Iraq Insider: Q3 2020 Non-Oil Economy Review

1589

Welcome to Iraq Insider! IEI’s quarterly review of Iraq’s oil and non-oil economy.

For Q3 2020, our first non-oil economy part examines Iraq’s current challenges and economic potential at the macro and micro level. With the oil economy review, there two reports provide a detailed overview of developments in oil and gas, agriculture, industry, electricity and health, looking at Iraq’s key vulnerabilities amid the COVID-19 crisis and where Iraq has received substantial international assistance. Here we examine Iraq’s current policy options, however limited, and prospects for stabilisation, in light of the new white paper on economic reform presented by the Iraqi cabinet on 13 October.

Additionally, we look at Iraq’s continuing policy of trying to balance regional relations during a time of renewed proxy conflict, the regionally shared challenge of collapsed oil prices and the global pandemic.

Iraq’s policy of regional outreach is finally starting to show positive results but remains vulnerable to the rapidly shifting geopolitics of the region. Arising from Baghdad’s regional posture, we examine some of the most interesting developments, particularly in the energy sector.


Economic overview

Iraq’s cabinet has approved the Economic Reform White Paper prepared by the Ministry of Finance. (Photo Credit: Iraqi Government)

Iraq has reached the fourth quarter of 2020 on the approach to financial ruin, forced to withdraw currency reserves which are dwindling as oil prices remain below $45; even $12bn in internal borrowing, authorized by parliament in June, has already been depleted and a debate is now raging as to whether Iraq should seek more external financing for the rest of the year: as much as $35bn in additional borrowing has been proposed, but the deficit for 2020 is now in the region of $60bn. Oil makes up 95% of government revenue in the 2019 budget and until the 2020 budget is passed, spending will be based on last year’s operational expenditure only, in accordance with Iraqi law.

The government requires $3.6bn per month just to make payroll, and considerably more for other operational expenditure such as pensions, maintenance of government buildings and fuel for state owned entities etc, perhaps as much as $6.8bn. In total, this comprised 75% of last year’s spending and Iraq may have spent $7bn in September alone, while only bringing in $3.6bn in oil revenue. As of September 2020, salaries for most public sector workers have been delayed. This unsurprising: operational expenditure is on track to reach 120% of revenue for 2020.

But there is still much room for reform, as a recent World Bank paper argues. A potential early “win” could be reform of the massive Public Distribution System (PDS), the food rationing system established in the 1990s which is the largest of its kind in the world. We look at exactly why the PDS is problematic, and how much it costs, in a forthcoming IEI report.

Iraq will no doubt be hoping the most optimistic oil price projections for 2021, including Citi Bank’s projection that prices will recover to $60 by Q4 2021, will be correct. Even still, Citi’s projection that prices will average $55 next year is hardly reassuring. Iraq’s much awaited white paper on economic reform expects the price of oil to average $50 next year, bringing in $60bn in revenue; the paper outlines a plan to cut government expenditure on salaries from 25% of GDP to 12.5% of GDP within three years. This is by some way the most ambitious economic planning document Iraq has produced since 2003 and considerably more ambitious than the World Bank paper, which makes the minimal suggestion that by reforming the investment environment, Iraq might be able to spur a sense of competitive spirit among inefficient SOEs.

Aside from this, the government will have to vigorously pursue revenue collecting mechanisms, including an ongoing border tariff payment initiative, which has reportedly already seen a doubling of customs revenue in Basra, and if politically possible, tax, while cutting back waste and ensuring foreign offers of assistance can be efficiently channelled to where they are most needed.

On reforms to Iraq’s customs service, talks were underway with Jordan in late September to speed up document handling approval processes on the Iraqi side and streamline the movement of trucks from both sides. This follows an Iraqi cabinet declaration in 2019 to standardise customs procedures at border crossings. The Iraqi government hopes that by next year, tariff collection procedures will be automated.

In the wider reform picture, widespread corruption will have to be tackled. Long term Iraq watchers will not be surprised that recent tax and austerity proposals were strongly opposed by most of Iraq’s political elite, but the border tariff initiative may be having more success.

