World Bank’s assessment is flawed: Manufacturing is viable in Iraq Preliminary brief comments! By Dr Amer K. Hirmis *
In late September 2020, the World Bank published a report entitled ‘Breaking out of fragility: a country economic memorandum for diversification and growth in Iraq’ (henceforth WB 2020). 1
In October 2020, the Iraqi government published its ‘White Paper for Economic Reforms: Vision and Key Objectives.’
This was followed in January 2021 by a draft ‘White Paper for Economic Reforms: Reform Implementation Plan’ 2-a “plan” covering ‘governance’ and 64 ‘projects’ (if tasks).
The latter requires 3-5 years to implement, and is said it “enjoys the support of the international community.” 3
The two White Papers (henceforth WP-I & II) quote and borrow extensively from WB2020 report.
In drawing a specific direction of travel for Iraq’s economy, analogies abound in all these documents.
This note argues that the WB’s analysis on which its ‘diversification and growth’ proposals for Iraq are based is flawed.
This is particularly the case in the way Iraq’s economy is characterised as one suffering from “the Dutch disease.”
There is also a glaring omission of the manufacturing sector, and its role in diversifying the economy.
Rather, emphasis is placed on ‘agrifood’;a strategy reminiscent of IBRD/WB’s economic reform proposals for Iraq back in the early 1950s.
Despite their flaws, however, if the objectives of the WP-I & II are realised even at 70-80 percent rate within 3-5 years, the results will be commendable.
They would make a significant contribution to urgently needed institutional reforms that would in turn build foundations for economic reforms in Iraq.
Both WP-I & II suffer from similar flaws apparent in the WB’s report.
A glaring omission in the WP-I & II is the absence of the ‘The Ministry of Industry and Minerals’ (MoI & M) in spite of the fact that many of the tasks set out in WP-II require the ministry’s attention, especially when many of the state owned enterprises (SEOs) it manages suffer from multiple problems.
It remains unclear whether this omission means that the authors of WP-I & II agree with some international institutions that manufacturing perhaps is not viable in Iraq. Or, whether there might be other possible explanations.
This note argues that the manufacturing sector forms a critical part of any attempt to diversity the Iraqi economy away from its damaging over-dependence on crude oil revenue.
For decades now, Iraq’s economy has been transformed into a distribution/consumption, not an investment-driven, economy, due to excessive over dependence on oil, and the way oil revenues have been abused by successive Iraqi governments.
In devising and implementing economic diversification policies and institutional reforms, the Iraqi government should, arguably, look forward, not backwards.
The scope of this note has been to point out that the conclusions reached in the WB 2020 report (so far as “the Dutch disease” notion is concerned) and those arrived at in WP-I-II in relation to diversifying the Iraqi economy away from over dependence on oil revenues, are not based on rigorous research.
Instead, they are based on incidental, flawed, analysis.
In spite of the serious failures in supporting the manufacturing sector over the past 70 years by the government of Iraq, disregarding its role in the economic future of Iraq does not stand the test history.
Time and time again the (foreign and domestic) private investors have been denied the opportunity to make a tangible contribution in this regard, as suggested by the author
Indeed, the WB’s work on ‘doing business in Iraq’ too clearly demonstrates that a conducive business environment for investment in Iraq is extremely challenging.
To assert that manufacturing is not viable in Iraq is a false hypothesis.
Iraq’s week manufacturing sector and scant non-oil exports have been the result of specific economic policies and ideology in the main, not a result of “the Dutch disease.”
The Iraqi government will be well advised to review WP-I-II, and incorporate realistic policies to revive the manufacturing sector in Iraq.