Wednesday, September 26, 2018

World Bank Warns Iraq Facing Massive Job Crisis

(Nanocon Company)

The World Bank recently issued a report warning that Iraq is facing an immediate and massive job crisis. With a largely youthful population there is increasing pressure each year to create more and more employment. Historically, Iraq has always turned to the government for work. Baghdad is not up to the task given the growth rate. Only the development of a vibrant public sector can meet this challenge. Unfortunately, Iraq has structural problems that inhibit the growth of private business.

Like many developing countries Iraq has a very young population. Iraq’s median age is 20 years old. 60% of the nation is 25 years or younger. Each year almost 900,000 people reach working age. By 2030, the adult population will grow from 20 million to 32million. That means that Iraq will need a total of 5-7 million jobs in the next 13 years, a 100-180% increase. If adjusted for retirement, the low labor force participation rate for women, Iraq has to create around 340,000 new jobs each year just to maintain the current unemployment/underemployment rate. Officially, unemployment is 16% and for the youth it stands at 36%. However, an estimated 80% of young males are underemployed or jobless. That figure is even higher for young women. At the same time, the college educated population is also expanding. In 2016, around 490,000 Iraqis graduated from universities. This demographic make up creates huge pressures upon the government and economy. Each summer for example, Baghdad and southern Iraq erupts in annual protests in part inspired by the lack of jobs. Militias and now the Hashd, as well as the insurgency has been able to recruit amongst young males that face little employment opportunities.

Since Iraq’s creation the people have looked towards the government as the employer of choice, but it is not up to this challenge. The public sector is the largest source of work, but it cannot meet the crushing demand caused by the population growth. Since the economy is dependent upon oil, which continuously fluctuates in value with the international market, the amount of money available for the civil service and security forces always goes up and down. In 2014 for instance, oil prices collapsed. Baghdad believed this would only be a temporary phenomenon, so in 2015-16 the budgets increased salaries and pensions. As the petroleum market did not recover, that led the government to borrow and raid the Central Bank’s foreign reserves. Iraq’s debt went from $73.1 billion in 2013 to $122.9 billion by 2017. Finally, in 2018 the budget had zero growth in government employment. Prices for Iraqi crude are finally going up, which means future budgets will likely add more opportunities, but the state can still not create enough to meet demand.

That only leaves the private sector capable of answering this dilemma. The problem is that part of the economy is small and Iraq’s business environment is notoriously bad. First, Iraq’s system incentives corruption. The World Bank ranked Iraq 168 out of 190 countries in ease of doing business. That makes it extremely costly and complex to run a company. There is a huge bureaucracy which entrepreneurs must deal with to even get started. That creates all types of opportunities for government officials to charge bribes. Politicians and political parties also demand kickbacks in contracts. Iraq has never seriously tackled this problem despite constant declarations that it would. Prime Minister Haidar Abadi claimed he was launching two anti-corruption campaigns, yet the former Integrity Committee head Hassan al-Yasiri said his efforts were blocked and stifled because there was no political will by the Abadi government, parliament or the courts to deal with graft. Likewise, the nation has made little effort to fix its regulatory environment to make it easier on private enterprise. Iraq’s international standing on regulations has fallen since 2015. The World Bank tracked 10 categories of government rules and Baghdad only improved in 2, 2 were unchanged, and 6 had fallen behind. Third, Iraq’s credit system needs reform. Most of the banks are state owned and only work with the government. That means little credit is available for the private sector. Again, Iraq has said it would deal with the issue, but has done little. Fourth, the nation has an unreliable power network. Electricity shortages and blackouts are constant, making many people rely upon private generators. That increases the costs on businesses to operate. Finally, Iraq has a largely unskilled work force. Around 33% of the young are illiterate or semi-literate. Only 28% finished middle or high school, and only 7% graduated college. Overall, these are all huge disincentives for foreign businesses and investors to come to Iraq. Baghdad is constantly told that it must confront all of these issues. It has spent years going to conferences, having training by international organizations and foreign countries, and made countless plans, yet there is little follow through. Corruption for example is institutionalized and the ruling parties all benefit from it, so there is no reason to change it. Likewise, the authorities feel no pressure to change the business environment. In fact, since most of the nation’s leadership has lived under state-run economies they just want to maintain the status quo and boost the public sector whenever oil prices go up.

Iraq is facing a recipe for disaster. The population continues to grow and remains extremely young, which creates a huge demand for jobs. The government has taken no serious moves to address this problem. It makes plenty of announcements about developing private business and reforming its economy, but then does nothing substantive. The problem sits in Baghdad. There is simply no incentive for the ruling elite to change things. There is a dangerous precedent for what could happen if this continues. That was the 1968 coup where a young generation of officers overthrew the monarchy, and for the first time in Iraqi history were met with mass popular demonstrations in support. Politics under the monarchy were very similar to today with individuals vying for power and enriching themselves, while largely ignoring the public. That eventually led to their downfall. There were already violent riots in Basra this summer over the lack of jobs, corruption and demanding services, which could be a foreshadowing of what will come. That’s the real challenge. Can Iraq develop into a real democracy where it is responsive to the people or will it continue with its elitist politics that could lead to a popular revolt.

SOURCES

Gunter, Frank, “Immunizing Iraq Against al-Qaeda 3.0,” ORBIS, Summer 2018

Al Mada, “Hassan Yasiri: We achieved 48 corruption charges against ministries…The judiciary was not convinced by the evidence,” 9/15/18

World Bank, “Jobs in Iraq: a primer on job creation in the short-term,” 6/15/18

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