IRAQ

Economic Situation/ Status

Iraq’s economy is gradually recovering from the twin shocks of the pandemic and collapse in oil
prices in 2020. Both oil and non-oil growth are on track to reach their pre-pandemic levels as oil
production increases and the easing of COVID-19 restrictions restores domestic economic
activity. Fiscal and external deficits are back to surpluses as oil prices continue to surge. Growth
in the medium term is projected to be driven by the oil sector as OPEC+ production cuts are
phased out. The outlook remains subject to significant risks including uncertainties relating to the
impact of geopolitical tensions, the ongoing pandemic, security challenges, and climate change.
Recent Developments
Iraq’s economy is gradually rebounding following the deep economic strains of the COVID-19
pandemic. Real GDP is estimated to have edged up by 1.3% in 2021, after a sharp contraction of
11.3% in 2020. The rebound was mainly driven by the non-oil sector which grew by 6% in 9
months of 2021-2021 year-on-year (y/y), underpinned by a strong performance of the high
contact sectors including transport, accommodation, and retail sectors. However, agriculture and
construction contracted by 17.5% and 36.8% respectively, following severe droughts, energy
outages, and the rising global price of inputs. In 9M-2021, oil GDP contracted by 4%(y/y) as
Iraq adjusted its oil production as per the OPEC+ agreement. Headline and core inflation edged
up to an average of 6% and 6.6%(y/y) in 2021, respectively, following the 23% devaluation in
December of 2020 and the gradual recovery in domestic demand.
Outlook
The turnaround in oil markets has significantly improved Iraq’s economic outlook in the medium
term. Overall growth in 2022 is now forecast at 8.9% as OPEC+ quotas end and Iraq’s
production surpasses its pre-pandemic level of 4.6 mbpd. Growth in the outer years is projected
to remain modest at 3.7% on average as oil production moderates. Non-oil GDP growth is
projected to converge to its long-term potential growth trend in part aided by higher investments
that would be financed through the oil windfall. However, growth is forecast to remain
constrained by the economy’s limited absorptive capacity and other inefficiencies.How Culture,
Language, Political Systems, Geography, and Socio Economic Factors Influence a Company’s
Business Decision or Practices and the People or Individual

HOW CULTURE, LANGUAGE, POLITICAL SYSTEMS, GEOGRAPHY,

AND SOCIO-ECONOMIC FACTORS INFLUENCE A COMPANY'S
BUSINESSDECISIONS OR PRACTICES AND THE PEOPLE OR
INDIVIDUAL.
  Culture
The fundamental cultural milieu of Iraq is both Islamic and Arab and shares many of the customs
and traditions of the Arab world as a whole. Within Iraq, however, there is rich cultural diversity.
A variety of peoples were embraced by Iraq when it was carved out of the Ottoman Empire in
1920. These included the nomadic tribes of the arid south and west (related to the Bedouin of
neighbouring states), the peasant farmers of central Iraq, the marsh dwellers of the south, the
dryland cultivators of the northeast, and the mountain herders of Kurdistan. Adaptations to these
contrasting environments have generated a mosaic of distinctive regional cultures manifested in
folk customs, food, dress, and domestic architecture. Such regional differences are reinforced by
the ethno-religious contrasts between Kurds and Arabs and by the fundamental division within
Islam between the Shiʿah and Sunnis. These divisions are less marked than they were in the early
20th century but are still evident in the human geography of Iraq.Language

 Language
The most widely spoken language in Iraq is the Arabic language (specifically Mesopotamian
Arabic). Tthe second most spoken language is Kurdish (mainly Sorani and Kurmanji dialects),
followed by the Iraqi Turkmen/Turkoman dialect of Turkish, and the Syriac (referring to Neo-
Aramaic languages, specifically: Assyrian Neo-Aramaic, Chaldean Neo-Aramaic, and Mandean
Neo-Aramaic). Standard Arabic is written using the Arabic script but Mesopotamian Arabic is
written with a modified Perso-Arabic script and so is Kurdish (see Sorani alphabet). In 1997 the
Iraqi Turkmen/Turkoman adopted the Turkish alphabet as the formal written language and by
2005 the community leaders decided that the Turkish language would replace traditional
Turkmeni (which had used the Arabic script) in Iraqi schools. In addition, the Neo-Aramaic
languages use the Syriac script.Other smaller minority languages include Shabaki, Armenian,
and Persian.

