Wednesday, April 11, 2018

Iraq’s Attempt To Diversify Into Manufacturing

For decades Iraq has talked about diversifying its economy away from being dependent upon oil. Part of that has been various attempts to promote industry and manufacturing. From 2008 to 2011 there was an increase in output from this sector, but Iraq remained one of the least industrialization nations in the Middle East.

The latest 5-year economic development plan introduced in April 2018 included expanding into manufacturing and away from oil. The previous plan did the same thing as then Deputy Prime Minister Hussein Shahristani explained, “The government made a decision to focus upon other sources in the country instead of oil, so the new plan will basically focus on industry instead of oil.” Data collected by the United Nations showed a modest growth in industrial output starting in 2008. In that year, the value of manufacturing output was $27.4 million. It then went up to $36.3 million in 2009, $37.6 million in 2010, $44.4 million in 2011 before levelling off with $44.1 million in 2012, $39.5 million in 2013, and $45.2 million in 2014. With oil still being the dominant sector of the economy however, manufacturing remained a minimal portion of Gross Domestic Product (GDP). In 2008, manufacturing was only 1.7%, then went up to 2.6% in 2009, but has basically remained around that level for the following years. Compared to the rest of the Middle East, Iraq has the smallest industrial sector in value of output and percentage of GDP. For instance, Oman, Saudi Arabia, Bahrain, Kuwait, the United Arab Emirates and Qatar all earn over $1 trillion a year from its manufacturing, and in every country in the region that part makes up anywhere from 3-19% of GDP. That has left Iraq as being one of the most oil dependent countries in the Middle East, as the International Monetary Fund mentioned out in 2010.

There are a number of reasons why Iraq has not been able to diversify. The head of the Iraqi Union of Industries pointed out that 90% of the country’s manufacturers closed after the overthrow of Saddam Hussein. The Coalition Provisional Authority’s removal of tariffs, which led to a flood of cheap imports undermined many local businesses. The union head also mentioned the lack of consistent electricity, and the difficulty of obtaining loans from banks. Another issue is that around 80% of industry is state owned, have not been reformed, and have not been adequately funded by the government. (1) Many factories are highly inefficient and working far below capacity. Many believe that Baghdad has never put a serious effort into industrializing. These are all common factors in countries with large oil and gas sectors. In Saudi Arabia, which has the world’s large petroleum reserves, manufacturing is only 10% of GDP. In Kuwait it’s only 5%. With so much money coming in from natural resources, usually going into state coffers officials have little incentive to change things. There is a whole literature about the “resource curse” and what it has done to countries like Iraq.

Value Manufacturing Output Middle East (US Dollars)
Country
2008
2009
2010
2011
2012
2013
2014
Iraq
27.4
36.3
37.6
44.4
44.1
39.5
45.2
Syria
41.7
49.1
56.0
47.8
31.0
20.4
20.0
Yemen
57.8
60.9
65.6
55.4
58.0
60.3
56.8
Algeria
141.9
147.4
156.0
158.6
162.1
184.5
219.7
Palestine
174.5
183.8
196.6
187.2
214.7
218.3
198.6
Egypt
252.3
257.3
265.8
258.9
256.4
258.0
274.9
Morocco
389.0
373.5
400.2
421.9
423.2
414.3
412.3
Jordan
418.0
407.7
398.3
397.3
390.5
383.6
377.3
Libya
45.15
460.6
460.2
104.8
344.0
153.7
107.5
Lebanon
492.8
474.4
493.9
485.3
472.8
473.1
597.0
Tunisia
555.5
541.7
551.5
530.5
533.8
535.5
549.3
Oman
1,411.3
1,532.4
1549.1
1454.0
1,351.2
1,262.6
1,157.4
Saudi Arabia
1,501.2
1,449.0
1,593.4
1,703.8
1,740.2
1,765.1
1,869.4
Bahrain
2,283.3
2,239.7
2,213.0
2,209.0
2,268.2
2,315.2
2,391.6
Kuwait
2,397.1
2,036.9
1,975.7
2,224.5
2,556.2
2,434.1
2,183.3
UAE
3,395.6
2,570.7
2,412.4
2,475.5
2,562.4
2,553.8
2,606.9
Qatar
4,297.4
4,247.0
4,463.2
4,497.0
4,654.6
4,648.9
4,626.5

