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Abu Dhabi, UAETuesday 11 December 2018

Entrepreneurs in Iraq won’t end corruption but they will drive private sector reform

Pioneers willing to brave the uncertainty have already driven change in business regulations

Iraq's parliament met for the first time on Monday since May elections. SMEs can boost the economy. AFP
Iraq's parliament met for the first time on Monday since May elections. SMEs can boost the economy. AFP

Since Iraq’s federal elections on May 12, the country’s newly elected political parties have failed to restore any semblance of trust in the government.

The Iraqi Supreme Court did not ratify the results of the election until August 19, Parliament remained suspended for over two months before it finally met on September 3, and major protests have raged across central and southern Iraq all summer over a lack of basic services.

Iraqis’ trust in the government is unlikely to increase under the next administration; the historically low election turnout, candidates’ heavy reliance on patronage networks, and the previous administration’s public struggle to expel ghost soldiers, sentence officials to prison for embezzlement, and eliminate superfluous government positions attest to that.

Iraq today ranks 168 out of 190 countries on the World Bank’s 2018 Ease of Doing Business Report, down three spots from last year. And SMEs, which constitute about two-thirds of private sector employment in Iraq, are more likely than large firms to view regulations as inconsistent and also report the need to make informal payments to officials during tax inspections. In addition, they face lengthier delays in navigating import/export markets given their comparatively limited access to contacts, finance, market information and intermediaries.

Iraq’s business environment is a challenging landscape for entrepreneurs: limited legal infrastructure; deficits in business education; and a weak track record of independent private business deter both foreign investment and local innovation.

But pioneers willing to brave the uncertainty have already driven change in business regulations, licensing rules and access to education.

One such pioneer is responsible for the passage of the first e-commerce law in his province. Hevi Manmy, the founder of Bazary Online, a Kurdistan-region based delivery service similar to Amazon, encountered difficulties licensing his business given the absence of e-commerce laws and confusing and contradictory regulations governing imports of retail goods. His visit to the local government office in Sulaymaniyah requesting permission to start an e-commerce business in 2014 provided the catalyst for the province’s first e-commerce law.

Other entrepreneurs have worked around Iraq’s weak banking system by developing voucher systems and mobile payment options. For example, Zain Telecommunications, headquartered in Kuwait, launched Zain Cash, a service it describes as a “mobile wallet, money transfer, electronic bill payment, [and] funds disbursement service", in late 2015. Marwan Ahmed and Ammar Ameen, the founders of Mishwar and Miswag, respectively, Baghdad’s first grocery and retail delivery services, similarly navigated the absence of food safety laws and standardised payment terms to develop safe and successful online and mobile businesses.

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Entrepreneurs, investors and educators have formed a small but growing network of training organisations, private equity funds and media platforms. Co-working spaces such as Tech Hub in Erbil and The Station in Baghdad provide workshops and facilities for innovators to bring their ideas to fruition. Five One Labs, Re:Coded and Code for Mosul equip locals and refugees with tech and entrepreneurship skills, while investment and private equity funds such as the Euphrates Fund, Northern Gulf Fund, and AFC Iraq Fund provide investment in return for stakes in Iraqi companies. Platforms such as Noah’s Ark and bite.tech provide online resources, networks and news tailored to Iraq’s entrepreneurial community.

Select universities have even defied the status quo of Iraq’s tertiary education system, which prioritises disciplines that often land students in the public sector, by dedicating funding to support entrepreneurship. The American University of Iraq, Sulaimani, recently inaugurated an entrepreneurship initiative and will offer an interdisciplinary minor in entrepreneurship--an extended course list focused on tech and private sector skills--for undergraduate students in Spring 2019. In Baghdad, Al-Mansour University College established an incubator for students and graduates with the help of Ramin Information Technology Solutions (Rits), the IT company that runs Noah’s Ark.

The problems deterring entrepreneurship are multi-faceted. Weak intellectual property protections, the monopolistic nature of existing private companies and poorly enforced financial reporting requirements allow the embattled public sector to retain its image as a stable and attractive employment option. Likewise, few legal mechanisms by which to penalise criminal activity in business dealings deter partnerships because potential entrepreneurs fear that partners could steal ideas or financial assets with impunity.

Nevertheless, a bloated bureaucracy and increasing awareness of public officials’ drain on public resources has prompted efforts to usurp the idea that public sector employment is the best option after graduation. Entrepreneurs are on track to stimulate the private sector because they operate outside the constraints of patronage networks and ethno-sectarianism that stifle government-led reform efforts.

The next administration would be wise to work with entrepreneurs to reform and update the country’s National Education Strategy, bolster financial literacy and entrepreneurship courses in high schools and universities and follow through on its obligations under the 15-year Private Sector Development Strategy.

The relationship will be a step toward alleviating public debt and distracting from the corruption scandals of recent administrations.

Emily Burlinghaus is a programme officer at the Institute of Regional and International Studies at the American University of Iraq