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The Private Sector in Iraq: Challenges, Policies and Solutions
* Mahmoud Al-Najjar
For quite some time now, Iraq has been suffering from a defect in its economic structure, in a way that reflects the extent of the country's deviation from the developmental approach that guarantees proper economic construction, in addition to the emergence of many economic and social problems such as high unemployment rates, inflation and high levels of poverty, in addition to many problems left by this. The structural imbalance, which can be traced back to many factors, perhaps the most important of which is the domination of the public sector over the economic and development process during the previous decades and its neglect of the private sector, in a way that ultimately led to the atrophy and lack of identity of private economic activities, and their gradual transformation into a small dependent of the public sector.
The dominance of one of the two sectors, whether public or private, in the field of influencing economic activity is a problem of a general international character and is not specific to one country without another. We find that some countries failed in their governmental interventions in economic activity through the public sector, such as Iraq in the 1970s and 1980s and others. Many of the functions of a socialist approach, and at other times we find that other countries fail to implement the free market mechanism through the private sector only in managing economic activity, as is the case for many capitalist countries in the period before the Great Financial Depression in 1929, which eventually led to the establishment The idea of the need for direct intervention of the state in some economic aspects of a general nature.
The economic trajectory of Iraq prior to 2003 indicates the weakness of the private sector and its inability to contribute effectively to support the development process and create a state of economic balance between it and the public sector, and this is due to many reasons, part of which is due to the socialist nature of the political system that had prevailed for a while. Long, in addition to a set of nationalization laws and legislations that restricted and restricted the private sector and prevented it from playing its development role.
In spite of the variation and difference in the rates of government intervention according to the time period it went through, starting from the middle of the twentieth century, the declared goal has always been to stimulate the national economy within the limits of the philosophy of public ownership of the factors of production, which guarantees the state's control and direction of the country's development process.
But the paradox is that the results were often far from this ambition, as the absolute support for the public sector and the weakening of the private sector led to many negative consequences that took the country away from the desired economic and social development path, as this neglect caused the killing of the spirit of competition in production between The two sectors, the marginalization of profitability and the real return of many government projects under the pretext of achieving public benefit, so that the public sector ended up with high levels of job slack, many distortions in the production system and high economic costs, which led to a decrease in the amount of return achieved on the capital invested in public sector facilities.
This scene has been repeated in most of the public sector, such as the industrial, agricultural, transformative, financial, banking, and foreign trade sectors. What further weakens the private sector is the state’s control over all oil imports through the insurance process, as this has led to the state dispensing with imports that this sector generates due to the huge revenues of the sector. Oil, and the growing feeling of the state for a long time that there is no benefit from supporting and developing the private sector, with what it can constitute in terms of motivation and motivation to reject or at least discuss and debate government decisions that were directed towards exclusivity and centralization in its previous decades.
The concept of the private sector:
It is the business sector related to institutions, and companies that are personally owned by individuals, and not linked to the government of the state, or any of its institutions.
Among the other definitions of the private sector: It is the group of professions and jobs in which an individual or group of individuals works and is related to the experiences and skills acquired, whether depending on vocational training or academic education, and the private sector contributes to providing income to individuals through the existence of a group of job opportunities within Private establishments.
Characteristics of the private sector:
• It is the second party to influence the economic sector in every country after the public sector, and it constitutes an element of balance in the local and global economy.
• It is considered a direct influence on the workforce; As any private sector establishment needs a specific percentage of workers and employees who have sufficient capacity to perform the jobs that contribute to achieving the main objective of the establishment's existence.
• Providing salaries and income alternatives at high rates that are appropriate for employees in various fields of work.
• Establishing specific strategies for decision-making, far from any routine procedures, and leading to the limitation of any suitable decision in the work environment.
• Adopting many new project ideas, or redesigning and implementing existing projects, which contributes to the rise and development of the labor market and increases its efficiency in achieving many beneficial economic results.
Fields of work of the private sector:
The fields of work in the private sector are divided into the following two sections:
Individual work: It is the group of work carried out by individuals individually, without the help of other persons, and this field is one of the oldest private fields of work; Since human beings have sought since ancient times to search for work of their own, which would be a source of his income, so individuals worked in many productive, industrial, crafts and commercial professions that contributed to building the economic sector, and also contributed to a significant change in society, so many families were known by names The professions they worked in, such as: blacksmith, carpenter, tailor, barber, perfumer, and others.
