By Adnan Abu Zeed for Al-Monitor. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

Iraqi protesters set sights on local governors

Protesters in central and southern Iraq are demanding the sacking of governors and local government administrators.

The protests have spread to Kirkuk, where demonstrators called for removing the governor and other local officials, calling them representatives of corrupt parties.

Click here to read the full story.

By John Lee.

As decades of war and occupation come to an end, Iraqis are confronting their new era head on. A massive wave of protests across the country demanding an end to corruption and respect for human rights toppled the government in 2019.

With a new prime minister in place who speaks directly to many of the protesters’ concerns, there is some hope the government may finally address some of these issues.

But as space for such conversation opens, it is unclear whether the new government will be able to address an ongoing campaign by many authorities to silence critics, with journalists and activists facing violence, harassment, and prosecution for simply speaking out.

Paul Aufiero talks with senior researcher Belkis Wille about her new report on the threat to free speech in Iraq and what this important moment means for the country.

More here.

(Source: HRW)

IBBC Advisory Council’s discussion goes public on the white paper ‘Iraq 2020: a country at the crossroads.’

Today over 300 people signed up the IBBC Advisory Council’s public discussion on the white paper – Iraq 2020: a country at the crossroads, sponsored by Iraq Business News ( IBBC media partner)  and in conjunction with Chatham House and IRIS at AUIS.

With a full panel of 6 advisors and commentators, including Ms Maya Gebeily of Agence-France Presse, Mr Ahmed Tabaqchali of IRIS at AUIS, and the key advisory panel members led by Professor Frank Gunter of Leigh University, Dr Renad Mansour, Fellow at Chatham House, Mr Hani Akkawi of CCC and Professor Mohammed Al-Uzri, University of Leicester University. Mr Christophe Michels, MD of IBBC chaired the discussion.

The key points were delivered by Professor Gunter, including, the necessity to provide: 1. Strong cross-party political support to GOI for its initiatives; 2. Transparency to build support and trust among the people and to stop corruption up and down the system. 3. GOI acceptance of the limits of its ability to control and centralise economic activity- and afford to make space for the Private sector.

Dr Mansour made critical points about the importance of the political economy and the requirement to listen and understand the needs of the protestors and conversely the protestors ability and requirements of government to make changes, along with the difficulty in enacting reforms while the public sector has too much invested in its continuation.

Mr Hani Akkawi, made an unmissable point about the opportunity for areas of industry to be returned to the private sectors, such as electricity, water, fertiliser and transport, that would not only raise finance, but help efficiency and productivity.

Underpinning the report are 5 key action points and a further 38 recommendations that the GoI may be able to make to address the economic crisis that faces the country, including; business deregulation, inclusion of the informal business sector into legal acceptance, ending subsidies on electricity and water production, am improved banking system with credit for private sector businesses, an anti-corruption drive and dealing with COVID-19 without jeopardising the private sector.

Please see the full webinar here

Click below to read the full paper:

Iraq 2020: a country at the crossroads – English

Iraq 2020: a country at the crossroads – Arabic

For further information please contact london@webuildiraq.org

WEBINAR PARTNERS:

From Al Jazeera. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

With a fall in oil prices, countries like Iraq are looking to diversify their economy.

But corruption is making that difficult.

Al Jazeera‘s Simona Foltyn has this exclusive report on the challenges facing Iraq’s agriculture sector:

By Larry Luxner, for the Atlantic Council. Any opinions expressed here are those of the author(s) and do not necessarily reflect the views of Iraq Business News.

US-Iraq strategic talks not just about security issues, says Iraqi former foreign minister

Mustafa al-Kadhimi was confirmed as prime minister of Iraq on May 6 and the task before him has rightly been called a suicide mission.

There is hardly any national issue that does not present a potentially crippling challenge for al-Kadhimi.

He faces a virtually bankrupt treasury, public sector expenses that are among the highest in the world, collapsing public services, entrenched corruption, a resurgent Islamic State of Iraq and al-Sham (ISIS), rogue militias, rising US-Iran tensions, and the prospect of renewed demonstrations as the summer advances.

Click here to read the full story.