 Political Systems
Iraq is a federal parliamentary representative democratic republic. It is a multi-party system
whereby the executive power is exercised by the Prime Minister of the Council of Ministers as
the head of government, the President of Iraq as the head of state, and legislative power is vested
in the Council of Representatives. The current Prime Minister of Iraq is Mustafa Al-Kadhimi,
who holds most of the executive authority and appointed the Council of Ministers, which acts as
a cabinet and/or government. The northern autonomous provinces, Kurdistan Region emerged in
1992 as an autonomous entity inside Iraq with its own local government and parliament. The
federal government of Iraq is defined under the current constitution as an Islamic, democratic,
federal parliamentary republic. The federal government is composed of the executive, legislative,
and judicial branches, as well as numerous independent commissions. The legislative branch is
composed of the Council of Representatives and a Federation Council.] The executive branch is
composed of the president, the prime minister, and the Council of Ministers. The federal
judiciary is composed of the Higher Judicial Council, the Supreme Court, the Court of Cassation,
the Public Prosecution Department, the Judiciary Oversight Commission, and other federal
courts that are regulated by law One such court is the Central Criminal Court. The Independent
High Commission for Human Rights, the Independent High Electoral Commission, and the
Commission on Integrity are independent commissions subject to monitoring by the Council of
Representatives The Central Bank of Iraq, the Board of Supreme Audit, the Communications and
Media Commission, and the Endowment Commission are financially and administratively
independent institutions. The Foundation of Martyrs is attached to the Council of Ministers. The
Federal Public Service Council regulates the affairs of the federal public service, including
appointment and promotion.

 Geography
Iraq, situated in what was ancient Mesopotamia, occupies the eastern wing of the Fertile
Crescent, the relatively fertile area of land in the otherwise arid region of the Middle East and
North Africa. Iraq is bordered to the north by Turkey, to the east by Iran, to the west by Syria
and Jordan, and to the south by Saudi Arabia and Kuwait. It is one of the easternmost countries
in the Arab world. The country sits at the same latitude as the southern United States. Iraq can be
divided into four geographical regions: the Tigris-Euphrates alluvial plains in central and
southeastern Iraq; Al-Jazeerah, an upland region in the north between the Tigris and Euphrates
rivers; deserts in the west and south, covering about two-fifths of the country; and highlands in
the north and northeast. The Tigris-Euphrates river system drains into Iraq, fed by melting winter
snow in Turkey that gives Iraq viable soil to support agriculture, a major component of the
economy.Urban and Rural Settlement. Over three quarters of the Iraqi population lives in urban
environments, mostly in Baghdad, Basra, Mosul, and Erbil. Baghdad, a major metropolis, and
the capital, is the political, economic, and communications hub of Iraq. Close to one third of the
total population of Iraq lives in Baghdad. Historically, Baghdad sits in the same area as Babylon.
The city of Mosul, second only to Baghdad in its size, sits on the Tigris near the ruins of the
ancient Assyrian capital of Nineveh and has recently experienced rapid growth.
Towns, hamlets and villages comprise the remainder of the population. These are situated
throughout Iraq, but mostly in the lowlands and valleys around the Tigris and Euphrates rivers.
Most of these populations depend on agriculture for their survival.
Facts about Iraq’s Geography
• Fifth largest proven reserves of petroleum in the world.
• Substantial reserves of natural gas.
• The mountains, hills and plains of north and northeastern Iraq occupy about
35,500 square miles (92,000 square kilometers), about one-fifth of the country.
• Dams form an important role in controlling flooding and permitting irrigation, and
Iraq has many giant irrigation projects.
• Area: 437,072 square kilometers; about the size of California.
• Cities: Capital–Baghdad (7.2 million, 2006 estimate). Other cities–Basra, Mosul,
Najaf, Karbala, Erbil, and Kirkuk.
• Terrain: Alluvial plains, mountains and desert.
• Climate: Mostly hot and dry.
Climate and Soil
Iraq’s average temperature is 70 °F (21°C), and the average monthly rainfall is less than an inch
(16 mm), depending on the season. There are two seasons, summer and winter, with only short
transitional periods between the two. Summer lasts from May to October and is characterized by
cloudless skies, hot temperatures, low humidity and no precipitation from June through
September. Temperatures in Baghdad average 95 °F (35 °C), but have been recorded up to 123
°F (51 °C) during summers. During the winter, which lasts from December to February,
temperatures are mild with bouts of hot and cold ranging between 35 and 60 °F (2 to 15 °C).
Rainfall averages just over an inch per month (29 mm) between November and April. Iraq has
two climatic provinces: the hot, arid lowlands, including the alluvial plains and the deserts, and
the damper northeast, where the higher elevation produces cooler temperatures. The lowlands are
covered by heavy alluvial soils with a high proportion of clay that is suitable for cultivation and
building materials. In the northeast, summer is shorter while the winter lasts longer. The greater
winter rainfall sustains good seasonal pastures. Common to all of Iraq is the steady northerly and
northwesterly wind, which brings extremely dry air and a cloudless sky. Additionally, a southern
and southeast wind brings dust storms throughout the year, but most frequently in the summer.

