As reported before, there are high expectations amongst many Iraqis that the new wave of oil deals signed at the end of 2009 will greatly increase the country’s wealth. At the same time there are questions about whether the money will trickle down to the average Iraqi.
One major problem is that oil is not a labor-intensive industry. Despite providing 90% of the government’s revenue and being the driving force behind the economy, U.S. statistics show that petroleum only employs 2% of the workforce. Any new jobs that might emerge will come from the construction necessary to improve Iraq’s infrastructure for the new oil exploration and shipping. What other countries have done is to create unnecessary governments jobs with their oil wealth to make up for high unemployment. The Iraqi state is already known for this as it is the largest employer in the country.
One economist interviewed by The National warned that increased oil exports could distort the economy. He said that a large increase of oil money would make it cheaper for the government to buy products rather than invest in services and the general infrastructure. The extra funds will also increase the value of the Iraqi dinar and make imports cheaper. The country is already awash in cheap products from Iran, Turkey, China, and others as many tariffs were removed after the U.S. invasion, and this has had a huge negative impact upon domestic producers and businesses.
If these problems are to be avoided, the government must intervene and invest in diversifying the economy. There are several problems with this however. First, 99% of the foreign investment in Iraq goes to the oil and gas industry, something that’s unlikely to change anytime soon. The government therefore, will largely be on its own if it wants to move the economy beyond the energy business, and it may not have the know-how or capacity to do that. Second, Iraq is still ranked as one of the most corrupt countries in the world. The oil deals will concentrate even more power and money in the hands of the bureaucracy who are already known to be unresponsive to the needs of the public. Corruption could become worse as a result, diverting money away from development. To its credit, Baghdad is trying to become more open in its dealings. The first two rounds of oil bids were televised and the contracts made public. The government also joined the Extractive Industries Transparency Initiative in January 2010 that requires members to disclose their taxes, royalties, production, etc., that involve their petroleum industry. Iraq could become even more dependent upon oil in the future, or use the added profits to grow the rest of the economy. Very few countries have been able to do the latter however, so the odds are against Iraq.
Fordham, Alice, “Will oil wealth trickle down?” The National, 1/15/10
Rasheed, Ahmed, “Corruption-plagued Iraq joins oil transparency group,” Reuters, 1/10/10
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