Private Sector Development Scoping Study, Iraq

Report Written for the Netherlands Ministry of Foreign Affairs

and the Netherlands Enterprise Agency

IRAQ

Final Report

Submitted on 8/28/2018

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 Table of Contents

TABLE OF ABBREVIATIONS ......................................................................................... 0

1.0 BACKGROUND......................................................................................................... 2
Executive Summary ..................................................................................................... 2
Methodology ................................................................................................................ 4
2.0 CONTEXTUAL ANALYSIS ........................................................................................ 2
Investment Climate ...................................................................................................... 2
Labour Market Participation ......................................................................................... 4
Employment Numbers per Economic Sector ............................................................... 5
Women’s Employment ................................................................................................. 6
Youth Employment .................................................................................................... 11
3.0 ENABLING ENVIRONMENT ................................................................................... 15
Barriers to Entrepreneurship ...................................................................................... 15
Access to Financing................................................................................................... 16
Initiatives to Support SMEs ........................................................................................ 18
Regulatory Reform..................................................................................................... 19
Effectiveness of Investment Policies at Federal and Local Levels ............................. 24
Cultural Barriers: Bias Towards the Public Sector ..................................................... 24
Security...................................................................................................................... 25
Land Tenure .............................................................................................................. 26
Utilities and Infrastructure .......................................................................................... 27
4.0 BACKGROUND ON THE TVET SECTOR .............................................................. 30
5.0 SECTORS WITH GROWTH POTENTIAL AND RECOMMENDATIONS FOR
INTERVENTION ........................................................................................................... 33
Construction .............................................................................................................. 34
Food Manufacturing ................................................................................................... 40
Tourism...................................................................................................................... 44
Light Manufacturing ................................................................................................... 50
Petrochemicals .......................................................................................................... 53
Telecommunications and Information Technology .................................................... 54
6.0 OVERALL PROSPECTS FOR WOMEN ................................................................. 59

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7.0 OTHER RECOMMENDATIONS.............................................................................. 60
8.0 DUTCH-IRAQI DIASPORA ..................................................................................... 60
9.0 SUMMARY OF RECOMMENDATIONS BY SECTOR ............................................ 63
ANNEX A: List of People Interviewed............................................................................ 67
ANNEX B: Vocational Training Centers ........................................................................ 73
ANNEX C: Iraq Map ...................................................................................................... 75
ANNEX D: List of Documents Cited .............................................................................. 76

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TABLE OF ABBREVIATIONS
Term Abbreviation
Baghdad Investment Commission BIC
Bolstering Reconstruction in Iraq BRIDGE
through Development, Growth and
Employment
Canadian Leaders in International CLIC
Consulting
Central Bank of Iraq CBI
Communication and Media CMC
Commission
Competency Based Training CBT
Coordination of Humanitarian Affairs OCHA
Corporate Social Responsibility CSR
Dutch Employers Cooperation DECP
Programme
European Union EU
Food and Agriculture Organization FAO
Foreign Direct Investment FDI
Fragile and Conflict Affected States FCAS
Gender Parity Index GPI
Global Compact GC
Government of Iraq GoI
Information and Communication ICT
Technology
Information technology IT
Infrastructure Development Fund IDF
Inter-Agency Information Analysis Unit IAU
International Finance Corporation IFC
International Labour Organization ILOSTAT
International Labour Organization ILO
International Oil Companies IOCs
International Organization for IOM
Migration
internet protocol IP
Investment Climate Assessment ICA
Iraq Multiple Indicator Survey MICS
Iraqi Company for Banking Guarantee ICBG
Iraqi Company for Financing ICEF
Iraqi Telephone and Postal Company ITPC
Kurdistan Region Labour Force KRLFS
Survey
Kurdistan Region Statistical Office KRSO
Kurdistan Regional Government KRG
Kurdistan Region-Iraq KRI
Migrant Entrepreneurship Programme MEP
Millennium Development Goals MDGs
Ministry of Education MoE
Ministry of Higher Education and MoHESR
Scientific Research
Ministry of Industry and Minerals MIM.
Ministry of Labour and Social Affairs MOLSA
National Development Plans NDP
National Energy Strategy INESTA
Private Infrastructure Development PIDG
Group
Private Sector Development PSD
Private Sector Development PSDP-I
Programme in Iraq
Public-private dialogue PPD
Small and medium enterprises SME
Socio-Economic Monitoring System SEMS
State Owned Enterprises SOEs
State Owned Enterprises SOE
Technical and Vocational Education TVET
and Training
Telecommunications and Posts IPTC
Company
United Nations Development Program UNDP
United Nations Educational, Scientific UNESCO/UNEVOC
and Cultural Organization
United Nations Office for Project UNOPS
Services
United Nations Population Fund UNFPA
United Nations World Tourism UNWTO
Organization
Vocational Training Centers VTCs
Wireless Local Loop WLL
Women’s Economic Empowerment WEE
World Bank WB)
World Food Program WFP
World Travel & Tourism Council WTTC

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1.0 BACKGROUND
Executive Summary
Purpose
The purpose of this report is to provide the Dutch Government with systematized
information related to the investment climate and key economic sectors in Iraq. This
information is expected to improve the overall understanding of the private sector in
Iraq; and provide specific suggestions that would inform the decision of the Ministry of
Foreign Trade and Development Cooperation to support the development of the private
sector in Iraq.
This study is the first extensive study undertaken in Iraq by a donor country since the
start of the conflict with Daesh in 2014.To this end, the report:
• Describes investment climate and economic landscape in Iraq;
• Analyses trends in employment with specific focus on women and youth, and
highlights key factors determining the employment patterns;
• Identifies and analyses key growth sectors with focus on potential employment
opportunities, with focus on women and youth;
• Selects key sectors and examines them from a ‘fit’ perspective with Dutch foreign
and development policy priorities; and
• Recommends development interventions. It is important to explore the
implementation of programming throughout Iraq as there is a natural inclination
to work in Baghdad.
Findings
The enabling environment in Iraq was examined to identify challenges faced across all
selected sectors (with varying degree). Key challenges identified included lack of
access to financing, corruption and red tape, outdated and ineffective legal framework,
cultural specificities and security.
The study then identified six sectors with high growth potential, including significant
employment opportunities. These sectors include construction, food manufacturing,
tourism, light manufacturing, petrochemicals and telecommunications. They are
explained in detail in section 5 of the report.
Following the analysis of sectors with respect to their alignment with Dutch development
priorities, four out of six sectors were identified as suitable for development intervention:
Construction
A lack of qualified personnel was identified as a major challenge to the successful
development of the construction sector, stemming from a poorly performing TVET
sector. Given Dutch policy focus on investment in education and wealth of experience in
designing and implementing education and training related programming, a
development intervention focused on IRAQ’s TVET needs in construction sector is

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recommended. Specific areas of intervention include strengthening the capacity of local
TVET institutions and building strong linkages with the construction industry.
It was also suggested that strong linkages with the construction industry be built by,
among other things, developing work study programs and internships that enable young
people to obtain practical skills at companies, which complement their studies and
Sharing expertise and building the capacity of the Construction Sector Council.
Food Manufacturing
Weakening competitiveness was identified as the major challenge facing the food
manufacturing sector. Based on the Dutch focus on food security and expert status in
food production and processing, a development intervention focused on improving the
competitiveness of Iraq’s food manufacturing industry is recommended. The areas of
intervention can include building food research and testing capacity in coordination with
universities and colleges that can be linked to Dutch institutions, and helping local
producers to market, sell, and export their product. Entrepreneurial capacity building
and information and communications technology (ICT) should be linked to strengthen
the sector and to increase the sales and marketing of the sector internally and
externally.
Telecommunications and Information Technology
The Netherlands’ sustainable and inclusive growth worldwide1 agenda identifies a focus
on mobilization of the private sector for SDGs and digitization as key action areas.
Given the policy direction and the role of the Netherlands in the digital marketplace, a
development intervention focused on strengthening of the ICT sector is recommended.
The areas of intervention can include rebuilding ICT infrastructure and fostering
innovation by: developing incubators in partnership with Iraqi companies and
universities and Dutch investors;2 engaging the Iraqi Communication and Media
Commission (CMC) as well as ICT companies to dedicate portion of its revenues to
projects for youth and women that are focused on ICT; and providing short-term
targeted training to build entrepreneurial skills among youth and women entrepreneurs
and improve capacity of public sector staff to manage ICT development.
Tourism
The tourism sector does not appear to align strongly with Dutch development priorities.
However, given the growth and importance of promoting this sector, we chose to
include a number of recommendations. Areas of intervention could include: Providing
assistance in incorporating archaeological, environmental and eco and nature tourism;
supporting any of the large number of infrastructure improvements; strengthening
infrastructure and facilities; supporting tourism institutes that can improve educational
programs to provide tourism services and improve marketing and advertising
internationally; and supporting the Boards of Tourism in both Iraq (Ministry of Culture)
and KRI (Ministry of Municipality and Tourism). It is also important to link ICT incubators

1 Investing in Global Prospects, p.53: https://www.government.nl/documents/policy-

notes/2018/05/18/investing-in-global-prospects
2 We were able to identify only one incubator occupying this space—Noah’s Ark, which has dedicated
energy and resources for the ICT Sector. However, their investments and efforts remain to be seen.

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and entrepreneurs to focus on this sector. The creativity of an ICT component will
increase the relevance of this sector to youth and women. It is also recommended that
the food manufacturing sector be linked to the hospitality sector as it would be one of its
main clients to provide high quality, safe food supply.
Methodology
To provide the Government of the Netherlands with an extensive understanding of the
private sector in Iraq which will feed into the Ministry of Foreign Trade and Development
Cooperation’s decisions to support the development of the sector in Iraq, a mixed
method approach was adopted. First, the literature review was conducted to cover the
entire country and address some of the key issues regarding the private sector and the
overall investment climate in Iraq, as well as to provide an insight into the plans and
activities of other donors to support Iraq in the development of its private sector in the
proposed sectors and fields.
However, while an extensive document collection process was undertaken, the
availability of accurate and timely statistical and sectoral information was somewhat
limited. The team resorted to finding information in both Arabic and English, reviewed
television statements by different stakeholders and collected media reports. Information
from the same ministry was contradictory, in many cases ministries and associations
relied on data from unreliable sources. This resulted in the need to alter the approach to
the desk review and stakeholder analysis, given that there was insufficient evidence to
formulate preliminary conclusions. Hence, heavy emphasis had been placed on mining
the existing network to identify available sources of documentation, as well as the
development and deployment of the stakeholder questionnaire to supplement the desk
review.
Then, the physical outreach of the assignment was conducted via Key Informant
Interviews (KIIs), semi-structured interviews, meetings and focus group discussions in
four regions of Iraq: Baghdad, Basra, Sulaymaniyah and Erbil. The proposed cities
provided a good cross section of Iraqi society and all communities including Kurdistan
Region-Iraq (KRI), as well as proved to be cities with significant economic potential.
They served as a valid sample given the limited resources to conduct the scoping study.
Furthermore, a stakeholder analysis was conducted in parallel to the desk review to
assess between five and ten key sectors in Iraq and the KRI. The stakeholder analysis
was conducted in parallel to the desk review through the analysis of relevant documents
and reports as well as key informant interviews. Key participants for the interviews were
identified in collaboration with the Dutch Project Team.
Finally, overall analysis was directed to develop specific recommendations on areas
and sectors in-line with the Dutch agenda for aid, trade and investments regarding Iraq
(PSD Instruments) as well as potential areas of support for the Dutch private sector
based on its strengths and value-added for Iraq.

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 Key
informant
interviews,
semi- Analysis and
Literature Stakeholder Identification Additional Report
structured Recommend
review analysis of gaps analysis drafting
interviews ations
and focus
groups

Sections below provide a more in-depth description of the overall methodology.

Literature / Desk Review
Secondary data that has been gathered primarily by the consultants includes all the
published material to his day, including documents from the various Ministries in Iraq (in
both Arabic and English), World Bank (WB) Doing Business report for Iraq, International
Monetary Fund (IMF) reports and all other relevant documents.
Preliminary Desk Review evaluated the private sector landscape and employment
growth areas and identified economic sectors and themes in Iraq that matched best with
the Dutch development priorities. In addition, key stakeholders representing the
proposed sectors and themes were identified. To that end, all the material and reports
available from international partners in Iraq as well as information available from Iraqi
organizations were reviewed.
The desk review was designed to assess the following:
• Current situation of the non-oil and non-agricultural private sectors;
• General business climate in Iraq and challenges that companies (especially
Small and Medium Enterprises (SMEs) face;
• Needs of the private sector, SMEs;
• Areas where the private sector can contribute to generate more employment for
youth;
• Opportunities to increase linkages of knowledge and expertise between Iraqi
SMEs and Dutch companies and institutions; and
• Identify 5-10 sectors and sub-sectors most promising for youth, women and
overall job creation for sustainable economic growth.
Challenges
As mentioned prior, the key challenges faced during secondary data gathering was the
absence of timely statistical and sectoral information. There have also been barriers

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faced when communicating with the Ministries, as well as the problem of information
sharing between those Ministries in Iraq. Furthermore, the majority of sources and
reports on women’s unemployment and the overall investment climate in Iraq are
outdated. There is no disaggregated data on the e labour forces participation of youths.
Correspondingly, there is a lack of reliable and updated studies on the issue of high
unemployment rate and a large pool of poorly educated and unskilled youth entering the
labour market each year.
Another major challenge we found is the contradiction in data from Government
sources, as well as from the international community. It was also clear that many data
were referencing the stabilization efforts that were taking place in the country and not
the actual statistical data required for the development of key Government sectors. The
Statistics Bureaus in both KRG and Baghdad did not have up to date data and most
data they have is dating back to 2010-2012.
For example, the only data available at the KRG Statistics Bureau related to the
construction sector is from 2012 but published in 2016 referencing only the number of
construction services.
Furthermore, many international organizations and embassies did not return calls and
repeated emails to participate in the assessment. Timing may have been a factor as
many take holidays during the summer in Iraq.
During the mission to Basra the security situation deteriorated, our staff had a difficult
time communicating with key informants in the city. In an effort to quell the unrest in
Basra, the Government of Iraq shut down all internet communication across the country.
International companies operating in Basra were evacuated and many government
officials did not go to work for fear for their safety as the demonstrations targeted the
government’s failure to provide adequate services.
Some of the individuals contacted were unavailable, and/or did not want to give enough
time for the interviews. Some promised to fill out the questionnaire at a later stage, but
they have not followed up or returned requests for additional information.
Data Collection
Primary data has been collected by researchers in Iraq through a questionnaire, semi
structured interviews and focus groups. The questionnaire was mostly hand-delivered to
participants; in certain cases, it had been emailed in advance. The questionnaire
contained multiple types of questions: open-ended, yes-no, scale, listing, ranking,
category. The questionnaire was answered during face-to-face semi-structured, key
informant interviews and focus groups. In total, there were fifty (50) key informant and
semi-structured interviews conducted:

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 Baghdad Basra Kurdistan (Erbil,
and
Sulaymaniyah)
Government 7 2 12
Private sector 7 0 3
NGO Sector 5 4 3
International donors / 4 3
Organization

Total 23 6 21
Table 1: Total number of Key Informant Interviews and Semi=structured Interviews Held

Out of five (5) Focus groups, there was one (1) NGO focus group and one (1) private
sector focus group in Baghdad and Kurdistan, as well as one (1) mixed focus group in
Basra:

Table 2: Number of focus group participants

Data and Stakeholder Analysis

Upon completion of the fieldwork and data collection, all data collected was cleaned,
organized and processed as follows:
Qualitative data (interviews, meeting notes, focus group discussions, document
review)
All answers resulting from the qualitative data collection tools were recorded verbatim
after receiving the approval from the participants. All responses were saved in an Excel
file. The responses were then grouped for each question with the same or similar
answers into a code frame. This code frame was then entered into the data file, and
frequencies of each response were created. Interview contents were then transcribed
and sent to consultants to assist with the ongoing desk review process.
Quantitative data (desk review and stakeholder analysis)
All answers resulting from the quantitative data collections were cleaned, organized and
categorized in an excel file as well as checked for data errors, falsification or
duplication. All responses were coded and analyzed using frequency runs to provide a
statistical basis for the measured indicators, when appropriate.
Mixed method approach
All data was cross-checked and triangulated to provide a complete comparative
analysis of the results gathered to specify statistical and qualitative information. This
information led to a complete overview of the private and investment sector in Iraq,
including gaps and needs and areas where the support of the Netherlands would be of
highest value.

To provide a complete and thorough stakeholder analysis, interviews with high level
stakeholders were conducted to obtain their perspective on the private sector landscape
in Iraq, challenges and bottlenecks, the role of their organization in the process and
perspective on the identified sectors for the study regarding opportunities, gaps and
needs.
Recommendations
The findings of the collected data and stakeholder analysis have been fed into the study
report to provide specific recommendations for potential areas for cooperation.
Additionally, a meeting was conducted with the Dutch project team to discuss and verify
if the identified themes and sectors as well as the stakeholders fit within the Dutch
private sector development approach. Finally, several sectors and areas within the
private sector were identified and linked to bottlenecks and the role and impact of
stakeholders. These bottlenecks and stakeholders were then linked to the needs and
specific recommendations for relatively easy intervention on behalf of the Dutch team,
while associate risks were also considered.

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2.0 CONTEXTUAL ANALYSIS
Oil dominates Iraq's economy. It provides over 90 percent of government revenue and
80 percent of foreign exchange earnings.3 Iraq’s dependency on oil makes the economy
vulnerable to oil price fluctuations and sabotage attacks on the oil infrastructure. On the
other hand, the oil sector presents a challenge to employment generation.4 Thus,
economic diversification – the services sector, as well as industries based on agriculture
and energy - is important in the long term, even if the oil sector continues to provide the
basis for growth and stability in the medium term. The Iraqi Government, international
experts and the public to a large extent agree that the time has come for Iraq to use the
oil resource as a platform for the development of diversified economy, making it one the
sectors and not the dominant one. This vision is expressed in the Iraqi National
Development Plans (NDP) and in particular in the 2018-2022 NDP. While trying to move
away from oil-related activities, Iraq still faces important challenges such as fighting
corruption, training and integrating youth and women in the labour force, building
institutional capacity and reducing the size of informal sector.

