Iraq continues to rank as one of the worst countries to do
business in. The latest report by the World Bank, “Doing Business in the Arab World 2012,” not only placed Iraq at the bottom of the region in many
categories, but at the low end internationally as well. Whether it was ease of
doing business, obtaining credit, or trade, companies faced major barriers to
success. That’s largely because the country has had a state-run economy since
the 1960s. That legacy continues to negatively affect the nation, because many
government bureaucrats and politicians do not know how to work with the private
sector. Not only that, but the country’s growing oil wealth makes it even less
likely to diversify. Those twin factors will largely keep Iraq from fully
developing, and keeping it a rentier economy.
Every year the World Bank issues a report on doing business
around the world. It looks at several economic indicators, and then ranks 183
countries. Its “Doing Business in the Arab World” included Iraq and nineteen
other nations. Among those, Iraq ranked second to last overall. Saudi Arabia
was number one in Arab countries and 12th internationally, compared to Iraq,
which was 164 out of 183, and 19 out of 20 in the region. Only Djibouti did
worse at 170. Iraq’s standing has actually been declining in the last several
years according to the World Bank. In 2009, it was 153, then it fell to 166 in 2010, before hitting 164 last year, where it remains today. The reason for
this stagnation is the fact that Iraq has carried out no economic reforms in
the last several years, which would help improve its ranking. For example, it
became more expensive to start a business from 2011 to 2012 with the cost of
getting certificates of incorporation and the necessary lawyers increasing.
Overall, beginning a company cost 115.7% of the national per capita income. The
time involved was also considerable. In Saudi Arabia it only took 5 days to
start a business, compared to 77 in Iraq, the longest of any in the Arab world.
The government has done nothing to ease this process, and in fact, the World
Bank said that the business climate has gotten worse in Iraq.
World Bank’s Doing
Business Rankings (World Rank out of 183/Arab World Rank out of 20)
Saudi Arabia 12/1
United Arab Emirates 33/2
Qatar 36/3
Bahrain 38/4
Tunisia 46/5
Oman 49/6
Kuwait 67/7
Morocco 94/8
Jordan 96/9
Yemen 99/10
Lebanon 104/11
Egypt 110/12
West Bank/Gaza 131/13
Syria 134/14
Sudan 135/15
Algeria 148/16
Comoros 157/17
Mauritania 159/18
Iraq 164/19
Djibouti 170/20
The World Bank looked at countries according to ten
different categories, almost all of which Iraq did badly in. At starting a
business Iraq ranked 176 out of 183 internationally, and 18 out of 20 in the
Arab world. There were 11 procedures entrepreneurs had to go through to set up
a firm, tied for 3rd most in the Arab world. To complete all those
steps took 77 days, the longest in the region. There were 13 procedures to go
through to get construction permits, the fourth fewest in the Arab world. It
took 187 days to complete that process however, which was the fifth longest in
the region. The cost was exorbitant at 469.8% of Iraq’s per capita income, the
fifth most expensive in the Arab world. Registering property took five
procedures and 51 days, which was third worst in the region. Getting
electricity to a firm was relatively easy however, ranked 46 out of 183 and 6th
in the Arab world. There were five procedures, and they could be finished in 47
days. The price was very expensive however at 609.9% of Iraq’s per capita
income. Paying taxes was not really an issue. Iraq ranked 49th internationally
and 10 out of 20 in the Arab world, with a taxation rate of 28.4% of profits.
The really big problems outside of starting a business were in terms of credit,
protecting investors, importing and exporting, enforcing contracts, and
resolving insolvency. Iraq was 174 out of 183 in getting credit. That’s largely because state-run banks dominate Iraq’s financial sector, and mostly support
the government rather than businesses. Iraq ranked 122 out of 183 in terms
of protecting investors with it consistently getting low marks in terms of
disclosure and liability. Conducting trade was extremely difficult with Iraq
ranked 180 out of 183. It takes 80 days to export at a cost of $3,550 per
container, and 83 days to import at a cost of $3,650 per container. In
comparison, in neighboring Jordan, it only took 13 days to export at a cost of
$825 per container and 15 days to import at $1,335 per container. Finally, it
took 520 days to enforce contracts, and there were no set practices for
resolving insolvency, which was why Iraq ranked 183 out of 183 in that
category. Because so many of the costs involved with starting a business are so
expensive, getting credit or investors is a must. Those options are simply not
available to many in the country, because of the underdeveloped banking system,
and the lack of regulations and standards. Even foreign entities have a hard
time in Iraq, because of the red tape and bureaucracy they have to go through.
These are all reasons why Iraq ranks so badly.
