World Bank's assessment is Flawed: Manufacturing is Viable in Iraq!

The Iraqi Economists Network (IEN) has just published a new report from our Expert Blogger Dr Amer K. Hirmis, which we re-publish here with the author's permission.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

World Bank's assessment is flawed: Manufacturing is viable in Iraq!

In late September 2020, the World Bank published a report entitled 'Breaking out of fragility: a country economic memorandum for diversification and growth in Iraq' (henceforth WB 2020).

In October 2020, the Iraqi government published its 'White Paper for Economic Reforms: Vision and Key Objectives.'

This was followed in January 2021 by a draft 'White Paper for Economic Reforms: Reform Implementation Plan' - a "plan" covering 'governance' and 64 'projects' (if tasks).

The latter requires 3-5 years to implement, and is said it "enjoys the support of the international community." The two White Papers (henceforth WP-I&II) quote and borrow extensively from WB 2020 report. In drawing a specific direction of travel for Iraq's economy, analogies abound in all these documents.

This note argues that the WB's analysis on which its 'diversification and growth' proposals for Iraq are based is flawed. This is particularly the case in the way Iraq's economy is characterised as one suffering from "the Dutch disease."

There is also a glaring omission of the manufacturing sector, and its role in diversifying the economy. Rather, emphasis is placed on 'agrifood'; a strategy reminiscent of IBRD/WB's economic reform proposals for Iraq back in the early 1950s.

Despite their flaws, however, if the objectives of the WP-I&II are realised even at 70-80 percent rate within 3-5 years, the results will be commendable. They would make a significant contribution to urgently needed institutional reforms that would in turn build foundations for economic reforms in Iraq.

Both WP-I&II suffer from similar flaws apparent in the WB's report. A glaring omission in the WP-I&II is the absence of the 'The Ministry of Industry and Minerals' (MoI&M) in spite of the fact that many of the tasks set out in WP-II require the ministry's attention, especially when many of the state owned enterprises (SEOs) it manages suffer from multiple problems. It remains unclear whether this omission means that the authors of WP-I&II agree with some international institutions that manufacturing perhaps is not viable in Iraq. Or, whether there might be other possible explanations.

This note argues that the manufacturing sector forms a critical part of any attempt to diversity the Iraqi economy away from its damaging over-dependence on crude oil revenue. For decades now, Iraq's economy has been transformed into a distribution/consumption, not an investment-driven, economy, due to excessive overdependence on oil, and the way oil revenues have been abused by successive Iraqi governments. In devising and implementing economic diversification policies and institutional reforms, the Iraqi government should, arguably, look forward, not backwards.

Read Dr Hirmis' full report here.

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