Parliamentary Finance Committee member Haitham al Jubouri complained in July that Iraq’s land border crossings were controlled by “armed parties, clans and factions.” PM Kadhimi believes lost border revenues are costing the country $4bn a year, although some believe the real cost is much higher. According to the latest World Bank memorandum, Iraq should have collected around S$6.35bn in 2017 while actual collections for 2019 were $1.9 billion.

In the past, Iraq also lost tens of billions on often ill-conceived projects linked to political interests: now every billion that can be saved will be vital for stability. We discuss some areas of potential savings below.

Iraq’s draft federal budget for 2020, which was made public on 14 September, envisages total government revenue of 67.425 trillion IQD ($57 billion) based on an expected average oil price of $40.51/barrel, therefore, the current white paper is slightly more optimistic on revenue (it also discusses drastic reforms, such as cutting funds for inefficient state owned enterprises by 30%.)

In the draft budget, oil exports are expected to average 3.332 million bpd, including 250,000 barrels per day (kbpd) from the Kurdish Region of Iraq (KRI). Notably, the expected deficit is 81 trillion IQD ($68 billion), meaning that Iraq is on track to utilise total external and internal borrowing close to $18bn. We analyse KRI-Baghdad relations and the new budget in more detail below, but it is worth pointing out how controversial the issue of borrowing is: foreign loans have to be authorized by parliament.

The draft budget allocates $4.8bn investment for the electricity sector, an increase of almost $1.5bn compared to 2019. The latter is of course important given how Iraq’s budgets have been overwhelmingly committed to operational spending. This year, electricity projects have been on hold due to the rapid collapse in oil prices, so any spare funds for capital investment will be vital, for example, the $1.2bn electricity infrastructure maintenance and upgrading deal Iraq and GE re-committed to on PM Kadhimi’s Washington visit (the deal was originally signed in 2019).

Iraqi lawmakers are, for once in general agreement that Iraq is in financial crisis, although some still hope oil revenues will simply rise. However, lawmakers disagree on the right course of action Iraq should take, with most being strongly opposed to austerity and income tax.

Former Minister of Industry Muhammad Al-Darraji, a member of the Finance Committee in Parliament, warned that Iraq’s projected borrowing would have a severe impact on the economy and may lead to bankruptcy. At the end of June, Iraq passed a law authorizing foreign borrowing to the sum of $5bn.

An executive-parliament rift could point to potential delay approving the budget, which is drafted by the Finance and Planning ministries before going through the executive and finally, to parliament for approval. Finance Minister Ali Allawi has adopted a darker outlook than Darraji, warning that the government would “have to take very important and very radical measures soon.” He has cautioned that Iraq needs at least five years to implement a reform program, the details of which (cutting the SOE budget etc) are in the white paper.

Shirwan Mirza, a member of the financial committee, announced that the minister’s council will hold a meeting on the federal budget for the current year 2020 which will be sent to the Iraqi Parliament Council for approval.


COVID-19: Can Iraq halt an exponentially growing emergency?

Photo Credit: Iraqi Government

Iraq’s COVID-19 crisis has reached a critical stage: following strict border closures and a period of full lockdown, recorded cases have surged, largely due to an increase in testing, but worryingly the percentage of positive tests has sharply increased. Detected cases reached 3000 per day in mid August. Iraq’s cases rapidly increased over the summer following an easing of curfews and are now in the region of 400,000 confirmed cases and at least 10,000 deaths as of October 15th.

Iraq will be hoping to avoid disruption to medical oxygen supplies provided by foreign aid and government ministries, which have rallied to the effort, allocating industrial oxygen production to the health sector, and repurposing factories to produce PPE. This rapid response is not without risk: on 14 September there was a row in Muthana over oxygen cylinders which may previously have contained chlorine gas.

We reported in May that Iraq was chronically short of mechanical ventilators, extremely expensive devices that can cost tens of thousands of dollars, to help the most chronically ill patients. But doctors around the world have increasingly found mechanical ventilation can be a double-edged sword (due to risks associated with prolonged ventilation).