The Iraq Energy Institute (IEI) has published an interview with Dr Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund; it is re-published with permission by Iraq Business News:

In the latest instalment in our series on sustainable job creation in Iraq, we spoke to Ahmed Tabaqchali, visiting fellow at the American University of Sulaimani’s Institute of Regional and International Studies (IRIS). Mr. Tabaqchali is also CIO of Asia Frontier Capital’s Iraq fund and Board Member of the Credit Bank of Iraq. Additionally, he has decades of experience in finance, having also worked with the National Bank of Kuwait’s investment arm.

In our last interview, we spoke with World Economic Forum contributor and distinguished economic historian Ewout Frankema, who discussed the role of the state in job creation.

This month we take a different tack and hear Mr.Tabachali’s views on the role of finance and markets, Iraq’s early efforts mobilizing financial technology (FINTECH) for the unbanked and kickstarting small and medium-sized enterprise (SME) growth.

AT: In terms of strategy, everything the new government will have to do has to go through parliament, including accessing foreign loans and reforming the public sector. When it comes to Iraq it is not a question of how strong the institutions are or how competent individuals are, it is a question of passing this through parliament with all of its political fragmentation, between the different pollical parties and within each party between its leadership and members, all of which makes reaching a consensus to embark on real, and thus difficult, reforms very hard. However, the scale of the crisis, brought by COVID-19 both socially and economically, might act as a catalyst for real change.

What is the current risk with having so much of the hiring in the public sector and what might be done to minimise this problem?

AT: Some things have to be done now that are comparatively easy and have been done in the past. Ad hoc measures such as freezing new hiring, cutting staff through attrition, putting a cap on benefits and letting this cascade through every department. This worked last time to a limited extent. But these changes are small scale, easily reversible and they do not solve the wider problem.

One problem is that you cannot have every ministry manage its own human resource processes, there is a need to have a central human resource structure. One course of action could be to separate benefits from salaries and link them to performance. This may sound horrendously complicated but on the public sector side, there is a little alternative. I don’t subscribe to the idea that this is a crisis that will pass, it is a multi-year crisis, a lot of oil demand will come back, but I cannot see a recovery anywhere near the pre-COVID situation.

Iraq is now not only battling a difficult internal situation but a weakened global economy. We are not just talking about a major disaster in one sector only. Consider such effects on hospitality and tourism; that will affect entire countries dependent on tourism, and then consider the knock-on effect on other sectors: what does that do to worldwide aggregate demand? What does that mean to Iraq? It means that oil prices will recover but they won’t be anything sustainably higher than $50 or $55. This points to the need for a complete change in mentality within the Iraqi governing elite and indeed, society at large.

Within Iraq, the government has very limited space to manoeuvre. If you look at Central Bank data on bank lending to the government and on T-Bill issuance, we survived in 2014-2017 through using reserves, via indirect monetary financing, and government bank lending. But while some of that has been paid off, CBI data as the end of November 2019 show that total domestic debt has increased to the prior crisis’ peak. So, I cannot see that being repeated, not in the same way as then. This time, I struggle to see the state banks’ lending beyond a few billion. The reserves are there but not un-limited and then there are conditionality constraints on any upcoming IMF loans. So, there will be no waiting out this crisis, there has to be decisive reform.

What danger is there to the SME sector, in terms of constrained available credit from banks, given this lending is important for start-ups?

AT: For the private sector banks, if you look at the end of 2018’s data, there is something like a $9 bn deposit base, 70% of which is in current accounts, so they can’t lend more than one-third of this, maximum. So, you can’t look to the private sector for state loans. That leaves the state banks, and they are so undercapitalized, burdened by un-resolved legacies of the prior regime, they function by a miracle or by pushing the accounting rules’ envelope. For example, you have an asset that is no longer a creditworthy asset, but you leave it on the books without making realistic downward adjustments to its value and without taking sufficient provisions. So that room for manoeuvre is very limited. Iraq has the foreign deposits at the Ministry of Finance, there is about $6bn there so there are some available funds here and there to meet immediate needs, but how far will you go with that? The need for the state to access domestic debt will eventually place restrictions on available funds for the SME sector.

Iraq is sliding towards a danger zone, a crunch point with foreign reserves where there is a risk of currency devaluation.

AT: Yes. And one problem here is that the last government, to appease the October demonstrations, hired additional employees and lowered the retirement age, adding at least another $6bn to the salary and pensions outlay which is now baked into the current budget. So, the $44bn in salaries and pensions in 2019, is more like $50bn for 2020. Similarly, the $73 bn spent on current expenditures, which also includes transfers to SOE’s, social security and subsidies for fuel and energy, is now more like $80 bn in current expenditures. How much can you cut from that without real restructuring?