Teamwork: It is one of the most common fields of private work. It depends on the presence of more than one person responsible for the facility and its capital, and it contains more than one employee to do business, which is divided into specialized departments and units, and this area is one of the areas that keep pace with modern productive, industrial, commercial, and service developments .
- With the development of ideas and economic projects since the middle of the twentieth century AD, and until this time, this has led to dependence on strengthening the role of private companies, which have become one of the most important elements of the private sector, thus contributing to the provision of many products, services, and industries that are beneficial to individuals, and examples of sector companies Private: Banks, telecommunications companies, insurance specialized institutions, cell phone companies, and others.
Economic change after 2003 and twinning strategies
The change in 2003 carried many new ideas in the economic approach (albeit in terms of theory), as the voices of many experts, researchers and those interested in the Iraqi economic and developmental affairs raised the need to involve the private sector in the development process and rebalance the country's economic structure, especially after the weakening of the sector’s role. On the one hand, and the successive failures of the rentier approach in managing the economic file adopted by successive governments on the other hand, with an important and fundamental factor being the modesty of the experience and competence of the political and economic decision-makers who succeeded in running the country in its last years.
In addition to the societal divisions and the negative consequences that followed on the security level of the country, matters became more complicated in light of the financial and administrative corruption that has spread within the corridors of state departments and led to the waste of public money without achieving any actual results on the reality of living, so nearly a trillion dollars were not enough ( One thousand billion dollars that Iraq has spent during its budgets since 2004 until now in building a social, economic and security reality that promises well. On the contrary, the opposite is true. Iraq is still floundering in its place in a sea of economic and political crises, and even successive social crises without seeing the light of salvation at the end The terrifying tunnel that he lives.
These combined and other factors have led to the weakness of government resources and its inability to carry out the development process on its own. Therefore, the need has necessitated that we rely on the private sector as a main supporter of the local economy through which it can overcome the previous negatives, as the public sector focuses all its concerns on building strategic industries that The public benefit has been achieved away from the profit goals, leaving the rest of the development projects to the private sector, which will enter as a partner of the public sector with a contract to be agreed on the form and formula for the implementation and implementation of the rest of the strategic projects, in addition to benefiting from the experience of the private sector in the implementation and completion of government projects that are often lost And negative or useless.
Despite the importance of the private sector in leading the development process in Iraq, this does not mean marginalizing the public sector. Rather, the current economic and social reality requires giving it a greater opportunity to advance the development and construction process of the country through the partnership between the public and private sectors, and that is through achieving the following points :
• Establishing an independent body linked to the Council of Ministers, whose mission is to coordinate with the government side in order to coordinate with the private sector in order to ensure the establishment and success of the partnership with the public sector.
• Redrawing the governmental trade policy to serve the national industry, while controlling the import process and putting an end to the commodity dumping policy and the open door for the foreign product.
• Work to build a sound investment environment that is encouraging and attractive to capital by reformulating the legal, legislative and financing aspects to serve this trend.
• Work to develop the banking system and create a financial environment that facilitates the process of financing and lending with speed in the completion and provision of more banking services.
• Emphasis on setting up a program to attract emigrant scientific talent and capital, and support their participation in submitting their bids and experiences in construction and development.
• Putting an end to financial and administrative corruption in state agencies and facilitating the work of private sector institutions by issuing new laws, removing routine complications, and improving private sector opportunities to obtain funding and support from the state.
• Work to build a general culture that believes in the importance of the private sector and its role in the development process by focusing on schools, institutes and colleges in stating the importance of private work and its competition for government jobs in building a future for youth.
The importance and role of the private sector in Iraq:
The continuous decline in global oil prices has led to the Iraqi economy sliding and reaching a deep recession, which led to the result of serious financial hardship. Other.
The drop in oil prices re-sheds light on basic economic issues such as restructuring national economies, searching for diversified revenues for the public treasury, working to diversify the economic base and stimulating the private sector. The dependence on oil revenues in previous years reduced the role of the private sector and led to a decline in the activity of the non-oil sectors.
Attention has shifted to the private sector and its role in changing the existing economic system since 2003, to be a locomotive for growth and economic stability in the country instead of the chronic addiction to the oil resource. In this context, many institutions have been established and a number of measures and programs have been taken in order to pave the way for a smooth transformation towards the private sector and the gradual liquidation of public sector facilities without harming the workforce in it by placing them in medium and small projects that receive government support. However, most of these programs remained ink on paper due to their unreality as they were ready recipes for the transition towards the private sector, far from the economic reality in Iraq and its requirements.
