’d take the liberty to present a counter argument to Mousa’s. The glass is half empty. This is because we shouldn’t consider economic success in nominal terms, but by comparing it to potential, and unfortunately, we are no where near this at the moment. Yes, GDP will grow by around 9% a year in 2012, but this belies serious weaknesses in the economy; take out oil production growth, and the picture is much different and far bleaker.  Fine, the government’s revenue will grow, but this isn’t because there are suddenly more productive industries that are coming to the fore, there aren’t. Its oil…only oil, which can only really absorb a tiny proportion of the overall work force.

Part of the problem is that the policies needed to stimulate an economy just aren’t there. The government hasn’t decided whether it wants to adopt socialism or free-market capitalism. It oscillates, incoherently, between the two. It vowed to privatise inefficient state-owned companies, but hasn’t. It says it wants to get the private sector involved in key development areas like electricity, but hasn’t. This is a massive failure; I spoke to Hussein al-Shahristani on a recent trip he had here, and when I asked him what he was doing to attract independent power projects (IPPs, when a private company comes in to build a plant), he was happy to tell me that they had offered deals to companies. The problem is that no body took up the offer because the policies and legal frameworks that support the system are so fundamentally lacking. Contrast this to the Kurdistan Regional Government, which has managed to increase electricity supply in the region by getting the private sector to do the work. It has also managed to successfully build the first private-sector refinery too. The discourse in the rest of the country, though, is completely different. It centres around issues that were settled in most of the rest of the world in the 1970s. Doing business with international companies is still viewed with serious suspicion…and often as being a zero sum game. The transaction is looked at as having one of two possible outcomes: 1) the company is screwing us, or  2) we are screwing the company….not one of mutual benefit where fair payment is paid in return for a service or a good.

The way the economy is being run is an extension of the politics in Iraq, it is haphazard and inconsistent- hardly the kind of environment that puts companies at ease. Not only does this mean that jobs aren’t being created (putting a larger burden on the state to absorb the workforce), but that the services that these companies can ultimately offer are also lost.

This isn’t about moaning for the sake of it, or being a persistent pessimist, it’s about identifying the structural weaknesses, both within the system and the psyche, so that they can be treated. The economy is not just about the bottom line growth number. It is about peoples’ jobs, about productivity and about well being. A lot has to be done to ensure that Iraq’s economy flourishes properly. Unfortunately, I see very little serious initiative being taken to ensure that the policies needed for this to happen are even being discussed, let alone implemented.

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4 Comments on “The Glass is Half Empty”

  1. anonymous January 20, 2012 at 10:50 am #

    Although I was dreading the onslaught of the doom and gloom brigade, I am inclined to agree with you on this one. Oil is carrying us through at the moment, but a lot needs to change and it is frustrating to see members of the Iraqi parliament at one point objecting because one state-owned steel factory had been privatised. I’m not an economist myself and so not really in the position to suggest solutions, but even I can see that privatisation is key.

    That does not take away from the fact that people’s lives have improved, in some places quite significantly. But we don’t just want unsustainable improvement stemming from oil revenue, we want a real economy to rival the best in the world.

    I think the problem with the usual crowd of moaners is that there tends to be a distinct lack of constructive critique about how STRUCTURES need to change, and instead there is a “just blame it on Maliki” mentality. I don’t believe that any one man could fix Iraq. The problems are phenomenal, and unless the next leader wins a majority, he or she will have to work with others, most likely another over-sized inefficient government with so many compromises that there isn’t a rational policy driving the government. But more importantly, the legal change you speak of is brought in by the legislature, so everyone needs to take responsibility for improving Iraq’s position with potential investors.

    There is also another more sinister element to this – a mafia-like black market which existed long before 2003. I read some very interesting analysis in 2004/2005 which suggested that much of the violence at the time (targetting truck drivers etc) was in fact completely separate to the sectarian tit-for-tat and was about mafia chiefs protecting their interests by sabotaging any attempts to improve the economy. There are a lot of dark forces at play in Iraq – and it will take some time to overcome them.

    Reading Dr Ali Allawi’s book on Iraq, for example, it was interesting to read his analysis of the problem of corruption during the years pre-dating Maliki. He explains how corruption was a widespread means of survival during the sanctions years, but it was kept in check to some extent through fear of torture and death. However, during the Bremer years, when that fear lifted,corruption just exploded. But you don’t read a lot more constructive criticism like that any more, instead the topic is used as a whip to beat political opponents with, even if the people doing the whipping are implicated themselves.

    • Lion of Babylone January 20, 2012 at 3:02 pm #

      Totally agree with Ali and also Anonymous. Many say companies don’t come to Iraq because of security reasons. This not the real reason. The real reason is that the legal framework isn’t just there.

      I work in a foreign consulting company which has its offices in Kurdistan, but would do anything to do more business in Baghdad if there would be laws and some legal basis they could depend on. Afraid are they not. Our manager has left his home land and is spending most of the time in Baghdad. What kills him however is this bureaucracy and lack of clear legal framework.

      Thanks

  2. Mrs. IPP January 20, 2012 at 4:02 pm #

    spot on re IPPs…consortiums don’t want to get involved with bidding for IPPs in Iraq because its an absolute legal and regulatory nightmare. Why get their fingers burnt in Iraq when they can deal with more business conducive legal environments in most other places in the world..Iraq is a no man’s land in that respect.

  3. Bruno January 25, 2012 at 6:17 am #

    Interesting post and illuminating comments. Thanks chaps.

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