 Socio Economic Influences a Company Business Decision or Practices

and the People or Individual
The Socio-Economic Response Plan for Iraq (SERP) was led by the Resident Coordinator’s
Office with the United Nations Development Programme (UNDP) as technical integrator, and
with full participation of the United Nations Development System in the country between May-
July 2020. The current strategy was prepared while several COVID-19 impact assessments by
UN Agencies and other stakeholders were ongoing, while others were being planned. In this
regard, the strategy should be seen as a living document that will be adapted and updated based
on i) the evolution of the pandemic in the country, including whether there is more than one
wave. ii) the data and results generated from the assessments processes, expected by August-
December 2020.

Iraq’s economy is dominated by oil. It is one of the world’s largest exporters, and possesses
some of the world’s most significant proven reserves. Iraq is also one of the most oil-dependent
in the world, with the hydrocarbon sector accounting for just under 60 percent of the country’s
GDP, 99 percent of exports, and more than 90 percent of central government revenue. This
dependence has grown over time as Iraq's non-oil industry and agriculture sectors have suffered
heavily in recent decades. The economic sanctions of the 1990s, intermittent armed conflict since
the 1991 Gulf War, and ongoing political tension have limited space for growth and
diversification.85 Macroeconomic conditions were benign in 2018 and 2019. Relatively high oil
prices led to budget surpluses of 11.2 and 1.3 percent GDP in 2018 and 2019 respectively, and
public sector debt was on a downward path, falling from 49.3 to 44.6 percent of GDP between
these two years. These favourable fiscal conditions allowed government to respond to citizen
protests in late 2019 by further expanding public sector employment. In the external sector,
current account surpluses of 6.9 and 2.5 percent of GDP over 2018 and 2019 allowed for the
accumulation of substantial financial reserves. Just before the Covid-19 crisis at the end of 2019,
macroeconomic conditions combined with a bumper harvest to generated broadly positive
economic conditions. Long-standing structural challenges remain, however. Historically pro-
cyclical fiscal policy exacerbates the revenue and expenditure impacts of swings in the oil price.
The public sector wage bill stands at 14.7 percent of GDP – notably above the regional average
for oil-exporting MENA countries of 11 percent of GDP; and it rose by 13 percent in 2019 alone.
Combined with poor execution of non-wage expenditure, this squeezes out room for investment
in the non-oil economy. Unemployment is also high – with around half the rapidly-growing
youth workforce not in employment, education, or training (NEET). Most workers operate in the
informal economy, thereby reducing their contact with formal institutions of tax collection and
welfare provision. State-owned enterprises dominate many sectors, reducing the space for private
sector growth. The financial sector, in particular, is dominated by a small number of state-owned
banks operating predominantly in the oil sector. The first half of 2020 saw ‘twin shocks’ affect
Iraq’s economy: rapid and significant falls in oil prices, and restrictions on social and economic
activity related to Covid-19. Over the first quarter of 2020, average annual prices for Iraq’s oil
are forecast to drop by over 50 percent, from $61 to $30 a barrel. Globally, March 2020 saw the
single largest monthly decline of oil prices on record and the current oil price decline is deeper
than any other previous global recession. Starting from 22nd March 2020, the government
imposed a range of restrictions on economic and social activity in a bid to control the spread of
the Covid-19 virus. These have placed Iraq towards the top of the combined index of Covid-19
related responses, as measured by the University of Oxford.86 While these are a vital part of the
fight against infections, these restrictions have substantially reduced activity across the economy.
These twin shocks are having a dramatic impact on key macroeconomic indicators. Forecasts for
Iraq’s GDP in 2020 and beyond have been progressively reduced in successive quarters, in
common with countries across the world. GDP growth is expected to be negative at -9.7 percent
in 2020 with non-oil GDP contracting by 4.4 percent. Regarding the external sector, the current