Strengthening the role of the private sector and stimulating it comes in the first place in terms of importance in line with its pioneering role, which can contribute to revitalizing the national economy and lifting the financial bottleneck that the country suffers from, through various measures, the most important of which are:
• Absorbing a large number of workers of different ages and skills due to the availability of various job opportunities in various economic sectors commensurate with most of the available skills, and thus the private sector relieves the government of the responsibility of providing job opportunities for most of those looking for it.
• In connection with the previous point, the absorption of unemployment through job opportunities provided by the private sector leads to the achievement of income for workers that turn into an effective demand capable of stimulating economic activity instead of the latter being linked to government spending, which is mainly linked to fluctuations in the price of oil.
• Selling government companies and establishments that are unable to produce, or adopting a partnership approach with the private sector, which in turn will provide the government with good financial resources due to the cessation of the annual support provided to these companies in order to conduct their business on the one hand, and to obtain large sums in exchange for selling these companies on the other hand.
• The renaissance of the private sector and its assumption of the task of providing goods and services in the country, with customs protection by the government, will provide a broad front of local goods that will limit the drain of foreign currency due to the spectacular import on the one hand and achieve food security for the country on the other hand.
• The private sector’s acquisition of a greater part of the production process in the country at the expense of reducing the role of the state will increase the efficiency of the use of economic resources.
• Due to sectoral entanglements, the renaissance of the private sector (specifically industrial) will in turn stimulate the agricultural, commercial and service sectors, and other economic sectors.
Challenges facing the private sector:
The private sector in Iraq suffers from a set of problems and obstacles that impede its development, including, but not limited to:
• The deteriorating security situation and political instability in the country.
• The breakdown of the country's physical infrastructure and insufficient energy and water supplies.
• Scarcity of qualified human resources, especially skilled workers.
• Poor management of the economic file by decision-makers.
Unrestrained import and the inability of the local product to compete.
• Insufficient available funding sources and the length of time required to obtain investment loans.
• The complexity of bureaucratic cycles and the widespread phenomenon of financial and administrative corruption that afflicts investment agencies.
The lack of policies and strategies that support the private sector and the outdated and complex legal and regulatory frameworks designed for a centrally planned economy.
Negative impacts on the private sector in Iraq:
After 2003, successive Iraqi governments since then and until now claimed to implement the market economy and strengthen the private sector, but the challenges came from all directions for this vital sector, which should be the focal point for developing the economy. Without it, the Iraqi economy will remain lame and based on one man, which is the sale of oil and the economy will remain Rentier Iraq is unable to move from time to time. To shed light on the negatives facing the private sector and how to overcome them, we will refer to the following aspects:
• Companies and government departments: The companies and government departments are the first customer and buyer of materials and services in Iraq because the rest of the economic sectors such as agriculture, industry and others are almost paralyzed, so any imbalance in the government sector will directly affect the private sector that employs millions of employees and workers and will be negative.
• Local and foreign tenders: Private sector companies participate in many local and foreign tenders, which are announced by companies and government departments throughout the year. But the first problem is the delay of the committees in the analysis, as this sometimes extends to months and years, and when the contract is approved for one of the competing companies, the prices have risen or the model may have changed ... etc. Employees in the government sector and in ports, customs and controls. The biggest problem is when disbursing amounts to the supplier or contractor, the arm of corrupt employees comes to me.
• Governmental and private banks: The private sector companies all over the world depend on different banks for financing and providing services to them to work on implementing the contracts they have except in Iraq. The Iraqi and foreign banks operating in Iraq are focused on buying dollars from the Central Bank of Iraq and selling it at remunerative prices. Work and provide other banking services, which led to the reluctance of banks in Iraq to cooperate with private sector companies. The role of the Central Bank of Iraq is important in urging banks to cooperate with the private sector, in order to contribute to the development of the Iraqi economy by providing all types of banking services at acceptable costs so that suppliers and contractors can perform their work in the best way.
Taxes: Taxes on private sector companies in Iraq are strange as they are involved in the field of randomness and selectivity, and they are not on fixed grounds as is the case in other countries, in addition to that the spread of corruption among a number of employees who work for their pockets more than their interest in tax collection To the state. Also, taxes on private sector companies are increasing significantly annually, which paralyzes their movement in the market and their inability to pay such taxes due to lack of financial resources.
Shocking statistics and numbers:
Iraq is considered one of the countries in the Middle East region with the highest unemployment rate according to the size of the workforce in the country. Despite the openness of Iraq to world markets after 2003 and the lifting of the international blockade that had been imposed on the country since the Second Gulf War in 1991, the country is witnessing a continuous economic decline with a significant increase in the rate of poverty and unemployment.
