Economy of Iraq

Economy of Iraq

An oil platform of Iraq in Basra, Persian Gulf
Currency	Iraqi dinar (IQD)
Trade organisations	OPEC
Statistics
GDP	$223.5 billion (2014 est.)[1]
GDP growth	-2.1% (2014 est.)[1]
GDP per capita	$7,100 (2013 est.)[1]
GDP by sector	agriculture: 3.4% industry: 64.9% services: 31.7% (2012 est.)
Inflation (CPI)	2% (2013 est.)
Population below poverty line	25% (2008 est.)
Labour force	8.9 million (2010 est.)
Labour force by occupation	agriculture: 21.6%; industry: 18.7%; services: 59.8% (2008 est.)
Unemployment	25% (2012 est.)
Main industries	petroleum, chemicals, textiles, leather, construction materials, food processing, fertilizer, metal fabrication/processing
Ease-of-doing-business rank	164th[2]
External
Exports	$83.98 billion (2014 est.)[3]
Export goods	crude oil 84%, crude materials excluding fuels 8%, food and live animals 5%
Main export partners	China 22.6%  India 21.1%  South Korea 11.2%  United States 7.8%  Italy 6.7%  Greece 6% (2015)[4]
Imports	$45.2 billion (2014 est.)[5]
Import goods	food, medicine, manufactures
Main import partners	Turkey 20.7%  Syria 19.6%  China 19.2%  United States 4.8%  Russia 4.4% (2015)[6]
Gross external debt	$58.13 billion (31 December 2014 est.)[7]
Public finances
Revenues	$69.2 billion (2011 est.)
Expenses	$82.6 billion (2011 est.)
Foreign reserves	$66.85 billion (31 December 2014 est.)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars.

Iraq's economy is dominated by the oil sector, which has provided about 95% of foreign exchange earnings in modern times.^[8] In the 1980s, financial problems caused by massive expenditures in the eight-year war with Iran and damage to oil export facilities by Iran led the government to implement austerity measures, borrow heavily, and later reschedule foreign debt payments; Iraq suffered economic losses of at least $80 billion from the war.^[9] After the end of hostilities, in 1988, oil exports gradually increased with the construction of new pipelines and restoration of damaged facilities.^[10]

Since mid-2009, oil export earnings have returned to levels seen before Operation New Dawn and government revenues have rebounded, along with global oil prices. In 2011 Baghdad probably will increase oil exports above the current level of 1,900,000 bbl (300,000 m³) per day as a result of new contracts with international oil companies, but is likely to fall short of the 2,400,000 barrels (380,000 m³) per day it is forecasting in its budget. Iraq's recent contracts with major oil companies have the potential to greatly expand oil revenues, but Iraq will need to upgrade its oil processing, pipeline, and export infrastructure to enable these deals to reach their potential.

An improved security environment and an initial wave of foreign investment are helping to spur economic activity, particularly in the energy, construction, and retail sectors. Broader economic improvement, long-term fiscal health, and sustained increases in the standard of living still depend on the government passing major policy reforms and on continued development of Iraq's massive oil reserves. Although foreign investors viewed Iraq with increasing interest in 2010, most are still hampered by difficulties in acquiring land for projects and by other regulatory impediments.

Inflation has decreased consistently since 2006 as the security situation has improved. However, Iraqi leaders remain hard pressed to translate macroeconomic gains into improved lives for ordinary Iraqis. Unemployment remains a problem throughout the country. Reducing corruption and implementing reforms - such as bank restructuring and developing the private sector - would be important steps in this direction.

Recent history

Nominal GDP grew by 213% in the 1960s, 1325% in the 1970s, 2% in the 1980s, -47% in the 1990s, and 317% in 2000s.^[11]

Iran-Iraq War

Prior to the outbreak of the war with Iran in September 1980, Iraq's economic prospects were bright. Oil production had reached a level of 560,000 m³ (3.5 million barrels) per day in 1979, and oil revenues were 21 billion dollars in 1979 and 27 billion in 1980 due to record oil prices. At the outbreak of the war, Iraq had amassed an estimated 35 billion in foreign exchange reserves.

The Iran–Iraq War and the 1980s oil glut depleted Iraq's foreign exchange reserves, devastated its economy, and left the country saddled with a foreign debt of more than $40 billion. After the initial destruction of the war, oil exports gradually increased with the construction of new pipelines and the restoration of damaged facilities.

