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The following article was published by Reidar Visser, an historian of Iraq educated at the University of Oxford and currently based at the Norwegian Institute of International Affairs. It is reproduced here with the author’s permission. The opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The second government of Nuri al-Maliki that was confirmed by the Iraqi parliament on 21 December 2010 was in many respects an incomplete one. No security ministers had been nominated, and these portfolios, along with almost a dozen other ministries for which the parties in government had failed to nominate candidates, were left in the hands of caretaker ministers who were already heading other jobs. Notably, these arrangements included Prime Minister Nuri al-Maliki himself with respect to his continued control of the security ministries.

In today’s session in the Iraqi parliament, some further steps were finally taken after a long period of inaction, although the government-formation process remains far from complete. Altogether eight more ministers were confirmed. The Kurdish parties got trade and civil society as expected, and Iraqiyya got electricity, albeit with a new candidate (Raad al-Ani) instead of their previous nominee. Maliki’s own all-Shiite National Alliance took the portfolios of national dialogue (Amir al-Khuzai from Basra and of the Daawa party), municipalities (Adil Mahudar from Maysan, a Sadrist) and women’s affairs (Ibtihal Jasid). Additional ministries of state were given to the Kurds and Iraqiyya; the latter earmarked for tribal affairs and given to Jamal al-Batikh from Wasit and belonging to Ayad Allawi’s faction. It is noteworthy that among the State of Law candidates, both Khuzai and Mahudar had been floated as candidates back in December and it is unclear why it has taken so long to confirm them. It is also interesting that two ministries held by Sadrists as deputyships and expected by some to be filled by new Sadrist ministers have still not been distributed: Planning and public works, the first of which being considered as one of the key ministries on offer.

Thus, instead of completing his government, Maliki left key posts open (like security) and proceeded to create two new ministers of state with vague portfolios. But the enlargement of the executive branch of government does not stop with the now 40 plus ministers. Another item that got discussed today only to end with an impasse was the election of deputies to the president, Jalal Talabani. Despite the largely ceremonial powers of these posts (the presidency should not be confused with the powerful, veto-wielding presidency council which has now expired), Iraqi parties have put up an intense fight for them. A law passed in early January set a ceiling on a maximum three vice-presidents, but Talabani has recently begun calling for a fourth Turkmen deputy to be included alongside his current nominees for the post (Tariq al-Hashemi of Iraqiyya, Adil Abd al-Mahdi of ISCI and Khudayr al-Khuzai of the Daawa/Tanzim al-Iraq). This move met with resistance from both Maliki and those who thought more vice presidents would just be a waste of money, so on today’s agenda was only a motion for parliament to confirm Hashemi, Abd al-Mahdi and Khuzai. However, in today’s session, a temporary alliance that had warmed up to Talabani’s ideas for a Turkmen vice president – consisting reportedly of the Kurds, Iraqiyya and the Sadrists and hence somewhat reminiscent in composition of the opposition that Maliki was facing in early 2010 – tried to press for the vote on the presidential deputies to be conducted individually, with a tacit understanding that Khuzai might be voted out to leave room for a Turkmen. Maliki’s allies reacted to this, and with some reason since the relevant law just talks about a “nomination” (tarshih) by the president to be confirmed by parliament, which sounds pretty much like a singular bundle of names and a single vote. At any rate, on tomorrow’s parliamentary agenda is included a vote on an amendment to the law on the presidential deputies that will likely create a fourth deputy and thereby highlight the institution of the presidency as playground for those who want to highlight the consociational aspect of Iraqi democracy, i.e. ethno-sectarian quotas. It may well turn into a busy week with a second reading on the federal supreme court bill as well as continuing discussions of the budget (with or without oil-export controversy) scheduled for Monday and Wednesday. Additionally, the much-trumpeted strategic policy council – touted by the Obama administration as the cornerstone of the supposed power-sharing deal that was arrived at last December – may or may not come into existence over coming months, but probably not in the shape that had been envisioned initially.

