April 20, 2021
Can New Tech Save Iraq’s Old Economy?
Across the Iraqi political spectrum, one of the few commonalities remains the willingness of politicians to utilize their positions to enrich themselves, their families, or privilege their businesses.
In Iraqi Kurdistan, the problem is even starker as politicians fly private jets while doctors’ and teachers’ salaries are months in arrears.
Iraq was not always a case study in dysfunctional corruption.
Until Hussein invaded first Iran and then Kuwait and set Iraq down a rabbit hole of bankruptcy, black markets, and blockades, Iraq was among the Arab world’s least corrupt societies.
Under Hussein, and in the first years after his ouster, the Iraqi government paid salaries in cash.
This not only enabled ghost employee schemes but also enabled supervisors to skim money off the tops of their subordinates’ salaries.
Rather than leverage banking to facilitate transactions or offering loans, local banks generally make money through fees associated with wire transfers and the issuance of letters of credit.
This banking environment remains a major reason why the World Bank ranks Iraq at 186 out of 190 in terms of ease of getting credit in its 2020 Doing Business Report.
This in turn has led to massive capital flight from Iraq.
Iraqi finance minister Ali Allawi, for example, estimates Iraq’s capital flight to total $250 billion since 2003, or more than triple Iraq’s current annual budget.
The Iraqi and Kurdish governments have done little to boost public confidence in banking.
In 2012, the Central Bank of Iraq declared Warka Bank insolvent and appointed new management.
A bill before the Council of Representatives on deposit insurance collects dust.
When faced with a liquidity crisis in 2014, the Kurdistan Regional Government raided people’s deposits at private banks, which in turn damaged public trust in banks and banking.
In 2015, North Bank closed almost all of its branches and blocked access to deposits. Many people lost their life’s savings.
Successive Iraqi administrations colluded to keep foreign banks from entering the Iraqi market and disrupting the lawless monopoly they enjoyed.
That lack of trust, in turn, both exacerbates corruption and undercuts Iraq’s economic potential.
While Iraqis generally have little faith in their government, they do trust private telephone companies.
As of 2019, almost 95 percent of Iraqis own cell phones whereas just seven percent have landlines.
Put another way, there were more cell phones in Iraq than in Canada.
By January 2020, that number had grown even further; mobile connections now exceed the total population.
Private telecom companies have connected Iraqis with each other, the outside world, and the internet.
While the public may not trust banks, it trusts pre-paid phone credits, which many increasingly use as currency.
While Iraqis are primed for the cyber economy—more than 40 percent of Iraqis were born after the 2003 war—the entrance of the Trade Bank of Iraq into the mobile currency market should reverberate far in terms of broader confidence.
Consider corruption: The fine for car occupants failing to mask is 50,000 Iraqi dinars, or about $34.
When paying tickets before, Iraqis never knew whether the cash they paid at the police station went into the policeman’s pocket or government coffers.
But, if they pay by mobile app, they know exactly where their money goes and they generate an instant receipt showing their payment.
Iraqi Kurdistan had the potential of becoming a hub for banking in Iraq thanks to its better security.
However, the region remains hobbled by corruption.
By contrast, Somaliland, which separated from Somalia the same year that Iraqi Kurdistan became functionally autonomous from the rest of Iraq, largely overcame the dysfunctional corruption and a poor banking infrastructure Iraqi Kurdistan suffers by embracing mobile money.
As the United States recalibrates its relationship with Iraq, the advent of Iraq’s cyber economy also provides an opportunity.
Rather than simply abandon Iraq as military missions end, the Biden administration might consider how it can encourage the evolution of Iraq’s economy.
The keys to stability in Iraq are jobs and business.
Many regions in Iraq—Karbala, al-Anbar, and Baghdad, for example—now have the capacity to attract investors and enable them to win handsome profits.
Mobile money eases doing business, sidesteps onerous banking fees, and supports greater transparency.
The United States also has an interest in coordinating and cooperating with Iraq to ensure its mobile money applications—designed to work interchangeably in Iraqi dinars and U.S. dollars—do not become a mechanism for Iranian sanctions evasion.