World Bank Rankings
(World Rank out of 183/Arab World Rank out of 20)
Starting a business: 176/18
Number of procedures 11
Time 77 days
Cost 115.7% of per capita income
Dealing with construction permits 120/13
Number of procedures 13
Time 187 days
Cost 469.8% of per capita income
Getting electricity 46/6
Number of procedures 5
Time 47 days
Cost 609.9% of per capita income
Registering property 98/15
Number of procedures 5
Time 51 days
Cost 6.9% of property value
Getting credit 174/18
Strength of legal rights index 3 out of 10
Depth of credit information index 0 out of 6
Public registry coverage 0% of adults
Private bureau coverage 0% of adults
Protecting investors 122/13
Extent of disclosure index 4 out of 10
Extent of director liability index 5 out of 10
Ease of shareholder suits index 4 out of 10
Strength of investor protection index 4.3 out of 10
Paying taxes 49/10
Payments 13 per year
Time 312 hours
Total tax rate 28.4% of profits
Trade 180/20
Documents to export 10
Time to export 80 days
Cost to export $3,550 per container
Documents to import 10
Time to import 83 days
Cost to import $3,650 per container
Enforcing contracts 140/15
Number of procedures 51
Time 520 days
Cost 28.1% of claim
Resolving insolvency 183/20
Time no practice
Cost no practice
Recovery rate 0
Iraq Compared To
Other Arab Countries
Ease of starting a
business
Number of procedures
Fewest
Saudi Arabia 3
Lebanon 5
Oman 5
Egypt 6
Yemen 6
Most
Iraq 11
West Bank/Gaza 11
Djibouti 11
Kuwait 12
Algeria 14
Time
Fastest
Saudi Arabia 5 days
Egypt 7 days
Oman 8 days
Bahrain 9 days
Lebanon 9 days
Slowest
Kuwait 32 days
Sudan 36 days
Djibouti 37 days
West Bank/Gaza 49 days
Iraq 77 days
Cost (% of income per
capita)
Least
Bahrain 0.7%
Kuwait 1.2%
Oman 3.1%
Tunisia 4.2%
United Arab Emirates 5.6%
Most
Yemen 83.8%
West Bank/Gaza 96.0%
Iraq 115.7%
Djibouti 169.8%
Comoros 176.2%
Exporting
Number of documents
Fewest
United Arab Emirates 4
Tunisia 4
Saudi Arabia 5
Djibouti 5
Qatar 5
Most
Syria 8
Algeria 8
Mauritania 8
Comoros 10
Iraq 10
Time
Fastest
United Arab Emirates 7 days
Oman 10 days
Morocco 11 days
Bahrain 11 days
Egypt 12 days
Slowest
Yemen 27 days
Comoros 30 days
Sudan 32 days
Mauritania 34 days
Iraq 80 days
Cost per container
Least
Morocco $577
Egypt $613
Saudi Arabia $615
United Arab Emirates $630
Oman $745
Most
Algeria $1,248
West Bank/Gaza $1,310
Mauritania $1,520
Sudan $2,050
Iraq $3,550
Importing
Number of documents
Fewest
United Arab Emirates 5
Saudi Arabia 5
Djibouti 5
West Bank/Gaza 6
Tunisia 7
Most
Algeria 9
Syria 9
Kuwait 10
Comoros 10
Iraq 10
Time
Fastest
United Arab Emirates 7 days
Oman 9days
Egypt 12 days
Bahrain 15 days
Jordan 15 days
Slowest
Lebanon 32 days
Mauritania 38 days
West Bank/Gaza 40 days
Sudan 46 days
Iraq 83 days
Cost per container
Least
United Arab Emirates $635
Oman $680
Saudi Arabia $686
Qatar $730
Egypt $755
Most
Yemen $1,475
Mauritania $1,523
Syria $1,625
Sudan $2,900
Iraq $3,650
More and more countries, companies, and Iraqis are
interested in doing business in Iraq. Iraq has a large population, a booming
energy industry, rising incomes, and an economy that’s predicted to have double-digit growth over the next several years. That hides large
structural problems. Oil for example, is the reason for the projected expansion
since it contributes 60% of the Gross Domestic Product (GDP). At the same time,
it only accounts for 1% of jobs. The increase in buying power is actually from
a growing public sector that is fueled by oil revenues rather than any
productive enterprises. That huge energy wealth is also the reason why the
government feels no real reason to improve the business environment. It can simply
continue with its oil dependency, and appease the public by giving them
government jobs. There has been lots of talk about Baghdad diversifying its
economy so that it doesn’t fall victim to the resource curse, but it has taken
no substantive actions in the last several years, and instead just pumped in
more money into the state. Since the ruling parties all benefit from this
system, by taking their share of government contracts through corruption, and
placating their followers with large patronage systems out of the ministries
there will be no change any time soon.
SOURCES
Hall, Camilla, “Iraq held back by slow pace of bank reform,”
Financial Times, 10/15/12
Special Inspector General for Iraq Reconstruction,
“Quarterly report to the United States Congress,” 10/30/12
World Bank, “Doing Business in the Arab World 2012,” 2012
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