The second axis: the economic and financial sector

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The second axis: the economic and financial sector

Post  Admin on Thu Jun 28, 2018 3:27 pm

27th June, 2018 

By Iraqi Advisory Board for Reconstruction and Development

The Iraqi economy has for decades lacked the forms of a global market economy because of the crises it has experienced during repeated wars that have lost its identity. Therefore, the Iraqi economy is still far from being liberated from state control, as are the strong economic markets of the world, nor was it a common economy based on public or independent ownership of means of production. Thus, it is necessary to define the features of this economy through the development of a national development strategy that extends horizontally and vertically in all sectors.

For example, the $ 60 billion of oil revenues in the budget of 2017, of which 73 percent were spent on salaries of employees and retirees ($ 34 billion for employees and $ 10 billion for retirees). In other words, only 16 billion dollars of oil revenues have been spent on the rest of the Iraqi state. This constitutes a large financial deficit, which is covered by the central bank's reserves of foreign exchange and loans that have become inflated and are a threat to Iraq's future and present.

In addition, the lack of productivity of Iraqi companies is draining the resources of the state, which depends on imports without any returns of importance from exports, except oil. This comes despite the presence of inputs suitable for the production process, such as labor, raw materials, companies and investment opportunities that can be enormous. Therefore, the activation of investment activity in all areas and the transformation of Iraq to a workshop is possible. In this sense, there must be a return to the background to determine the basic vision of the new Iraq after 2003.

The follow-up of the Iraqi economy feels the existence of a state of contradiction and lack of coordination between the joints of this economy, which requires focusing on the sectors of the most productive. In other words, the Iraqi economy needs to review priorities and provide them with what they need and exclude what causes waste and attrition. This can be done through the following:

1) Integration of economic sectors:

The process of developing the economic sectors must be carried out according to a mechanism to achieve integration among them, away from internal competition and the intersection between the objectives to be achieved. If we talk about industry, for example, it is possible to develop the food industries to activate the agricultural and industrial sector in this field and in one. Or, for example, focus on the cement industry and make use of it in the National Housing Plan.

2) Developing the legal environment:

Achieving the conditions of the legal environment that contributes to the protection of the rights of investors, producers and consumers alike is essential in developing the various economic sectors and attracting domestic and foreign investments. Simplifying the steps involved in granting export licenses or establishing companies, for example, greatly contributes to accelerating the development and development of the economy away from the transformation of the law into an obstacle and sometimes to the door of financial and administrative corruption.

3) Private sector participation:

The participation of the private sector in joint projects with the state to increase domestic production is an urgent necessity, especially after the high cost of imports from abroad and the lack of local production processes in addition to the erosion of the sectors of the State and its institutions in large numbers of employees and retirees. This involvement must be vital in the sense that it includes high-yielding and rapid sectors such as participation in the oil sector, which can generate greater revenues in less time and ensure the employment of large numbers of Iraqis. However, the process of directing the labor force of the private sector requires increased incentives for the sector as tax breaks to enable it to create new jobs and create greater productive opportunities.
4) A new vision for the oil sector:

For the oil sector, a new vision for this sector can be applied through dealing with existing oil contracts, gas investment and private sector involvement. The investment of associated gas amounts could save about $ 5 billion that was wasted annually due to the burning of gas without any benefit. The development of the oil sector also implies the development of the petrochemical sector in general, where petrochemical industries are an important source of income as they provide foreign exchange and contribute to the provision of basic products that may normally resort to import. In this sense, the process of developing refineries and increasing their number will contribute to a large extent in reducing the import of oil derivatives, which weighs the budget and deprives them of the opportunity to export these products abroad.

5) Higher Council for Natural Resources:

The process of forming a higher council for natural resources in a country like Iraq is an important strategic step not to preserve those resources from waste or not to benefit from them, but it aims to develop a development policy that contributes to all sectors working in this area and thus to achieve maximum benefit. This council can formulate medium- and long-term plans that form a roadmap for all sectors of the state and its institutions.