If low blood oxygen levels are detected early enough, more basic forms of ventilation such as CPAP, are effective, and far cheaper than mechanical ventilation. Even still, Iraq’s health system is very clearly a long way from having the capacity to cope with the crisis. As with the case globally, the great hope is the availability of low cost, effective drugs and a vaccine, in addition to adaptations that enable a modicum of normal economic activity. On 4 October, the Iraqi Ministry of Foreign Affairs was in talks with AstraZeneca regarding the possibility of securing vaccine doses; AstraZeneca’s vaccine is currently in production in Argentina.

In the meantime, aid efforts have also stepped up to improve oxygen supplies. On 30 August the Iraqi and Iranian branches of the Red Crescent provided Al Kindi Hospital with 50 oxygen bottles, as well as a single delivery of 20 tons of liquid medical oxygen to the Najaf Health Department. Other treatments, such as the steroid dexamethasone, will also be in high demand, and are already being used in Iraq, according to pharmacists spoken to by IEI.

Aside from these efforts, the government is also following vaccine developments, and is preparing contingency plans as soon as availability allows. Iraq’s fragile healthcare system, which has been used to overwhelming emergencies such as large terror attacks, has never before been so besieged in almost every governorate.

By June, Iraq’s health system was reaching breaking point; indeed, according to numerous reports it has already collapsed as staff suffer burnout from excessively long shifts, inadequate pay compared to other public sector workers, the constant risk of infection and even threats from relatives of COVID victims. Based on figures from June, it is now likely that at least 1000 health workers have COVID-19. According to Najaf Governor Louay al Yasiri, 160 out of 1795 health workers in the governorate had been infected with COVID-19.

Explosive case growth

Despite this, Iraq’s Higher Committee for Health and Safety has eased some restrictions on public gatherings, allowing restaurants to open and raising the level of government staff in some ministries from 25% to 50%. This is provided the public adheres to “protective measures.”

Photo Credit: Iraq Energy Institute (IEI)

This comes after a rapid acceleration of the crisis in June. On June 1st for example, there were 6439 confirmed cases and 205 confirmed fatalities. By June 29th, this had surged, following an increase in testing, to 49,109 cases, however confirmed fatalities jumped sharply to 943.

By the first week of July, there had been 75,194 confirmed cases and 3055 deaths: in just over one month, fatalities had risen almost 1400%.By mid-August, this grim toll stood at 5954 people and over 180,000 cases. At the time of writing, there were over 270,000 cases and 7657 deaths.

Photo Credit: Iraq Energy Institute

Putting this in perspective, COVID-19 deaths in Iraq this year have surpassed the recorded 9852 civilian deaths due to violence in Iraq through 2013, as the self-declared Islamic State’s campaigns gained momentum.

Responses to COVID-19 in Iraq

A persistent problem in Iraq, as in other countries, has been a failure on the part of the public to take the virus seriously, and online disinformation and conspiracy theories appear to have played a role in this. This has led the head of the Public Health Department in the Health Ministry, Ryadh Abdul Amir to caution that a “lack of compliance” by the public will overwhelm the health service.

To improve public awareness, on the 9th of August the WHO announced an information campaign called “Your health is important,” initially targeting Maysan and Thi Qar, with the intention of expanding to Basra, Wasit and Sulaymaniyah. Over 600 volunteers and local police will distribute 350,000 leaflets, while the Iraqi Communication and Media Commission will run a messaging campaign on tv and radio. The initiative is funded by the Kuwaiti government and the EU’s Civil Protection and Humanitarian Aid (ECHO) organization.

This assistance is particularly important since the health budget, already eviscerated by low allocations and high operational spending, faces renewed strain from the oil price collapse.

In June, the U.N.’s Global Humanitarian Response Plan said the crisis would require $263 million in funding, although only $16.9 million had been disbursed, a concerning echo of the slow speed of disbursing funds for Ninewa’s humanitarian emergency.

Nonetheless, Iraq’s health ministry believes it has been able to scale up an improved response, for now. Deputy Health Minister Hazim al Jumaily remarked on 20 August that, “work is underway to add more than 2,000 beds in hospitals, and now we have wards equipped with all the necessary devices to receive COVID-19 patients.”