account will turn sharply negative by an estimated -18 percent and foreign reserves built up in
the Central Bank of Iraq (CBI) – while moderate at 10 months of imports in 2019 – are expected
to start being run down. Projection for oil prices in the near future do not suggest a rapid
rebound, with negative implications for Iraq’s public finances over the coming year. Despite
agreements by the OPEC+ group in April and June 2020 to cut production and support prices, oil
futures suggest a period of prolonged low prices with only a modest – and highly uncertain –
recovery in 2021. Globally, oil prices had moved up to over $40 a barrel by early July 2020 87
and overall, they are forecast to move upwards in 2021 by a modest 6.3 percent compared to
2020; partially offsetting the 42 percent decline between 2019 and 2020. Given that a $1 change
in the oil price is estimated to change Iraq’s oil-based GDP by around 1.1 percent, the future
direction of oil prices will be critical to the length and severity of Iraq’s current macroeconomic
imbalances. According to some estimates, Iraq’s current pattern of public spending with an
increased wage bill, higher pensions, and more demand for Public Distribution System goods
will require an oil price of around $76 per barrel to finance recurrent spending, and $58 a barrel
simply to meet the public sector wage and pensions bill alone. This means that current
macroeconomic conditions of a substantial imbalance between revenue and expenditure is likely
to widen for at least the coming year. The dramatic decline in the macroeconomic situation as a
result of oil price declines is mirrored in projected public finance outcomes over 2020 (see box 1
below).88 The budget balance is expected to swing dramatically from a 1.3 percent of GDP
surplus in 2019 to a massive -29.6 percent deficit in 2020. As a result, total debt is expected to
increase significantly from 44.6 percent of GDP in 2019 to 81.2 percent GDP, and thereafter rise
more slowly. Although debt interest costs as a percentage of GDP are expected to only increase
modestly over 2020, and Iraq does not face an immediate risk -t of debt default, the country’s
growing macroeconomic and fiscal imbalances pose a serious risk to debt sustainability in the
coming years. The public sector wage bill will rise substantially as both a percentage of GDP and
government expenditure. Indeed, current forecasts suggest that the wage bill alone will be higher
than total government revenue over 2020. In addition, demand for, and reliance on, the Public
Distribution System of subsidised essential goods– a system that already accounted for around
10 per cent of government recurrent expenditure in 201889 – will increase. As a result, capital
and other recurrent expenditures are expected to face significant reductions. The government
does not intend to pass a full budget for 2020. The current government itself was only formed
relatively recently, following a period of political and social unrest. Media reports suggest that
the government believes that the dramatic declines in oil prices have rendered the planning
assumptions for the 2020 budget moot. Instead, it will focus its planning efforts on developing
the 2021 budget. On the financing side, the government did recently win Parliamentary approval
to seek additional domestic financing of around $13bn to meet its expenditure needs, and has
sought international bilateral financing support from other countries in the region. 90 The
dramatic deterioration in macroeconomic and fiscal positions will put further pressure on Iraq’s
financial sector. Even during the relatively benign conditions of 2019, large state-owned banks
were already burdened by legacy assets and loans to state-owned enterprises, and banks across
the financial sector were facing rising rates of non-performing loans (NPL), in particular those
made to the oil sector. The collapse in the oil price in 2020 will further intensify this problem. At
the extreme, this will represent a significant contingent risk to public finances if the banking
sector requires re-capitalisation. A weakened banking sector will mean that credit availability –
already constrained outside of the oil sector – will face further restrictions. Globally, financial
conditions have tightened meaning generally higher costs of government and private sector
financing; although Iraq does not yet appear to face an immediate shortage of financing for its
deficit.