The vice-president debacle was a sorry finale to a session that had started with a rather inappropriate lecture by Ibrahim al-Jaafari on the supposed Iraqi antecedents and inspirations for the events in Tunisia and Egypt. Those interested in real democracy should probably look elsewhere for inspiration right now! As we are nearing the one-year anniversary of the 7 March 2010 elections, the Iraqi government-formation process remains incomplete. At the same time, since all the parties except the Kurdish Gorran are included in government, there is the obvious lacuna of a healthy opposition. Little wonder, in that context, that political violence and extremism continue to thrive on the margins of a clogged parliamentary system.

Starting March 6, Iraq will begin imposing import tariffs ranging from zero to 80%. For many products, this will be a big increase. Up to now, importers have been subject to a uniform tariff of only 5%, which covered everything except food, medicine, books, clothing and products related to humanitarian assistance or Iraq’s reconstruction. (For more on the new tarrifs see: https://www.iraq-businessnews.com/2011/02/08/iraqi-import-tariffs-rise-sharply-from-march/).

Believers in the free market, like the “neo-cons” who abolished the Saddam-era tariff regime back in 2003, will doubtless see this move as a step in the wrong direction. Higher tariffs, they will argue, protect inefficient state-owned industries, raise costs for consumers, and create opportunities for rent seeking. Rather than putting up barriers to trade, the Iraqi government should simply stand aside and allow market forces to work their magic.

These arguments are not without merit. It is certainly true that introducing a tariff in the otherwise ideal world of the economics textbook will result in a suboptimal outcome. But in an economy like Iraq’s, the textbook result doesn’t necessarily hold. There may actually be an argument for taxing imports if doing so helps to alleviate distortions elsewhere in the economy.

Consider, for example, what happens if an air conditioner tariff is introduced. Obviously consumers will have to pay more for air conditioners and will buy fewer of them—a suboptimal outcome if that’s all there is to the story. In the case of Iraq, however, people are already air conditioning their homes more than they optimally would because of subsidized electricity prices. As a result, power outages are more frequent and result in greater economic losses.

An air conditioner tariff would partially correct this distortion. And it would make economic sense if the benefits from the reduction in power outages outweighed the cost to consumers. If simply eliminating the subsidy is politically impossible, a tariff might be the next best thing.

I’m doubtful that such a case could be made for all, or even most, of next month’s tariff increases. In the absence of a product-by-product cost/benefit analysis, however, there’s really no way to be sure.

With unrest in several Arab cities, many in the region are worried about the risk of contagion. The latest flashpoints are Egypt, Tunisia, Yemen, Jordan and Algeria; but is Iraq vulnerable as well? The people certainly have a lot to complain about.

Electricity

The heat and increased use of air conditioning put a major strain on the national grid last summer. Blackouts became increasingly common and hours with constant electricity supply became less frequent. For those who could not afford the exorbitant fees of private generators there were intense periods of difficulty, with high temperatures and no fans or refrigeration. Conditions were harsh enough to prompt unrest in several cities in the south of the country. In Basrah two protesters were killed when the police opened fire on a crowd in an attempt to control it.

Electricity projects are currently underway around the country but many are not likely to be completed for several more years. Shortages are therefore likely to persist. With Ramadan taking place in the summer in 2011, tensions are likely to be particularly high. Electricity usage increases during the religious period, particularly if it falls during warmer months, and power shortages can be more emotive during the month-long event than at other times of the year.

Water

Water supply also remains a major issue, with varying service quality in different parts of the country. Infrastructure is being improved in Baghdad but many outlining towns and rural areas remain without a reliable supply. In agricultural areas this has also led to demonstrations in the past. Shortages in provinces like Diyala have provoked local farmers into protesting against what they perceive as excessive usage of water further upriver – crucially, in areas predominantly inhabited by Kurdish Iraqis. Over-usage in the north and in Iraq's neighbouring countries may not only harm yields later in the summer, it could even lead to inter-communal tensions between Kurds and Arabs in the mixed districts of northern Iraq.