These efforts cannot solve the most pressing issue: a lack of funding and the crowding out of investment spending by salaries. In July Iraq health sector workers threatened to strike over poor working conditions, while Iraq’s medical graduates continue to demand employment. The government was only able to hire 2500 last month.

Something to watch going forward will be drug availability, which the state-run Kimadia agency has historically struggled with, following multiple reports of abuse of the system. Dexamethasone, a commonly available steroid authorised for use by Kimadia in Iraq, can cut deaths among the critically ill by 30%, although this figure relates to hospitals in OECD countries.


Non-oil economic activity

Photo Credit: Iraqi Government

Iraq’s non-oil economic activity has been hampered this year by lockdowns and the collapse in oil revenue, leading to an alarming surge in poverty rates. In July, a Danish Refugee Council study recorded the mean monthly wages for 1497 male workers in northern Iraq; for those lucky enough to still receive a salary, wages had fallen from 348,000 IQD ($291) to 219,000 IQD ($183) during the pandemic.

If we apply Engel’s law, which looks at the percentage of income families have to spend on essential services, this explains the recent poverty increase: some Iraqi families now report having to spend as much as $100 on fuel generator subscriptions, while trucked water deliveries are also too expensive for many.

Iraq now faces a difficult challenge: to control recurring expenditure while simultaneously incentivising foreign investment and promoting local industry, achieving the latter in the most cost effective way possible. Unfortunately for the executive, the most cost effective change is politically difficult regulatory reform. Aggressively promoting exports of all kinds would at least bring the government some revenue and cut losses for state subsidized industries. So far this year, notable non-oil exports have included dates and bitumen to the UAE.

Commodity processing endures amid crisis

At the national level, Iraq is gradually utilizing hydrocarbon production for non-oil exports, for example, a high density polyethylene pipe factory is nearing completion in Basra. Employing 100 Iraqis directly, the factory will have an output of 5 tons per hour, and will be able to supply 50% of domestic demand.

On 24 August it was announced that the General Company for Mining Industries, a company of the Ministry of Industry and Minerals, in cooperation with the North Al Fayhaa Oil Services Company, had exported 7381 tons of prime coat road asphalt from a facility in Diyala, to the UAE.

Once COVID-19 subsides, demand for products like prime coat asphalt will likely continue its upward trajectory, driven by Asian demand. Iraq’s asphalt production was hit hard by the destruction of Qayyarah refinery by ISIS in 2016. Iraq’s government would do well to reform these industries, audit them and issue strict production and efficiency targets, to promote a pro-export policy, without delay.

Other northern industries are also starting to recover from ISIS. The Mishraq Sulphur Company supplied the General Company for the Manufacture of Southern Fertilizers with 72,700 tons of fertilizer in August, also sending 248,000 tons to the Central Refineries Company, as well as supplying 92,320 tons for private demand. This is another sector with strong export potential as global fertilizer demand is set to rise.

Mishraq’s sulphur plant and storage facilities were burned by ISIS in 2016, creating a large toxic cloud of gas that caused thousands of respiratory injuries. The plant was initially intended to have a maximum potential capacity of 1 million tons per year, prior to the war with ISIS.

Agriculture

One sector enjoying mixed fortunes is agriculture. When discussing agriculture in Iraq, it’s important to consider that in northern parts of the country, crop cultivation is rain fed, while in the south, more water is drawn from rivers. Both sources of water are highly vulnerable to climate change and upriver dam construction. In general, salinity and water quality worsens further south as more water is drawn from the rivers. As a result of this, and upriver dam filling, salinity is worsening in Basra as the Shatt al Arab river recedes, letting in seawater, which worsens municipal water quality. Therefore, Iraq’s neglected water strategies are described as integrated, ecompassing agricultural, municipal and industrial demand across the country.

