World Bank Report: Iraq Still Has A Bad Business Environment

Iraq is desperate to rebuild after years of wars and sanctions. It is trying to attract foreign investors and sign contracts to boost its oil, gas, and electricity industries, as well as expand its infrastructure. Unfortunately the country has a very difficult business environment, and despite promises of reforms it is towards the bottom of the World Bank’s ranking of countries.

In the World Bank’s “Doing Business 2011” report, Iraq was ranked 166 out of 183 countries. The World Bank found that hiring and firing workers was rather easy, and their pay relatively low at an average of $115.50 per month for a 19 year old. The problems came with starting and ending a firm in the country, and trading goods across borders. Iraq was ranked 174 out of 183 in ease of starting a business. There are 11 procedures companies have to go through that on average take 77 days to complete. There are 14 steps to get a construction permit, that take 215 days to finish. Registering a business on the other hand, was about average in the world, ranked at 96 out of 183, with only five procedures, taking 51 days. Getting credit was difficult, with a rank of 168 out of 183. Legal rights, protecting investments, and enforcing contracts were weak, while taxes were minimal. When it came to ease of closing a business Iraq was the worst in the world at 183 out of 183. Importing and exporting were also difficult and costly. Ease of exporting was ranked 179 out of 183 with ten documents taking 80 days, and a cost of $3,550 per container. Papers for importing took an average of 83 days and bringing in a container costs $3,650. Iraq ended up with the worst mark of any nation in the region.

Iraq’s 2011 score was actually worse than its 2010 one. That year Iraq was ranked 153 out of 183 overall. The difficulties of investment, starting and closing businesses, trading, etc. were all still there. Dealing with construction permits, getting credit, paying taxes, and enforcing contracts all worsened from 2010 to 2010, while registering property and exporting improved. 

Even though Iraq moved down the World Bank’s list this year, its scores weren’t much changed from the previous one. While five indicators got lower rankings in 2010 compared to 2011, the differences weren’t much. It would appear then that Iraq’s business environment hasn’t gotten markedly worst, but that other countries below it moved up the list, pushing Baghdad farther down. That still doesn’t change the fact that Iraq’s economy is full of problems. It still has a state-run, centralized economy from the Saddam days. Rules and regulations are difficult to understand and contradictory, investment laws limit foreign control and incentives, and the bureaucracy is slow and paper based. All of these contribute to Iraq’s low scores on the World Bank’s report, and have kept many foreign businesses away from most industries except for energy and construction. All of these procedures need to be reformed if Iraq ever hopes to bring in the foreign capital and known how it desperately needs to rebuild itself.

World Bank Rankings Of Iraq
2009 150 out of 183
2010 153 out of 183
2011 166 out of 183

SOURCES

Economist, “No promised land at the end of all this,” 3/4/10

World Bank Group, “Doing Business 2010 Iraq,” 2009

World Bank and International Finance Corporation, “Doing Business 2011 Making a Difference for Entrepreneurs,” World Bank, 11/4/10

AL-SABAH CARTOON: Patriotism Suffering In Iraq

"Political Sectarianism" and "Political Ethnicity" pushing "Patriotism" off the bench
Source: Al-Sabah, Iraq, 11/13/10

White House Warned U.S. Company About Oil Deal With Kurds As Another Signs A New Contract

The Houston-based Marathon Oil signed a deal with the Kurdistan Regional Government (KRG) in October 2010 to develop four oil fields in Irbil province. Marathon is the fourth largest combined petroleum company and fifth largest refiner in the United States. The White House warned the corporation about doing business in Kurdistan just as another U.S. firm inked a deal with the Kurds.

The Obama administration advised Marathon Oil not to invest in the KRG last month. U.S. policy is to tell American companies not to sign petroleum deals with the Kurds because there is no national oil law between them and Baghdad. They told Marathon that they are taking a risk working in Kurdistan without the central government’s okay. The Oil Ministry has called all oil contracts with the KRG illegal.

That apparently didn’t stop Arkansas-based Murphy Oil from finalizing a deal with the KRG as well. On November 4, Murphy Oil said that its subsidiary Murphy Central Dohuk Oil Co. had come to an agreement with the Kurds to explore the Central Dohuk field. They will have a 50% interest in a joint venture with the KRG. They plan to start exploratory work by 2012.

Marathon and Murphy are the seventh and eighth American oil companies to enter Kurdistan. Because Baghdad opposes foreign firms operating in the KRG, and all the work is largely looking for oil deposits rather than actually pumping petroleum, only small to medium-sized companies operate in Kurdistan right now. They are hoping that the Kurds will have enough influence in the new Iraqi government to come to some type of understanding over exports. If that happens businesses could switch to oil production. If not, Marathon and Murphy will spend the next couple years poking around Irbil and Dohuk marking oil fields with little to show for it.

