Short Term Goals for a Job Creation Strategy in Iraq

(Copyright: Wikimedia Commons)

Job creation in Iraq has been a difficult undertaking for the Government of Iraq (GoI) as the country’s population of 38.43 million (as of 2018) continues to grow rapidly – approximately 47% are under the age of 18 according to UNICEF figures and is expected to grow by 2.5% per year between 2012 and 2030. According to a 2018 World Bank report, “unemployment increased particularly for individuals from the poorest households, youth, and those in the prime working age (ages 25-49). The unemployment rate is about twice as high in the governorates most affected by ISIS-related violence and displacement compared to the rest of the country (21.1% versus 11.2%), especially among the young and the uneducated.” The recent mass protests throughout the country highlight the urgent need for GoI to adopt policies that stimulate job creation. Therefore, the paper outlines 5 policies intended to quickly jump-start the economy in the short-term (3 to 5 years). If there are any doubts about the efficacy of the policies, they can be pilot tested and carefully evaluated before adopting countrywide.

Capital-centric interventions can have the most efficacious impact on job creation and lifting people out of poverty, but have been underutilized according to Development Economist Christopher Blattman, He says, “when programs give capital to the poor be it cash, tools or livestock, to small business owners, unemployed youth or ultra-poor women, we tend to see similar results: poor people expand the number and size of their businesses, and increase the profitability of work in their portfolio. Recently, researchers collected evidence from 19 cash transfer studies around the world and found almost no evidence of increased spending on alcohol, tobacco, or other temptation goods.” These findings indicate the poor will use government grants for business expansion, and not misuse the funds.

One area of the economy that is of great priority in the agriculture industry. According to the observations of MSS Research, “The Industrial Revolution in nineteenth-century England was spawned by rising productivity and incomes in agriculture that increased demand for manufactured goods. In post-war Japan, South Korea, and more recently Thailand, rising agricultural productivity and a shift to commercial crops have been dynamic engines for economic growth, job creation, higher incomes, and rural purchasing power, wider markets for produce, and the growth of downstream industries. In Taiwan, this was the result of a conscious strategy to utilize agriculture to stimulate job creation and domestic demand.” The benefit of improving the farming industry is not only job creation, but also the diversification of the economy that incorporates agriculture, technology, and manufacturing. Currently, the Iraqi economy is heavily reliant on oil production and revenues, a commodity that is gradually being phased out globally by renewable energy as evidenced by the fall of the price of a barrel of oil in recent years.

Additionally, investing in private corporations is a crucial job creator mechanism, and even absorb employees from the bloated public sector. The following are the 5 policies for GoI to consider:

1- Provide export subsidies to all promising Iraqi corporations and farms who can produce quality goods for international markets

Export subsidies were successfully used in South Korea and Taiwan in the 1960s to increase their competitive advantage. According to Dani Rodrik, the Asian development strategy targeted non-traditional export activities with direct inducements and subsidies focused on establishing new exportables. Korea and Taiwan’s GDP per capita grew faster than other countries that used export subsidies. How? Arvid Lukauskas, Development Economist Professor, explains that government support for firms was contingent on meeting export targets and that firms that did not improve their productivity or achieve best practices fell out of government favor.[1]

2- Implement wage subsidies to Iraqi corporations who hire Iraqis under the age of 40

Wage subsidies are not intended for the bloated public and oil and gas sectors. The subsidies would incentivize Iraqi corporations to hire more youth while reducing the heavy burden on the GoI to be the sole provider of jobs. For the farming industry, provide grants, tools, and livestock to expand the farming industry. Christopher Blattman analyzed one of the world’s more common ultra-poor interventions, “which provides livestock to the poorest households in a village along with a package of other services: basic training on livestock care, health and related training, short-term income support, and other services. Randomized trials in seven countries show that the program leads to substantial shifts from casual labor to farm self-employment, and 10 to 40% increases in household consumption or earnings compared to control groups, lasting at least two to four years.”

3- Recapitalize the banking sector and incentivize banks to make loans to small and medium-sized enterprises (SMEs)

One way the GoI could recapitalize banks is to encourage Iraqis to place their savings in banks and insuring all depositors up to a certain limit. This is to protect depositors should a financial institution fail or go bankrupt.

Then, the GoI could incentivize banks to make interest free loans to SMEs by incurring the interest charges. This would allow the banks to earn interest on the loans. In this scenario, the greatest risk to the bank is loan default. Note, the banks must still check the creditworthiness of the borrower to ensure the loan will be repaid in full while protecting the GoI from a bank that recklessly approves borrowers.

4- Establish investment promotion agencies (IPAs) in cities where the Iraqi Diaspora are located to help attract foreign direct investment in the non-oil and gas sectors

Through IPAs, the GoI can offer incentives for international companies that establish an office in Iraq, including tax breaks, subsidized loans, security, training, and relocation fees, and/or develop the infrastructure needed for the international company to do business in the country. Incentives should be tied to job creation, using job quotas to ensure international companies hire local labor.

Two countries that have set up IPAs successfully have been Costa Rica (Costa Rican Investment Promotion Agency-CINDE) and Ireland. Costa Rica went from being a banana and coffee bean exporter to a high-end medical electronics device manufacturer for the health care industry. Ireland’s successful IPA relies on Irish Diaspora to successfully attract international firms.

5- Provide Unconditional Cash Transfers of USD 50 per month to all students enrolled in secondary and tertiary education

The population in this target group is approximately 8.041 million as of 2017. The goal is to incentivize the youth to continue higher education schooling and dissuading them from joining armed groups or forcing them to become breadwinners. Take away grants from individuals who commit crimes. The estimated cost of the program would be approximately USD 5.04 billion per year.

[1] Lukauskas, Arvid (2010). The Political Economy of Protectionism. Columbia University.

Evan Toma is a Fellow at Iraq Energy Institute (IEI). This is the second article published as part of IEI’s initiative “Towards Sustainable Job Creation in Iraq”. Learn more information on this initiative and our contribution guidelines by clicking here.

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Evan Toma is currently Chief Financial Officer of the San Diego World Affairs Council in San Diego, California and conducts independent research on countries with extractive resources (oil, gas and mining) and economic development. Previously he worked as an Economic

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