Record Grain Board purchases raise issue of water availability, cost

Iraq’s agriculture policies are important to consider, because inefficient flood irrigation, which dominates Iraqi farming, risks reducing downriver water supply. Importantly, Iraq continues its policy of buying up much produce, through the State Grain Board. According to the Ministry of Agriculture, the board purchased 4.9 million tons of wheat this year, meaning that Iraq will be self-sufficient in wheat for the second year running.

In terms of water resources, wheat requires on average 1000 cubic meters of water per ton to grow, meaning that wheat purchases this year will use around 5 billion cubic meters (bcm) of water, more than half of the Mosul dam’s low capacity of 8 bcm (Iraq’s largest dam). Adding rice into the equation, which is also purchased at an inflated price, raises the water requirement towards the entire low capacity of the dam.

Large quantities of locally grown rice were also purchased by the government at a highly favourable price, and all of this food, at artificially high prices, will be processed for the ration-like Public Distribution System (PDS) the largest of its kind in the world. While government rice purchases for the PDS are far smaller in terms of tonnage than wheat, rice uses up five times as much water.

For this reason, Iraq would do well to focus on less water intensive crops, perhaps focusing on some of the 20 or so non-cereal products currently on the banned farm produce import list. The Ministry of Agriculture recently added potatoes to this category, because of their abundance in the Iraqi local market.

The PDS is also financially costly. Wheat prices offered by the board were unchanged compared to 2019, starting at $350 a ton and rising to over $460 a ton, depending on the quality of the wheat. By contrast, world wheat prices have averaged $222 per ton this year, meaning that Iraq needs to conduct a cost-benefit analysis of purchasing, processing and distributing the wheat, vs. simply importing cheaper wheat, and using the irrigation water for some other purpose (perhaps improving municipal supply in cities such as Basra or areas such as Sadr city, where residents rely on bottled water) while finding some other way to compensate farmers. The inefficiency of this system was revealed again on 13 September when Iraq announced it would market 700,000 tons of barley for export at a minimum price of $125 per ton; Iraq pays farmers around $400 ton for the barley.

The running of the PDS system is also plagued with inefficiency, while artificially high prices incentivise rigging of the system. Other costs include government provided inputs such as fertilizer, seeds and even agricultural equipment, which is supplied to farms that follow Ministry of Agriculture guidance on crop planting.

In this regard, Iraq’s agriculture policy of high tariffs on imports and promoting domestic agribusiness needs to be assessed in terms of water availability and the risk of consumers paying higher prices for domestic produce, while the government loses money through the PDS. In May, Iraq banned 25 products on the grounds that Iraq had achieved sufficiency, everything from watermelons to chicken products and tomatoes. Another trade off the government must consider here is whether this could raise local prices at a time of rising poverty.

All this considered, the Ministry of Water Resources says there is ample water in storage for this year. That’s good news for Iraq’s dairy farmers, many of whom use domestically produced feed. On 29 August, the mixed-owned Abu Ghraib Dairy Factory (the largest in Iraq) launched a line of new cheese products. In the long run, such efforts may be less water intensive and higher value for Iraq, something outlined in our recent interview with agriculture expert Eckart Woertz.

Despite relatively ample rain, the less water efficient farming is in the center and north, the worse water quality becomes in Basra, where as of August 2020 date farmers continue to leave to the profession due to water salinity. Despite this, Iraq’s ambition to revive its once renowned date industry continues. According to Minister of Agriculture Mohammed Al Khafaji, Iraq will export some of the country’s 700,000 ton date production for 2020 by 1 October.

Lack of freshwater has also been a problem for farmers in Diyala, who also face problems extracting water from the Diyala river, according to a study by the Danish Refugee Council, published in July. The study notes that this is partly due to degrading irrigation infrastructure, but the situation will not be helped by recent restrictions on water flow coming into Iraq, due to dam construction on the Great Zaab and Sirwan rivers. The impact of decreasing water flow will impact people in Iraqi Kurdistan; flows to the Darbandikhan and Dukan dams dropped from 45 cubic meters per second to 7m3/sec.