SOURCES

Iraq Business News, “Murphy Oil to Explore in Kurdistan,” 11/5/10

Iraq Oil Report, “US Authorities Advised Marathon Oil Against KRG Deal,” Iraq Business News, 11/3/10

Norway’s DNO Dramatically Cuts Back Oil Production In Kurdistan

Norway’s DNO runs the Tawke oil field in Dohuk in a joint venture with Turkey’s Genel Enerji and the Kurdistan Regional Government (KRG). The Norwegian company has dramatically cut back its production at the facility because it doesn’t have an export license. 

From June to September 2009 Baghdad and the KRG agreed to allow the two operating fields in Kurdistan, Tawke and Taq Taq to sell their oil abroad. DNO ramped up production to a peak of 50,000 barrels a day during that period. The deal eventually broke down over who would pay DNO and the other foreign companies. 

Since then, Tawke has only been operating to meet Kurdish demand. Currently the region is awash in oil and gas, and petroleum prices are only a third of global prices at $25-$30 a barrel. Production has dropped as a result to 4,800 barrels a day in March 2010, and 4,000 barrels in November.

DNO is hoping that a new ruling coalition will mean that the regional and central governments will be able to come to an understanding about exports again. The Kurds have included petroleum as one of their major demands in supporting Nouri al-Maliki for a second term as premier. That’s the only way that DNO can hope to make its money back. From July to September it lost $21 million in operating costs.

SOURCES

Bloomberg, “Genel Enerji sells northern Iraq oil stakes,” 10/17/10

Daood, Mayada, “new government must negotiate with krg on oil,” Niqash, 8/13/10

DeYoung, Karen, “As Iraqis forged agreement, U.S. remained influential, administration says,” Washington Post, 11/13/10

Holter, Mikael, “UPDATE 2-DNO says new Iraq govt to boost its oil export push,” Reuters, 11/11/10

El-Tablawy, Tarek and Barzanji, Yahya, “Oil smuggling to Iran embarrassment for Iraq,” Associated Press, 7/13/10

Iraqi Deaths Largely Unchanged In October 2010

Iraqi deaths in October 2010 were around the same level as the previous month. With forming a new government dominating most of the news coming out of the country, neither the Iraqi ministries nor the Associated Press reported their death counts for October. Iraq Body Count recorded 302 deaths last month, only slightly above September's 242. Icasualties had 185 deaths, only 11 more than September's 174. That averaged out to 7.8 deaths per day, hardly changed from 7.7 in September.

There were only two significant attacks in October. On the last day of the month Islamic State of Iraq fighters stormed Our Lady of Salvation Church in Baghdad, holding 100 people hostage for four hours. Iraqi forces ended up re-taking the Christian church, but 58 people were left dead and 75 wounded. The other major incident was a suicide bomb attack upon a café in a Kurdish neighborhood of the Baladrooz district of Diyala province that killed 30 and wounded 50. The rest of the casualties for the month were a mix of roadside, car, and sticky bombs, and shootings, which have unfortunately become the norm in Iraq.

Overall, the numbers show that despite warnings of increased violence because Iraq still does not have a government eight months after its March parliamentary elections, security has not significantly deteriorated. In fact, despite two jumps in July and August when the average number of daily deaths rose to 14.9 and 13.8 respectively, casualties have remained rather steady since January 2010. So far, the country has averaged 9.9 deaths per day in 2010. That's barely changed from 2009 when the average was 10.1.

Monthly Death Counts

Month	Iraq Body Count	Icasualties	Iraqi Ministries	Associated Press	Avg. # Of Deaths Per Day
Jan. 10	259	135	196	177	6.1
Feb.	296	236	352	255	10.1
Mar.	311	183	367	230	8.7
Apr.	376	259	328	321	10.7
May	370	279	337	278	10.3
June	353	176	284	294	9.4
July	424	534	535	356	14.9
Aug.	503	363	426	N/A	13.8
Sep.	242	174	273	N/A	7.7
Oct.	302	185	N/A	N/A	7.8

SOURCES

Aswat al-Iraq, “9 detained over Baladruz blast,” 10/30/10
- “Baghdad church attack leaves 133 casualties,” 11/1/10

Icasualties.org

Iraq Body Count

Latif, Nizar, “Iraqis fear al Qa’eda revival as 52 die in church siege,” The National, 11/2/10

Why No One Trusts Maliki: The Example Of Diyala

Diyala Province (Wikimedia)

One of the reasons why it has taken so long to put together a new Iraqi government is because no one trusts Prime Minister Nouri al-Maliki. All of the major parties have accused him of autocratic tendencies and abusing his power. The premier’s use of the security forces for his own political ends in Diyala province is a perfect example.