As per the latest “Assessment of the Labour Market & Skills Analysis” report, “the
population of Iraq is approximately 38 million, of which 70% live in urban areas. Around
40% of the population are children under 15 years, and the population is growing at a
rate of 3.3% on average. Less than half of the working age population is economically
active (i.e. working or looking for work).”5

Investment Climate
During the period of sanctions, little private sector investment was possible due to
restrictive investment rules and virtually no formal foreign direct investment.
Nevertheless, fifteen years ago, the private sector in Iraq was not insignificant in terms
of its contribution to employment, within an excess of 100,000 small and medium
enterprises (SMEs) and micro enterprises6, and a contribution of SMEs to employment
estimated at close to 40%.7 Since then, the private sector has been engaged in retail,
trade, services (construction/ transportation), and small-scale manufacturing. The key
industrial sectors were: textiles, food industry, engineering, chemical, and plastics.8

3 Dr. Simon White, “Micro, Small and Medium-sized Enterprises in Iraq; A Survey Analysis” (October
2012), p. 4.
4 “Bank staff estimate that the oil sector will account for at most 3 percent of the work force.”

United Nations / World Bank, Iraq: The Investment Climate (2003), p. 2.

5 UN and TVET, “Assessment of the Labour Market & Skills Analysis: Iraq and Kurdistan Region-Iraq,”

project funded by the European Union (2017), p. 30.

6 SMEs – less than 250 employees. In 2003, there were approximately 100,000 businesses based on the

assessment of local Iraqi businessmen.

7 Ibid., 3
8 Ibid.

2
More recent reports9 reveal that the majority of these businesses are owned by sole
proprietors, with most of the remainder being family partnerships. Many of the
employees in SMEs are unskilled, short-term labourers. Iraq only possesses a handful
of large, typically family-run multi-industry conglomerates, active in retail, domestic trade
and construction. However, large private businesses are emerging in Iraq in ICT,
particularly mobile communications, and in technical services for the oil and gas
industry.10

The National Development Plan (NDP) 2010 – 2014, developed with the assistance of
USAID-Tatweer, aimed to:

• Achieve Gross Domestic Product (GDP) growth of 9.38% during the years of the
plan;
• Generate 3 to 4.5 million new jobs; and
• Diversify the economy away from oil with a gradual increase in the contribution of
production, agriculture, industrial sectors, and tourism; and strengthen the role
for the domestic and foreign private sector, both in terms of investment and job
opportunities.11

During the first half of 2016, due to strong oil production, overall real GDP growth was
robust, while non-oil GDP continued to diminish as a result of the war with ISIS and the
ongoing fiscal consolidation.12

The vision expressed in the 2018-2022 NDP plan is to establish a robust economic
recovery through sustainable development. The NDP underscores the role of the private
sector as a major contributor to economic development and the GOI plans to develop
and implement the regulatory and policy reforms required to do so.

The NDP states that Iraq is moving to a market economy that is enabled by the
Government. The NDP states that Iraq will achieve a rate of growth in the Iraqi economy
up to 7% by raising the gross domestic product to (292.5) trillion dinars in 2022 from
182.2 trillion dinars in 2015.13

9 Republic of Iraq Prime Minister’s Advisory Commission, Private Sector Development Strategy of Iraq
2013-2030 –Draft (January 2013)
10 Ibid.
11 Ibid., 46. See USAID/IRAQ – Planning Reform (2013)

12 IMF, IMF Country Report: Iraq (2016), p. 5.

13 Republic of Iraq, National Development Plan 2018-2022

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Labour Market Participation
Iraq is plagued by one of the lowest labour participation rates in the Middle East: 2016
World Bank data shows that this labour participation has remained stable between 1990
and 2015, rising slightly from 41% to 42.5%.14

According to Iraq Knowledge Network Survey 2011:15

• 44% of Iraqis (7.9 million persons) were in the labour force;
• 72% of males are were the labour force and just 13% of females;
• The government provided 40% of jobs, the remainder was in the private
sector, which provided 45% of all employment in urban areas and 28% of
employment in rural areas;
• Of all working females, 60% were working in the government sector. Overall,
one out of six persons in the labour force was a woman;
• Unemployment rate was 11% nationally (7% of males and 13% of females):
• 653,000 people were unemployed, of which 496,000 were male and 157,000
were female;
• Youth (15-24 years) unemployment was high at 18% (27% of females and
17% of males);
• Youth unemployment was higher in urban areas compared to rural areas;
• Unemployment was higher among youth with a higher education.

The latest UN & TVET assessment analysis16 presents Figure 12 (see below), which
shows employment of male, female and youth workers by economic sector. The
numbers reveal that the largest proportion of women is employed in the education and
agriculture sectors, followed by health & social work. Traditional male domains (such as
construction) and public facing sectors - accommodation & services and wholesale &
retail - include a very small proportion of women in their workforce. The largest
proportion of youth (15 – 25) is employed in building & construction as well as
accommodation & services, followed by agriculture, wholesale & retail, and other
services.17

14 “EJADA – Development of a replicable Competency Based Training Model piloted in the oil sector,
Iraq,” Labour Market Survey (2017), p. 4.
15 “Iraq Knowledge Network Survey 2011: Socio-Economic Monitoring System for Iraq,” Central Statistics

Organization (CSO), the Kurdistan Region Statistical Office (KRSO) and the United Nations (UN) (2011).
16 UN/TVET, “Assessment of the Labour Market & Skills Analysis: Iraq and Kurdistan Region-Iraq,” p. 31.
17 Ibid.

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Figure 1: Formal employment in Iraq by economic sector and worker profile, 2014

Employment Numbers per Economic Sector

While there are limited, and contradictory reports published on the overall
unemployment situation in Iraq, the Ministry of Labour has not been able to provide an
accurate estimate of the number of unemployed. It has provided an overall context for
the current investment climate in the country, along with the employment trajectory
across various economic sectors in past few decades (see table below). Note that
currently, the Iraqi economy is based on oil (85%) while the other sectors combined
constitute only 15%. The Oil sector employs approximately 2% of the Iraqi labour force,
while the Government employs close to 65% of the labour force. This is mainly because
the Iraqi government is the largest purchaser of services and products, whereas small
and medium businesses and other investors are dependent on the government’s
purchasing power as their main client. Moreover, the Iraqi government is competing with
SMEs through its purchasing power and employment of talented and skilled workers.
Meanwhile, State Owned Enterprises (SOEs) compete for contracts against the private
sector. Therefore, due to the heavy role of the central government and its agencies in
the Iraqi economy, the majority of investors have been forced to work out trade deals
with and sell to the government. Arguably there are no real incentives for small and
medium local inventors to continue investing in their own businesses, which ultimately
decreases their added value to the Iraqi economy and reduces the number of job
opportunities for the population. The table below supports this claim by depicting a
dramatic decline in employment number in Trade and Services sectors between 2007
and 2014.

5
 1977-2014

Economic Sector 2014 2007 1997 1987 1977

Agriculture 7.9 14.5 22.9 13.7 31.5

Manufacturing 9.2 3.9 5.4 7.4 9.5
Construction 12.9 6 5.4 9.5 10.7
Trade 13 56.1 22.4 6 7.5
Transport 10.9 4.6 4.4 6.2 5.9
Services 4.5 14.8 33.6 54.2 31.9

Table 3: Employment numbers per Economic Sector

Note: The table was proved by the Central Statistics Bureau.

Although the table is slightly outdated, the trend remains consistent.

Women’s Employment
Overview
Unemployment in Iraq is particularly high among young women, new labour market
participants and educated youths who have chosen to pursue university degrees for
which there is limited demand within the Iraqi labour market (such as humanities and
social sciences).18 As per the NDP 2013-17:

• The gap between men and women’s participation in economic activities

expanded to 56.6% in 2011 after being 50% in 2005; and
• Protected work was 47.6% in 2011, and the percentage of women in protected
work was 58.6%. This is higher than the percentage of men which was 45.6% in
the same year.19
Women: Faltering Growth
Despite the many achievements in narrowing the gender gap, especially in the fields of
education, health, work, and political participation, efforts are still faltering, and the gap
remains wide.20 Development indicators related to gender reflect that:

18 Labour Market Survey, “EJADA – Development of a replicable Competency Based Training Model
piloted in the oil sector, Iraq,” Labour Market Survey (2017), p. 4.
19 Republic of Iraq, National Development Plan 2013-2017, p. 8.
20 Ibid., 17-18. There remain many legal texts and legislation that have not yet been subjected to review

or that contain loopholes that have not been closed.

6
 • Women’s economic activity decreased from 14.2% in 2003 to 13% in 2011;
• Women’s representation in parliament decreased to 25% after having reached
27.3% in 2007;21
• Illiteracy rates remain high among the Iraqi population at around a fifth of the
population and are higher among women;
• The gender gap at the level of primary education was narrowed (0.93) but it
expands at the middle and secondary levels to reach 0.34 and 0.38
respectively;22
• Women’s representation in the government declined from six ministers in 2004 to
one minister in the current parliament;
• Female breadwinners decreased from 11.5% in 2006 to 7.7% in 2011;
• “The gap between men’s and women’s participation in the work force decreased
in the cities compared to rural areas. The gap between men and women reached
60.6 in cities compared to 57.7 in rural areas in 2003. The rate increased to 57%
in urban areas against 51% in rural areas in 2011”23
• In 2011, only 2% of all private sector workers were women.24

Given the numerous flaws, lack of opportunities, and poor work benefits of the private
sector, as well as the positives associated with Government jobs, many Iraqi women
who do participate in the labour force choose to seek public sector employment.25
Nationally, 60% of all female workers are employed by the government; while in KRI,
this number is reportedly closer to 80%.26

As per the latest assessment analysis conducted by the UN Educational, Scientific and
Cultural organization and TVET, “87% of women in Iraq are economically inactive (not
working or looking for work) and 78% are housewives. Of those who are economically
active (working or looking for work) in Iraq, 13% are unemployed. In 2014 only 13.9% of
all citizens who were formally employed were women.”27

“Traditional societal norms cast women as mothers. The working hours of other types of
work, that might keep them out of the house after dark, or roles that require them to
work with males not in their families, are barriers that contribute to females in Iraq and
KRI not working.28 However, the UN reported a change in attitudes, noting that 66% of
youth, compared to 42% of older people, support women’s right to work outside the
home.”29 Female unemployment, especially in Kurdistan, is reportedly lower in rural
areas due to high female employment in agriculture. This trend has also been

21 Ibid.
22 Ibid.
23 Ibid.
24 UN/TVET, “Assessment of the Labour Market & Skills Analysis: Iraq and Kurdistan Region-Iraq,” p. 32.
25 UNDP, “Women’s Economic Empowerment: Integrating Women into the Iraqi Economy,” p. 10.

26 UN/TVET, “Assessment of the Labour Market & Skills Analysis: Iraq and Kurdistan Region-Iraq,” p. 32.
27: Ibid., 31.
28 Ibid., 32.
29 Ibid.

7
emphasized by the interviewees, who identify the agricultural sector as a family-based
business, where women can work within a family circle.
Kurdistan Region- Iraq (KRI): Gender Indicators
As in the rest of the country, the labour force in KRI is predominantly male: in 2012,
65.8% of men were active in the labour market, compared to only 12.2% of women. 30

The Kurdistan Regional Government (KRG) has recently undertaken efforts to

significantly improve the availability of data for the Kurdistan Region-Iraq (KRI) and the
capabilities of the Kurdistan Region Statistical Office (KRSO) in collecting them.31 As
part of these efforts, the 2013 annual report presented key social and economic
indicators for the KRI. The United Nations Population Fund (UNFPA) has recommended
the establishment of a Socio-Economic Monitoring System (SEMS) covering many
dimensions of economic and social well-being, including indicators designed to measure
progress toward achieving the Millennium Development Goals (MDGs).32 The Gender
indicators presented in the report permit the tracking of progress towards attainment of
several MDGs for promoting gender equality and the empowerment of women.

Achieving parity in education is widely recognized as a key step toward achieving equal
opportunity for men and women. Moreover, increasing the education of women is a key
step in socio-economic development. The Gender Parity Index (GPI) for Primary
School is the ratio of the enrollment rates of girls to boys in primary school. This is
calculated by dividing the enrollment rate for girls by the enrollment rate for boys.
Hence, the GPI for primary school in Kurdistan is 0.05 higher than that of Iraq as a
whole. Further calculations measured by the Gender Parity Index for Secondary
School and for the Gender Parity Index for Tertiary Schooling calculated for 2013,
reveal that the KRI has greater gender parity in education than Iraq as a whole. These
are noted in table 4 below. 33

In Iraq, traditions of early marriage and childbearing for women are considered a
significant barrier to female post-primary schooling, and consequently, meaningful
participation in the labour force.34 The prevalence of early marriage is measured by the
proportion of Young Women Aged 15-19 who are Currently Married. In 2011 in the KRI,
9.9% of women aged 15 to 19 were married; this is less than half the proportion for Iraq
as a whole. The Total Fertility Rate, which is the average number of number of children
a woman is projected to bear over her lifetime, is 3.1 in the KRI; this is 1.4 below the
average for Iraq as a whole.35

30 Labour Market Survey, “EJADA – Development of a replicable Competency Based Training Model,” p.
44.
31 RAND Corporation, “Socio-Economic Monitoring System Report,” Kurdistan Region Government

(2013), p. 6.
32 Ibid.
33 Ibid., 20.
34 Ibid., 21
35 Ibid.

8
 MDG KRI Erbil Iraq Source
Gender Parity Index for primary school MDG 0.99 0.98 0.94 MICS

Gender Parity Index for secondary school MDG 0.98 1.04 0.85 MICS

Gender Parity Index for tertiary school MDG 0.93 0.80 - KRLFS

Young women aged 15-19 who are MDG 7.2% 16.6% - KRLFS
currently married
Share of Women in Wage Employment in MDG 17.2% 16.6% - KRLFS
the Non-Agricultural Sector
Table 4:Gender Parity Indices for Iraq

Note: Iraq Multiple Indicator Survey (MICS) data is from the Fourth Iraq Multiple Indicator
Survey (MICS4) (2011). Kurdistan Region Labour Force Survey (KRLFS) data are from the 1st
half of 2013. Both MICS and KRLFS were collected by the KRSO.
The participation of women in Iraqi development is quite low, with women in Iraq facing
more challenges then men in terms of economic opportunities, access to employment,
education, finance and other services. As highlighted in World Bank Investment Climate
Assessment (ICA) report, Iraq suffers from particularly significant gender inequality in
labour force participation, educational attaining and training. 36
According to the Inter-Agency Information Analysis Unit (IAU) of the UN, only 14% of all
women across the country are either working or actively seeking work and of those
more than one in five is unemployed.37 Conditions appear to be worse for young
women: only 10% of women aged 15-29 are working or actively seeking work, of which
over a third are unemployed; the unemployment rate for young women climbs to 41%
for those with a diploma or more and as high as 68% for those with a bachelor’s degree.
The difficulties faced by young educated women may be linked to the limited
opportunities for women in the labour market.
The Women’s Economic Empowerment (WEE) Report, a study conducted by UNDP in
2011-2012 concerning the status of Iraqi women’s integration into the economy, reports
similar facts based on case studies drawn from economic empowerment interventions
throughout all 18 governorates of the country.38 The WEE Report describes the

36 Private Sector Development Strategy of Iraq 2013-2030, p. 23.

37 Ibid., 23. There have been no recent studies conducted on the issue.
38 Ibid., see UNDP, “Women’s Economic Empowerment: Integrating Women into the Iraqi Economy.” The

Women’s Economic Empowerment (WEE) Report was the last one conducted by UNDP. The latest news
on the issue involve the Implementation and Follow-up on National Reconciliation Committee
(IFNRC) and the United Nations Development Programme jointly organizing a conference in
Baghdad on 7 December 2017. There, three working groups - facilitated by UNDP’s Support to
Integrated Reconciliation in Iraq project (SIRI) - discussed challenges and opportunities at the
cultural, educational, social, and economic and media levels. See UND P Iraq, Conference on
Women Voices in Community Reconciliation: Establishing a diverse taskforce to enhance
women’s participation (2017), last accessed 10 July 2018,

9
challenges and opportunities to women’s employment in the Iraqi economy, and makes
recommendations for the Government on how to better engage women in the economy
of Iraq:
• Enhance legal frameworks for women;
• Raise official and community awareness; and
• Allocate financial and human resources to empower women.

Recommendations for the private sector include:

• Adopt frameworks to support women employees;

• Introduce inclusive business and hiring models;
• Sexual harassment regulations; and
• Day-care support.39

As part of the Sustainable Development Strategy, Gender equality is currently

addressed by joint efforts of the Government of Iraq (GoI) and UN agencies. This has
been for the implementation of the comprehensive framework to further promote gender
equality through proper commitments by the Private Sector and a combination of legal
reforms, governmental policies and support programs, and civil society capacity
building.40 By the same token, the Federal Government of Iraq and Kurdistan Regional
Government have expressed their commitment to promote all efforts towards
strengthening the role of women in the society through the implementation of the United
Nation Security Council Resolution 1325 (2000) on Women, Peace and Security.41 The
National Action Plan (NAP) has been elaborated in order to implement the resolution by
responding to the needs and interests of women in Iraq and the Kurdish region. The
plan was designed in cooperation between the Ministry of Women’s Affairs, Ministry of
Interior and the Ministry of Defense in Baghdad, and Ministry of Interior and Women’s
High Council in Kurdistan and the Iraqi NAP1325 Initiative (I-NAP1325 Initiative), an
initiative of women’s rights organizations and networks across Iraq and Kurdistan.42

It is stated in the ANP that “The objectives of UNSCR 1325, increasing the participation
of women in peace preservation and conflict resolution at all levels, incorporating the
views of women in peace agreements, dealing with the impact of conflict on women,

http://www.iq.undp.org/content/iraq/en/home/presscenter/pressreleases/2017/12/7/conference -
on-women-voices-in-community-reconciliation--establis.html
39
Lack of childcare support in the form of nurseries and kindergartens has been identified as one
of the main obstacles for women to be integrated in the labour force in Iraq. Due to traditional
biases, the majority of newly married women and women with children are excluded from the
workforce. For that reason, they are calling for the establishment of daycare units, at least in or
near private firms, so that women could bring their children to work and not be tied to their
homes or spend hours that they could working towards commuting before and after work to drop
off and pick up their children.
40 Ibid., 9.
41 Government of Iraq, National Action Plan in Iraq for Implementation of the United Nation
Security Council Resolution 1325 Women, Peace and Security 2014 – 2018 (2014).
42 Ibid.