Iraq relies in its federal budgets on exporting oil to nearly 90%, but the oil revenues have not been invested in improving the reality of the economy and promoting it to compete with the economies of neighboring countries, at the very least. According to the statistics of the Central Bureau of Statistics, it revealed that the unemployment rate among young people for the age group between (15-29) years amounted to 22.6%, an increase from the national average of 74%, while the unemployment rate for males for this age group is 18.1%, at the time it was recorded. In which unemployment among females is 56.3% for the same group.
Not far from unemployment rates and their consequences for Iraq, the poverty rate among Iraqis is the highest regionally, as according to the Iraqi Ministry of Planning, the official indicator for measuring the approved poverty rate reveals that 22.5% of the Iraqi people live below the poverty line.
As for the World Bank, in a report published in 2018, it revealed that the population of Iraq is 38.5 people, and that the poverty rate in it according to the poverty line set at $ 3.2 per day reaches about 17.9%, while the percentage increases by calculating $ 5.5 income per day to reach more than On 23%.
These dangerous figures indicate the existence of an economic catastrophe that will have a negative impact on the societal classes, especially in light of the collapse of the private sector and its exposure to obstacles and arbitrary and illogical legal measures, and this calls for immediate action to find appropriate solutions to save the economic reality from its crises.
Indicators of the marginalization of the private sector in Iraq:
The most prominent indicators that illustrate the extent of the marginalization of the private sector in Iraq can be noted through the following:
1. Index of economic freedom: The private sector cannot take its true role in the economy unless there is sufficient economic freedom. Although Iraq has adopted economic freedom since 2003, on the ground it still suffers from weak economic freedom due to corruption and the difficult business environment, as it ranked 168 out of 180 countries in the corruption index, and ranked 168 out of 190 countries in the ease of performance index Business in 2018. Both matters contributed to the difficulty of communicating reliable data, which made Iraq not included in the classification of the Economic Freedom Index, especially after 2003.
2. Ownership index: Private ownership is one of the main factors that encourage the private sector to economic activity. The more the private sector has the right to own the means of production, the greater its role in economic activity. And since the state owns more than 80% of the land, which is one of the most important means of production, and its possession of many operating and stalled companies, and it also dominates the banking sector significantly, by virtue of many indicators, most notably, the assets of government banks are greater (90%) than the assets of private banks (10%) of the total assets in 2016, so the role of the private sector in Iraq was minimal.
3. Index of the private sector’s contribution to the gross domestic product: The oil sector occupies a large percentage in the Iraqi GDP, which exceeds 46% of it if the percentage of the output is taken as a whole, and exceeds 66% in 2018, if it is calculated This percentage is from the commodity sectors away from the distribution and service sectors. Since the oil sector is controlled by the state, the domestic product is led by the state through oil and not the private sector.
4. Index of the private sector’s contribution to merchandise exports: We note from the trade balance that oil exports dominate commodity exports, as oil exports (crude oil and petroleum products) constitute 99.85% of commodity exports, and since the state dominates oil exports, then The private sector contributed to merchandise exports only a very small, almost negligible amount.
5. The private sector’s contribution to fixed capital: The private sector’s contribution to fixed capital formation was approximately 59.77% of the total fixed capital formation, while the private sector constituted only 40.23% in 2017 and this means that the state is still present in the economy. Iraqi and a large proportion.
- It is evident from the above indicators, represented by the weakness of economic freedom and private ownership, and the low contribution of the private sector to GDP, commodity exports and in the formation of fixed capital. The role of the private sector in Iraq is marginal rather than real.
Based on this conclusion, decision-makers must pay attention to work on reforming the state's role in the economy in a way that contributes to clearing the way for the private sector and encouraging it to take its real role in the Iraqi economy instead of the marginal role, in order to improve economic growth rates, reduce unemployment rates and achieve Internal and external balance.
The private sector and required stimulus policies:
At the end of the previous months, the Iraqi government formed a crisis cell to monitor the economic and financial situation and draw up policies capable of adapting to the continuing decline in oil prices, by launching a new initiative to develop the private sector in the context of the government's approach to economic reform. However, it is indicated that a large number of government programs that were implemented during the past decade to support the private sector in Iraq and overcome the obstacles to launching it are indicated because they were fragmented and did not fall within a coherent strategy or a plan that includes successive measures that the government can use to address the problems that hinder the emergence of a private sector. subject.