The problems between Maliki and Diyala started over the 2009 provincial elections. Back in 2007 the Iraqi Accordance Front, led by the Iraqi Islamic Party, began building up its popular base for the vote by brokering alliances with various Sons of Iraq (SOI) groups that were emerging in the governorate at that time. Maliki immediately attempted to intervene using a carrot and stick approach. He used the cover of anti-insurgent campaigns in the province to arrest members of the Islamic Party and their friends in the SOI, while at the same time attempting to pry away SOI units by offering them government jobs. In August 2008 for example, security forces from Baghdad arrested Hussein Zubeidi, the head of the security committee on the council, who was working with the SOI. The man who accused him ended up saying that he made up his charges, yet Zubeidi is still being held in a prison to this day.

Maliki’s plan failed as the Accordance Front and its allies ended up winning the 2009 balloting. The Front won nine seats out of 29 on the provincial council, followed by six by Saleh al-Mutlaq’s Iraqi National Project, six by the Kurdish Alliance made up of the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK), three by Iyad Allawi’s Iraqi National List, two by Maliki’s State of Law, two by the Supreme Council’s Diyala Coalition, and one by former Prime Minister Ibrahim al-Jaafari’s National Reform Party. The Accordance Front, Supreme Council, and Kurdish Alliance quickly re-formed the ruling coalition in the council that took power in 2005, shut out Maliki’s list, and elected a council head and governor. That did little to end Maliki’s campaign against his political opponents in the governorate.

When the newly elected politicians met to select a governor in April 2009 they had a surprise waiting for them. Members of the Baghdad Brigade came into the meeting with arrest warrants for three Sunni politicians. A U.S. diplomat intervened, and the soldiers left. They returned the next month with warrants for council member Abdul Jabbar Ibrahim Khazraji of the Accordance Front and Abu Ali, an SOI leader in Diyala’s capital Baquba. The head of the council went to call the U.S. military for help, but when he returned Khazraji and Abu Ali had already been detained and were headed for a prison in Baghdad. The Americans got Abu Ali released, but Khazraji is still in jail to this day. The incident sent several other members of the governorate’s council into hiding afraid that they too would be arrested. Sure enough, in November, the second deputy governor and Accordance Front member Mohammed al-Jabouri was also picked up.

Maliki’s campaign against Diyala’s politicians continued into 2010. Before the March parliamentary election, a candidate for Iyad Allawi’s Iraqi National Movement, Najm Abdullah Harbi was arrested for homicide. A judge ordered him released for lack of evidence, but then he was re-arrested for alleged ties to Al Qaeda. Harbi ended up winning 28,000 votes and a seat in parliament, but he is still in prison. Three other National Movement candidates went into hiding as a result, fearing that they too would be picked up. They didn’t re-emerge until all of them won seats, which gave them political immunity. After the election the deputy governor Furat Mohammed Hussein Jassim was also picked up, and is still being held.

Diyala is a perfect example of Prime Minister Maliki’s abuse of power. Again and again he intervened in the province’s politics, using the security forces. An American adviser to the governorate’s council from 2009 to early 2010 said that Maliki’s actions were threatening Sunnis’ belief in the political process. What they were learning was that Maliki would never allow them to have a real say in the local government, even if they played by the rules and got elected to office. The premier made all of them afraid that they could be arrested at any time, and even if they put up a legal defense after being detained they would be held indefinitely. It’s events like these that made negotiations over a new government so difficult. Political parties have little faith in Maliki, and they want concrete promises from State of Law in writing, top posts, and hopefully legislation. Until then they only have Maliki’s word that he is willing to share power. That’s not good enough for some such as Allawi, which is dragging out the process even more.

SOURCES

International Crisis Group, “Loose Ends: Iraq’s Security Forces between U.S. Drawdown and Withdrawal,” 10/26/10

Knights, Michael and McCarthy, Eamon, “Provincial Politics in Iraq: Fragmentation or New Awakening?” Washington Institute for Near East Policy, April 2008

Parker, Ned, “Diyala struggles to overcome sectarian bad blood,” Los Angeles Times, 10/25/10
- “Machiavelli in Mesopotamia,” World Policy Journal, Spring 2009

More On The Iraqi National Movement’s Walkout and Future Participation In Government

Controversy continues to surround what will happen in the Iraqi parliament. On November 11, 2010 it held its second session since the March elections. Osama Nujafi of Iyad Allawi’s Iraqi National Movement (INM) was elected speaker, along with his two deputies, Jalal Talabani returned for a second term as Iraq’s president, and Nouri al-Maliki was asked to form a new ruling coalition. During that meeting the National Movement walked out. Their participation in the political process is the major issue facing the future government.