10
and protecting women from sexual abuse and criminalizing it –are still crucial and
urgent. Despite some progress, a lot remains to be done.” The plan also stressed the
growing need to give a new importance to the implementation of the Resolution through
coordinated efforts on international and regional levels.43

Hence, “a Cross-Sector Task Force for development of a national action plan was
formed by representatives from the executive and legislative authorities from the
Federal Government in Baghdad and the Kurdish Regional Government, (KRG), and
women’s NGOs. National consultations, workshops and meetings were held in order to
define the strategic objectives, specific actions, expected results, indicators,
implementing agencies and time framework of this plan, reaching a common will to work
for the advancement of peace and security in Iraq through enhancing the active
participation of women in the process of construction and development of society,
women being considered as equal actors in the process of developing the social and
cultural environment.”44

Youth Employment
Several developmental research publications have shown that improving the
relationship between the educational system and the development of a well-structured
workforce is a key success element for a continuous and sustained economic growth,
both for emerging and advanced economies. In this regard, the European Union (EU)
has launched the “Education and Labour Market Programme for Iraq,” with the focus on
technical and vocational education and training (TVET) services, in order to ensure their
relevance to the needs of the labour market, and in particular to the oil sector, which
was selected as the industry in which to pilot the project.45 Research on this matter
indicates that there is a growing need to improve the technical skills of Iraqi youth “as a
means of reducing dependence from government jobs and subsidies, to enhance their
employability and to increase the overall efficiency of the labour market.”46

The labour market in Iraq is currently facing a two-fold challenge: a high unemployment
rate / low labour participation rate and a large pool of poorly educated and unskilled
youth entering the market each year.47 Since there is a lack of reliable and updated
studies focusing on this aspect of the Iraqi oil market, it is necessary to look at the
previous studies conducted by third parties, mainly international organizations.48 For
43 Ibid., 4.
44 Ibid.
45 Labour Market Survey, “EJADA – Development of a replicable Competency Based Training Model,” p.

3.
46 Ibid., 4.
47 Ibid., 8. “Unfortunately, one of the main problems connected to the analysis of the current Iraqi situation

is linked to the lack of robust data concerning socio-economic issues: for more than 20 years, under the
rule of Saddam Hussein, economic data were considered state secrets, hence the shortage of reliable
historical data. More recently, the 2003 war, regional instability and the rise of ‘Daesh’ exacerbated
existing data collection bottlenecks.” See US Central Intelligence Agency, Special Advisory Report on
Iraq, Annex D - Iraq Economic data (1989-2003), 2004, p. 2.
48 Ibid., 9.

11
instance, a somewhat dated but still fundamental source of information is the Iraq
Labour Force Analysis 2003-2008 conducted by the Inter-Agency Information and
Analysis Unit of the United Nations Office for the Coordination of Humanitarian Affairs
(OCHA). OCHA data show that unemployment is particularly high among younger men:
28% of the male labour force aged 15-29 is unemployed, significantly higher than the
national average of 18%.49

Reliable disaggregated data on the labour force participation of youths is not available,
but International Labour Organization (ILO) modelling indicates that participation among
15-24 year old’s worsened from 33% in 1990 to 29% in 2016.50 These data, together
with the fact that 43% of the labour force is employed in the public sector and that the
government has a preference for employing older workers (aged 45-64), helps explain
why job opportunities are hard to come by for the approximately 450,000 recent
entrants in the labour market, the majority of whom are young men.51

It is possible to corroborate OCHA findings through the database of the International

Labour Organization (ILOSTAT). Through ILO data sources, it is possible to observe
how youths (15-24 years old) are one of the groups of Iraqi citizens which are most
affected by high unemployment rates (see Figure 2).52 Excluding the period between
2003 and 2008 (in which the economy was negatively impacted by the 2003 Iraq war
and subsequent insurgency), this age group is characterized by a stable, and high,
unemployment rate (around 32- 33%).53 Note that the aggregate unemployment rate is
similar to that registered for men aged 15-29 (28%), though slightly higher because the
ILO sample covers a younger age range compared to OCHA estimates.54

49 Ibid., 10.
50 Ibid.
51 Ibid.
52 Ibid.
53 Ibid.
54 Ibid.

12
“Focusing specifically on the oil market, the available data also points to a serious
economic dilemma: though Iraq produces 4.1 million barrels per day (of which 70% is
exported) and income from the oil industry contributes an estimated 90% of government
revenue (about 65% of GDP). Only about 2% of Iraqis are currently employed in the
sector.”55
Youth and Entrepreneurship
A significant number of participants in the KIIs and focus groups complained that the
creativity of youth is lacking. In our interview with Noah’s Ark, we were advised that
young graduates came up with a project to purchase a taxi and that “even graduate
students believe that this is the only way to create a family and this is (viewed as)
creative.” Others said that young women believe that the “best” project for them is to
own a beauty salon. Beyond this, the entrepreneurial spirit is lacking.
Youth in the Kurdistan Region –Iraq (KRI)
While the 2013 unemployment rate in the KRI was only 6.5%, overall and 17% for
youths (15-24) significantly lower than that observed in the rest of the Iraq, this rate had
jumped to 13.5% by 2015 and to 16.6% by 2016.
When placing the Iraqi oil sector labour market in a comparative perspective,
companies operating within the territory of the KRI seem to employ relatively younger
staff compared to the rest of the country. Figure 3 and Figure 4 depict the age brackets
and age composition of technical staff in the KRI and in the rest of Iraq respectively. 56
The figures reveal that close to two-thirds of all employees among reporting companies
are less than 35 years old, with only 5% older than 55. KRI’s relatively young age
structure compared to the rest of the country can be explained by the fact that
companies operating in the KRI have more freedom in terms of hiring practices. In
addition, qualitative questionnaires collected from International Oil Companies (IOCs)
operating in the KRI show that these tend to deploy pro-active hiring practices, such as
the online advertisement of positions. Finally, the preference for younger candidates
can be explained by the fact that youths are considered more trainable compared to
older staff. Naturally, this age distribution implies that IOC staff in the KRI is relatively
inexperienced.

55 Ibid., 11.
56 Ibid., 19-20.

13
Figure 3: Age brackets of technical staff

Figure 4: Age composition of technical staff in the KRI and in Iraq overall

14
3.0 ENABLING ENVIRONMENT
Barriers to Entrepreneurship
During the KIIs and focus groups, many participants indicated that entrepreneurship
was a “sector” with significant growth potential in Iraq. At the same time, the ecosystem
in Iraq represents the greatest challenge to the development of an entrepreneurial spirit,
conditions, tools and infrastructure. The enabling environment continues to be difficult
for the development and most importantly the sustainability of entrepreneurship.

A recent study 57 conducted to identify ways to bolster entrepreneurship and private

sector growth in Iraq and the Kurdistan Region provided the following
recommendations:

• Government investment programs must expand the types of companies in which

they are willing to invest in order to diversify portfolios and support innovative
businesses;
• The Kurdistan Regional Government (KRG) should initiate significant intellectual
property law reform in order to enhance protections for new ideas and encourage an
open dialogue between entrepreneurs and potential investors;
• The KRG and the Government of Iraq (GoI) should position themselves as the
preferred funding partners for Iraqi entrepreneurs by enhancing their seed fund
programs;
• The KRG and GoI should immediately begin moving toward paying all salaries by
direct deposit in order to dramatically improve bank penetration and pave the way for
e-commerce growth;
• The KRG and the GoI should streamline the business incorporation process in order
to reduce costs for both entrepreneurs and government offices; and
• The KRG and the GoI should establish SME-focused Special Economic Zones in
order to support entrepreneurs and experiment with reforms that can later be applied
more broadly.
The same study identified a few other important factors that will require development,
nurturing, and creativity to grow an entrepreneurial eco-system. These include more
university-based incubators, establishing training programs, capacity building and
training. The study also focuses on the need for reform of the legal, policy, banking and
infrastructure sectors. Much of this section focuses on the need to strengthen the
enabling environment for business and entrepreneurship.

Nonetheless, it was noted that local initiatives are emerging to encourage

entrepreneurship such as Dijla University, Noah’s Ark, the University of Kurdistan,

57 Aaron Bartnick; Obstacles and Opportunities for Entrepreneurship In Iraq & The Kurdistan Region,
Institute of Regional and International Studies at the American University of Iraq, Sulaimani. July 2017, P.
5.

15
SPARK and the Station and others that are funded locally or internationally. One
example is provided in the text box immediately below.

Noah’s Ark Incubator and River Transportation in Iraq

Noah’s Ark is focusing on transportation in Iraq, which is a significant problem. Noah’s

Ark started looking at increasing river transportation, which could have significant
positive implications for micro and SMEs in terms of larger access to markets
throughout Iraq. The project is focused on moving products in ways that farmers and
small food producers can lower their transportation costs from rural areas to the big
cities. According to Al Nassiri, the CEO of the Noah’s Ark, this project has the potential
to minimize corruption which is affecting the transportation sector (checkpoints extract
money from farmers on their way to the market). The genesis of the project started in Al
Ahwar. It was taking approximately two days to transport fish to market without any
refrigeration. Similarly, the tomato farmers in the South and other areas for example
were driving their products to the city at a high cost. The women in these regions for
example were known to produce local products but do not have the capacity to transport
it, or to store them safely. Much of the product is getting spoiled before reaching the
market. According to Al Nassiri, Iraq has close to forty rivers that are all connected to
the Tigris and Euphrates which link the whole country together.
Access to Financing
Most of the interviewees indicated their dissatisfaction with the lack of an enabling
environment in Iraq and pointed to several important indicators that give serious pause
for investors. Access to credit, red tape, and corruption were three of the most important
factors.
Access to credit came first and was the largest inhibitor for the development of the
sector. Interviewees pointed to the difficulty and perceived impossibility of getting
financing from banks and/or the Government.
In 2011 the Government of Iraq launched a grant fund in the millions of USD to
strengthen the Private Sector. However, according to the experts few people benefited
from it.
Some have also blamed corruption for what appears to be a selective approach to loan
provision. A World Bank Study indicates that “A USAID Project team estimated that less
than 5 percent of the SMEs in the formal sector have ever received a bank loan and that
fewer than 10 percent of them have a bank account.”
The Central Bank of Iraq (CBI) interviewee indicated that the Government committed
over a trillion Iraqi Dinnar to SME loans focused in four sectors, the equivalent of USD
$800 million. However, due to red tape and complicated financial requirements that
include requesting security and financial history, the CBI disbursed approximately 1% of
the fund. On the other hand, another fund that was geared to stimulate the construction
and housing sectors was completely spent. For the latter fund, the CBI committed IQD 4
billion which was all used to purchase land, build apartment buildings and malls. The
SMEs benefited from this fund as well, given that those SMEs that needed to purchase

16
land for their factories were able to receive the funds. The success of this project,
according to the CBI, was owed to the land or the building being used as collateral,
therefore minimizing the risk58.
According to Key Informants, despite the CBIs efforts for transparency and to ensure
that the process was not corrupted, there are accusations against some of the banks
that dispensed the loans of receiving close to 20% of the loan as kickback from the
clients. This is an example of how corruption causes more complicated procedures to
be put in place by the CBI. Fear of corruption and the mishandling of the loans leads to
more demands for documentation and authentication that ends up becoming costlier
and more difficult to the SMEs to receive loans.
The National Development Strategy for 2018-2022 identified banking as a major
obstacle in Iraq that requires real and fundamental reform. It indicated that Government
banking defaults amounts to almost 67% of all transactions. The World Bank also stated
that one of the challenges facing the private sector banking is the overregulated banking
system that favours Government banking.
Most respondents indicated that SMEs requesting financing lack mentorship and follow
up on the progress of business plans and spending. Some of the SMEs identified
capacity building as an important but absent element in the successful management of
cash infusion. Some small grants and SME financing have been misused by those
receiving it. The representatives of the Central Bank and the NGOs working on
financing indicated that there were cases of people facing difficulties in managing their
projects and business turned to buying cars or to buying property instead of returning
the money. i
According to the World Bank and other studies, another major challenge facing the
private sector is the “weak accounting and auditing skills (that) also makes life difficult
for bankers. Essentially, bankers cannot have sufficient faith in the accuracy of the
balance sheets of their clients and will have difficulty in lending based on projected cash
flow of the client alone. And as noted above, collateral has its own problems.” Most
respondents agreed with this statement. Both participants in the KIIs and the focus
groups indicated that there is a need for serious investment in capacity building of the
SMEs. Mentorship, financial management training, accounting, project management,
management and leadership training were cited as important capacity building tools that
are required.

58 https://newsabah.com/newspaper/60478

17
Need for Financing in Food Manufacturing
International finance and partnerships with international companies was only provided
to 0.31% of Iraqi companies. In the focus groups, those who identified food
manufacturing as a priority also stressed the need for partnerships to grow the sector in
terms of financing, to bring in technology and new methods, and to be able to develop
training programs that would allow the sector to hire locally since skilled labour was in
short supply.
However, opportunities for small grants and support to MSMEs and training is available
at the Ministry of Labour and Social Affairs (MOLSA). According to the MOLSA
representatives the Ministry has had a positive and successful program that they are
replicating as funds exist in their budget. They stressed the need for coaching and
mentoring before and after the participants receive funding.
Initiatives to Support SMEs
There are two noteworthy initiatives geared towards supporting SMEs across Iraq.
These are the Iraqi Company for Financing SMEs (ICEF SME) and Iraqi Company for
Banking Guarantee (ICBG). They both are developed as part of a USAID funded
projects and operate as NGOs. They work with SMEs to provide loans and loan
guarantees. Both work with SMEs and with banks to support the capacity of the
borrower and lender. The participant from the ICEF SME interviewed discussed in
detail the process they use to work with entrepreneurs including SMEs. It is focused on
providing capacity building as much as it is about providing the loan and loan
guarantees to the banks. The USAID Representative interviewed for this study indicated
that under the ICEF SME Project, which is largely fund by USAID, some unique
initiatives were introduced to match financing with international companies who may be
interested in partnering with Iraqi companies. She indicated that this project has drawn
some interest but given some of the challenges which include the security and political
instability, some of the larger companies did not continue with the process after they
completed the due diligence phase. However, both organizations point to important
success stories that demonstrate the resilience of Iraqi business and given real
opportunity for finance and support, MSMEs would be able to grow and prosper in Iraq,
thus becoming a fundamental player in providing employment.

18
Grant Fund Example: The University of Dijla
The University of Dijla is a private university that launched its own grant fund for its
graduates. Funds are provided to projects presented by the graduating students from
the school’s profits. The University has developed an incubator that provides young
people and graduates of the university with the opportunity to apply for loans of up to
IQD 50 million. This incubator is supported by an investor. While there were 90
applicants, some were under the impression that they were applying for personal loans.
Most of the students wanted to purchase a taxi. While these requests were rejected a
few applicants from the Faculty of Finance and IT have presented exceptional proposals
that were supported.
Regulatory Reform
Corruption and Red Tape
Regulatory reform is a major challenge to Iraqi private sector. Iraq is a country that was
largely dependent on the State to provide all services. State Owned Enterprises (SOE)
and ministries controlled almost all aspects of life. Private sector provided services to
these state institutions. While an improvement has occurred in several areas such as
registering a business, according to the Doing Business Report published by the World
Bank, Iraqi business continues to complain about the overall regulatory framework.
Initiatives have been made by USAID projects and Iraqi economists and experts who
worked on specific and targeted basked of reform, the Government of Iraq has not
fulfilled its promise to pass these regulations.
In the last two years as the pressure on the Government Budget increased, Iraq started
the tax collection enforcement. The result of this effort has led to more confusion and
stress on the SMEs as the enforcement of regulation is done through the deduction of
money at source of contract or by paying upfront to the Tax Department for each
contract. There are two ways that this deduction is taking place: (1) if the service is
provided to a Government agency, the Agency is required to deduct from the invoice the
amount of 2%. Similarly, (2) if the transaction is between two businesses, those
receiving the service are forced to deduct 10% until the seller provides a proof that the
tax authority provides a “proof of tax payment” then the business that purchased the
service pays back the 10%. This alone has increased the transactional cost of trade and
services considerably.

19
Case Study: Navigating the Tax System 59
An interesting case study that a consultant hired for this study observed at the Tax
Office demonstrates that the procedural challenges that exist in the archaic system of
documentation and other red tape allows for corrupt behavior.

• Company A that had a contract with an Embassy to provide services was asked to
provide a Letter.
• The company A representative went to the Tax Agency where he was not allowed to
deal with the file unless he hired one of the several “tax lawyers” who were sitting at
the Agency waiting for clients to offer their services.
• The Company A representative had to pay USD $800 to the “lawyer” who in turn
assured the Representative that he had to pay part of that to an official.

Despite the challenges, the private sector in Iraq made some important contributions in
absolute numbers, it has increased its share of the total GDP from 16.3% in 2013 to
34.69 in 2015 according to the National Development Plan 2018-2022. Those numbers
are also reflecting trade and other services, not necessarily those who provide the
highest number of employment opportunities.
Legal Framework
The participants also indicated that the major impediment to stronger SME sector is the
weak regulatory framework. The World Bank Review also states that “actions are
needed in all areas, including credit registry, the collateral framework, judicial systems,
and accounting and auditing skills. ”60 The majority of Iraqi banking and financial
institutions including insurance companies are state owned enterprises. Therefore, they
do not have the incentive to reform, nor are they results oriented according to the
participants.
Reform of the policy and legal framework for Private Sector Development (PSD) is a
clear priority in Iraq’s Private Sector Development Strategy.61 Within this, specific
attention is required to improve the legal, regulatory and administrative requirements for
starting a business and international trade and investment, reform of taxation
administration, improvements in the functioning of government ministries and agencies
that regulate the economy and service the private sector, and public-private dialogue
(PPD).62 The strategic plan stated that there is also a growing need for better access to
financial and business development services, skills development and other forms of
productivity enhancements at the firm-level, and better representation of the business
sector through business membership organizations.63

59 This was observed by a consultant hired to conduct part of the study.

60 Ibid
61 Private Sector Development Strategy of Iraq 2013-2030, p. 8.
62 Ibid.
63 Ibid.

20
Surveys on Micro, Small and Medium-sized Enterprises in Iraq
The International Labour Organization (ILO), the United Nations Office for Project
Services (UNOPS), and the United Nations Development Program (UNDP) ran the
Private Sector Development Programme in Iraq (PSDP-I) in partnership with the
Government of Iraq and other social partners, including the Economic Reform and
Diversification Sector Outcome Team.64 PSD-I ran from 2008 to 2012 to create an
effective, coherent, and comprehensive framework for private sector development in
Iraq. The surveys reported on Micro, Small and Medium-sized Enterprises in Iraq.65
The Informal sector/shadow economy was identified among many assessment reports
as a dominant feature. Many MSMEs in Iraq were informal and have chosen not to
comply with the legal and regulatory framework because it was poorly enforced or
insignificant.66 Some of the issues revealed by the surveys regarding the informal sector
were related to business registration, dealings with government, access to markets and
business performance. For instance, in terms of the issue of business performance, “64
percent of respondent enterprises reported that their performance was ‘Okay’; 28
percent reported “Poor” performance and only eight percent rated their performance
over the last two years as Good.’”67 The most common reasons for this among the poor
performers were high competition and few market opportunities (29%), unsupportive
government policies (28%), and the lack of access to credit (26%).68
The participants however noted an improvement in the business registration process, a
new World Bank and Government of Iraq project has improved the process significantly,
through atomization and reduction of procedures. Most participants indicated that it
allows for easier process and shorter time frame, as well, it is an inexpensive process.
Ultimately, the participants agreed with the findings the critical challenges facing SMEs
in Iraq:
• Low capacity within many SMEs;
• Legal and regulatory framework;
• Small market base;
• Policies and programmes;
• Dealing with government;
• Business representation;
• Reaching SMEs; and
• Business and financial services.69
Correspondingly, an unsettled legal environment, a lack of clarity regarding the
application of central Iraqi versus KRI laws and procedures, and laws that are

64 White, “Micro, Small and Medium-sized Enterprises in Iraq,” p. ii.

65 Ibid., iii
66 Ibid.
67 Ibid., iv-v.

68 Ibid. In total, 4,533 enterprises were surveyed to better understand the opportunities and challenges
facing informal firms and to identify how reforms to the business environment could improve the
conditions for MSME development.
69 Ibid.