Sanctions

Iraq's seizure of Kuwait in August 1990, subsequent international economic sanctions on Iraq, and damage from military action by an international coalition beginning in January 1991, drastically reduced economic activity. The regime exacerbated shortages by supporting large military and internal security forces and by allocating resources to key supporters of the Ba'ath Party. The implementation of the UN's Oil for Food program in December 1996 helped improve economic conditions. For the first six six-month phases of the program, Iraq was allowed to export increasing amounts of oil in exchange for food, medicine, and other humanitarian goods. In December 1999, the UN Security Council authorized Iraq to export as much oil as required to meet humanitarian needs. Per capita food imports increased substantially, while medical supplies and health care services steadily improved, though per capita economic production and living standards were still well below their prewar level.

Iraq changed its oil reserve currency from the U.S. dollar to the euro in 2000. However, 28% of Iraq's export revenues under the program were deducted to meet UN Compensation Fund and UN administrative expenses. The drop in GDP in 2001 was largely the result of the global economic slowdown and lower oil prices.

After the Fall of Saddam Hussein

The removal of sanctions on 24 May 2003 and rising oil prices in the mid-to-late 2000s led to a doubling in oil production from a low of 1.3 mbpd during the turbulence of 2003 to a high of 2.6 mbpd in 2011.^[12] Furthermore, reduced inflation^[13] and violence^[14] since 2007 have translated to real increases in living standards for Iraqis.

One of the key economic challenges was Iraq's immense foreign debt, estimated at $125 billion. Although some of this debt was derived from normal export contracts that Iraq had failed to pay for, some was a result of military and financial support during Iraq's war with Iran.

The Jubilee Iraq campaign^[15] argued that much of these debts were odious (illegitimate). However, as the concept of odious debt is not accepted, trying to deal with the debt on those terms would have embroiled Iraq in legal disputes for years. Iraq decided to deal with its debt more pragmatically and approached the Paris Club of official creditors.

In a December 2006 Newsweek International article, a study by Global Insight in London was reported to show "that Civil war or not, Iraq has an economy, and—mother of all surprises—it's doing remarkably well. Real estate is booming. Construction, retail and wholesale trade sectors are healthy, too, according to [the report]. The U.S. Chamber of Commerce reports 34,000 registered companies in Iraq, up from 8,000 three years ago. Sales of secondhand cars, televisions and mobile phones have all risen sharply. Estimates vary, but one from Global Insight puts GDP growth at 17 percent last year and projects 13 percent for 2006. The World Bank has it lower: at 4 percent this year. But, given all the attention paid to deteriorating security, the startling fact is that Iraq is growing at all."^[16]

Between 100,000 barrels per day (16,000 m³/d) and 300,000 barrels per day (48,000 m³/d) of Iraq’s declared oil production over the past four years could have been siphoned off through corruption or smuggling, according to a US Study from May 12, 2007.^[17]

Industry

Traditionally, most of Iraq’s manufacturing activity has been closely connected to the oil industry. The major industries in that category have been petroleum refining and the manufacture of chemicals and fertilizers. Before 2003, diversification was hindered by limitations on privatization and the effects of the international sanctions of the 1990s. Since 2003, security problems have blocked efforts to establish new enterprises. The construction industry is an exception; in 2000 cement was the only major industrial product not based on hydrocarbons. The construction industry has profited from the need to rebuild after Iraq’s several wars. In the 1990s, the industry benefited from government funding of extensive infrastructure and housing projects and elaborate palace complexes.

Primary sectors

Agriculture

Historically, 50 to 60 percent of Iraq’s arable land has been under cultivation. Because of ethnic politics, valuable farmland in Kurdish territory has not contributed to the national economy, and inconsistent agricultural policies under Saddam Hussein discouraged domestic market production. Despite its abundant land and water resources, Iraq is a net food importer. Under the UN Oil for Food program, Iraq imported large quantities of grains, meat, poultry, and dairy products. The government abolished its farm collectivization program in 1981, allowing a greater role for private enterprise in agriculture.

The international Oil-for-Food program (1997–2003) further reduced farm production by supplying artificially priced foreign foodstuffs. The military action of 2003 did little damage to Iraqi agriculture; because of favorable weather conditions, in that year grain production was 22 percent higher than in 2002. Although growth continued in 2004, experts predicted that Iraq will be an importer of agricultural products for the foreseeable future. Long-term plans call for investment in agricultural machinery and materials and more prolific crop varieties—improvements that did not reach Iraq’s farmers under the Hussein regime. In 2004 the main agricultural crops were wheat, barley, corn, rice, vegetables, dates, and cotton, and the main livestock outputs were cattle and sheep.

The Agricultural Cooperative Bank, capitalized at nearly 1 G$ - by 1984, targets its low-interest, low-collateral loans to private farmers for mechanization, poultry projects, and orchard development. Large modern cattle, dairy, and poultry farms are under construction. Obstacles to agricultural development include labour shortages, inadequate management and maintenance, salinization, urban migration, and dislocations resulting from previous land reform and collectivization programs.

