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

TABLE OF ABBREVIATIONS Term Abbreviation Baghdad Investment Commission BIC Bolstering Reconstruction in Iraq through Development, Growth and Employment

BRIDGE

Canadian Leaders in International Consulting

CLIC

Central Bank of Iraq CBI Communication and Media Commission

CMC

Competency Based Training CBT Coordination of Humanitarian Affairs OCHA Corporate Social Responsibility CSR Dutch Employers Cooperation Programme

DECP

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 Technology

ICT

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 Migration

IOM

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

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Kurdistan Region Labour Force Survey

KRLFS

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 Scientific Research

MoHESR

Ministry of Industry and Minerals MIM. Ministry of Labour and Social Affairs MOLSA National Development Plans NDP National Energy Strategy INESTA Private Infrastructure Development Group

PIDG

Private Sector Development PSD Private Sector Development Programme in Iraq

PSDP-I

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 and Training

TVET

Telecommunications and Posts Company

IPTC

United Nations Development Program UNDP United Nations Educational, Scientific and Cultural Organization

UNESCO/UNEVOC

United Nations Office for Project Services

UNOPS

United Nations Population Fund UNFPA United Nations World Tourism Organization

UNWTO

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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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

Literature review

Stakeholder analysis

Key informant interviews,

semi-structured interviews and focus

groups

Analysis and Recommend

ationsIdentification

of gapsAdditional analysis

Report drafting

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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:

Baghdad Basra Kurdistan (Erbil,

and Sulaymaniyah)

Government 7 2 12 Private sector 7 0 3 NGO Sector 5 4 3 International donors / Organization

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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.

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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.

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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.

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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.

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• 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.

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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.

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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 currently married

MDG 7.2% 16.6% - KRLFS

Share of Women in Wage Employment in the Non-Agricultural Sector

MDG 17.2% 16.6% - KRLFS

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 UNDP Iraq, Conference on Women Voices in Community Reconciliation: Establishing a diverse taskforce to enhance women’s participation (2017), last accessed 10 July 2018,

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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.

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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.

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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.

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“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.

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Figure 3: Age brackets of technical staff

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

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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.

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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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.

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

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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.

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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

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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.

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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.

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• 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.

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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

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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.

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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.

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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

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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.

117 Development cooperation programmes administered by Netherlands Organization for Cooperation in Higher Education (Nuffic), including the Orange Knowledge Program introduced in 2017.

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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.

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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.

119 The large companies employed over 130 employees, the medium size employed 16 and the small ones employed on average 5.

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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.

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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.

126 Marcel Timmer and Gaaitzen de Vries. Dutch Manufacturing Competing in Global Value Chains. Groningen Growth and Development Centre. University of Groningen. November 2015, p. 21.

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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.

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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”

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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.

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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.

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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

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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

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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

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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;

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• 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

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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/-وزير-الصناعة-عدم-السيطرة-على-المنافذ-الحدودية-أغرقنا-بالبضائع المستوردة

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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.

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• 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.

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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

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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. 155 Investing in Global Prospects, p.53: https://www.government.nl/documents/policy-notes/2018/05/18/investing-in-global-prospects

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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.

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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/

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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”.

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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/

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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.

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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;

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• 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

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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.

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• 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.

ANNEX B: Vocational Training Centers Training Centre Province City

Centre District UNESCO

Pilot VTC Not

Operational

CENTER Vocational Training Centre / Waleed Baghdad Baghdad X Vocational Training Centre / Shua'la Baghdad Baghdad X Vocational Training Centre / Iraq-Korea Baghdad Baghdad Vocational Training Centre / Waziriya Baghdad Baghdad Vocational Training Centre / Za'furaniya Baghdad Baghdad X Vocational Training Centre / Rusafa Baghdad Baghdad Vocational Training Centre / Mua'tasim Baghdad Baghdad Welding & Food industry Training Centre / Abu Gharib

Baghdad Abu Gharib

Vocational Training Centre / Wassit Wassit Kut

South of Baghdad

Vocational Training Centre / Iskandariya Babylon Iskandariya X Vocational Training Centre / Najaf Najaf X Vocational Training Centre / Diwaniya Qadisiya Diwaniya X Vocational Training Centre / Karbala Karbala Karbala X

South of Iraq Vocational Training Centre / Basrah Basrah Basrah X Vocational Training Centre / Khor Zubair Basrah Kho-Al-

Zubai Vocational Training Centre / Abu Khasib Basrah Abu Al

Khasib Vocational Training Centre / Missan Missan Omarah Vocational Training Centre / Nasiriya ThiQar Nasiriya

North

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Vocational Training Centre / Kirkuk Kirkuk Kirkuk X Newly Liberated Areas

- West

Vocational Training Centre / Mosul Ninawa Mosul X Vocational Training Centre / Tikreet

Salah-Ad-Din Tikrit X

Vocational Training Centre / Al- Anbar Anbar Ramadi

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-

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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_Opportunities.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/

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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”.