The development of the status and performance of the private sector is a fundamental issue on which economic policies must be based by adopting an optimal strategy for developing the private sector that reflects a correct understanding and a clear perception of mechanisms and ways to activate its role in economic activity, so the government should launch a package of appropriate policies and measures to stimulate and strengthen this sector In the current stage, perhaps the most prominent of them are:
• Initiate a dialogue between the government and the private sector, whereby the government (Cabinet and Parliament) consults with the private sector when developing policies, laws, regulations or instructions pertaining to the latter through joint meetings and seminars to review and simplify the legal and regulatory framework related to private sector activity in order to overcome obstacles that hinder its launch .
• Providing adequate financing to the private sector by issuing new laws, removing routine complications, improving the sector’s chances of obtaining adequate financing commensurate with the investment opportunities in the country, and working to develop new financing mechanisms that are available to most private companies and institutions, especially small and medium enterprises.
• The need to provide an appropriate and stimulating climate that helps revitalize the private sector by providing the necessary infrastructure and security protection for projects and institutions operating in the country.
• Adopting advanced training and rehabilitation programs that contribute to empowering the Iraqi workforce and raising its level of skill, so that these programs are homogeneous and in harmony with the requirements of the Iraqi labor market, in order to provide the private sector with a diverse workforce of various skills that fit the needs of the market.
• Working to facilitate procedures for granting investment licenses, allocating the necessary lands for investment projects, granting tax exemptions and customs protection from similar goods, in order to enable the private sector to access local markets, compete with foreign products and acquire local markets.
Creating a partnership between the public and private sectors to achieve integration in economic activity in a way that serves both sectors, and establishes a dynamic growth for the private sector that enables it to obtain better opportunities to expand its activity and then enhance its position and performance in a way that benefits the economic activity as a whole.
• Creating a competitive and social market away from monopoly, by enacting laws that frame the work of local markets and increase their efficiency in allocating resources.
Conclusion ... the private sector and its role in the development and containment of Iraqi human resources
All economic data and indicators confirm beyond any doubt that the private sector, with its great capabilities and field experiences, is the one that drives the wheel of Iraqi economic growth, and what has been achieved of qualitative development in some Iraqi cities, whether in the field of housing and building large residential complexes, as well as malls and industrial and food projects These include the construction sector, the banking sector, and the private banks. Although slow, it reflected the capabilities of the private sector in building the state and in various circumstances.
On the other hand, the public sector, with its governmental institutions, is still unable to complete a single project, whether service or investment, in any of the service and economic fields, which resulted in the presence of thousands of idle and stalled projects and crowds of unemployed employees (disguised unemployment), due to rampant corruption and the absence of real will And the decisive part of the government and parliament in moving the wheel of investment and development.
The Iraqi state must acknowledge that the private sector saved the new Iraq, even if only by a small percentage, from the failure scandal caused by the government sector over the past 17 years, but the biggest failure lies in the government's neglect of the private sector and not giving it a wider space to rebuild the infrastructure that still lacks any components. The advancement, and even projects implemented by companies and investors, are subject to many conditions and obstacles, as well as methods of financial extortion to facilitate their work.
Today, the private sector can perform two important functions, the first being the completion of large vital projects and the initiation of re-work in idle and delayed projects, and the other function is to alleviate the severity of unemployment that is now glutting the country and deepening its crises. To provide thousands of job opportunities for graduates, professionals and people with special expertise according to plans that push it to attract local employment at the expense of foreign workers by granting encouraging and supportive concessions to companies, in order to employ local workers by allocating a special budget for workers in the private sector and granting half the monthly wages to workers who work In projects from the same province or city in which they live, this matter is not new and is adopted by many countries where the private sector occupies a large area, as well as activating the Social Security Law to guarantee the retirement rights of private sector employees and create an environmentConfidence in working outside the walls of government employment.
Finally, the public sector agencies concerned with development and the economy must announce that they have so far been unable to develop an actual vision to start the reconstruction and recovery processes, and all the visions that were put forward in past years are nothing but imaginary ideas and plans that the actual reality did not accept, so they remained only ideas written on paper and not translated. Realistically with the complete absence of leadership capable of properly managing the reconstruction and development file, which necessarily leads to improving and providing decent living for the Iraqi citizen.
All countries that have witnessed an urban and economic renaissance have relied on the private sector in all stages of development, and the Iraqi state is required to leave the public sector and old governmental minds aside and move towards serious interest in the private sector and give confidence to businessmen who have experience and successful experience in order to rebuild the homeland in a professional way. And the complete elimination of the three biggest problems the country suffers from, unemployment, corruption, and idle projects.
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