Importation of foreign workers and increased entry of women into traditionally male labour roles have helped compensate for agricultural and industrial labour shortages exacerbated by the war. A disastrous attempt to drain the southern marshes and introduce irrigated farming to this region merely destroyed a natural food producing area, while concentration of salts and minerals in the soil due to the draining left the land unsuitable for agriculture.^[18]

In the Mada’in Qada region east of Baghdad, hundreds of small farmers united to form the Green Mada’in Association for Agricultural Development, an agricultural cooperative that provides its members with drip irrigation and greenhouses as well as access to credit.^[19]

Forestry, fishing, and mining

Throughout the twentieth century, human exploitation, shifting agriculture, forest fires, and uncontrolled grazing denuded large areas of Iraq’s natural forests, which in 2005 were almost exclusively confined to the northeastern highlands. Most of the trees found in that region are not suitable for lumbering. In 2002 a total of 112,000 cubic meters of wood were harvested, nearly half of which was used as fuel.

Despite its many rivers, Iraq’s fishing industry has remained relatively small and based largely on marine species in the Persian Gulf. In 2001 the catch was 22,800 tons.

Aside from hydrocarbons, Iraq’s mining industry has been confined to extraction of relatively small amounts of phosphates (at Akashat), salt, and sulfur (near Mosul). Since a productive period in the 1970s, the mining industry has been hampered by the Iran–Iraq War (1980–88), the sanctions of the 1990s, and the economic collapse of 2003.

Energy

A proportional representation of Iraq's exports.

As one of the three most oil-rich countries in the world, Iraq has the resources for complete energy independence. By world standards, production costs for Iraqi oil are relatively low. Three wars (Iraq-Iran War from 1980–1988, Gulf War 1991 and the Iraqi Invasion of 2003) in addition to the UN sanctions - which lasted for twelve years from 1991 to 2003, left the industry’s infrastructure in poor condition.

The lifting of sanctions in 2003 allowed repairs to begin. Since 2003 oil pipelines and installations have been sabotaged persistently. In 2004 Iraq had eight oil refineries, the largest of which were at Baiji, Basra, and Daura.

Sabotage and technical problems at the refineries forced Iraq to import fuels, liquid petroleum gas, and other refined products from nearby countries. In October 2004, for example, Iraq spent US$60 million for imported gasoline. In late 2004 and early 2005, regular sabotage of plants and pipelines reduced export and domestic distribution of oil, particularly to Baghdad. Nationwide fuel shortages and power outages resulted.

In 2004 plans called for increased domestic utilization of natural gas to replace oil and for use in the petrochemical industry. However, because most of Iraq’s gas output is associated with oil, output growth depends on developments in the oil industry.

As much as 90 percent of Iraq’s power generating and distribution systems were destroyed in the Persian Gulf War of 1991, and full recovery never occurred. In mid-2004, Iraq had an estimated 5,000 megawatts of power-generating capacity, compared with 7,500 megawatts of demand. At that time, the transmission system included 17,700 kilometers of line. In 2004 plans called for construction of two new power plants and restoration of existing plants and transmission lines to ease the blackouts and economic hardship caused by this shortfall, but sabotage and looting held capacity below 6,000 megawatts. In 2004 the World Bank estimated that US$12 billion would be needed for near-term restoration, and the Ministry of Electricity estimated that US$35 billion would be necessary to rebuild the system fully.

In 2007, hydrocarbon industries accounted for well over 70 per cent of the Iraqi economy and 95 per cent of the government's revenues. Diversification of the economy into non-hydrocarbon industries remain a long-term issue.

2009 oil services contracts

Between June 2009 and February 2010 the Iraqi Oil Ministry tendered for the award of Service Contracts to develop Iraq's existing oil fields. The results of the tender, which was broadcast live on Iraqi television, are as follows for all major fields awarded but excluding the Kurdish controlled areas where Production Sharing Contracts have been awarded which are currently being disputed by the Baghdad government. All contracts are awaiting final ratification of the awards by the Iraqi government. Company shares are subject to change as a result of commercial negotiations between parties.

If all contracts awarded reach their stated target plateau production then this will increase Iraqi production from today's 2.5 mb/d by 9.4 mb/d to a total of 11.9 mb/d, comparable to current Saudi declared capacity of 12.5 mb/d.^[20]

Notes: 1. Field shares are as a % of the total. The Iraq state retains a 25% share in all fields for which Service Contracts have been awarded. 2. Production Increase Share is the millions bbls per day that will attract the Service Fee for the company. 3. Gross revenue at plateau is the total payment each company will receive upon reaching their declared target plateau production rate (in between 5 and 8 years depending on field), before deduction of any operating costs but in addition to recovery of all development costs as billions of US$ per annum. The total gross revenue for all companies, after recovery of capital costs, is at plateau production of an additional 9.4 mb/d, 4.34 bn US per annum at a $70 bbl oil price. The 2010 Iraq govt budget is $60 billion. $300 billion is approximately $10,000 per annum for each Iraqi citizen.

