Corruption, the business environment, and the performance of the Iraqi economy

Al Furat Center for Development and Strategic Studies
There is a close correlation between corruption and the business environment on the one hand, and between the business environment and the performance of the economy on the other hand, as corruption affects the business environment and the latter affects the performance of the entire economy.

Where there is an inverse relationship between corruption and the business environment, that is, the more corruption increases, the business environment deteriorates and vice versa.

The inverse relationship between corruption and the business environment
The resurgence of corruption and its spread in most of the joints of the state leads, without doubt; To the deterioration of the business environment because corruption is achieved through the complexity of the business environment, and this complication to achieve corruption is the high costs of doing business financially, procedurally and temporally, which means lower profits that investors seek to achieve and the result is their reluctance to invest and this negatively affects economic activity and the performance of the economy Whole.

And the opposite is quite true, as the diminution of corruption by draining its sources or combating it when it appears in the joints of the state from the smallest alone to the largest, will undoubtedly lead; To reduce the costs of doing business, increase profits, revive economic activity, and perform the entire economy due to the ease, fluidity and flexibility of the business environment.

The direct relationship between the business environment and the performance of the economy
As the business environment greatly affects the performance of the economy by virtue of its effect on the main motivation for investors' business (profits). When the business environment enjoys smoothness, simplicity and flexibility, it means reducing the costs of doing business, increasing investors ’profits, increasing economic activity, and finally improving the performance of the economy.

The difficulty and complexity of the business environment leads to high costs of doing business, low profits, discouraging investment, low economic activity, and deteriorating performance of the economy as a whole, and this means that the relationship between the business environment and the performance of the economy is positive, and therefore the business environment is an important component of the economy.

Corruption in Iraq
When looking at the extent of corruption in Iraq, we will find that it ranks high that has negatively affected the business environment and the performance of the Iraqi economy, as Iraq ranked 162 out of 180 countries included in the Global Corruption Perceptions Index report issued by Transparency International.

It should be noted that this indicator deals with corruption according to its perceived levels in the public sector, far from the private sector, and if we know that most business and investment opportunities cannot be enjoyed without passing through the state and still impose its dominance on it, then the private sector and economic activity will be in a position that does not Enviable as is the Iraqi economy.

Therefore, it can be said that what is behind corruption in Iraq is the state because it dominates most economic decisions despite the adoption of the transition towards a market economy after 2003!


Business environment in Iraq
The extent of this corruption was reflected in the business environment in Iraq and made it an unattractive environment, but rather a complex and repelling investment, as Iraq ranked 172 out of 190 countries included in the Ease of Doing Business Index issued by the World Bank.

The deterioration of the business environment has a negative impact on the economic activity and then on the performance of the entire Iraqi economy because, for example, but not limited to, whoever wants to obtain electricity to run his business, this requires 5 procedures and takes 51 days, while obtaining it required only 3 procedures and 18 days per Advanced economies, and this is what makes the investor shy his investments from Iraq towards developed countries that enjoy easy business environment.

The performance of the Iraqi economy
The prevalence of corruption and the deterioration of the business environment negatively affected the performance of the Iraqi economy through several indicators, the most prominent of which can be noted:

First: The dominance of oil over output, as we find that oil imposes its dominance on the gross domestic product, as it accounted for more than 62% at constant prices and more than 42% at current prices in 2019, according to the annual economic report issued by the Central Bank of Iraq.

Second: The budget deficit and instability, as the budget, with its expenditures and revenues, depends on oil at a rate of more than 90%, and as a result of the fluctuation of oil prices and revenues, the budget suffers from a chronic deficit with instability.

Third: Economic dependency, the Iraqi economy’s dependence on oil at a large rate, as was evident above, and the weak participation of the productive sectors led this to mortgage the Iraqi economy to the outside world, by exporting oil by more than 99% and meeting most of the local demand through imports.

The most prominent reflection of the Iraqi economy's deterioration

The most prominent repercussions of the deteriorating performance of the Iraqi economy resulting from widespread corruption and deteriorating business environment are: unemployment, poverty, and poor services.

First: Unemployment, the dependence of the Iraqi economy on oil with the failure to activate the productive sectors on one side, the characterization of oil as a capital-intensive industry on the other hand, and the withdrawal of the state from economic activity while not providing a business environment that encourages the private sector and attracts foreign investment from a third side in conjunction with the increase in the number of The population is largely from a fourth side, all of these aspects pushed to create an army of the unemployed, and the successive protests are evidence of that.

Second: Poverty: The weakness of the Iraqi economy to satisfy the needs of society led to the birth of poverty and its rates exacerbated with successive internal and external crises, starting from the sectarian conflict through the global financial crisis 2007/2008 and the dual crisis of ISIS and oil prices in 2014 and ending with the triple crisis that occurred at the end of 2019 And the beginning of 2020, which was marked by the political, health and financial crisis.

The White Paper (the Economic Reform Paper of Mr. Al-Kazemi's government) stipulated two different percentages indicating high poverty rates, which are 31% and the other 40%. Assuming that the first percentage is more accurate, it is a very high percentage compared to what it was before the curfew imposed, which is 20%.

Third: Poor services, as the Iraqi citizen suffers from poor services provided by the government, whether it is related to education or health, or with regard to water, electricity, sanitation, municipal services, paving roads and others, and most of the neighboring countries are better off than Iraq in terms of services, and if you want to make sure of that Citizen’s discontent with the government is the most eloquent expression of a service question.


Conclusion
If Iraq wants to work to raise the performance of its economy, it must work to dry up the sources of corruption and combat it when it appears, in order to make the business environment a suitable environment that encourages and stimulates local investment as well as attracting foreign investment because the investor looks at the business environment if it is attractive or expelling his investments? Thus, eliminating corruption and building an attractive business environment will positively reflect on economic activity and the performance of the entire economy, and this is what is required.

https://annabaa.org/arabic/economicarticles/25265