Regional and Geopolitical Developments

In September, French President Macron met Iraq’s President, Prime Minister and Speaker of Parliament in addition to political leaders from across the country. (Photo credit: Iraqi government)

The Iraqi government through July and August rallied considerable international support, building on the efforts of previous administrations who convinced foreign capitals of Iraq’s strategic value during the war with ISIS, and subsequent reconstruction.

As of late September however, a substantial pillar in this assistance and potential investment – that of the U.S. and possibly other allies including the U.K, could be at risk due to the ongoing crisis of Iran-U.S. tension playing out within Iraq’s borders. As of 15 October, tensions have decreased somewhat following a ceasefire announced by the paramilitary organization Kataib Hezbollah.

Iraq will be hoping the ceasefire holds: Baghdad needs all the international support it can get. The regional aspect of Iraq’s diplomacy effort holds promise, although it has historically been difficult to turn into policy. In the case of Saudi-Iraq energy cooperation, this is now going ahead, making history through the aforementioned Gulf Cooperation Interconnection Authority (GCCIA) initiative to export 500 MW to Iraq’s grid.

Notably, on 26 August, Saudi Foreign Minister Prince Faisal bin Farhan visited Baghdad to discuss furthering Saudi foreign investment in Iraq, but current projects are minimal; for example, Saudi Arabia’s Northern Province Cement is part of a joint venture in Basra. Much touted potential Saudi investment, such as SABIC’s planned office opening in Baghdad during the Abadi administration, has not been realized and potential projects mentioned in this report should be seen in this context. But this is not for lack of public diplomacy.

For example, on 9 September president of the Iraqi Representative Council Mohammed Al-Halbousi met with Abdul Aziz al Shammari, to discuss cooperation across different sectors. But improved Riyadh-Baghdad ties are only one aspect of Iraq’s regional outlook since 2014.

Egypt’s President Sisi, Jordan’s King Abdulla II and Prime Minister Kadhimi during the trilateral summit in Amman. (Photo credit: Iraqi Government)

On 25 August PM Kadhimi, President Sisi of Egypt and King Abdullah II of Jordan convened in Amman for a summit on increasing security and economic cooperation. While the governance of the three countries may differ somewhat, with Egypt being a centralized autarchy, Jordan being a slowly reforming monarchy and Iraq displaying a semblance of democracy, they share some challenges.

Firstly, both Iraq and Egypt are vulnerable to highly controversial upriver dam construction, threatened by the Ethiopian Grand Renaissance dam and the Ilisu dam respectively. Cooperation, perhaps to rally international assistance for amicable water sharing, or as a last resort, opposition to the projects, could benefit both sides. Both Turkey and Ethiopia have faced penalties imposed by the EU (sanctioning companies involved in the Ilisu project) and U.S. (cutting aid to Ethiopia) following their decision to go ahead with their dam megaprojects.

Egypt has also been threatened by power outages, but managed to implement tariff reform and mobilize investment in the sector, a problem Iraq is still grappling with. Egypt was able to implement power sector construction that has set records: Siemens and Orascom collaborated to install and connect 14.4 GW of gas turbines in just 27 months.

Both Egypt and Iraq have very rapidly growing populations, but Egypt has managed to mobilize a modicum of non-energy foreign investment, for example, Samsung produces TVs in Bani Suef and China is building industrial parks such as the Mankai textile park in Sadat. Meanwhile Jordan is one of the leading countries in the region to mobilize investment in solar power and like Iraq, has ambitious plans to install more renewable energy.

On the security front, Iraq now has bitter experience in counterterrorism and counterinsurgency and Egypt could learn a great deal for the aim of ending the multi-year ISIS Sinai insurgency. On this front, both Iraqi and Jordanian intelligence has excelled at uncovering ISIS cells.

While it might be unlikely for all of this potential cooperation to come into fruition, warmer ties are already showing results on the ground; on 10 September Jordan’s Chairman of the Joint Chiefs of Staff Maj. Gen. Yousef Huneiti announced a convoy of medical aid would be heading to Iraq to assist with the COVID crisis. This follows COVID-19 assistance from other Arab countries, including the UAE which sent several plane-loads of aid, the most recent of which carried a 20 ton cargo.