21
antiquated or detrimental to business formation, constitute a serious impediment to
business development in the KRI.70
Regarding the legal framework, the UN and World Bank’s Assessment report on
Investment Climate in Iraq71 mentions that the creation Alternative Dispute Resolution
(arbitration) mechanisms for commercial/legal issues can be especially helpful in a post-
conflict situation. In reworking the legal and regulatory framework, “it is important that it
be developed in a way which ensures the promotion and protection of human rights, as
well as being neutral from a gender perspective.”72
Regulatory Reform Packages
A significant project funded by USAID, TARABOT and ISRAR worked extensively to
develop coherent, and specific recommendations for regulatory reform in partnership
with relevant ministries. The Regulatory Reform Packages 1 & 2 delivered two
regulatory reform packages to the Prime Minister’s Advisory Council in 2014,
comprising a total of 147 pieces of legislation. The first package contained general
legislation, agreed upon by both Terabit and reviewing partners, for elimination. The
second package contained legislations recommended for elimination because they were
deemed unconstitutional”
According to Key Informants interviewed for this study, while there are some changes
taking places that were recommended and advocated for by TARABOT, the majority of
the package is “somewhere in the Prime Minister’s Office” waiting to be approved by the
Cabinet. This comprehensive package could lead to significant reform if implemented,
reducing red tape, minimizing corruption and leading to elimination of many of the
regulations that make foreign investment hesitant to work in Iraq. It would also lead to
significant reduction for the cost of doing business in Iraq.
It is important to note that all the recommendations from TARABOT, the WORLD BANK
and other agencies for regulatory reform are stated in the 2018-2022 NDP. However, an
expert interviewee indicated that it would be “extremely difficult to reform the laws and
procedures in the life span of the NDP”. He stressed that the legal process in Iraq is
lengthy, up to 2 years, and that there is serious bureaucratic and ministerial resistance
to change. He cites the decentralization as one example of ministers and bureaucracy
refusing to decentralize for all sorts of excuses; corruption, need to be in the Centre,
lack of capacity in the governorates, etc.
The Need for SOE Reform
As per the legal and institutional framework for enterprise reform articulated by the
World Bank in 2004,73 “experience has shown that the effectiveness of and respect for
the institutions dedicated to implementing reform and eventual privatization are critical

70 “Strategies for Private-Sector Development and Civil-Service Reform in the Kurdistan Region-Iraq,”
Kurdistan Regional Government of Planning, p. 22.
71 United Nations / World Bank, Iraq: The Investment Climate, pp. 8-9.
72 Ibid., 9.
73 The World Bank, “State Owned Enterprises Reform in Iraq,” Finance, Private Sector and Infrastructure

Department, Middle East and North Africa Region (2004), p. 3.

22
to success. Clear definition of roles and responsibilities must be complemented by
transparent, publicized procedures.”74

Conditions currently prevailing in Iraq mean that the state-owned enterprises (SOE)
reform/privatization process and its institutional framework should be underpinned by
primary legislation. The adoption of privatization legislation with public debate gives
political legitimacy to enterprise reform and privatization as well as provides legal
authority to act to a specialized unit. Reviews of SOEs in the governorates have
revealed the conflicting interests of various parties (e.g., government ministries,
provincial governors, powerful managers, local militias) who may lay claim to current or
future SOE value. According to the report, “such rivalries represent a major barrier to
progress and will have to be dealt with up front.”75

A majority of participants indicated that the role of SOEs in the sectors they work is a
significant obstacle. They believed that real regulatory change is required to either
eliminate these SOEs or at least limit their size and scope. SOEs play a complicated
role and are a drain on the economy.

It is the responsibility of line ministries is to define the overall sector policy, identify the
range of instruments required to develop it, as well as to ensure its implementation. As
SOEs became a substitute for an effective sector policy, the line ministries turned to the
problems of failing SOEs. In Iraq, SOEs help line ministries implement sector policy by
performing various commercial and noncommercial roles such as employing large
numbers of non-productive workers. “The fact that some SOEs have non-commercial
objectives is often cited as a reason why they cannot be reformed or privatized.” 76

In the commercial role SOEs are legally allowed to “take” any contract from the
ministries that they see fit with their experience and capability. Their commercial role
undermines the transparency of the procurement process and according to our
respondents, they provide venues for the exercise of corrupt contracts to the private
sector. The respondents indicated that the SOEs dispense contracts to their
subcontractors who implement the work at a much reduce price than the real price of
the contract. The SOE takes its share of the contract.
Business Registration
Business registration is one of the key economic support77 areas within the Private
Sector Development Strategy of Iraq (PSDS – I) 2013 -2030. It aims to establish a
modern and decentralized system and contribute, along with incentives, to the gradual

74 Ibid., 4
75 Ibid.
76 Ibid.
77 “These are considered of highest or special priority in the short-medium term; in addition to policies,

legislative and regulatory frameworks will be addressed in these and other areas (bankruptcy,
competition, company, consumers’ protection, etc.), further streamlining the assessment and review work
so far.” Private Sector Development Strategy of Iraq 2013-2030, p. 9.

23
transformation of the informal sector, featuring a great part of the Iraqi economy.78

According to Doing Business 2018, Iraq simplified the process of starting a business by
combining multiple registration procedures and reducing the time required to register a
company. It also launched a new credit registry, improving access to credit
information.79

Effectiveness of Investment Policies at Federal and Local Levels

According to the key informants interviewed, the bulk of the investment policy of the
different investment authorities has been focused on commercial real estate versus
other economic sectors. For example, the Baghdad Investment Commission (BIC) has
focused on the development of shopping malls in the last ten years, which “has been
the most significant and profitable investment for us”. Other investments in commercial
ventures require the reform of the legal framework and investment rules, an effective
and efficient public sector, and dealing with the corruption. These three factors are
outside of the control of the BIC.

Cultural Barriers: Bias Towards the Public Sector

A recent research conducted by Al Nabaa Centre for Research on the difference
between the public and private employment for youth; it was clear to the researcher that
there are cultural, social and practical considerations for Iraqi youth and women. The
public perception and expectation are that Government employment is safe, provides
life-long security, employees work less hours, receive more holidays and ultimately,
they have many benefits that include Government loans and other privileges.80 Iraqi
labour law ensures employment for all graduates in Iraq, however, this is not possible
anymore given the state of public sector capacity to hire more people. According to the
Statistics Bureau, Iraqi population is increasing at a rate of a million annually, one of the
largest birth rates in the MENA region. 600,000 people are joining the workforce, of
these 150,000 are graduates of the education system. Based on all the evidence we
have, most of these 600,000 would like to join the Government given that it represents
secure employment. On the other hand, according to the same research and the
evidence collected for this assessment, perception of private sector employment is
negative.

Women in particular have indicated that they are forced to work in private sector for long
hours, less pay and with less guarantees “because we have to feed our families”. The
head of the incubation Centre at Dijla University indicated that most of the applications
they received for grants were for students who see driving a taxi as a safer option from
working for the private sector and because the Government is not hiring. There are
several other indicators that represent opportunity for the promotion of good examples

78 Ibid., 9.
79 World Bank Group, “Doing Business 2018: Reforming to Create Jobs,” (2018), p. 9
80 https://annabaa.org/arabic/investigations/14577

24
of corporate good behavior and responsibility to their employees. So far, the popular
perception of the private sector is less than desired, it remains to be seen if star
companies can emerge to change that perception. The recommendations in section 6
address ways in which entrepreneurship can be strengthened in Iraq.
Security
Political instability and lack of security are clearly a major concern for many businesses
in Iraq.81 While this is an unsurprising finding, it is interesting to note that this takes
different forms. In some cases, security refers to the disruptions that are a result of
military activity, while in other case references are made to high levels of crime,
including theft.82

Furthermore, security is an overarching problem and a fundamental requirement for

productive investment (see Chart 1). Nonetheless, there is a “chicken and egg”-type
issue, as investment itself can improve security. “For example, World Bank experience
shows that when investment is coordinated at the community level, this can help
improve security. Also, to stimulate investment, it may be possible to design some
guarantee schemes that allow investors to recoup their investment if the security
situation deteriorates to the point where it cannot operate. At this stage, intervention is
not proposed, but it may become necessary, if the investment response is poor.” 83

In contrast to the rest of Iraq, which is plagued by security concerns, the Kurdistan
Regional Government (KRG), based in Erbil, did not experience such concerns over the
past decade, which made it possible for the Kurdish Region – Iraq (KRI) to develop a
healthy private sector, allowing for significant Foreign Direct Investment (FDI) in key
economic sectors, including the oil industry.84

81 Ibid., 11.
82 In 2009, the USAID-Tijara programme conducted a series of assessments of SMEs in Iraq: Market
assessment: business constraints and opportunities at the business enabling environment and firm levels.
96% of respondents in Baghdad considered crime and theft a major concern. See White, “Micro, Small
and Medium-sized Enterprises in Iraq; A Survey Analysis,” p. 9.
83 United Nations / World Bank, Iraq: The Investment Climate, p.4.
84 “EJADA – Development of a replicable Competency Based Training Model piloted in the oil sector,

Iraq,” Labour Market Survey (2017), p. 43.

25
The Contribution of Taqadum to Stability in Iraq

USAID has assisted the Iraqi government in reinforcing state cohesion and providing a
more inclusive governance model at all levels through its Governance Strengthening
Program,85 implemented by Chemonics International and known locally as Taqadum.
The project was scheduled to run between September 2011 – September 2017, and it
has used a series of financial, administrative, legal, and service-delivery frameworks
that would develop local government capacity to provide services effectively. The
resulting transfer plans were designed initially for the ministries of education, health,
and municipalities and public works, and they are now being rolled out to four additional
service delivery ministries.86

According to a report written by Chemonics International:

“Progress to date has demonstrated to parliamentarians, governors, and provincial

counselors the value of improving the quantity, quality, and accessibility of citizen-
centered services, despite the country’s current security, political, and economic
upheaval. By assisting with the transfer of functions from ministries to provinces and
providing training on technical relationships and accountability mechanisms, Taqadum
has demonstrated how taking the time to implement effective governance infrastructure
at all levels can improve relationships between central and provincial authorities and
promote stability and security across the country.”87
Land Tenure
In Iraq, the development of a functioning formal land market supported by mortgage
finance is hampered by many factors, such as high transaction costs for registration of
land transfers; unresolved land disputes and fragmented ownership; illegal land
subdivision and unregistered land transactions; rent control and unbalanced landlord-
tenant relations; and an incompetent and ineffective land taxation regime. 88

Finding land for a new, local business is a serious problem in KRG as well.89 Reports
are consistent that foreign investors who go through the Kurdistan Board of Investment
process usually succeed in receiving land appropriate to their venture. However, this is
not the case for local businesses, and getting land can take months, or longer. Part of
the difficulty is that the land registry system is in poor shape and that it is not easy for a

85 Todd Diamond and Cameron Berkuti, “Improving Services and Strengthening Cohesion in Fragile
States: The Case of Iraq,” Chemonics, p. 1; See also Chemonics, Strengthening Government in Iraq’s
Provinces.
86 Ibid.
87 Ibid.
88 Private Sector Development Strategy of Iraq 2013-2030, pp. 48-49.
89 “Strategies for Private-Sector Development and Civil-Service Reform in the Kurdistan Region-Iraq,”

Kurdistan Regional Government of Planning, p. 25.

26
prospective buyer to discover exactly who owns a specific plot of land. Fixing this will
require legal reform. It has also been reported that irregular payments are occasionally
necessary to obtain land.90

Land reform is another key economic support area by GoI. It has been developed for
creating and adopting a National Land Policy aimed at eliminating a series of barriers
(for the private sector and more in general for investors), with focus on needed
institutional arrangements.91
Utilities and Infrastructure
Some parts of the country are still poorly serviced in terms of utilities and infrastructure,
which reduces the productivity of SMEs in these areas.92 For example, after years of
war, inadequate supply of electricity is still a critical concern, impacting on daily life
despite some recent improvements. The newly approved National Energy Strategy
(INESTA) provides an excellent reference framework for the energy intensive industry. It
also emphasizes that specific measures will need to be taken in the transport and other
infrastructure sectors, targeting not only physical facilities but also processes and
services, like cargo handling, customs, trucking sector structure, competition, and
regulations.93

The construction materials sub-sector is a fast and growing industry in Iraq given
ongoing reconstruction and development efforts. Demand for improved infrastructure is
growing.94 The construction industry can provide the focus for a strategy linking energy
intensive industry to broader national benefits; key sub-sectors within the industry are
big users of energy, such as cement and steel.
KRI: Electricity production and IT Infrastructure
In the KRI, the improvement in electricity production is one of the most notable events in
the delivery of infrastructure services for business.95 Water service is reported to be
slightly better than in the rest of Iraq, as are roads, although telephone service is
reported to be worse, and potable water is insufficient.

In electricity service, the KRI has changed from being below the Iraqi average for
demand met to well above average. New generators with private participation and new
transmission lines have improved electricity service throughout the KRI. Indeed, it is
conceivable that the KRI could be an electricity exporter within the next five years,
selling to both Turkey and the rest of Iraq.96

90 Ibid.
91 Private Sector Development Strategy of Iraq 2013-2030, p. 9.
92 “Strategies for Private-Sector Development and Civil-Service Reform in the Kurdistan Region-Iraq,”

Kurdistan Regional Government of Planning, p. 11.

93 Private Sector Development Strategy of Iraq 2013-2030, p. 9.
94 Ibid., 67.
95 “Strategies for Private-Sector Development and Civil-Service Reform in the Kurdistan Region-Iraq,”

Kurdistan Regional Government of Planning., p. 26.

96 Ibid.

27
Despite these improvements, electricity is still insufficient for private-sector needs.
Businesses in the KRI need to have private provision of both electricity (through their
own generators) and water.97 This has real costs, as private generation can add
significantly to production costs, making products uncompetitive on world markets or
expensive for domestic markets.

Finally, although the information technology (IT) and Internet infrastructure is rapidly
expanding its reach across the KRI, the population is still relatively under-covered, and,
even across the major cities, service is reported to vary in quality. This may affect the
willingness of existing businesses to expand into areas outside those with adequate IT
and Internet infrastructure.98

Furthermore, even within the KRG, the IT infrastructure is still developing, and only a
fraction of government employees uses these tools in a substantive manner. This
affects the coordination across agencies and ministries, resulting in delays in the
registration and licensing of new businesses and difficulties by potential investors in
obtaining access to reliable data on the sectors in which they are interested.99

There are several efforts to continue to improve utilities in the region, including the
building of new water treatment plants, the development of a river basin management
plan, and the continued improvement of the electricity system. Other efforts are lagging,
such as the creation of sewerage systems. Completion of modern infrastructure
systems will be an important element of an improved KRI business climate.100
Labour Code
The proposed modern Labour Code will ensure affordable labour cost and an emerging
competitive advantage while considering recommendations and concerns expressed by
international organizations on various matters (freedom of association, elimination of
forced labour, children labour, discrimination, right of employers etc.). Furthermore, it
will guarantee a more balanced system needs - to be addressed between Iraqi workers
and the increasing number of foreign workers. Finally, the Code will improve the supply
of quality productive local labour will eventually contribute to reducing dependence on
foreign labour.101
In Iraq, the companies that joined the UN and are members of the Iraq Network
committed to the following four principles of the UN GC related to labour:102 Objectives
include:
Global Compact (GC)
• To uphold the freedom of association and the effective recognition of the right to
collective bargaining;
97 Ibid.
98 Ibid.
99 Ibid.
100 Ibid.
101 Ibid., 9.
102 Ibid.

28
• Elimination of all forms of forced and compulsory labour;
• Effective abolition of child labour; and
• Elimination of discrimination in respect of employment and occupation.

29
4.0 BACKGROUND ON THE TVET SECTOR
The public sector was previously Iraq’s largest employer. However, Iraq is now shifting to
a private sector-led economy to help resolve high unemployment and poor economic
performance. An essential corollary to the Government of Iraq’s “Private Sector
Development Strategy” released in 2014, is the UNESCO-led reform of Iraq’s Technical
and Vocational Training Education (TVET) Sector. The decision to reform the TVET
sector over reforming basic or higher education is a sound one; for Iraqi youth aged 15 to
29, higher educational attainment equates to a much higher unemployment rate.

Labour market surveys conducted by USAID (2005), the British Council (2014) and the
RAND Institute (2014) all report that there is a significant disconnect between training and
education provided by TVET institutions and labour market demand (British Council
2014). Firms report that around 17% of unfilled positions are due to the lack of skilled
labour (RAND Institute, 2014). Iraqi officials report that TVET training institutions have
low performance due in part to the high cost of equipment.

Iraq ranks 14 out of 18 countries in the Middle East and North Africa region for education
spending as a percentage of GDP (Ministry of Education, 2012), and TVET institutions
have lacked adequate support for decades. TVET institutions have not kept pace with
technological innovation, curriculum revision and updates or instructor skill development
in line with labour market demands. Consequently, enrolment in the TVET sector
decreased from 20,631 students in 2010-11 to 14,000 in 2015 (Ministry of Planning 2012;
Ministry of Labour and Social Affairs, Personal Communication, 2016). The poor
performance of the TVET sector has engendered negative attitudes and perceptions
towards TVET. Trainees and the public have neither a clear understanding of employment
opportunities provided by vocational and technical training nor of the labour market
demand for these skills.

A recently unpublished research study conducted as part of the current TVET Reform
reveals that 73% of the skills needed by private sector employers are vocational level
skills. Vocational level skills correspond to low-skill and semi-skill levels 1, 2 and 3 of the
recently proposed national Technical and Vocational Qualifications Framework (TVQF).