Before parliament met on November 11 the three major lists, Maliki’s State of Law, the Kurdish Coalition, and the National Movement came to an agreement. Maliki and Talabani would return to power, the INM would get the speaker, the Accountability and Justice Commission’s ban on three prominent members of Allawi’s list would be reversed, a new National Council for Strategic Policy headed by Allawi would be created to replace the National Security Council, a committee would be created to review the arrests of prisoners, and power sharing would be codified. After Nujafi and his two deputies were elected, the legislature was then supposed to vote on the INM’s demands to formalize them. Instead, Talabani was elected president for a second term. That led Allawi and 57 of his 91 lawmakers to walk out. The INM then produced a signed document by Kurdistan Regional Government President Massoud Barzani, Allawi, and Maliki that the National Movement’s banned members would be dealt with before Talabani was elected. 

Allawi’s list was understandably upset with the proceedings, and there was some discussion about whether they would show up at the next session of parliament let alone join a new ruling coalition. Many INM member said that Maliki and others had betrayed them. The National Movement even called President Obama asking him to intervene to assure that their demands would be met. They also threatened to go to the United Nations or the Arab League. To add to the problems a member of State of Law said that Allawi’s points were illegal, and they and Kurdish politicians questioned Nujafi’s qualifications to be speaker, and criticized his opening speech. Allawi warned that he was ready to walk away from the talks and go into the opposition as a result.  

Nevertheless, the National Movement said on November 12 that they were still committed to forming a new government. The next day, they and the other blocs returned to parliament. The legislature then voted to implement the power sharing agreement between the three major lists. One lawmaker said that the three banned members of the INM would be cleared within 10 days. It seems that for now, the differences between Allawi and the others are being put aside as the parties continue talks. The next session of the legislature will not be held until November 21 because of a religious holiday. 

What the INM can get out of these prolonged negotiations is an open question as they are obviously the biggest loser. Maliki not only retained the premiership, but has established himself as the leader of most of the Shiite parties. The Kurds became the final kingmakers with Barzani managing and coaxing the major parties to come together, proving that he was a national leader. Allawi on the other hand, was left demanding that only he had the right to form a government since he won the most seats in the election, as Maliki was gaining supporters. Even the National Council for Strategic Policies that he is supposed to head is being interpreted differently. Allawi is demanding that it have veto powers over the prime minister’s decisions, but the body doesn’t even exist yet, and there may be major loopholes in its authority. Finally, Allawi was almost undercut by his own followers, around half of which threatened to leave him if he didn’t sign onto the Barzani agreement. That faction wants to have some say in the ruling coalition rather than being completely shut out. They also have their own individual agendas, which they may not be willing to sacrifice for Allawi. He may turn out to be in the weakest position of all as he failed to become premier, members of his list will get ministerships, while he may be left waiting for the National Council to be formed that might not have as much authority as he hoped. In the end, the 2010 election may not be as much of a game changer as some original believed. Instead it will maintain the status quo as the new government will look and act much like Maliki’s original one from 2006.

SOURCES

Ahmed, Hevidar, “Lawmakers object to new parliament speaker speech,” AK News, 11/12/10

Alsumaria, “National Alliance refuses Al Iraqiya demands,” 11/13/10

Aswat al-Iraq, “Maliki, Barazani withdraw signatures on deal with Iraqiya,” 11/13/10
- “MPs enter constitutional hall to resume parliament session,” 11/13/10

Chulov, Martin, “Ayad Allawi puts Iraq power-sharing deal at risk,” Guardian, 11/12/10

Faraj, Salam, “Iraqi MPs salvage power-sharing pact after walk-out,” Agence France Presse, 11/13/10

Al-Jader, May, “SLC describes al-Iraqiya’s demands illegal,” AK News, 11/12/10

Al Jazeera, “Iraq pact heralds new political era,” 11/12/10

Lando, Ben, “Maliki, Talibani in after Iraqiya walk-outs,” Iraq Oil Report, 11/12/10

Nakhelnews, Al-Sharq al-Awsat, “Inauspicious Start for New Agreement Among Iraqi Leaders,” MEMRI Blog, 11/12/10

Al-Shemmari, Yazn, “Iraqiya announces its participation in parliament,” AK News, 11/12/10

Al-Zayyadi, Kholoud, “Lawmakers vote unanimously to implement agreements of Barzani’s initiative,” AK News, 11/13/10