International support and export finance

On the international scene, France, Japan, the E.U. and the U.S. have stepped up foreign assistance to Iraq amid the COVID crisis, while also pledging a range of ongoing export finance and technical assistance.

On 16 July, France announced a package of EUR 2 million, some of which would be disbursed through UNDP, to help Iraq deal with the crisis, for example, providing ventilators for Basra Teaching Hospital. This is part of a potential EUR 1bn financing facility Paris has allocated to Iraq, EUR 20 mn of which has been disbursed this year, in part for a hospital in Sinjar. The French government said in a press release that it hoped more funding could be made available in the “transport, energy, water and e-governance sectors.” In the electricity sector, the Iraqi government showcased the Al Handasya company, which manufactures switchgear and substations for the local market, under license from French corporation Schneider.

Britain also stepped up support on 26 August, when Foreign Minister Allawi visited London, meeting with James Cleverly, Minister for State for Middle East Affairs, the U.K.’s Ambassador to Iraq Stephen Hickey and Iraq’s Ambassador to the U.K. Jaafar al Sadr, signing an MOU on technical assistance for economic reform.

Deputy Prime Minister for Economic Affairs and Minister of Finance Ali Allawi, and the United Kingdom’s Minister of State at Foreign & Commonwealth Office and Department for International Development James Cleverly sign an MoU to support Iraq’s economic reform. (Photo Credit: Twitter / @AliH_Allawi)

The E.U. announced in a press release on 26 August that aid to Iraq during the crisis would be coordinated with the UN and the Iraq COVID-19 Response Plan and National Action Plan for Health Security (2019-2023). EUR 159 million would be deployed in the short term, while some existing programs would be “re-orientated” towards the crisis. In sum, the EU envisions a multi-sector response, addressing the economic fallout by continuing existing programs while trying to contain the virus in the poorest population centers.

Of this, EUR 35 million would prioritise “vulnerable populations such as internally displaced people.” As with WHO assistance, projects would include “awareness raising; public health surveillance and training of health staff” although other funds would go to “rehabilitation of water and sanitation systems, provision of hygiene kits and multipurpose cash assistance.”

EUR 124 million would be spent on “employment creation, SME and private sector development, especially in the agribusiness sector.” The latter sector seems like a logical area of focus, given how farming employs one in five Iraqis; indeed, the World Bank’s 2018 Primer on Job Creation in Iraq highlighted how, “food processing is the manufacturing subsector in which the most private firms – the large majority of them informal – are active.”

The U.S. has also stepped up assistance to Iraq; perhaps most significantly, there is discussion of extending export finance which, if realized, would involve amounts approaching Japan’s export finance commitments to Iraq through JICA.

For example, Development Finance Corporation  (DFC) Chief Executive Officer Adam Boehler announced an MOU 19 August that could see over $1bn in private sector projects funded in Iraq in the next four years. According to the MOU, Iraq and the U.S. would “work together to identify, review, and monitor investments,” potentially leading to up to $5bn more in export finance. It’s worth noting here the DFC currently has $280 million invested in Iraq.

On August 19, Washington also announced another $204 million in support for a wide range of challenges, along the lines of a complex emergency approach, including,

“critical shelter, essential healthcare, emergency food assistance, and water, sanitation, and hygiene services across Iraq. It will also improve access to civil documentation and legal services, the capacity of health care facilities and increase access to education and livelihoods opportunities.”

Of course, the Iraqi government now faces the challenge of freezing the emerging conflict between Iran and the U.S., which if allowed to escalate will make much of this assistance and investment unlikely, or even impossible.

Editor, Iraq Energy Institute | + posts

Robert Tollast, is a freelance political risk analyst focused on Iraq who is the editor at the Iraq Energy Institute. His previously worked for the Iraq Advisory Group, CEIS (France) and the Brecon Group.

Read More

Zaid Al-Quraishi is a researcher specialising in economic and development issues in Iraq.

Managing Director | + posts

Yesar Al-Maleki is an energy economist and a Middle East observer with extensive knowledge of the intertwining subjects of energy, geopolitics, and economics in the region.
Read More