Correspondingly, most recent Assessment of the Labour Market & Skills Analysis (2017)
revealed that there are too few research centers as well as a lack of coordination between
research centers and TVET institutions in Iraq. TVET has reportedly lost direction due to
insufficient research, ‘brain drain’ and low productivity. Additionally, there is no systematic
labour market information, or monitoring of the skills of foreign workers or the destinations
of graduates. Thus, to develop relevant programmes, the size and shape of the skills gap
must be established.

30
Focus on TVET skills providers
Figure 4 below provides the overview of provision of TVET by the Ministry of Education
(MoE), Ministry of Labour and Social Affairs (MoLSA), Ministry of Higher Education and
Scientific Research (MoHESR) and other ministries.

Figure 5: Structure of TVET provision

Low-skill and semi-skill training for young Iraqi adults is provided by twenty-two (22)
Vocational Training Centers (VTCs) throughout Iraq, administered through the Ministry of
Labour and Social Affairs (MOLSA). On average, 15,000 trainees graduate every year.
Unfortunately, no data is available on their employment and self-employment rates, but it
is generally perceived to be very low. The most recent employer survey conducted (Rand
Corporation 2014), confirmed the low relevance of training provided. Employers
consistently cited that TVET graduates are inadequately prepared for the labour market
and one-third of those surveyed indicated they plan to only hire non-Iraqis to meet their
future workforce needs.

To understand the low demand for MOLSA’s training programs and their poor
employability record, UNESCO has identified the most critical issues affecting current
TVET sectoral training programs, which include:

a) Lack of market relevance;

b) Outdated curriculum;
c) Instructors’ lack of familiarity with the Competency Based Training approach (CBT)
used in TVET; and

31
d) Lack of trainee workplace internships.

Noteworthy, the availability of gender-specific training targeting women is also very low
in VTC’s. Although 60% of VTC trainees are female, the majority register for short-term
courses in computers and English, activities generally regarded as “social” and providing
opportunities to meet peers rather than the likelihood of leading to employment.

There are multiple players currently working in the TVET sector. Two of the most
prominent are the Bolstering Reconstruction in Iraq through Development, Growth and
Employment (BRIDGE) project, which is administered by a consortium of the World
University Service of Canada (WUSC) and Canadian Leaders in International Consulting
(Clic); and UNESCO’s Reforming technical and vocational education and training (TVET)
in Iraq, funded by the European Union.

In section 6, several recommendations are made regarding the engagement of the TVET
sector, primarily in construction and food manufacturing.

32
5.0 SECTORS WITH GROWTH POTENTIAL AND
RECOMMENDATIONS FOR INTERVENTION
According to the IMF's World Economic Outlook (2011), Iraq’s economic growth will be
led by oil, but the non-oil economy will also grow at a robust pace reaching 14% p.a. by
2014.103 To support Private Sector development, the GoI plans on designing a series of
support programmes that would be operated in collaboration with relevant stakeholders,
properly supported by specialized national and international expertise.104 These support
programmes are expected to translate into economic and social development projects
that will not only support priority sectors of the Iraqi economy (i.e. oil), but leverage
employment opportunities and business development in the following sectors:
• Industry and Minerals (in particular, oil downstream and, in general, energy
intensive industry, non-oil minerals and construction materials, mechanical
engineering, chemicals, electrical and electronics, solar energy);
• Construction & Housing;
• Agriculture, food security and food processing;
• Energy, transportation and other physical infrastructures;
• Telecommunications and Information Technology; and
• Tourism.

The following are the factors related to actual and potential competitive advantage for
PSD in Iraq:

• Substantially qualified and underutilized human resources;

• Growing internal markets of goods and services, such as in manufacturing,
construction (mechanical, housing, infrastructures), ICT, food, chemicals, oil,
electricity, religious and cultural tourism sectors, with a significant opportunity
also for import substitution and increasing local content;
• Iraq’s outstanding natural resource base: this goes well beyond oil and gas to
other minerals such as limestone, gypsum, silica, kaoline, phosphates, Sulphur
bentonite, construction raw material (brick clay, aggregates);
• Iraq’s geographical position and physical resources (ports) provide Iraq with a
large opportunity for expanding of trade relationships;
• The recently initiated programme of restructuring of the SOEs which is expected
to generate several service and manufacture outsourcing opportunities, through
the creation of new and specialized SMEs serving a wider client base and
therefore of new jobs. With careful selection of the sectors for restructuring, and
a phased and prioritized schedule, severe impact from unemployment can be
mitigated through a proper mix of actions and tools (early retirement, severance
packages, training, employment assistance and education, SME start-up and
development loans and assistance, redeployment support by proper service
providers, etc.);

103 Private Sector Development Strategy of Iraq 2013-2030, p. 18.

104 Ibid., 31.

33
 • Productivity trends are encouraging in several sectors (such as in leather, non-
metallic products, plastics and fabricated metal products) especially where
competition is higher; and
• Great potential and need for innovation by enhancing competition in the domestic
market through quality certification, ICT use, introduction of modern technologies
and, more in general, new and inclusive business models.
Construction
Significance of the Sector to the Iraqi Economy
• Given the post-conflict environment in Iraq, construction is drawing significant
domestic and international investment and offering a range of employment
opportunities;
• Approximately 45% of workers are under the age of 25;
• The National Development Plan “has a committee dedicated to the construction
sector and the Ministry of Planning has set a goal of directing 29% of all
investment toward the building and services sector”;105
• The impact of this sector on the Iraqi economy is not limited to construction
services, but spills over to manufacturing, real estate and general production
capacity;
• The construction sector is labour intensive and its effect on employment goes
beyond what its value added suggests. According to the CSO, the total
compensation of employees was 8.3 trillion IQD or 26% of the total output; and106
• In KRI, construction was the second largest sector after public administration in
2012.107
Sector to-date
Whereas the sector experienced a sharp growth between 2009 and 2012, it suffered
immensely from the double shock of the ISIL/Da’esh campaign after 2013 and the
simultaneous fall in oil prices in 2014.
While the sector’s estimated value in 2013 was around 20.2 trillion IQD, it fell to 18.2
trillion IQD in 2014, and then was halved to 9.1 trillion IQD in 2015 (Figure 18). In 2013,
the sector represented 13.7% of non-oil GDP. In 2015, that share had fallen to 7%. It
went from being the third largest sector in 2014 to the sixth largest in 2015.108

105 UN/TVET, “Assessment of the Labour Market & Skills Analysis: Iraq and Kurdistan Region-Iraq,” p. 44.
106 Ibid.
107 Ibid., 45.
108 Ibid., 42.

34
Figure 6: Components of non- oil GDP in Iraq including KR-I, 2015 (current prices)

In KRI, the construction sector had an estimated value added of 5.1 trillion IQD in 2012
(Figure 19), representing a third of total Iraqi construction that year. The sector
represented 18.7% of non-oil GDP in KRI (higher share than in the rest of Iraq).

Figure 7: Components of non- oil GDP in Iraq including KR-I,2012

According to the Central Statistics Organization of the Ministry of Planning, both private
and public sector companies are highly active in the construction sector. However, the
sector saw a decline of over 30% in 2017.
Prognosis
Construction is projected to maintain its prominence, given the reconstruction plans for
Iraq and the Government’s announcement for the development of over USD $88 billion

35
in infrastructure at the Kuwait Conference. According to the Board of Investment, 40%
of the projects submitted are in the construction sector.109

In the upcoming years, the following factors are expected to contribute to the sector’s
recovery:
• The normalization of the security situation;
• Reduction of political uncertainty;
• Improvement in the fiscal balance due to the partial recovery in oil prices and
reduced military expenditures;
• The need for reconstruction; and
• The return of historically large domestic and foreign investment in the sector and
the increase in domestic demand with the return of growth.110
In the longer run, the construction sector should contribute significantly to the economy,
as it relates to the energy-intensive activities (e.g. production of construction material
such as cement, brick, etc.) as well as in transport activities. Iraq’s growing population
(2.8% per year) and large share of youth (40% under the age of 15), large territory, urban
development and the need for construction to alleviate the long-lasting housing deficit,
present important opportunities for domestic and foreign investment in the sector.111
Correspondingly, evidence from focus groups and KIIs in Baghdad, Basra, Erbil and
Sulaymaniyah demonstrate that the construction sector is seen by most stakeholders to
be the primary sector that will drive economic recovery and holds the greatest potential
for the employment of youth. Additionally:

• Most participants indicated that as a major economic driver, construction has the
potential to mobilize several other sectors such as light manufacturing in steel
products, household items, air-conditioning, furniture manufacturing and other
smaller sectors;
• Participants also indicated that given the size of the youth population, the high
rate of unemployment and presence of raw material in Iraq, construction should
be a priority area; and
• Also highlighted was the need for a modern approach to construction that is both
sustainable economically and environmentally.
Employment in the Construction Sector
According to official figures, in 2014 there were around 63,000 construction workers in
the Iraqi construction sector. While the private sector employs around 36,000 (72%) of
construction workers, the public sector employs 27,000 workers in building and
construction.112 It should be noted, however, that private sector employment is likely to
be significantly underestimated, as informal employment is very common in the private

109 Ibid., 44.

110 Ibid.
111 Ibid.
112 Ibid.

36
sector. Semi-skilled and unskilled labourers often work without a contract on a daily or
weekly basis.113
Below we will discuss the need for capacity building in the sector and vocational training
needs to assist Iraqi labour to become the driving labour force behind the reconstruction
and rebuilding effort. The NDP has also identified construction to be the priority sector
with a growth potential of 6.8% in the next 5 years. The Government of Iraq stated its
intention to build 1 million housing units as well to rebuild the destroyed regions and the
rebuilding of major infrastructure. These priorities are stated in the NDP, and all policy
statements of the Prime Minister and other officials.
Geographical Distribution of Construction
In 2015, the CSO projected that five governorates would represent the bulk of the public
construction activity, namely Baghdad, Basra, Babylon, Karbala and Wasit. These are all
the governorates adjacent to Baghdad, except for the Basra governorate (Figure 7).

Figure 8: Governorates by projected construction activity in Iraq (excluding KR-I), 2015

Most building construction activity is centered in urban areas. Figure 25 below shows
that in 2015, Basra had the highest value of contracts (383 billion IQD), followed by
Baghdad (365 billion IQD), and Karbala (335 billion IQD). Non-building construction (i.e.
civil engineering) contracts were also concentrated within the same five governorates:

113 Ibid.

37
Babylon (668 billion IQD), Baghdad (568 billion IQD), Basra (389 billion IQD), Wasit
(207 billion IQD) and Karbala (148 billion IQD). No other governorate was expected to
receive more than 50 billion IQD (Figure 25).114

Figure 9: Building and civil engineering activity by governorate (excluding KR-I), 2015
Recommendations and alignment to Dutch Priorities
A lack of qualified personnel presents a major challenge to the successful development
of the construction sector. The need for skilled labour extends to cover low and semi-
skilled labourers and professionals, such as engineers115.

This challenge stems from the poorly performing TVET sector, which, as noted in
Section 5, is characterized by poor quality of training, outdated curricula, lack of
programs targeting specific labour market needs and absence of work integrated
learning programs.

As a result, youth is struggling to obtain knowledge and skills they need to succeed in
the labour market, while enterprises face a shortage of skilled personnel, which, in its
turn, negatively impacts their productivity and growth prospects. Investment in technical
and vocational training would improve young people’s prospects in the local labour
market and support the growing construction sector.

Investment in education has been identified as one of the key priorities under the
Netherlands’ renewed policy on Foreign Trade and Development Cooperation
(BHOS)116, with €60 million allocated annually for new programmes supporting general
and vocational education, employment and income opportunities for young people and

114 Ibid.
115 In Iraq and most Arab countries, the term engineer encompasses architects, civil engineers,
mechanical, and others.
116 “Investing in Global Prospects” (2018): https://www.government.nl/documents/policy-

notes/2018/05/18/investing-in-global-prospects

38
women in the focus regions. Given the wealth of experience in education and training
programming117, a development intervention focused on IRAQ’s TVET needs in
construction sector is recommended. The areas of intervention can include:

(1) Strengthening local TVET institutions by:

• Introducing career guidance services, which have not yet been integrated into the
culture of either TVET or tertiary education;
• Updating curricula based on labour market requirements;
• Integrating new elements in curricula including entrepreneurial skills; information
about worker’s rights and safety protocols, sustainable water and energy
management practices;
• Fostering research partnership between Dutch and Iraqi research and
educational institutions using environmentally sustainable material and energy
resources to facilitate the transfer of knowledge and expertise; and
• Promoting TVET programs among youth.

(2) Building strong linkages with the construction industry by:

• Assessing the needs of the industry, with specific focus on renewable energy and
materials, ecologically friendly production and building technology, sustainable
water and energy management;
• Developing work study programs and internships that enable young people to
obtain practical skills at companies, which complement their studies;
• Promoting integration of young graduates, specifically women, into the
workplace; and
• Sharing expertise and building the capacity of the Construction Sector Council.

(3) Promoting the use of sustainable environmental practices and material in the
construction sector:

• It is recommended that meetings be held with the Ministry of Construction, the

Iraq Reconstruction Fund and the UNDP Stabilization Fund to identify specific
opportunities to support the reconstruction of schools and hospitals as well as
water facilities.
Issues to Consider
As noted in section 4, there are multiple players currently working in the TVET sector.
Two of the most prominent are the Bolstering Reconstruction in Iraq through
Development, Growth and Employment (BRIDGE) project, which is administered by a
consortium of the World University Service of Canada (WUSC) and Canadian Leaders
in International Consulting (Clic); and UNESCO’s Reforming technical and vocational
education and training (TVET) in Iraq, funded by the European Union. Coordination with
those players will be necessary for any further initiatives to succeed.

117Development cooperation programmes administered by Netherlands Organization for Cooperation in

Higher Education (Nuffic), including the Orange Knowledge Program introduced in 2017.

39
Our interviews with the international community demonstrated that career guidance
programs and internships have not yet been accepted into the culture of the Iraqi
tertiary education and TVET systems. This may be in part owed to the fact that
there are presently no incentives and accountability for TVET institutions to generate
jobs for its trainees. Working with the Ministry of Labour and Social Affairs to gain
acceptance of the concept of career guidance and internships will be important. It
should be noted that internships are part of the BRIDGE TVET program. Meeting with
the BRIDGE office could be helpful in identifying how consent was obtained.

Curricula are generally outdated and mismatched to the needs of employers. Curricula
are uniform across the country and therefore not always applicable to the needs of
particular regions. For example, the construction industry in Basra would need to
consider the oil and gas infrastructure.
With the decentralization of the implementation of the TVET system comes an
opportunity to pilot an internship and career guidance program in one or two of the
governorates. The role of the governorates in implementing TVET is still not entirely
clear, thus a pilot project focused on building TVET expertise in the construction sector
could help to define the relationship between MOLSA, the governorates and VTCs .
Such a development intervention will likely face challenges related to the negative
perception of TVET sector, lack of labour market data, poor quality of existing teaching
material and lack of support for women’s participation in training and employment in the
construction sector. To address these risks the program’s design will need to
incorporate a strong community and capacity building component, ensuring that industry
and educational stakeholders are fully engaged at the outset and their considerations
are well integrated.
Food Manufacturing
Significance of the Sector to the Iraqi Economy
According to the latest Iraqi National Development Plan118, desertification, climate
change and the country’s reliance on non-renewable energy, pose a serious threat to
food security.

In a study conducted in 2007, researchers found that the 99.1% of the work force in
food manufacturing was Iraqi. `
Sector-to-date
Iraq’s robust agricultural sector prior to the sanctions that were imposed on the country
in 1991 was producing large portion of the country’s food needs. The Iraqi State-owned
Company for the Manufacturing of Food was entrusted with the development of food
products and in particular the Food Basket which was approved by the United Nations
Sanctions Committee. The Food Company grew and scope. However, after 2003, the
company’s role was reduced to manage the rations that were distributed across the
country under the Oil for Food Program. The Ministry of Industry is the “owner” of the

118 Government of Iraq, National Development Plan 2018-2022.

40
Manufacturing of Food Company. Other factors led to lowering the power and role of the
SOE is that the purchasing power of Iraqis grew and more products from neighboring
countries started to flood the Iraqi Market.

Trade Issues in Food Manufacturing

Participants complained of dumping taking place in the food sector. For example, they
pointed to products from Turkey and Iran as below standards but with pricing that is
very inexpensive, making the commodity more attractive. However, some of the
participants believe that Iraqis will buy locally grown products, given that Iraqi
agricultural products as well as animals are a source of pride.

Some participants and experts indicated that the Iraqi Government is not a member of
the World Trade Organization (WTO), therefore, it is in a position that allows it to place
more regulations including higher tariffs on products coming from other countries. They
point to this measure as a temporary solution to help manufacturers mature and
develop a competitive advantage to help them prepare for “fair competition” against the
others when the country joins the WTO.

Additionally, new legislation has come into force on August 5, 2018 to apply duties and
tariffs on all food products imported to Iraq. For example, there are 50% duties on meat
products imported, 85% on potato chips and similar items and 100% on cream.

According to the Statistics Bureau, the size of the sector is modest but growing at 6050
SMEs working in the sector, which employs over 28,000 people.

The same study indicates that Iraq had already achieved self-sufficiency by 2007, which
was before the emergence of the private sector and in particular importers of food stuffs
who started to compete with the SOE.

Clearly Iraq has had the experience and knowhow (albeit dated) but at minimum the
capacity to produce food products that satisfied the needs of the market.

The study cited above found that from 1991—the year when the UN Sanctions were
imposed on Iraq—until 2007, 95% of all food manufacturing operations in Iraq were
"small" in nature. 119

Over 95% of those employed were local Iraqis and most of the products they sold were
produced locally in collaboration with the agricultural sector.

The large companies employed over 130 employees, the medium size employed 16 and the small
119

ones employed on average 5.