Share of Manufacturing in GDP (Percentage)
Country
2008
2009
2010
2011
2012
2013
2014
Iraq
1.7
2.6
2.3
2.8
2.7
2.3
2.9
Algeria
3.8
4.8
4.3
3.7
3.7
3.9
4.1
Syria
4.1
4.7
4.8
4.6
4.7
4.7
4.7
Libya
4.2
6.3
5.6
2.0
4.6
4.1
3.5
Kuwait
4.3
4.9
5.3
5.0
5.3
5.3
5.2
Yemen
5.7
8.3
8.5
7.8
8.6
8.2
8.2
UAE
8.3
8.7
8.6
8.2
8.4
8.4
8.5
Lebanon
8.7
8.8
8.5
8.2
7.9
8.2
13.4
Saudi Arabia
9.0
10.8
11.0
10.0
9.8
10.0
10.8
Qatar
10.5
9.2
8.8
9.2
10.1
9.7
9.8
Oman
10.4
11.3
10.4
10.6
10.0
9.7
9.3
Palestine
13.7
13.9
15.3
13.8
15.7
14.6
14.7
Bahrain
15.3
14.1
14.6
15.0
15.0
14.8
14.9
Egypt
16.3
16.6
16.9
16.5
15.8
15.6
16.4
Morocco
16.8
17.5
17.4
16.8
16.5
17.0
18.2
Tunisia
19.2
18.3
17.7
17.3
16.8
16.6
16.0
Jordan
19.3
18.5
18.2
18.4
17.8
18.4
18.0

Manufacturing Establishments
The amount of businesses saw a huge jump from 2010 to 2011, but then leveled off
2010 11,678
2011 47,983
2012 44,565

Types of Manufacturing
The largest number of manufacturing enterprises were in food and beverages, clothing, fabricated metal, and furniture. Three out of those four saw growth from 2010 to 2011 and then a decline the following year.
Type
2010
2011
2012
Clothing
1,107
7,322
4,446
Fabricated Metal
2,986
18,070
15,910
Furniture
1,924
6,501
10,839
Food & beverages
3,539
10,326
7,609

Number of Manufacturing Workers
Overall, the number of workers in manufacturing has continued to grow
2010 223,871
2011 330,565
2012 354,634

Manufacturing Wages
The amount paid in wages also grew from 2010-12
2010 1,754,694 dinars
2011 2,079,684 dinars
2012 2,346,586 dinars

FOOTNOTES

1. Dunlop, W.G., “Billions needed to rebuild Iraqi industry: minister,” Agence France Presse, 7/22/10

SOURCES

Birdsall, Nancy and Subramanian, Arvind, “Saving Iraq From Its Oil,” Foreign Affairs, July/August 2004

Dunlop, W.G., “Billions needed to rebuild Iraqi industry: minister,” Agence France Presse, 7/22/10

Geiger, Julianne, “Iraq Unveils Plan To Diversify Away From Oil,” Oil Price, 4/3/18

Iraq Directory, “More than 90% of Iraqi industries are halted,”

Kami, Aseel, “Iraq industrial sector attracts growing investment,” Reuters, 11/19/12

Kami, Aseel and Chaudhry, Serena, “FEATURE-Small business struggles in Iraq,” Reuters, 3/30/11

Merza, Ali, “Iraq’s National Energy Strategy: Oil and Gas Output, Diversification and Employment,” Middle East Economic Survey, 8/12/13

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, “Iraq’s stunted growth: human and economic development in perspective,” Contemporary Arab Affairs, 3/31/16

United Nations Economic and Social Commission for Western Asia Industrial Development and Mining Organization, “Bulletin of Industrial Statistics for Arab Countries 2008-2014, Ninth issue,” 2016

2 comments:

Humam Misconi said...

Joel.

You got it all wrong! If the manufacturing output was $27.4 billion in 2008 and $36.3 billion in 2009 while the manufacturing contribution was 1.7% in 2008 and 2.6% in 2009, simple calculations would result in Iraq’s GDP was $1.61 trillion in 2008 and $1.396 trillion in 2009! Is this realistic? Please check your sources and calculations.

Humam Misconi

Joel Wing said...

Hi Humam

Thanks so much for catching that. It was supposed to be million.

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