Iraq has excellent market potential, particular in the oil and natural gas fields. However, Iraq still faces several market challenges, ranging from political instability to ethnic violence.
Population and Work Force
Iraq has a population of 33.7 million people, divided into Shia, Sunnis and Kurds. The unemployment rate is approximately 16%. The unemployed face low numbers of available jobs that are sustainable in an economy with volatile, unstable growth. Violence throughout the region, particular since 2003, has closed many business and universities. Closures of both schools and universities has in turn decreased school enrollment, particularly for girls. Additionally, limited access to education has curbed the number of skilled workers in the labor force. Workers who do achieve degrees and higher education are increasingly more likely to seek opportunities outside of Iraq, in Europe and North America, for example. This phenomenon is known as “brain drain,” in developing countries.
Another challenge to investment and stable market opportunity growth is the rampant corruption in Iraqi business and political circles. In fact, Iraq ranks the seventh most corrupt country in the world, according to Transparency International’s Corruption Perception Index (2012).
It is well known that bribes have been demanded by public officials for social services and security. Public funds have been abused and mismanaged by public servants as well. Pressure placed on judges and law enforcement to slant the law in rulings has also been noted, while personal freedoms and property rights have been widely suppressed.
The primary sector of economic growth and expansion in the past five years in Iraq has been the oil sector. Developing a business model outside this sector faces not only high tax burdens but lack of foreign investment.
While starting a new business, even outside the oil sector, has become relatively easier in the past few years, Iraqi businessmen and women still face many challenges and red tape. For instance, obtaining a new business and operating license can take months. Business owners are pressured to pay bribes to receive licenses and permits to stay open. Due to the threats and pressures placed upon the formal labor market, the informal labor market has stayed strong, which only encourages instability and black market reliance.
Internal Dispute: Oil Rights
Disputes within Iraq over oil revenue threatens the stability of the one sector that has provided economic growth in the country over the past 5 years. Where the revenue should go, between the Iraqi national government and the Kurdistan Regional Government in the north, leaves investment options unclear for foreign investors interested in this fledgling industry, reducing their likelihood of investing in the long run.
The Open Market & Trade
Iraqi commercial activities are still suppressed, which make trade flows still far below what they are capable of being. While Iraq is open for investment from both domestic and international organizations, but many investors are scared away by security concerns and corruptions. Lack of infrastructure lowers investment confidence and statistically probability for success.
Since the invasion in 2003, Iraqi security has unstable due to war and sanctions. The rights of citizens have been overlooked, and freedom of movement between cities and even neighborhoods were limited. Attending school and work on a regular basis was interrupted by security checks, lock downs, violence and curfews. Today, the looming threat of insurgent groups and partisan disaccord in the north and west has halted foreign visitors and potential investors from visiting the country, and threatens the daily life of citizens once again. Investing in such a capricious economy may seem counterintuitive, but it is now when the civilian population and social services need the most infrastructural support.