41
Iraqi food processing sub-sectors:
• Canning factories
• Vegetable oil factories
• Flour mills
• Starch mills
• Sugar refining and packaging
• Dairy plants include ice cream factories
• Pasta and macaroni factories
• Fruit juice processors
• Biscuits and chocolate plants
• Soft drinks suppliers
• Frozen foods suppliers and catering companies
Prognosis
• According to a Ministry of Planning report, the outlook for investment
opportunities in this sector in Iraq should continue to improve due to
strengthened security and a more normalized business environment;
• Iraq’s population is expected to boom, reaching about 40 million people by 2025,
and perhaps as much as 50 million by 2035.120 This number includes a growing
population of young people whose consumption patterns will be similar to those
found in the West;121
• “Despite relatively low disposable incomes, some early entrants in the packaged
food sector will soon gain consumer acceptance, as have imported products.
This report is based on data presently available in Iraq, relying in part, on
information provided by the Food Importers Association in Iraq.”122 However, new
import tariffs on food products will likely encourage domestic consumption, which
could stimulate the sector further;
• Focus group and KII participants in KRI and Basra as well as the Federal Ministry
of Labour stressed that food manufacturing has the highest potential for
employment in Iraq. This represents a great opportunity as the sector appears to
be enjoying a healthy growth in the last three years; and
• While food manufacturing is seen as a potential driver for employment, most
interviewees believed that this sector has the potential to employ women in large
numbers.
Recommendations and alignment to Dutch Priorities
The Iraqi food manufacturing industry is sufficiently developed to largely meet the needs
of the local population but is struggling with adjusting to the changing consumption
patterns and competing against lower-priced imported goods. Strengthening the

120 Mohammed Ibrahim, “Iraq Food Processing Sector,” USDA Foreign Agricultural Service (2011)
121 Ibid.
122 Ibid.

42
competitiveness of this sector will support its capacity to meet the demands of the local
population, as well as produce and market quality goods that could be exported. A
growing sector will then be able to offer more employment opportunities to Iraqis,
including women and youth.

Food security 123 has been identified as one of the four priority themes of Dutch
development cooperation policy with focus on increasing sustainable food production,
improving access to nutritious food, developing markets, enabling trade and investing in
a better business climate for the private sector. The policy presents food security as a
function of sustainable and productive agricultural and food industry. Well-developed
food production does not only ensure food security at the national level, but also
internationally via export of produce.
The Netherlands is recognized internationally as an expert in food production and
processing and are one of the major food exporters in the world124. Several Dutch public
and private sector companies125 have built reputation on producing, testing, and
conducting food related research, as well as supporting a global supply chain126. Given
the expertise and previous record of successful development activities in food security,
a development intervention focused on improving the competitiveness of Iraq’s food
manufacturing industry is recommended. The areas of intervention can include
1) Building food research and testing capacity by:
• Fostering research partnerships between Dutch and Iraqi research institutions and
private sector companies to facilitate the transfer of knowledge and expertise, with
specific focus on sustainable food production and food safety; and
• Identifying training needs and establishing short-term study programs for Iraqi
researchers, scientists, teachers and industry professionals in partnership with
Dutch research and educational institutions.
2) Building capacity of local producers to market and export their product by:
• Providing training on basic marketing strategies, including digital outreach;
• Providing information about available trade support programs and guidance
necessary to enter foreign markets; and
• Providing training on food safety standards.
Entrepreneurial capacity building in ICT should be linked to strengthen the sector and to
increase the sales and marketing of the sector internally and externally.

123
Food Security: https://www.government.nl/topics/development-cooperation/the-development-policy-of-
the-netherlands/food-security
124 Second largest in the world, according to the World Economic Forum:

https://www.facebook.com/worldeconomicforum/videos/10155155054221479/
125 NIZO, Wageningen University and Research Center, PUM, and others.

Marcel Timmer and Gaaitzen de Vries. Dutch Manufacturing Competing in Global Value Chains.
126

Groningen Growth and Development Centre. University of Groningen. November 2015, p. 21.

43
3) Strengthening productivity of local farmers by:
• Facilitating access to new technology and machinery;
• Assessing the need for specialized skills and training; and
• Providing information about available state programs and funding mechanisms.
4) Supporting TVET in Food Manufacturing Sector. Iraqi Vocational Education Colleges
which operate under the Ministry of Higher Education and Scientific Research have food
production diplomas. However, the diploma program has not been upgraded nor has it
attracted the attention of the students due to lack of hiring capacity.

Issues to Consider
With respect to challenges related to the implementation of TVET, please see the
“issues to consider” related to recommendation for the construction sector on page 44.
While this study was not mandated to examine the agricultural sector, it should be noted
that the invasion by Daesh is estimated to have reduced Iraq’s production capacity by at
least 40%. 127 Food manufacturing will in part depend upon the restoration of wheat
fields that were destroyed during the conflict with Daesh. Therefore, for conflict-affected
areas, there will be opportunities to support the agriculture sector by strengthening
investment in agricultural equipment and supporting increased access to markets. This
will ultimately benefit the food manufacturing sector.
Such a development intervention is likely to encounter challenges characteristic of the
sector as a whole, including a shortage of production inputs, insufficient infrastructure,
lack of access to finance (especially in the case of small businesses) and land tenure
issues. The programme could address some of the challenges directly by facilitating
access to finance or production inputs (machinery) and promoting land rights. Other
risks will need to be managed in close collaboration with local authorities and other
international partners (e.g. by aligning development activities with other complimentary
projects).
Tourism
Significance of the Sector to the Iraqi Economy
• The majority of tourism in Iraq is religious in nature. Iraq has the highest Shiia
Islam religious sites and its religious institutions are the anchor of the Shiia
Islamic jurisprudence;
• The South and North have both identified tourism as an important sector to
create employment and as a contributor to GDP;
• The sector is highly disorganized and lacks up to date data on contribution to
economy;
• The majority of visitors are local, Iraqis travel across the country for all different
types of tourism; and
• Iraq’s global image is a place of conflict and wars, thus deterring tourists from
visiting.

127 RFSAN. The Impact of ISIS on Iraq’s Agricultural Sector. December 2016, page 7.

44
Sector to-date
The United Nations World Tourism Organization (UNWTO) has shown in 2016 that Iraq
reported an increase of over 4% in the number of international visitors. The same report
has shown a decline of visitors to the Middle East of -4% driven by important factors
such as security concerns, political instability and in some cases inability of countries to
rebound.
Since 2003 Iraq’s insecurity affected the sector significantly. It was not until late in 2009
that Iraqis started to feel more comfortable and started to travel across the country.
The majority of tourism was driven by three factors:
1. Religious tourism;
2. Arab Iraqi tourists visiting the Kurdish Region (since it was the most stable part of
the country); and
3. Iraqi expats travelling back to the country.
Contribution of Travel & Tourism to GDP
According to the Iraqi Ministry of Culture and Tourism, there are annually 5 million
tourists visiting Iraq. The Ministry does not provide a breakdown of the numbers.
However, as per the latest report by World Travel and Tourism Council on Economic
Impact of Travel & Tourism in Iraq, the total contribution of Travel & Tourism to GDP
(including wider effects from investment, the supply chain and induced income impacts)
was IQD15,060.7bn in 2016 (5.2% of GDP). This was expected “to grow by 5.9% to
IQD15,947.6bn (5.4% of GDP) in 2017.”128

Figure 10: IRAQ DIRECT CONTRIBUTION OF TRAVEL& TO GDP

128 World Travel & Tourism Council, “Travel & Tourism: Economic Impact 2017 Iraq”

45
Figure 11: IRAQ TOTAL CONTRIBUTION OF TRAVEL &TO GDP
Employment generation
Travel & Tourism generated 100,500 jobs directly in 2016 (1.3% of total employment)
and was expected to grow by 3.2% in 2017 to 104,000 (1.3% of total employment).129
This number includes employment by hotels, travel agents, airlines and other passenger
transportation services (excluding commuter services). In addition, it comprises the
activities of the restaurant and leisure industries directly supported by tourists. 130

The total contribution of Travel & Tourism to employment (including wider effects from
investment, the supply chain and induced income impacts) was 320,000 jobs in 2016
(4.2% of total employment). This number was expected to rise by 3.6% in 2017 to
331,500 jobs (4.3% of total employment).131

However, according to the World Travel and Tourism Council (WTTC) “2017 Travel &
Tourism directly supported 171,000 jobs (2.1% of total employment).”132 This was
expected to remain unchanged in 2018.

129 Ibid.
130 Ibid.
131 Ibid.
132 According to some other reports from the Ministry and the news media, the confusion in visa

applications and designation of the travelers to Iraq has led to inability to accurately count the number of
visitors and to the collection of fees and taxes.

46
Figure 12: IRAQ TOTAL CONTRIBUTION OF TRAVEL &TOURISM TO EMPLOYMENT

Figure 13: IRAQ TOTAL CONTRIBUTION OF TRAVEL & TOURISM TO EMPLOYMENT

Religious tourism
As Iraq began to recover and the security situation stabilized in the major cities, in
particular the South, local and international travelers who wished to participate in the
religious rituals returned.

According to the Tourism and Hospitality Association in Karbala in the numbers of

tourists are growing, tourists from 36 countries have visited Iraq. “In 2013 over 3 million
Iraqis visited religious cities across Iraq, Najaf, Karbala and other sites such as
Baghdad.” The same article also highlighted the weakness of the country’s hospitality
infrastructure, services, and available skills to handle the influx of tourists and tourism.

47
A world Bank study published in 2013 quoted the Ministry of Tourism in Iraq which
stated that "Iraq holds 60,000 undeveloped archaeological sites in addition to the
excavated ruins of legendary ancient cities such as Ur, Uruk, Babylon, Ctesiphon, and
Nineveh, as well as sites remaining from Iraq’s Islamic heritage. Small numbers of
tourists have already begun to arrive in Iraq to view these sites and experience
Mesopotamia’s legacy.133” The same report identified religious tourism to be an “largest
contributor to the tourism sector. In recent years, most tourists to Iraq have been Shi’a
pilgrims from Iran and elsewhere, and the number of pilgrims has steadily grown.” 134
Kurdistan
The Kurdistan Region has developed a strong tourism infrastructure, capacity to serve
and most importantly the political and security stability that allowed for investment and
growth of the sector. KRI was always seen favourably by Iraqis for its beautiful and
impressive mountains, abundant water, and cooler temperatures. Since 2009 Iraqis
began to flood to KRI during the weekends and the holidays, most seeking respite from
the difficult reality of Baghdad. Erbil shopping malls and the opportunity to go to
restaurants late at night was an important factor. Erbil, in particular, but other cities such
as Sulaymaniyah as well, became part of the “training tourism sector” as Iraqi
Government, private sector and international organizations began to provide the
majority of their training programs in country. The KRI was the most reasonable and
rational destination.

However, the sector suffers from lack of organization, competition between ministries,
and other major inefficiencies. Mahmood Al-Zubaidi, Director General at the Ministry of
Tourism, told the Arab Weekly that the large number of pilgrims is not adding to the Iraqi
economy because “Nothing is organized,” “so many ministries get involved, but nothing
gets arranged. This includes the Ministry of Transport, the Ministry of Tourism, the
Interior Ministry and more.”135

The majority of interviewees who participated in this study agreed with these findings.
The participants:

• Mostly identified the sector as having great potential to drive growth, high
employment and building of new infrastructure;
• Identified the same weaknesses stressed in the Arab Weekly article, namely the
lack of coordination between private and public sectors, the lack of accurate data
on the sector and its results, and the serious skills weakness; and
• Also mentioned that Iraqi families, cities, and businesses donate food to the
pilgrims as well as shelter, transportation, physical massages, and other services
for free. There is a tradition that those visiting the Family of the Prophet are
visitors, all hospitality should be afforded to them.

133 MENA Knowledge and LEARNING, World Bank, March 2013-Number 87. Ref 80241
134 Ibid
135 https://thearabweekly.com/religious-tourism-failing-iraqs-economy

48
Prognosis
As reflected in the charts above, “the direct contribution of Travel & Tourism to GDP is
expected to grow by 6.4% pa to IQD10,479.5bn (2.3% of GDP) by 2027.” The total
contribution of this sector to GDP is forecast “to rise by 6.0% pa to IQD28,571.9bn by
2027 (6.4% of GDP).”136

According to the charts, by 2027, Travel & Tourism will account for 153,000 jobs
directly, an increase of 3.9% pa over the next ten years.137 By the same year, this sector
is forecast to support 490,000 jobs (4.5% of total employment), an increase of 4.0% pa
over the period.138 Additionally, Travel & Tourism investment is expected to rise by 3.6%
pa over the next ten years to IQD2,893.8bn (USD2.4bn) in 2027, 2.9% of total.

The projected increase in tourism is owed in part to expected improvements in the

security situation in Iraq. Travel to both the South and North (KRI) is expected to
increase. In particular, more tourists are expected to come to Iraq primarily for religious
tourism.
Recommendations
The tourism sector does not appear to align strongly with Dutch development priorities.
However, given the importance of promoting this sector, we chose to include a number
of recommendations. Areas of intervention could include:
1. Providing assistance in incorporating archaeological, environmental and eco- and
nature tourism into the tourist experience;
2. Supporting any of the large number of infrastructure improvements (airport, road and
travel accommodation investments planned in Iraq and the Kurdistan region);
3. As a result of airport re-openings (for example, the airport in Kirkuk re-opened for
international flights in July 2018 and is undergoing an expansion), there is a strong
need for training in airline logistics and operations. This includes ensuring that
planes are available for scheduled flights, the availability of flight crews and baggage
logistics. Airline operations training could prove invaluable;
4. Strengthening infrastructure and facilities – more tourism services (different forms of
accommodations, tourist information/guides/tours, etc.);
5. Reconstruction of holy and historical sites (Karbala);
6. Supporting cultural restoration programs such as UNESCO’s flagship initiative to
revive the spirit of Mosul 139;
7. Supporting tourism institutes that can improve educational programs to provide
tourism services and improve marketing and advertising internationally (training for
guides, knowledge of historical sights and improvement of linguistic skills). Short
courses to certify guides would be helpful as well as modifying the curriculum so it is

136 Ibid.
137 Ibid.
138 Ibid.
139 The initiative foresees a joint effort to rebuild the heritage and revitalize the educational and cultural institutions

of Mosul, in close cooperation with the Government and people of Iraq, especially involving young people. See for
example http://www.uniraq.org/index.php?option=com_k2&view=item&id=8589:unesco-launches-flagship-initiative-
to-revive-the-spirit-of-mosul&Itemid=605&lang=en. d

49
 more fit for purpose when the holy sites are complete; and
8. Supporting the Boards of Tourism in both Iraq (Ministry of Culture) and KRI (Ministry
of Municipality and Tourism). Both offer training for tourism and hospitality. The nine
tourism and hospitality institutes in Iraq provide pre-service training in four 3-year
programmes with a total enrolment of 756 students in 2015-2016. The
operationalization of the KRI Tourism Training Centre has been subject to significant
delays. A specialist facility with capacity for approximately 120 students is only
partially equipped for training of airline and hospitality staff and licensed by
MoHESR.

Light Manufacturing
Defining Light Manufacturing
Light manufacturing is defined as a light industrial business where all processing,
fabricating, assembly or disassembly of items takes place wholly within an enclosed
building. Typical items for processing, fabricating, assembly, or disassembly include but
are not limited to apparel, home accessories, food, drapes, clothing accessories,
bedspreads, decorations, artificial plants, jewelry, instruments, computers, and
electronic devices.140
Significance of the sector to the Iraqi economy
Light manufacturing featured highly in the discussions across all cities, with the majority
of interviewees identifying light manufacturing as potentially a major employment
generator. Interviewees stated that light manufacturing could lead to the development of
small enterprises especially by those who have the skills in the sector. Others, such as
Manufacturer’s Association members believe that with the right support and financing,
light manufacturing could lead to the creation of large number of jobs for both men and
women.
Sector-to-date
SOE Dominance
The light manufacturing sector continues to be dominated by State-Owned Enterprises
of the Ministry of Industry and Minerals (MIM).
According to recent study by Professor Hussein Al Tomaa, there are approximately
17,752 light manufacturing facilities in the country, which accounts for approximately
98.3% of the sector, while 1.5% are SOEs and 0.2% are public-private partnerships.
Production however is highly titled in favour of SOEs. Approximately 90% of the
production is done by 1.5% of the companies. The remaining 10% of locally
manufactured products are conducted by the remaining companies. It is not clear
whether these numbers are accurate, however, it demonstrates that the SOEs continue
to play a dominant role in the local economy.
There are many reports indicating that these companies are not profitable, since they
produce below cost and suffer from bloated employment numbers.

140 http://itsallaboutbusiness.com/Manufacturing.htm

50
Iraq had a strong base for light manufacturing, which was impacted negatively by the
sanctions and successive wars. Following the fall of the regime of Saddam Hussein, the
manufacturing sector lost ground to the importing sector. Importers began to bring in all
manufactured products such as household electrical equipment, heating and cooling
units and other products. Manufacturers who participated in the focus groups
complained that they needed regulatory protection, investment in capacity building
(training on new equipment, design, etc.), and financing guarantees. Participants
agreed that women and men have a great opportunity to work in light manufacturing,
but it is a sector that has the potential to employ a majority of youth, who can be trained
in this sector. The participants also agreed that youth and other groups interested in
light manufacturing should include entrepreneurship, management and financial
management.

In 2013, the Government of Iraq launched Iraq’s Industrial Sector Strategy which
planned for make the sector an important one in the effort to diversify the Iraqi economy
away from the oil dependence. The fall in the prices of oil coupled with the other
challenges that faced Iraq at the time, according to the participants and studies the
Government failed once again to achieve its objectives. The 2018-2022 NDP has
placed manufacturing as an important strategic sector for a growth of 10.5% year over
year. The Union of Manufacturers in Iraq stated their need for greater governmental
protections, they blamed the decline of manufacturing on the “dumping” by importers.

All participants seemed to indicate that Iraqi light manufacturing was positively
perceived by the population, they point to the electrical machinery such as fridges,
boilers, coffee makers, mixers, and many other household items to have been of high
quality. Recent review of the Ministry of Industry and the Light Manufacturing Company
demonstrates that the company continues to produce these types of products.

Import Tariffs to Shore up the Manufacturing Sector

The Government of Iraq recently announced that a new list of tariffs would be applied to
imported goods, a policy decision which was consistent with the demand of
manufacturers, including food manufacturers. Reading the list of the items that were put
on the list, the GoI clearly wanted to protect local manufacturing and products. GoI has
slapped between 0.5% on non-essential products and up to 30% for example on
manufactured electrical products. According to the manufacturers and others
interviewed for this assessment, the importers vehemently opposed this law and have
found ways to undermine the law by bribing and mislabeling products among other
tricks. The GoI and KRG’s inability to enforce the law was a prominent complaint heard
during the focus groups.
Prognosis
• The manufacturing sector is facing an uphill battle in Iraq, the challenges are
tremendous starting with the inability of the Government to protect the sector by
enforcing the customs duties;

51
 • Financing for manufacturing in general is heavily affected by costs of equipment
and machinery, the lack of investments and at least the financing tools such as
leasing and renting of large equipment is a major difficulty;
• The Government of Iraq and KRG are attempting to create the enabling
environment for the sector, however, short of providing financing, the competition
and cost to operate will be too high for the private sector;
• The sector appears ripe for privatization, as was indicated in this assessment the
SOEs are dominating the manufacturing sector. At the same time the SOE are
used as part of the Government employment strategy which is making those
companies and the sector inefficient;
• In KRG the Government’s plan is to invest heavily in this sector. Towards that
end it has put in place a strategy to establish an enabling environment. According
to KRG’s Dr. Abdul Razaq Othman, Head of Board of Industrial Zone, D.G. of
Administration & Finance who was interviewed for this study, the Government of
KRI recognized the need to encourage the development of the sector and has
initiated several steps from a policy and operational perspective to see it grow.
The regulations have significantly eased the licensing for manufacturers and
have factored in ways to support the manufacturers. According to another expert,
KRG’s budget challenges was the catalyst for the Government to start finding
ways to create employment through non-oil-based sectors“. According to the
Ministry, over $10 billion worth of goods was imported to the country in 2016 from
14 countries, while during the same period the Kurdish exports stood at around
$1 billion;141” and
• In 2017 the Government supported the Erbil Manufacturing Trade Show,
according to Nawzad Adham, from the Ministry of Commerce. “The new
regulations are already at work generally to set up a balance between local and
imported products in the market. At the moment we need to support domestic
industries which are greatly challenged”.142
Recommendations
The consulting team is not recommending this sector for the Government of the
Netherlands to consider. The team believes that while the sector has potential growth
opportunities, it is one that requires significant investment in time, resources. As well,
there are too many factors that contribute to the weakening of the sector, including the
inability of the Government to implement sectoral reform policies. Furthermore,
employment levels in state-owned companies in this sector are already bloated, and
layoffs are required for this sector to be competitive.

