x Abu Dhabi, UAETuesday 25 July 2017

Political conflict keeps a muzzle on Iraq's economic enthusiasm

Economic development is being hampered by political infighting that is preventing key commercial decisions from being executed.

Iraq has lured some of the biggest oil companies in the world to its fields. Atef Hassan / Reuters
Iraq has lured some of the biggest oil companies in the world to its fields. Atef Hassan / Reuters

Iraq's economic development is being hampered by political infighting that is preventing key commercial decisions from being executed.

The claim from the prime minister's official spokesman follows a damning report by the special inspector general for Iraq (Sigir) that concluded at least US$8 billion (Dh29.38bn) allocated for reconstruction was wasted.

"Iraq's gold rush is yet to be realised," said Ali Al Moussawi, the spokesman for the prime minister Nouri Al Maliki. "The recent political infighting has had a profound negative impact on the economy. Some of the decisions to prevent laws or projects from being ratified have been direct [deliberate] while a number of others were indirect."

Ten years after the removal of Saddam Hussein, the government carries on as the sole actor in the economy, and the oil rich country's economic potential remains under lock and key.

Mr Moussawi blames the struggle for Iraq's economic development on the government's lack of independence in making decisions from 2004 to 2008 when the war-torn country was controlled by the United States.

In its final report, Sigir said it "could not find reliably complete information showing what US construction funds accomplished. The full story on the use of billions of US dollars for reconstructing Iraq will forever remain incomplete."

Foreign companies that have sought to capitalise on Iraq's untapped market are rethinking their presence in the country amid rampant corruption and increased political volatility since the withdrawal of US forces last year.

That has forced up operational costs for businesses - namely over security, logistics and power shortages.

"For the time being we have put more focus on Libya than Iraq until we see more visibility," said Ziad Makkawi, the chairman of Blue Gate Capital in Dubai.

The frontier-markets private equity firm said it was shifting its focus from Iraq to Libya until there was more political visibility.

"I don't think it is the right time to be making investments in Iraq," Mr Makkawi said. "But in the medium to long-term, I am bullish on Iraq because the current situation - political deadlock, car bombs and killing - is not sustainable."

Iraq's government began to falter just one day after the withdrawal of US forces and that has resulted in the loss of top jobs.

On December 19, the government issued an arrest warrant for the vice president Tariq Al Hashemi, who belongs to the main opposition party Al Iraqia, on charges of orchestrating terror attacks on officials and security forces.

The communications minister Tawfiq Allawi - also backed by Al Iraqia - in August resigned from his post after accusing the prime minister of refusing to stop "political interference" in his ministry.

In October, Iraq's cabinet issued arrest warrants for the central bank governor Sinan Al Shabibi and dozens of his staff for the alleged embezzlement and squandering of public funds and the manipulation of the dinar.

In a November interview with The National Mr Al Shabibi denied the charges against him.

Both the finance and agriculture ministers have resigned from their posts this month amid demonstrations across Iraq's Sunni cities of Mosul, Samarra, Kirkuk and Anbar.

On March 2, the finance minister Rafi Issawi announced his resignation on television as he addressed protesters.

"I do not care about a government that does not respect the Iraqi blood and its people," he said.

On March 8, the demonstrations In Mosul led to the death of one protester and the subsequent resignation of the agriculture minister Ezz Al Din Al Dawla.

In an interview with The National, Mr Al Dawla refused to comment on Iraq's economy and the effect of his resignation on key decision making.

"Is it right for the country to continue to trample over the people? My decision to resign came late. But it was the right decision," he said.

"We looked towards the government and towards our people and it became clear that this was the right moment."

Today, Iraq's black gold rush, which is key to its survival, seems to be losing its lustre.

As the country plans to boost oil production from about 2.6 million barrels per day (bpd) to as high as 3.8 million bpd - a figure last seen in 1979 - rivalries between Baghdad and Erbil over oil contracts threaten production.

Beyond the oil sector, Iraq is struggling to shed the former regime's economic legacy, despite the partial liberalisation of a handful of sectors - namely financial services, telecoms and trade.

"In the public sector, we have a lot of jobs that are not active or productive," said Mudher Saleh, a former executive at the central bank of Iraq. "Fifty per cent of the labour force currently works for the government. This policy of social welfare cannot continue or [be] sustained.

"The private sector is like a parasite sector. It's living on government handouts," Mr Saleh said.

"It's like an oil contractor of the government. The only solution is to have public-private partnerships that would lead the economic transition and lead a rental economy towards an active viable market."

While international oil majors are helping to pump Iraq's economy with foreign currency, it is not yet clear when the flows will free the government from its bloated state expenditures.

Iraq's $118.6bn budget last week was finally ratified after months of negotiations but most of the money will be absorbed by the public sector.

"This is temporary," Mr Al Moussawi said.

"In the next two years, we should see a change in the picture. Firstly, the jump in power production will boost many sectors, especially industries, and will be a major catalyst for Iraq's next phase of growth.

"Secondly, the increase in economic activity will demand more workforce, which will boost the private sector."

Mr Al Moussawi defends the government's accomplishment, despite Iraq's worsening political and economic environment.

"You cannot even compare what has happened in the last two to three years in Iraq, with three decades under Saddam that have been categorised by war" he said.

"Before 2004, electricity production stood at 3,700 [megawatts] and power was solely available in Baghdad," Mr Al Moussawi said.

"Today, we produce 7,000 to 8,000MW with plans to cross 14,000MW by the end of the year."

 

halsayegh@thenational.ae