How Import and Export occurs in Business Aspects

The turnaround in oil markets has significantly improved Iraq’s economic outlook in the medium
term. Overall growth in 2022 is now forecast at 8.9% as OPEC+ quotas end, and Iraq’s
production surpasses its pre-pandemic level of 4.6 million barrels per day. Growth in the outer
years is projected to remain modest at 3.7% on average as oil production moderates. Non-oil
GDP growth is projected to converge to its long-term potential growth trend in part aided by
higher investments that would be financed through the oil windfall. Growth is forecast to remain
constrained by the economy’s limited absorptive capacity and other inefficiencies. Higher
projected oil prices in 2022–2024 are forecast to keep Iraq’s fiscal and external balances in
surplus. Iraq’s economic outlook remains subject to significant risks. The recent geopolitical
tensions related to the war in Ukraine highlight risks for Iraq’s economy. While any further oil
price hikes would improve Iraq’s fiscal balance, rising food prices and disruption to agriculture
imports will exacerbate pre-existing poverty trends and increase food security risks. The conflict
also poses risks to Iraq’s crude oil production if operations of Russian oil companies in Iraq are
impacted by international sanctions on Russia. Higher oil prices could hurt the longstanding need
to reform, thereby deepening Iraq’s structural economic challenges. Further intensified climate
change effects and water shortages will decrease agricultural production. Additionally,
COVID-19 vaccination in Iraq remains very low, among the lowest in the region and well below
the global rate, and poses additional risks. It remains low even among the most vulnerable group,
the elderly, and among those with high risk of exposure to the virus – poorer households and
informal workers that are less likely to work from home and more likely to live in large
households in cramped conditions. Other risks include the decline in oil prices and a
deterioration of the security situation. Last Updated: Jun 01, 2022 Iraq main imports are:
machinery and transport equipment (38 percent of total imports), manufactured articles (27
percent), mineral fuels (10 percent), and chemicals and related products (7 percent). Main import
partners are: Syria (18 percent of total imports), China (14 percent) and United States (6
percent).Crude oil accounts for more than 90% of Iraqi exports whereas petroleum products
make up for the rest. Iraq is the world´s seventh biggest producer and exporter of oil. Shipments
of crude oil account for 99 percent of total exports. Exports The top exports of Iraq are Crude
Petroleum ($45.2B), Gold ($7.98B), Refined Petroleum ($4.25B), Petroleum Coke ($424M), and
Coal Tar Oil ($102M), exporting mostly to China ($17B), India ($14.4B), Turkey ($8.19B),
South Korea ($3.78B), and United States ($2.85B).Group Reflection

GROUP REFLECTION

Iraq is a state in the west of the Asian continent. The economy of Iraq is dominated by the oil
sector and is one of the most oil-rich countries in the world. The dominating culture within Iraq
is Arab, and most Arabs are Muslim and their official languages are Arabic and Kurdish. This
highlight the concepts of how’s an economy grow and what constitute a country that run an
economy. This research that we had conducted enlightens us where does economic growth came
from.
Iraq's state-dominated economy provides approximately 85% of government revenue. The
dominating oil sector of Iraq has contributes the largest single portion to GDP. Having read
around this issue, we have realised that one of the main functions of economic growth is
exporting. Exportation increase global market share, sales grow faster and more jobs created.
Where it only means the more country exports, the more domestic economic activity arise. The
idea of leading to produce and exporting goods and services in the world activated our desire to
pursue our study and take ownership to our desired career success. In which we can be part of
our economy growth by way of exporting and trading globally in the dint of human capital.
Retaining and improving the value of education system here in our country would be a key to a
significant change to enriched human capital thus it leads to economic growth. In addition to this
importing also play a huge success in economy. Where importing reduces the natural resources
go to waste because it optimizes the use of natural resources. Also it remains employees highly
competitive in both domestic and foreign market. The concept of economic growth has given us
the insight in a real economy world. The role of incentives matters a lot and the institution
provides the proper incentives for individuals. Aside from importing and exporting, we had
discovered that technology advancement is a must for an economy to grow. It is central to how a
global growth is generated and shared across country.
From the entire experience of conducting this research, we learned the importance to study how
an economy grows. As aspiring young entrepreneurs, we perceived that we are the participants
that make an economy to move forward. Thus we play a vital role in economic growth .As an
entrepreneur student, we are responsible in taking initiatives for an economy to grow.