Behind Iraq’s Impressive GDP Growth Rate

Iraq’s economy is noteworthy for its contradictions. Many experts believe that it will be one of the fastest growing economies in the world over the next few years. That’s mostly because of its tremendous oil and natural gas wealth that fuels the entire nation. On the other hand, unemployment, underemployment, and poverty are relatively high. The Gross Domestic Product (GDP) is a perfect example of a figure that appears to show the promise of the country, but upon further inspection shows the large structural problems within Iraq.

Iraq’s economy is expected to expand tremendously over the next few years. The Central Bank of Iraq thinks that the GDP will grow 9.4% from 2012-2016. That would be up from 5-6% growth in 2011. The World Bank said that the GDP would grow 12.6% in 2012, and 10.2% in 2013, while the International Monetary Fund (IMF) predicted 11.1% in 2012, and 13.5% in 2013. The Central Bank stated that it thought the GDP would go from approximately $170 billion in 2011 to $360 billion by 2015. All of this is due to the expected development of the oil and gas industry. It contributes 59% of GDP, and 63% of real GDP. Foreign energy companies working to boost production and exports, new infrastructure slowly coming on line, and continued high prices for Iraqi crude are the major reasons why the Central Bank, the World Bank, and the IMF all have rosy views of Iraq’s economy. The country also needs massive investment in nearly everything after years of wars and sanctions. That adds further avenues for the expansion of the economy.

Since 2003, the GDP has steadily gone up with only one small dip. In 2002, before the U.S. invasion, GDP stood at $20.5 billion. It then dropped to $13.6 billion, because of the war, but then quickly recovered to $25.8 billion in 2004, $31.4 billion in 2005, $45.1 billion in 2006, $57.0 billion in 2007, $86.6 billion in 2008, then declining to $65.2 billion in 2009 because of the world recession, before rebounding to $82.2 billion in 2010. All of this growth was based upon the oil industry. As exports increased, so did the GDP. When exports jumped from an average of 790,000 barrels a day in 2003 for instance, to 1.47 million in 2004, the GDP went up +46.5%. Likewise, when there was only marginal expansion of exports such as from 2006 to 2007, there was a slow down in GDP growth going from +5.9% to +4.1% respectively.

Year	GDP	Per Capita GDP	Real GDP Change	Oil Exports (Mil/Bar/Day)
2002	$20.5 bil	$802	-7.8%	1.3
2003	$13.6 bil	$518	-41.4%	0.79
2004	$25.8 bil	$951	+46.5%	1.47
2005	$31.4 bil	$1,124	+3.7%	1.36
2006	$45.1 bil	$1,568	+5.9%	1.50
2007	$57.0 bil	$1,926	+4.1%	1.66
2008	$86.6 bil	$2,845	+9.5%	1.84
2009	$65.2 bil	$2,087	+4.2%	1.90
2010	$82.2 bil	$2,564	+0.8%	1.89
2011	$170 bil est.	$5,342 est.	+5.6% est.	2.16
2012	$128.1 bil est.	$3,808 est.	+12.6% est.	2.41

The aggregate numbers for Iraq’s Gross Domestic Product hide the large inequalities within the country. First, oil and gas are capital-intensive industries that provide little employment for Iraqis. Only 1% of the workforce is employed in the energy sector. Instead, oil revenues are distributed throughout society through the government. In 2012, it was one of the largest public employers in the world providing 60% of full time work. That percentage was higher in the Kurdistan Regional Government. As oil has expanded, so has the number of government workers going from 28% in 2005 to 43% in 2008 of the entire workforce. The vast majority of these workers do little to no real work. For example, former Planning Minister Ali Baban said in 2010 that 70% of public employees were unproductive. In comparison, agriculture and manufacturing have declined since 2003 due to the repeal of tariffs by the Coalition Provisional Authority, the lack of reliable electricity, and the inability to compete with foreign products, which are heavily subsidized, such as Western wheat and barely. Even with that huge expansion, unemployment is still officially at 11%. Not only that, but those families that do not have a relative in the government are more likely to fall into poverty, because they lack a steady income and pensions. It is one reason why the government poverty rate is still high at 17%. That doesn’t mean private employment hasn’t grown in recent years, but again, that’s largely due to outsourcing by the government. That too has problems as many employers look towards foreign workers, because of their cheap wages, and to make up for the loss of domestic professionals due to a massive brain drain that has happened since the 1990s. Finally, the government is not helping the situation. It is pushing the oil industry as the means to expand the economy, and despite its many promises to diversify and privatize, it is enlarging the state sector instead. These many problems are what the GDP numbers do not reveal. Yes, the figures for Iraq’s economy are going up dramatically, but that does not mean that they are actually helping the majority of the population. If the end result of Baghdad’s policy is the hope for families to have a relative in the public sector who does little actual work that does not make a productive society.

Iraq’s GDP is just one example of where the numbers do not reflect the full reality of what is going on in the country. The expansion of the oil and gas industry with the help of foreign energy companies is driving economic growth. That is benefiting the entire population, but not as much as the figures would have one believe. Money is trickling down, but through the inefficient government with public sector jobs and contracts for private companies. This has given rise to increasing wages, but the vast majority of government workers do nothing, and Baghdad is using its oil revenue to expand the state rather than diversify the economy, which would do a much better job of raising the standard of living for all Iraqis. Until these structural problems are addressed, Iraq will have a fast growing economy, while still dealing with massive disparities.

SOURCES

Adel, Shaymaa, “Iraq reports plunge in poverty and unemployment levels,” Azzaman, 5/5/13

Cordesman, Anthony, “The Changing Situation in Iraq: A Progress Report,” Center for Strategic and International Studies, 4/4/09

Dunia Frontier Consultants, “2011 Year in Review, Foreign Commercial Activity In Iraq,” March 2012

Inter-Agency Information and Analysis Unit, “Iraq Labour Force Analysis 2003-2008,” United Nations Office for the Coordination of Humanitarian Affairs, January 2009

O’Hanlon, Michael and Campbell, Jason, “Iraq Index,” Brookings Institution, July 2012

Peel, Michael, “Iraq faces uphill battle to rebuild,” Financial Times, 5/9/12

Reuters, “Iraq sees at least 9.4 percent GDP growth to 2016: central bank,” 2/19/12

Tijara Provincial Economic Growth Program, “Assessment of Current and Anticipated Economic Priority In Iraq,” United States Agency for International Development, 10/4/12

Yousif, Bassam, “Aspiration and Reality in Iraq’s Post-Sanctions Economy,” Middle East Repot, Spring 2013

- “The economy of Iraq since 2003-a follow-up,” Indiana State University Economics Department, August 2012