So Iraq is facing an emergency situation to mobilise the private sector and there is a risk state banks may have limited room for lending to SMEs. One thing Iraq can do perhaps is maximise export finance and partnerships with foreign banks for SME lending, such as the recent scheme with Commerzbank. And of course, the Iraqi government has its own fund for this, the One Trillion Dinars initiative.

AT: There is no doubt that these initiatives are vital for new business ventures. The issue is structural impediments that are limiting these schemes. Access to finance is very crucial for start-ups to work, but in order for these organizations to operate you need to remove the stifling regulatory environment. The arbitrary nature of taxes, the expenses involved in just setting up and the many bureaucratic steps required to get started. So at the moment many of these start-ups are informal. The only way for these schemes to work is for them to start in the informal sector.

But they can’t make the transition to formality because the process to attain that status is so complicated and expensive, to start and to maintain. We always talk of mobilizing the private sector, but we are throttling it on a daily basis. Look at the UAE for example, they have the Free Zones, a very low time required for company registration, but with Iraq it is a stifling number of procedures.

The solution as far as the Iraqi government are concerned sadly seems to be another level of bureaucracy. In order to mobilise more start-ups, the government following the October demonstrations allowed for 18-35-year-olds to have fast-track separate set of regulations for start-ups in certain industries. So, the same bureaucracy will handle two parallel categories. You open up the door for even more corruption with more bureaucracy.

Every country, of course, has bureaucracy. But we have absurd requirements on top of the usual. Even just very small things, like paying a bill, can be a nightmare. And this is the legacy of formal socialism.

You are saying that in Iraq, socialism is not simply a term to be used as a political label, it is a word that is formally used in laws that are still on the books from decades ago.

AT: That’s right. So what Iraq needs is a change in the political economy. Look at the informal sector -it is mostly in retail, such as hawking goods, and in hospitality such as restaurants, and not in productive sectors. It’s informal because it is so expensive to start up formally. Change the regulations so it is more like the UAE, give them a year’s amnesty before you implement a much easier, formal registration process. These businesses hide because the only way they can operate is by bribing various officials. An amnesty would free them from harassments and un-necessary expenses during the transition to sensible regulations. The government needs to do something that is drastic, and very different from the past, to mobilise the private sector.

You can’t have a top-heavy, authoritarian socialist bureaucracy creating jobs or opening up the private sector. During the Kuwait conference, Iraq’s National Investment Commission came up with the One-Stop-Shop initiative – more bureaucracy on top of the bureaucracy. Why not follow the Kurdish Region of Iraq’s approach? Just get a visa on arrival for certain nationalities. That is the direction we need to be going in.

There has been a growing relationship between telecoms and banks in Iraq to provide services such as mobile wallets. Some of it is Iraqi initiative, some of it is fostered by development agencies. Perhaps one danger now is that if public sector payments are digitized, the salaries are still in jeopardy. How important have these FINTECH developments been?

AT: This is where we will see a lot of growth and excitement. One barrier to further progress is not technological. We have decent internet so the issue is firstly, we need to increase the number of areas where these innovations can be used. Right now they are quite limited. I am thinking of using a mobile e-wallet but I have to go to an official shop in town and register, supply the required set of documentation, and once you use it, the places you can use it in are rather limited. A part of the potential in this technology is that it will make it difficult to cover up small scale corruption, which is easy with cash. But there is still a chicken and egg situation in terms of outlets where e-wallets can be used.

So we could say in the long run, the public demand for convenience may crowd out the demand for corruption?

AT: Yes, and in the long run, it can have a huge effect on the “unbanked” and that will have huge potential for job creation. I have some relatives in government who started receiving their salaries through their banks, and their usage followed the same patterns seen by those in the private sector who were provided with Bank cards as I learned from speaking to bankers. At the beginning where there was an ATM when salaries were dispersed the ATM would just empty as people used it as a cash-out outlet. But in time they started leaving money in the bank and starting using the cards for making purchases. So, the cards have been extremely useful in the transition away from cash.