In summary the shares by region in the increased production are:

Services

Finance

Iraq’s financial services have been the subject of post-Hussein reforms. The 17 private banks established during the 1990s were limited to domestic transactions and attracted few private depositors. Those banks and two main state banks were badly damaged by the international embargo of the 1990s. To further privatize and expand the system, in 2003 the Coalition Provisional Authority removed restrictions on international bank transactions and freed the Central Bank of Iraq (CBI) from government control. In its first year of independent operation, the CBI received credit for limiting Iraq’s inflation. In 2004 three foreign banks received licenses to do business in Iraq.

Private security

Because of the danger posed by Iraq’s ongoing insurgency, the security industry has been a uniquely prosperous part of the services sector. Often run by former U.S. military personnel, in 2005 at least 26 companies offered personal and institutional protection, surveillance, and other forms of security.

Retail

In the early post-Hussein period, a freewheeling retail trade in all types of commodities straddled the line between legitimate and illegitimate commerce, taking advantage of the lack of income tax and import controls.

Tourism

The Iraq tourism industry, which in peaceful times has profited from Iraq’s many places of cultural interest (earning US$14 million in 2001), has been dormant since 2003. Despite conditions, in 2005 the Iraqi Tourism Board maintained a staff of 2,500 and 14 regional offices. Between 2009 and 2010, 165 tourists from 16 different countries entered Iraq to visit historic sites; as of January 2011, a U.S. State Department grant provided $2 million to help preserve Babylon, supporting the re-opening of one of the site's two museums.^[22]

Telecommunications

During 2003-8, mobile phone subscriptions had expanded over hundredfold to 10 million nationwide, according to the Brookings Institution.^[23]

Labor force

In 2002 Iraq’s labor force was estimated at 6.8 million people.

In 1996 some 66.4 percent of the labor force worked in services, 17.5 percent in industry, and 16.1 percent in agriculture. 2004 estimates of Iraq’s unemployment ranged from 30 percent to 60 percent.

The CPA has referred to a 25% unemployment rate, the Iraqi Ministry of Planning mentioned a 30% unemployment rate, whereas the Iraqi Ministry of Social Affairs claims it to be 48%.^[24] Other sources are claiming a 20% unemployment rate and a probably 60% under-employment rate.^[26] The actual figure is problematic because of high participation in black-market activities and poor security conditions in many populous areas. In central Iraq, security concerns discouraged the hiring of new workers and the resumption of regular work schedules. At the same time, the return of Iraqis from other countries increased the number of job seekers. In late 2004, most legitimate jobs were in the government, the army, the oil industry, and security-related enterprises.^[27] Under Saddam Hussein Hussein, many of the highest-paid workers were employed by the greatly overstaffed government, whose overthrow disrupted the input of these people to the economy. In 2004 the U.S. Agency for International Development committed US$1 billion for a worker-training program. In early 2004, the minimum wage was US$72 per month.

External trade

Iraqi exports in 2006

From the 1990s until 2003, the international trade embargo restricted Iraq’s export activity almost exclusively to oil. In 2003 oil accounted for about US$7.4 billion of Iraq’s total US$7.6 billion of export value, and statistics for earlier years showed similar proportions. After the end of the trade embargo in 2003 expanded the range of exports, oil continued to occupy the dominant position: in 2004 Iraq’s export income doubled (to US$16.5 billion), but oil accounted for all but US$340 million (2 percent) of the total. In late 2004, sabotage significantly reduced oil output, and experts forecast that output, hence exports, would be below capacity in 2005 as well. In 2004 the chief export markets were the United States (which accounted for nearly half), Italy, France, Jordan, Canada, and the Netherlands. In 2004 the value of Iraq’s imports was US$21.7 billion, incurring a trade deficit of about US$5.2 billion. In 2003 the main sources of Iraq’s imports were Turkey, Jordan, Vietnam, the United States, Germany, and Britain. Because of Iraq’s inactive manufacturing sector, the range of imports was quite large, including food, fuels, medicines, and manufactured goods. By 2010, exports rose to US$50.8 billion and imports rose to US$45.2 billion. Chief 2009 export partners were: U.S., India, Italy, South Korea, Taiwan, China, Netherlands, and Japan. Chief 2009 import partners were: Turkey, Syria, U.S., China, Jordan, Italy, and Germany.^[28]

References

External links

• Iraq Economic Development at DMOZ
• Iraq Inter-Agency Information & Analysis Unit Reports, Maps and Assessments of Iraq from the UN Inter-Agency Information & Analysis Unit
• Map of Iraq's oil and gas infrastructure