6) Developing the State Sector:

We must rely on the utilization of national labor and local capital as well as foreign investments in the development of the sectors of agriculture, industry, transport, communications, tourism, reconstruction, banks and other productive and service sectors. This can be achieved by opening the door to competition with the need for the elements of efficiency, quality and administrative control and financial performance and results. From this point of view, for instance, the expansion of oil export ports can be started to increase revenue and establish a national telecommunications company that provides substantial financial revenues to the state that it uses to develop other sectors. As for the housing crisis, it can be solved through a national plan for housing, activating the cement and steel industry as well as developing the human capacity of the national labor with the assistance of the private sector and foreign investment.

7) Development of the banking system:

In order to activate the banking and investment activity in Iraq, we must work on developing the banking sector, starting the e-government and linking the banks with the international system. 

The process of supporting the state of banking also requires the establishment of a national insurance company to compensate for the expected losses of the financial solvency of investors and attract greater domestic and foreign investments and facilitate lending operations

The existence of the national insurance company will contribute in one way or another to strengthen trust between the citizen and the state, increasing deposits in banks and increasing their assets to prevent the waste of a large and important part of the monetary wealth.

Cool Business activity:

The development of commercial operations and the importation of products must be carried out in accordance with the documentary credit system to ensure the entry of goods in accordance with a mechanism that facilitates monitoring and the absence of any financial and administrative corruption during this process. The process of granting the commercial and productive sectors credit facilities provides more investments (domestic and foreign) which guarantee the state the greatest freedom according to the law.

Supporting the infrastructure of supply and transport networks is essential to support local business and to connect it with other countries through different export outlets.

9) Tax system:

The collection system can be developed by inserting the word, linking the retail and wholesale stores to the tax system and developing the tax awareness of the citizen. On the other hand, services must be improved by participation in the system. Individuals who pay a higher tax receive better services. This does not mean the lack of services for the poor, but the development of preferences to encourage and stimulate the system of collection. No other productive or service sector can be developed without the development of tax collection and control systems. Tourism, for example, requires a system of collection of fees at border crossings and drainage system, otherwise, the process of entry of financial revenues with each tourist will change in the absence of these systems to the process of exit of funds and foreign exchange.

​10) Regulatory system:

The process of restructuring and activating SAIs is essential for achieving administrative efficiency and reducing rampant corruption. The activities of the government and the economic sectors must be carried out in accordance with the regulations, procedures and the documentary cycle and in line with the global developments.

11) Monetary Policy:

The process of developing monetary policy supervised by the Central Bank is essential to achieve the following:

- Introducing a monetary policy consistent with development plans

- Regulation of the currency market

- Strengthening the role of the Central Bank in supervising the work of banks

- Investment of cash reserves in line with international variables.

Therefore, the cessation of the policy of selling the dollar by auction is an urgent need for the burden of this measure on the state and the depletion of foreign parts. 

There is a large expenditure on goods, which are mostly imported, which means that Iraq's money goes to the coffers of neighboring and exporting countries. This policy led to a decline in the Reserve Bank of Iraq during the period 2012-2016 by 45 billion dollars, which in 2012 amounted to 88 billion dollars, falling in 2016 to 43 billion dollars.

The following table shows the decline in the reserves of the Central Bank of Iraq from 2012 to 2016.

the year
Budget ( billion dollars )
Reserve of the Central Bank ( billion dollars )

2012     100.5    88

2013     118.5    76.3

2014     145.5   67

2015     99       59

2016     86       43

12) Human resources:

The interest, training and development of the human element is essential to the success of any development process. In Iraq there is an urgent need to train and rehabilitate the workforce in line with development plans and serve the national economy in creating new opportunities and innovating new products and services and providing support to the existing sectors. This serves not only the private sector and the foreign investor but also the development of the services sector, especially financial and credit services.