141 http://www.rudaw.net/english/business/17052017

142 Ibid

52
The sector is dominated by state owned companies which are at a great advantage to
manufacture below cost, the Government has been unable to reform the SOEs and
there does not seem to be any efforts at doing so.
Petrochemicals
Importance of the sector to the Iraqi Economy
Since the 1960s the petrochemicals sector has had tremendous impact and importance
in Iraq. The petrochemical sector was developed to serve the agricultural and
construction sectors among others.
There are eight SOEs working in the field and fourteen plants for the transformation of
petrochemicals across Iraq. Iraq is losing natural gas through the burning process rather
than utilizing it in the manufacturing processing in the petrochemical industry. According
to the Ministry of Industry and Natural Resources, the production was at -15.3%.
According to the Minister of industry, the absence of duties and customs controls has
led to the decline of manufacturing, and as a result less investment in the sector from
both Government and private sector. 143
Sector-to-Date
According to research on the state of the petrochemical industry in Iraq between 2003
and 2012, the sector has been dominated by State Owned Enterprises, starting from
manufacturing to the point-of-sale in the street.
According to the study that sector suffered the same fate of other sectors when the
Government adopted the market-based economy thus, removing all barriers to imports.
The majority of those interviewed for the PSD Study agreed that the open market
economy adopted by the Government was not well thought out, resulting in the flooding
of the markets with a wide variety of cheaper products.
Focus group and KII participants stated that the sector has tremendous opportunity to
develop with the right investment and potential partnerships between SOE and private
sector.
However, to date, as one interviewee put it, Iraqi production continued to “operate the
same way as we were in the 1970s with old technology and old approaches.”
Contribution to GDP
While the petrochemical sector is an important sector, it does not contribute to the
creation of large number of employment opportunities, as the sector is heavily
dependent on automation. When asked about the Oil Services sector, participants
indicated that it was dominated by large companies and not SMEs.
Cost efficient access to global markets is a critical success factor for a petrochemical
facility. A single world scale plant can produce one million tons per annum of product
(likely polyethylene plastic). However, Iraq does not have a local market to support a

143 https://www.thebaghdadpost.com/ar/Story/114584/-‫بالبضائع‬-‫أغرقنا‬-‫الحدودية‬-‫المنافذ‬-‫على‬-‫السيطرة‬-‫عدم‬-‫الصناعة‬-‫وزير‬
‫المستوردة‬

53
world scale facility and ability to export to global markets is therefore required.
Polyethylene markets are highly fragmented with different products (film, containers,
packaging, pipe, etc.), therefore requiring different grades and technical specifications.
This further complicates both the local demand requirement and necessitates the need
for export capability. Therefore, a facility needs to be located near the Um Qasr / Khor
al-Zubayr ports in Basra, which are the only seaports in Iraq.
Prognosis
• In Basra and Baghdad participants agreed that the petrochemical industry
requires significant investment and care to revive it. We learned that Iraq exports
its petrochemicals in raw form to be transformed into products and then resold to
Iraq;
• The Iraqi oil and petrochemical sector in particular are not contributing to the
value chain, while in the past Iraqi petrochemicals were manufactured in country
and sold internationally;
• The petrochemical sector is critical to the food supply chain as it produces the
type of chemicals needed for animal feed and fertilizers. As well, the
petrochemicals products are also significantly important to other sector such as
manufacturing and construction;
• The Petrochemical State-Owned Enterprise identified partnerships with
international companies to be a priority given the level of investment in
technology and knowhow required; and
• The petrochemical companies and factories are employing a large number of
employees who are either sitting idle or manufacturing products that are being
stored in the storage of the company.
Recommendations
While Dutch company Shell is heavily in engaged in the oil sector and other companies
are highly active globally, the petrochemical sector is large and complicated by the
presence and dominance of inefficient Iraqi SOEs. The complexity of these institutions
and their structure will require long-term planning. Furthermore, the whole sector
including the oil sector is known for its low employment numbers. Therefore, investment
in this sector will not necessarily lead to higher employment, especially given that
employment levels in state-owned companies are already bloated, and layoffs are
required for the sector to be competitive.
Telecommunications and Information Technology
Significance of this sector to the Iraqi Economy
• According to the World Bank, “after the oil sector, ICT is the second largest
private-sector-led economic contributor to Iraq’s GDP”. While job creation in this
sector is relatively modest (typically 1% of total employment in developing
countries), ICT creates spillovers into other sectors. 144

144 World Bank Group. Iraq Systematic Country Diagnostic, February 3, 2017, p. 92.

54
 • According to a recent study, “Iraq offers much potential for telecoms
infrastructure development with many under-served areas requiring better
coverage and/or reconstruction. There will also be opportunities in developing
both 3G and 4G deployment, with early signs that mobile data revenues are
already increasing on the back of existing 3G networks”. 145
• Iraq’s telecommunications infrastructure was severely damaged by the first Gulf
war, the 1998 allied airstrikes, and the 2003 hostilities. Before 1991, there were
approximately 37 land-lines per thousand residents, declining to 30 lines per
thousand in 2001. 146
• More recently, the parts of Iraq seized by rebel forces reportedly have very little
mobile infrastructure left intact, with residents relying on satellite technology for
communications. 147
• As a result, according to a recent study, “Iraq offers much potential for telecoms
infrastructure development with many under-served areas requiring better
coverage and/or reconstruction. There will also be opportunities in developing
both 3G and 4G deployment, with early signs that mobile data revenues are
already increasing on the back of existing 3G networks”. 148
• Telecommunication and IT featured prominently in Baghdad and Erbil. In both
regions, the participants believed that the sector is focused on youth, both female
and male. The participants agreed that youth employment in this sector is higher
than other sectors.
Sector-to-date
Iraqi Mobile Market Recovering
The Iraqi mobile market began its recovery starting in 2016 and was forecast to extend
to 34 million subscribers by 2017. This will exceed the 2014 pre-Daesh level, according
to GlobalData. According to one article, the fall of Mosul and the capture of vast
swathes of Iraqi territory led to a massive drop in mobile subscribers, from 33 million in
2014 to 29 million in 2015”. 149 However, according to a World Bank study, “there is
considerable room for growth, especially in mobile and broadband services. Iraq has
one of the lowest rates of mobile and fixed broadband adoption in the MENA region”,
while “mobile voice and broadband packages in Iraq are among the least expensive in
the Arab countries, especially for lower usage plans”.150
The sector is dominated by three companies; Zain Telecommunication which is an
international company operating out of Kuwait, Asia Cell owned by the Farouq Group of
Companies out of Sulaymaniyah, and Korek Telecom which operates out of Erbil.

145 Iraq-Telecoms, Mobile, Broadband and Digital Media - Statistics and Analyses. July 2017.
146 Congressional Research Service. Iraq’s Economy: Past, Present and Future. June 2003.
147 Iraq-Telecoms, Mobile, Broadband and Digital Media - Statistics and Analyses. July 2017.
148 Iraq-Telecoms, Mobile, Broadband and Digital Media - Statistics and Analyses. July 2017.
149 https://www.vanillaplus.com/2017/12/12/33753-defeat-daesh-gives-huge-boost-iraqi-mobile-market-

says-globaldata/
150 World Bank Group. Iraq Systematic Country Diagnostic, February 3, 2017, p. 92.

55
According to the latest figures provided by the World Bank, the total revenues of the
three big mobile companies were US$4.4 billion in 2014. Total revenues of the
government-owned wireline and broadband operator Telegeography was around
US$246 million in the same year. 151. The remaining companies are Iraqi Telephone
and Postal Company (ITPC), Newroz Telecom, Regional Telecom, Ericsson, ScopeSky
Communications.

The Iraqi Communication and Media Commission (CMC), is the primary regulatory body
in Iraq (see description in stakeholder section below). However, the culture of the CMC
is closer to that of a traditional ministry of information rather than an independent
regulator. The CMC is not engaging the operators in the development of a culture and
space for the advancement of knowledge, research in the sector.

Key Investment in IT Infrastructure

A recent investment in IT infrastructure is worth noting. The International Finance
Corporation (IFC) financed a major IT infrastructure development project for Zain. “IFC,
a member of the World Bank Group, is providing a financing package of $269 million to
Zain Iraq, a leading mobile network operator, to help reconstruct the country’s telecom
operations and spur economic growth. IFC arranged a $269 million debt package
including $100 million from IFC’s own account and $169 million in mobilization.” The
investment is an important enabler for economic growth Ali Al-Zahid, the CEO of Zain
Iraq, the youngest CEO in Zain International “It will also enhance access to higher
quality broadband, a key enabler of broad economic activity, for both consumers and
businesses.”152

In Kurdistan “there are currently 21 companies providing internet services. The sector is
divided into fixed line operators (that lease out their network but at the same time offer
internet services), companies selling the internet, wireless internet service providers
(mobile and WiMax) and satellite ISPs153.”
The study identified few other important factors that will require development, nurturing,
and creativity to grow an entrepreneurial echo system; more university-based
incubators, establishing training programs, capacity building and training. Of course, the
study focuses on the need for reform of the legal, policy, banking and infrastructure as
has been discussed extensively in the report.
Prognosis
The World Bank notes “a growing appetite for investment in the telecommunications
market in Iraq”, given that “it is one of the most dynamic of the private-sector-driven
sectors”. The World Bank recommends that “developing synergies with the

151 Ibid.
152 http://iraqieconomists.net/en/2018/07/05/world-banks-ifc-investing-iraqs-telecom-sector-spur-
economic-growth/
153 https://marcopolis.net/internet-service-providers-in-kurdistan-list-of-top-isps.htm

56
infrastructure in other sectors such as transport and energy might be a cost-effective
way to further expand access to internet services”.154
Growth in this sector will continue to be hampered by several obstacles, including:
• Need for revisions to the telecommunications law to better guide the sector;
• The government’s monopoly over the national optical fiber network and
international connectivity;
• The inability of the Iraqi Telecommunications and Posts Company (IPTC), which
is the national operator, to provide quality services at prices that the population
can afford;
• The fact that infrastructure continues to age and the lack of success that the
government has had in funding, maintaining or operating such infrastructure;
• The potential of the ICT to advance business to business transactions and
government service delivery do not appear to be on the agenda of the
government at this point;
• The inability of banks to date to develop an online domestic e-commerce
industry. The ability to make online payments are minimal. Iraqis can purchase
products from Amazon and other international companies if they had credit
cards, but they are unable to do so for domestic products;
• The ICT Sector is not investing nor is it focusing on building an organic culture for
the development of solutions and potentially business generation ideas that could
benefit the companies and the Iraqi people; and
• The fees from licensing and from renewals do not contribute to the development
of the ICT sector.
Recommendations and alignment with Dutch Priorities
The aging and deteriorating infrastructure along with lack of investment in innovation
presents a major challenge to the successful development of the ICT sector. While the
sector is characterized as one of the most dynamic private business led sectors in Iraq,
many areas of the country remain under-serviced with quality of internet and mobile
coverage varying across the country. And although the market is ripe for ICT expansion,
lack of resources as well as stimuli for innovation staggers the prospective growth of the
sector.
The Netherlands’ Foreign Trade and Development Cooperation policy note ‘Investing in
Global Prospects’…sustainable and inclusive growth155 agenda identifies a focus on
mobilization of the private sector for SDGs and digitization as key action areas. A strong
private sector is considered essential element for development. Recognizing that
access to finance is a key challenge faced by the private sector in developing countries,
the Netherlands is developing new forms of innovative financing to improve the balance
between risk and return. Taking advantage of unprecedented opportunities created by

154 World Bank Group. Iraq Systematic Country Diagnostic, February 3, 2017, p. 92.

155Investing in Global Prospects, p.53: https://www.government.nl/documents/policy-

notes/2018/05/18/investing-in-global-prospects

57
digitization, the Netherlands supports innovation and digitization for development. Given
the policy direction and the role of the Netherlands in the digital marketplace, a
development intervention focused on strengthening of the ICT sector is recommended.
The areas of intervention can include:

1) Rebuilding ICT infrastructure by:

• Developing innovative financing mechanisms to facilitate expansion and renewal of
telecommunication infrastructure; and
• Designing a funding program focused on providing targeted assistance to
entrepreneurs wanting to expand into digital commerce and build innovative
applications
2) Fostering innovation by:
• Developing and supporting existing incubators156 in partnership with Iraqi companies
and universities and Dutch investors;157
• Engaging the Iraqi Communication and Media Commission (CMC) to dedicate a
portion of its revenues to projects for youth and women that are focused on ICT;
• Providing short-term targeted training to build entrepreneurial skills among youth and
women entrepreneurs and improve capacity of public sector staff to manage ICT
development; and
• Supporting policymakers in exploring the application of internet banking and other e-
commerce opportunities such as PayPal in Iraq.
Issues to Consider
While the GoI has had a strategic plan in place for both e-government and e-
governance for some time, the capacity of the Iraqi government to implement these
strategies has fallen short. What is absent is a critical mass of individuals and
companies to implement these strategies.
Such interventions are likely to encounter challenges characteristic of the sector
including lack of technical capacity and expertise, deteriorating infrastructure,
insufficient financing, and an outdated legal framework. The programme could address
some of the challenges directly by facilitating access to finance and promoting support
services for innovation.
As mentioned above, the sector is dominated by three service providers. These
providers do not appear to be conducting any significant research and development in
Iraq. Stimulation of the sector will need to come from incubation, strengthening the
mandate of the CMC to encourage innovation, and by developing a culture of
entrepreneurship that is currently absent in Iraq. Additional recommendations to
strengthen this culture are included in section 6.

156 Incubators identified included Dijla University, Noah’s Ark, the University of Kurdistan, SPARK and the
Station.
157 It is noted that Noah’s Ark has dedicated resources for the ICT Sector.

58
6.0 OVERALL PROSPECTS FOR WOMEN
In many cases, interviewees participating in our KII’s and focus groups emphasized
more traditional female roles (such as beauty parlors and sewing) rather than
integrating women into the overall economic sectors. One comment provided to one of
our interviewers that exemplified this perspective was “Our society tends to dislike any
male-female direct contact so that the society prefers having women working in offices
or call centers might be away from males”. This was particularly the case in Baghdad,
where emphasis was placed on the role of women in hand made goods and jewelry.
The exceptions were primarily in manufacturing—in particular food, pharmaceutical and
clothing industries. Food manufacturing was the number one choice amongst KIIs in
Baghdad but was negligible in Basra or Kurdistan. As mentioned in the section on food
manufacturing, most interviewees believed that this sector has the potential to employ
women in large numbers.
Similarly, while women’s roles in pharmaceuticals and clothing industries placed second
and third respectively amongst KII’s in Baghdad, they were negligible in Basra or
Kurdistan.
We were advised that the pharmaceutical industry attracts a large number of females
because of “its nature suitable for women” as well as the presence of many women with
specialized certificates in pharmacology and medical fields. Indeed, since 2003, when
colleges teaching pharmacology abolished policies requiring lower admission scores for
men than women, most graduates have been women. 158 Industry reports anticipate that
the Iraqi pharmaceutical market will continue to grow until 2020, reaching approximately
$2.4 billion US by the same year. 159
We were also advised by one interviewee that the clothing industry “enables women
widows and divorcees who support their families to earn a fairly adequate income”.
However, according to the International Labour Organization’s flagship programme for
the garment industry, “although women represent around 80 per cent of the workforce in
the garment sector worldwide, they are concentrated in the lowest-paying, lowest-skilled
occupations”. 160
National data on the type of training offered by the VTCs and the frequency in 2017 is
presented in Annex 2. The most popular training target females exclusively, such as
sewing and hairdressing (offered 18 and 20 times respectively). However, several
gender-neutral subjects such as computers and business innovation (including English)
are offered 28 and 30 times respectively.

158 Saad Hussain and Ali Azeez Al-Jumaili. Pharmacy in Iraq: History, current status, and future
directions”. American journal of health-system pharmacy: AJHP: official journal of the American Society of
Health-System Pharmacists70(4):368-372, February 2013.
159 http://www.m-partners.biz/files/6414/2062/5670/Iraq_Pharmaceuticals_Market_Opportunities.pdf

160 https://betterwork.org/blog/2018/01/30/better-work-launches-strategy-to-enhance-gender-equality-in-
the-garment-industry/

59
Food manufacturing is one of the six recommended sectors addressed in this report.

7.0 OTHER RECOMMENDATIONS

In addition to the recommendations related to four of the six sectors highlighted in
section five immediately above, the following activities are recommended to stimulate
entrepreneurship:
• Raise awareness about the culture of entrepreneurship through the school
system, including working with the Ministry of Education and the Ministry of
Youth and Sport);
• In order to strengthen the enabling environment for private sector development,
create a ‘one-stop shop’ for entrepreneurs to obtain information regarding the
legal framework, available financing, coaching, incubators and other support for
entrepreneurs. This one-stop shop could be developed at both a point of service
and as a call center; and
• Support mentorship and training programs that can be delivered by existing
incubators such Dijla University, Noah’s Ark, the University of Kurdistan, SPARK
and the Station to strengthen the culture of entrepreneurship in Iraq. Topics
should include marketing and sales, financial management, HR management,
etc. Mentorship programs should link successful Iraqi businesspeople.

