Iraq needs rapid economic growth if it is to meet the aspirations of its 27 million people. Increased oil production is one part of this equation and will help on the income side, but it will do little for jobs. The other part and the key to jobs is a growing private sector. Growing the private sector requires action on a number of critical dimensions. This project addresses four dimensions: - Creating the necessary institutional underpinnings for the private sector – to facilitate and promote investment and markets, as well as provide pressure points for reform.
- Resolving some critical market failures facing the private sector – the sanctions regime and the conflict within Iraq has destroyed connections with the outside world. There is no insurance industry to help bring lost capacity back on line.
- Facilitating the development of some key building blocks of the financial sector – a payments system and a system of effective property rights.
- Providing essential infrastructure – a modern private sector cannot survive without reliable telecommunications.
Relative to the size of the Iraqi economy, the formal private sector is quite small. The oil-led state-owned enterprise (SOE) sector, a large agriculture sector, and the public sector account for the majority of employment in the country. The private sector is characterized by very few large companies, a number of small-medium enterprises (SMEs) and a very large number of micro-enterprises. It is estimated in excess of 90% of the over 100,000 enterprises fall within the last category. Most large enterprises are in the state sector. Because of the sanctions regime, there is very little in the way of exports and the services sector is very weak. The private sector cannot develop and be able to compete if it does not have rapid access to financial services, such as an efficient network of branch banks. Modern financial systems depend on computerized information processing and settlement mechanisms to move money through local and global telecommunications networks. This network is a precondition for establishing a national payments and settlements (P&S) system that is in line with the requirements of a market economy. Likewise property rights are critical to the financial sector – if contracts cannot be enforced and if property rights cannot be secured, it is unrealistic to expect significant financial sector development. In the trade regime, most aspects of a modern supply chain are heavily dependent on telecommunications. This is an area which offers substantial productivity gains to Iraq (this could be as much as 20% of GDP). Trade facilitation systems, including customs management, general logistics management, and inventory controls require efficient and reliable data communications systems. Telecommunications lies at the heart of modern marketing and selling – connecting to customers, reviewing market information and even internet sales. If trade is to be expanded in Iraq, national and international connectivity will have to be increased. A $55 million ITF-financed project, First Pricate Sector development Project, is currently under implementation. It will provide a number of critical elements to support a sound investment climate, from both the institutional and financial aspects. The project consists of four components: (i) Development of the institutional framework to enable PSD and FSD;
(ii) Providing support for specific private sector opportunities that will lead to job creation;
(iii) Providing support to the establishment of a payments system; and,
(iv) Building part of the telecommunication national backbone network to support the requirements for a fully-functioning financial payments system, corporate data needs, and the transmission capacity needed by all public and private operators. See attached Project Information Document: First Private Sector Development Project |