13) Making use of military units in achieving development:

The large Iraqi army, its institutions and military establishments can contribute significantly to the reconstruction of cities, infrastructure development and revitalization of industry to contribute to the economy. The organization in which these units operate and the wide deployment make them more capable than others of carrying out those tasks in addition to their other functions of defense. Ministry of Defense laboratories also contribute to providing financial revenues if they are able to market and market their products according to local market requirements.

14) Agricultural sector:

The development of agriculture can be done through the construction of warehouses for storage of crops in parallel with the development of the food industry and the prevention of the importation of locally grown agricultural products. This contributes greatly to supporting farmers and transforming the agricultural sector into an attractive sector for local investors before foreigners. But it requires supportive measures not only to provide facilities and reduce the routine, but to provide the requirements of good agriculture, such as water, fertilizers and loans that contribute to achieve this.

15) Domestic Product Protection:

This can be done through a number of measures, the most important of which is the imposition of a high customs tariff on the competing goods for the local product and the adoption of a trade policy commensurate with the developmental objectives, thus achieving economic and social benefits, including after-sale services, national protection and prevention of dumping and the regulation of imports.

16) Educational system:

The development of the educational system depends not only on increasing the number of schools, but also on the development of students' creativity and innovation and their commercial use. Achieving this can be an important economic contributor to Iraq. Advanced technology is the basis for developing the economy and increasing its revenues.

It is also possible by increasing students' awareness of the dangers of financial and administrative corruption and its destructive effects, avoiding many cases of corruption and reducing its seriousness.

17) Judicial system:

The modernization of the judicial system involves not only routine procedures but also the efficiency of judges and legal systems. The introduction of technology to expedite the resolution of cases is also essential in providing the appropriate legal environment to resolve or prevent conflicts. The development of the judicial system prevents many cases of financial and administrative corruption that hinder the development of the economy and miss many opportunities.

18) Developing External Relations:

The development of the diplomatic relations of Iraq and the benefit of the major investment opportunities in attracting the investments of these countries to achieve mutual benefit. This means that Iraq is not a market for the goods of those countries, but the land of investment of various kinds. At the political level, the involvement of the regional countries in the reconstruction of Iraq and give them opportunities to benefit from local investments make them united in achieving stability and civil peace in Iraq and thus reduce the differences among them within the Iraqi home. 

Therefore, the process of activating the file of foreign relations should be carried out and the countries of the world should cooperate with Iraq to recover the money smuggled abroad and give them quotas in the national economy as incentives in the event that it is done.

19) National Council for Reconstruction:

The existence of a comprehensive national development program is more effective through the establishment of a National Council for Reconstruction that oversees, directs and coordinates ministries. The Council cooperates with banks, the private sector and foreign countries to attract investments and thus gives it the task of formulating economic policies for Iraq in line with the program of reconstruction and national development. The formation of a higher council for reconstruction is an important foundation for putting Iraq on the right track and overcoming the past as it draws a long-term strategy for development. Iraqi expertise is also the backbone of this council, which can also draw on foreign expertise and advice.

20) Political will:

Achieving the comprehensive development program requires clear political will and guidance to all state agencies to serve the economic and development plan. This requires the coordination and organization of the work of ministries in addition to a major campaign to raise awareness of the concepts of citizenship to achieve the terms of the social contract between the citizen and the state.

The process of reforming the Iraqi economy is not an impossible task, especially as Iraq is a country with all the elements of the economy developed and promising. But what is clear is that Iraq needs the serious will of those who are on this file to provide all means to achieve this.

Financial and administrative corruption is one of the main obstacles to any initiative or attempt to reform, although there are some individual attempts to reveal it. Therefore, any attempt to implement national development programs will not succeed if corruption remains and becomes a public culture.

In conclusion, we can only say that the reform of the economy begins with the reform of the human being, which is the basis of any development process.

Therefore, the Iraqi people must be given attention to develop the moral character they enjoy, in addition to supporting successful experiences and models in society to encourage more positive initiatives.  

https://annabaa.org/arabic/economicarticles/15727

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