8.0 DUTCH-IRAQI DIASPORA

The terms of reference for this report included the identification of opportunities for Dutch-
Iraqi diaspora collaboration. Two such opportunities were identified: programming
through the International Organization for Migration and SPARK, which, according to its
website, offers “access to higher education and supports entrepreneurship development
in fragile states so that young, ambitious people can lead their societies into stability and
prosperity”.
Netherlands-International Organization for Migration
A proposal has been submitted by the International Organization for Migration (IOM) to
add Iraq to participate in the Connecting Diaspora for Development (CD4D) project,
which is implemented by IOM in the Netherlands. The project also previously received
funds from the Netherlands Ministry of Foreign Affairs.
The current iteration of the project focuses geographically on Afghanistan, Ethiopia,
Ghana, Sierra Leone, Morocco and Federal Republic of Somalia (with Morocco and
Ghana already phased out).
This project is intended to “contribute to the recovery in Iraq by engaging qualified Iraqi
diaspora members, predominantly residing in the Netherlands”. The focus is on
diaspora with “specific knowledge and skills that allow them to build the capacity of the
public sector or to engage in business activities in Iraq”. This project aims at “matching
the needs in Iraq with the skills and knowledge of the Iraqi diaspora, resulting in
improved capacity of selected public institutions and creation of business and
employment opportunities”.

60
The objective of this project is to support the capacity building of strategic Iraqi
governmental institutions and promote private sector investments in Iraq through Iraqi
nationals with a Dutch residence permit transfer of expertise through assignments of
qualified diaspora experts that match the capacity building needs of the partner
governmental institutions; and private sector investment. 161
SPARK
According to its website, Spark “established its presence in the Kurdistan Region of Iraq
in 2014 to further develop entrepreneurship and higher education in the region”. Spark
is also active in Syria, Jordan, Lebanon and Turkey.
One of the projects Spark is working on is the ‘Migrant Entrepreneurship Program’ which
“supports the returning Kurds setting up their businesses in KRI. Spark provides technical
and financial support to the entrepreneurs. This could include offering training and
coaching packages and financial support”.
1. Supporting inclusiveness of women and youth
Projects that could be relevant include:
1. The ‘Migrant Entrepreneurship Program’ which “supports the returning Kurds
setting up their businesses in KRI. Spark provides technical and financial support
to the entrepreneurs. This could include offering training and coaching packages
and financial support”;
2. Curriculum Development. According to SPARK’s curriculum development
literature, “SPARK has developed a number of solutions designed to specifically
support institutions of higher education that either intended to start with
developing or introducing entrepreneurship curricula or improve their existing
programmes focused on entrepreneurship 162; and
3. Access to Finance. SPARK designs and implements several access-to finance
instruments in fragile and conflict affected states (FCAS), where large financing
gaps are still prevalent. To overcome challenges, such as credit appraisal, high
transaction cost, lack of risk mitigation instruments for external investors, etc.,
SPARK has designed and deployed a Loan Guarantee Fund and Direct Loan
Fund. The former - partial risk guarantee instrument - has been deployed in the
Middle East.163

161 In case the requested profile cannot be found in the Netherlands, Iraqis in other EU countries could
also be considered (cf. risk assessment plan).
162 SPARK, “Curriculum Development,” http://www.spark-online.org/solutions/curriculum-development/
163 SPARK, “Access to Finance,” http://www.spark-online.org/solutions/access-finance/

61
 SPARK and Access to Finance: Results to Date
“SPARK and its partners have supported over 220 business entrepreneurs through
various access to finance instruments. Of those businesses, 163 businesses (74%)
are owned by youth and or women. Many of these businesses have of course used
their loans to strengthen and grow their businesses but more importantly, they have
used these funds to hire other youth and women. Of all the female owned business
(73) who received loans, over 85% has staff comprised of more than 50% women.
Similarly of all the youth owned businesses (90) who received loans, over 78% has
staff comprised of more than 50% youth."164

164 Ibid.

62
9.0 SUMMARY OF RECOMMENDATIONS BY SECTOR
Construction

(1) Strengthening local TVET institutions by:

• Introducing career guidance services, which have not yet been integrated into the
culture of either TVET or tertiary education;
• Updating curricula based on labour market requirements;
• Integrating new elements in curricula including entrepreneurial skills; information
about worker’s rights and safety protocols, sustainable water and energy
management practices;
• Fostering research partnership between Dutch and Iraqi research and
educational institutions using environmentally sustainable material and energy
resources to facilitate the transfer of knowledge and expertise; and
• Promoting TVET programs among youth.

(2) Building strong linkages with the construction industry by:

• Assessing the needs of the industry, with specific focus on renewable energy and
materials, ecologically friendly production and building technology, sustainable
water and energy management;
• Developing work study programs and internships that enable young people to
obtain practical skills at companies, which complement their studies;
• Promoting integration of young graduates, specifically women, into the
workplace; and
• Sharing expertise and building the capacity of the Construction Sector Council.

(3) Promoting the use of sustainable environmental practices and material in the
construction sector: It is recommended that meetings be held with the Ministry of
Construction, the Iraq Reconstruction Fund and the UNDP Stabilization Fund to identify
specific opportunities to support the reconstruction of schools and hospitals as well as
water facilities.
Food manufacturing
1) Building food research and testing capacity by:

• Fostering research partnerships between Dutch and Iraqi research institutions

and private sector companies to facilitate the transfer of knowledge and
expertise, with specific focus on sustainable food production and food safety; and
• Identifying training needs and establishing short-term study programs for Iraqi
researchers, scientists, teachers and industry professionals in partnership with
Dutch research and educational institutions.

2) Building capacity of local producers to market and export their product by:

• Providing training on basic marketing strategies, including digital outreach;

63
 • Providing information about available trade support programs and guidance
necessary to enter foreign markets; and
• Providing training on food safety standards.

Entrepreneurial capacity building in ICT should be linked to strengthen the sector and to
increase the sales and marketing of the sector internally and externally.

3) Strengthening productivity of local farmers by:

• Facilitating access to new technology and machinery;

• Assessing the need for specialized skills and training; and
• Providing information about available state programs and funding mechanisms.
4) Supporting TVET in Food Manufacturing Sector. Iraqi Vocational Education Colleges
which operate under the Ministry of Higher Education and Scientific Research have food
production diplomas. However, the diploma program has not been upgraded nor has it
attracted the attention of the students due to lack of hiring capacity.
Tourism
The tourism sector does not appear to align strongly with Dutch development priorities.
However, given the importance of promoting this sector, we chose to include a number
of recommendations. Areas of intervention could include:
1. Providing assistance in incorporating archaeological, environmental and eco- and
nature tourism into the tourist experience;
2. Supporting any of the large number of infrastructure improvements (airport, road and
travel accommodation investments are planned in the Kurdistan region, more
specifically in Erbil);
3. Strengthening infrastructure and facilities – more tourism services (different forms of
accommodations, tourist information/guides/tours, etc.);
4. Reconstruction of holy and historical sites (Karbala);
5. Supporting cultural restoration programs such as UNESCO’s flagship initiative to
revive the spirit of Mosul 165;
6. Supporting tourism institutes that can improve educational programs to provide
tourism services and improve marketing and advertising internationally (training for
guides, knowledge of historical sights and improvement of linguistic skills). Short
courses to certify guides would be helpful as well as modifying the curriculum so it is
more fit for purpose when the holy sites are complete; and
7. Supporting the Boards of Tourism in both Iraq (Ministry of Culture) and KRI (Ministry
of Municipality and Tourism). Both offer training for tourism and hospitality. The nine

165 The initiative foresees a joint effort to rebuild the heritage and revitalize the educational and cultural institutions

of Mosul, in close cooperation with the Government and people of Iraq, especially involving young people. See for
example http://www.uniraq.org/index.php?option=com_k2&view=item&id=8589:unesco-launches-flagship-initiative-
to-revive-the-spirit-of-mosul&Itemid=605&lang=en. d

64
tourism and hospitality institutes in Iraq provide pre-service training in four 3-year
programmes with a total enrolment of 756 students in 2015-2016. The
operationalization of the KRI Tourism Training Centre has been subject to significant
delays. A specialist facility with capacity for approximately 120 students is only partially
equipped for training of airline and hospitality staff and licensed by MoHESR.
Light Manufacturing
The consulting team is not recommending this sector for the Government of the
Netherlands to consider. The team believes that while the sector has potential growth
opportunities, it is one that requires significant investment in time, resources. As well,
there are too many factors that contribute to the weakening of the sector, including the
inability of the Government to implement sectoral reform policies. Furthermore,
employment levels in state-owned companies in this sector are already bloated, and
layoffs are required for this sector to be competitive.
Petrochemicals
While Dutch company Shell is heavily in engaged in the oil sector and other companies
are highly active globally, the petrochemical sector is large and complicated by the
presence and dominance of inefficient Iraqi SOEs. The complexity of these institutions
and their structure will require long-term planning. Furthermore, the whole sector
including the oil sector is known for its low employment numbers. Therefore, investment
in this sector will not necessarily lead to higher employment, especially given that
employment levels in state-owned companies are already bloated, and layoffs are
required for the sector to be competitive.
Telecommunications and Information technology
Areas of intervention can include:

1) Rebuilding ICT infrastructure by:

• Developing innovative financing mechanisms to facilitate expansion and renewal
of telecommunication infrastructure; and
• Designing a funding program focused on providing targeted assistance to
entrepreneurs wanting to expand into digital commerce and build innovative
applications
2) Fostering innovation by:
• Developing and supporting existing incubators166 in partnership with Iraqi
companies and universities and Dutch investors;167
• Engaging the Iraqi Communication and Media Commission (CMC) to dedicate a
portion of its revenues to projects for youth and women that are focused on ICT;

166 Incubators identified included Dijla University, Noah’s Ark, the University of Kurdistan, SPARK and the
Station.
167 It is noted that Noah’s Ark has dedicated resources for the ICT Sector.

65
 • Providing short-term targeted training to build entrepreneurial skills among youth
and women entrepreneurs and improve capacity of public sector staff to manage
ICT development; and
• Supporting policymakers in exploring the application of internet banking and
other e-commerce opportunities such as PayPal in Iraq.
Other Recommendations
In addition to the recommendations related to four of the six sectors highlighted in
section five immediately above, the following activities are recommended to stimulate
entrepreneurship:
• Raise awareness about the culture of entrepreneurship through the school
system, including working with the Ministry of Education and the Ministry of
Youth and Sport);
• In order to strengthen the enabling environment for private sector development,
create a ‘one-stop shop’ for entrepreneurs to obtain information regarding the
legal framework, available financing, coaching, incubators and other support for
entrepreneurs. This one-stop shop could be developed at both a point of service
and as a call center; and
• Support mentorship and training programs that can be delivered by existing
incubators such Dijla University, Noah’s Ark, the University of Kurdistan, SPARK
and the Station to strengthen the culture of entrepreneurship in Iraq. Topics
should include marketing and sales, financial management, HR management,
etc. Mentorship programs should link successful Iraqi businesspeople.

66
ANNEX B: Vocational Training Centers
Training Centre Province City District UNESCO VTC Not
Centre Pilot Operational

CENTER
Vocational Training
Baghdad Baghdad
Centre / Waleed X
Vocational Training
Baghdad Baghdad
Centre / Shua'la X
Vocational Training
Baghdad Baghdad
Centre / Iraq-Korea
Vocational Training
Baghdad Baghdad
Centre / Waziriya
Vocational Training
Baghdad Baghdad
Centre / Za'furaniya X
Vocational Training
Baghdad Baghdad
Centre / Rusafa
Vocational Training
Baghdad Baghdad
Centre / Mua'tasim
Welding & Food industry
Abu
Training Centre / Abu Baghdad
Gharib
Gharib
Vocational Training
Wassit Kut
Centre / Wassit
South of Baghdad
Vocational Training
Babylon Iskandariya
Centre / Iskandariya X
Vocational Training
Najaf
Centre / Najaf X
Vocational Training
Qadisiya Diwaniya
Centre / Diwaniya X
Vocational Training
Karbala Karbala
Centre / Karbala X
South of Iraq
Vocational Training
Basrah Basrah
Centre / Basrah X
Vocational Training Kho-Al-
Basrah
Centre / Khor Zubair Zubai
Vocational Training Abu Al
Basrah
Centre / Abu Khasib Khasib
Vocational Training
Missan Omarah
Centre / Missan
Vocational Training
ThiQar Nasiriya
Centre / Nasiriya
North
Vocational Training
Kirkuk Kirkuk
Centre / Kirkuk X
Newly Liberated Areas
- West
Vocational Training
Ninawa Mosul
Centre / Mosul X
Vocational Training Salah-Ad-
Tikrit
Centre / Tikreet Din X
Vocational Training
Anbar Ramadi
Centre / Al- Anbar

1
ANNEX C: Iraq Map
ANNEX D: List of Documents Cited
Annabaa Information Network. “Do Young People Prefer to Work in the Public or
Private Sector and Why?” March 18,2018
The Arab Weekly. “Religious Tourism is Failing Iraq’s Economy”. October 30,
2016. Online at: https://thearabweekly.com/religious-tourism-failing-iraqs-
economy.
Baghdad Post. “Minister of Industry: The Lack of Control Over the Border Ports
and the Dumping of Imported Goods”. July 26, 2018
Better Work. “Better Work Better Work Launches Strategy to Enhance Gender
Equality in the Garment Industry”.
Chemonics International. “Strengthening Government in Iraq’s Provinces”.
Congressional Research Service. “Iraq’s Economy: Past, Present and Future”.
June 2003.
Diamond, Todd and Berkuti, Cameron. “Improving Services and Strengthening
Cohesion in Fragile States: The Case of Iraq,” Chemonics (no date).
EJADA. “Labor Market Survey– Development of a replicable Competency Based
Training Model piloted in the oil sector, Iraq, 2017”.
Hussain, Saad and Al-Jumaili, Ali Azeez. “Pharmacy in Iraq: History, status, and
future directions”. American journal of health-system pharmacy: AJHP: official
journal of the American Society of Health-System Pharmacists70(4):368-
372, February 2013.
Ibrahim, Mohammed, “Iraq Food Processing Sector,” USDA Foreign Agricultural
Service, 2011
International Monetary Fund, “IMF Country Report: Iraq, 2016.
Iraqi Economists Network. “World Bank’s IFC Investing in Iraq’s Telecom Sector
to Spur Economic Growth”. Online at: June 27, 2018. Online at:
http://iraqieconomists.net/en/2018/07/05/world-banks-ifc-investing-iraqs-telecom-
sector-spur-economic-growth/
Iraq Knowledge Network Survey, “Socio-Economic Monitoring System for Iraq”,
2011.
Iraq-Telecoms, Mobile, Broadband and Digital Media - Statistics and Analyses.
July 2017.
It’s All About Business. Definition of Light Manufacturing. Online at:
http://itsallaboutbusiness.com/Manufacturing.htm
Marcopolis. “Internet Service Providers in Kurdistan List of Top ISPs”. December 19,
2012. Online at: https://marcopolis.net/internet-service-providers-in-kurdistan-list-of-top-
isps.htm
Market Insights. “Iraq Pharmaceuticals Market Opportunities”. Management
Partners, May 2013. Online at:
http://www.mpartners.biz/files/6414/2062/5670/Iraq_Pharmaceuticals_Market_O
pportunities.pdf
MENA Knowledge and LEARNING, World Bank, March 2013-Number 87. Ref
80241.
Netherlands Ministry of Foreign Affairs. Dutch Cooperation Policy. “Food
Security”. Online at: https://www.government.nl/topics/development-cooperation/the-
development-policy-of-the-netherlands/food-security
Netherlands Ministry of Foreign Affairs. Investing in Global Prospects. May 2018.
Newsabah, “The Government Launches Small Business Loans”. September 9,
2015
OECD, Investment and Infrastructure Financing in Iraq. Online at:
http://www.oecd.org/mena/competitiveness/iraq.htm.
OECD, “Investment Policy and Promotion in Iraq: Milestones and Way Forward
In a Fragile Situation”. OECD Project on Improving the Business and Investment
Climate in Iraq”, May 2016.
OECD, “Investment Policy and Transparency for Growth and Private Sector
Development in Iraq,” MENA-OECD Initiative on Governance and Investment for
Development, 2007.
RAND Corporation, “Socio-Economic Monitoring System Report, Kurdistan
Region Government”, 2013.
RAND Corporation, “Strategies for Private-Sector Development and Civil-Service
Reform in the Kurdistan Region-Iraq, Kurdistan Region Government”, 2014.
Republic of Iraq, “National Action Plan in Iraq for Implementation of the United
Nation Security Council Resolution 1325 Women, Peace and Security 2014 –
2018”, 2014.
Republic of Iraq, “National Development Plan, 2018-2022”.
Republic of Iraq, Prime Minister’s Advisory Commission. “Private Sector
Development Strategy of Iraq 2013-2030”. Draft, 2013.
Republic of Iraq, “Private Sector Development Strategy of Iraq, 2013-2030”.
RUDAW. “Erbil hosts exhibition for manufacturing industries in Kurdistan”. Online
at: http://www.rudaw.net/english/business/17052017
SPARK, “Access to Finance”. Online at: http://www.spark-
online.org/solutions/access-finance/

1
SPARK “Curriculum Development”. Online at:
http://www.sparkonline.org/solutions/curriculum-development/
Timmer, Marcel and de Vries, Gaaitzen. "Dutch Manufacturing Competing in
Global Value Chains”. Groningen Growth and Development Centre. University of
Groningen. November 2015.
“UN and TVET: Assessment of the Labour Market & Skills Analysis: Iraq and
Kurdistan Region-Iraq,” funded by the European Union (2017).
United Nations / World Bank, “Iraq: The Investment Climate”, 2003.
UNDP, “Women’s Economic Empowerment: Integrating Women into the Iraqi
Economy”, 2012.
US Central Intelligence Agency, “Special Advisory Report on Iraq, Annex D - Iraq
Economic data 1989-2003”, 2004.
USAID/IRAQ, “Planning Reform, 2013.
Vanilla Plus. “Defeat of Daesh gives a huge boost to the Iraqi mobile market,
says GlobalData”. December 12, 2017. Online at:
https://www.vanillaplus.com/2017/12/12/33753-defeat-daesh-gives-huge-boost-
iraqi-mobile-market-says-globaldata/
White, Dr. Simon, “Micro, Small and Medium-sized Enterprises in Iraq”. October
2012.
World Bank Group “Doing Business 2018: Reforming to Create Jobs, 2018”.
World Bank Group. “Iraq Systematic Country Diagnostic”, February 3, 2017.
World Bank Group, “State Owned Enterprises Reform in Iraq,” Finance, Private
Sector and Infrastructure Department, Middle East and North Africa Region
(2004).
World Economic Forum. Video: “The Netherlands has become the world’s 2nd
biggest food exporter”. Online at:
https://www.facebook.com/worldeconomicforum/videos/10155155054221479/
World Travel & Tourism Council, “Travel & Tourism: Economic Impact 2017 Iraq”.