Similarly, for the government’s initiative when the card/ e-wallets were linked to a Mastercard, people started keeping some funds on the card. In the process they were creating deposits, giving the bank the ability to lend as these deposits grow and become sticky. So, there is convenience and value there, and that could spark wider financial development. But there needs to be a bigger deposit insurance scheme in banks, more than the very small $25,000-dollar limit recently introduced. But in the long term, this is extremely exciting. And these are the reforms that need to be pushed, and they should be COVID-inspired reforms because this is how Iraq gets out of its nightmare.

Would you say then, this is not about what the government needs to do but in some ways, about what the government should not do?

AT: I agree although of course there is a vital role for the government in general. The government should ensure there are law and order. Without that, a business cannot run, they need reliable mechanisms of exchange, debt and credit, and the enforcement of contracts. That is only done through law and order. It doesn’t have to copy a Western model either, but what is needed is the monopoly of violence by the state, and its monopoly to enforce the law, i.e. when rules of the game are predictable, enforceable, and applicable to all. Other competencies of the government are in infrastructure. Roads and electricity are enablers, as well as education and healthcare. Healthcare is a great equalizer, at least with decent healthcare you are helping the most vulnerable, and in the process building the state’s legitimacy. And if the government focuses on these and opens up the private sector, it will flourish.

(Source: IEI)

The Iraqi government says Iraq faces an immediate challenge caused by the decline in oil prices and the impact this has had on the economy and fiscal liquidity.

Officials say that the impact of the fall in oil prices is compounded by other weaknesses caused by decades old policies of a command economy, and by the approach to the economy by successive Iraqi governments over the past seventeen years.

These policies, they add,  have led, amongst other things, to an exponential increase in the size of the public sector, low levels of private investment, mismanagement and administrative corruption.

According to official figures, salaries and staff allowances in the public sector constitute approximately 60% of public spending, and this does not include other expenditure on daily activities of ministries, while spending on investment projects represents 2% of the budget.

The figures show that the number of people employed in the public sector in 2005 was around 850,000, but the number of state employees has risen to more than 3 millions now, and this figure does not include contract employees or those on daily rates, costing Iraq US$36 billions annually, a ten-fold increase from US$3.6 billions annually a few years ago.

The new Iraqi Cabinet announced the establishment of the Emergency Cell for Financial Reform to lead the response to the crisis, under the chairmanship of the Prime Minister, and with the membership of the Ministers of Finance, Foreign Affairs, Planning, the Governor of the Central Bank, the Secretary General of the Council of Ministers, and other officials as nominated by the Prime Minister.

The Cell’s mandate is to ensure financial liquidity, agree measures to rationalise public spending, diversify resources, and propose finance mechanisms for reconstruction and investment projects from outside government funding streams.

As well as rationalising public spending, the new Iraqi government says it will embark on an economic reform programme in Iraq that includes:

  • Supporting the expansion of the private sector and encouraging investment
  • Introducing automation and simplifying procedures in the public sector
  • Adopting a single budget account to monitor spending by ministries to reduce waste and corruption
  • Expanding the electronic payment system for salaries, and pressing ahead with the e-government project
  • Rebalancing Iraq’s economic relations with all neighbouring countries

Earlier this month, the Minister of  Finance, Ali Allawi, said that cutting spending was essential, and that this will include reductions to the the benefits and allowances of state employees, including those of senior officials, but he stressed that the basic salaries of employees will not be reduced, and that any cuts will not include employees or pensioners who earn 500,000 dinars or less a month.

(Source: Govt of Iraq)

By John Lee.

The UK’s Serious Fraud Office (SFO) has dropped its investigation into ABB linked to the Unaoil case.

After a thorough and detailed review of the available evidence, the SFO concluded that this case did not meet the relevant test for prosecution as defined in the Code for Crown Prosecutors.

The SFO announced its investigation into ABB Ltd in February 2017 following a self-report by representatives acting on behalf of the company.

(Source: UK SFO)

By John Lee.

The UK’s Serious Fraud Office (SFO) has dropped its investigation into ABB linked to the Unaoil case.

After a thorough and detailed review of the available evidence, the SFO concluded that this case did not meet the relevant test for prosecution as defined in the Code for Crown Prosecutors.

The SFO announced its investigation into ABB Ltd in February 2017 following a self-report by representatives acting on behalf of the company.

(Source: UK SFO)