Inflation

Another driver of current unrest in the Middle East has been the rising cost of living. Good agricultural performance in Iraq would help restrict domestic inflation in 2011, but difficult logistics and underdeveloped port facilities continue to push up the price of imported goods. This is something that affects all Iraqis, regardless of sector, location and community, and while it has not prompted any major demonstrations in the country so far, it will continue to put pressure on ordinary citizens and add to public frustrations.

Unemployment

Inflation woes are made all the worse by the high unemployment rate in the country. With a battered economy the job market remains poor and those of working age face a grim outlook when searching for employment. However, foreign firms will play an important role in addressing the underutilisation of the Iraqi workforce. Investment in key sectors and the employment of national staff will not only provide foreign companies with access to an important pool of workers, it will help cement a firm’s reputation in the emerging market and tackle a major source of discontentment in the country. As such, current joblessness is a crisis, but it could be viewed as an opportunity.

Congestion

In Baghdad a regular source of complaint is that of travel difficulty. Checkpoints, congestion and route closures clog the daily lives of the city's traders and commuters. However, the removal of checkpoints and opening of roads makes it easier for terrorists, militants and criminals to move around the city. The authorities therefore face a delicate trade-off when considering their priorities. Frustrated drivers may be a better problem to face than a rise in violence in the city.

Violence

Although security conditions have gradually improved over recent years Iraqis continue to die on a daily basis. A suicide bombing against a Shi'ah funeral in the northern Baghdad district of Shu'lah killed dozens and prompted a sporadic protest by local residents on 27 January. Many are frustrated with the failure of the security forces to provide them with protection and further attacks may provoke a backlash against the police, military and government for their perceived failure at protecting the people.

One point to note in Iraq which sets it apart from North Africa is the fact that so many people have died in recent years. Unlike in Tunisia where the death of a market trader in December sparked the beginning of an uprising, the death of Iraqis is less emotive. To put it bluntly, it happens all the time. It is not that an Iraqi life is worth less than a Tunisian one, but the Iraqi public have grown more used to regular carnage. Indeed, this desensitisation, which affects an entire population may be one of the most tragic legacies of Middle Eastern turmoil over the past decade. The aftermath will almost certainly outlive the various authoritarian regimes still clinging to power in the region.

Politics

Seeking to distance himself from comparison to such regimes, prime minister Nuri al-Maliki has pledged to cut his salary in half in response to the latest regional unrest. Evidently the risk of Iraq becoming one of the 'dominoes' has not been lost on him, but his pledge has touched on an issue of particular embitterment amongst the Iraqi electorate. Many despair at the country's high rate of unemployment, particularly when well-paid politicians take eight months to form a government. This delay alone hampered foreign investor confidence and arguably had more of an inhibiting effect on the jobs market than persistent terrorist attacks in the country. The fact that Iraqis had the right to elect these politicians to deliberate without conclusion for months does little to quell their animosity.

Even though Iraq may increasingly be viewed as a stable democratic state in the Middle East, the new regime should not consider itself infallible in the face of unrest in other cities in the region. Unless the Iraqi government can oversee the rapid expansion of services and development of national infrastructure it is likely that the coming year will see more protests in the country. What is perhaps important to note from the perspective of would-be foreign investors is that you will form a major part of the solution to Iraq's current difficulties. The above outlook should not be taken as grounds for alarm. Instead, it should be taken as a call to action by those seeking to capitalise on Iraq's many opportunities, whilst providing employment, development and opportunities for the Iraqi public.

AKE ltd

John Drake is a senior risk consultant with AKE Group, a British private security firm working in Iraq from before 2003. Further details on the company can be found at www.akegroup.com/iraq

You can obtain a free trial of AKE’s intelligence reports here http://tinyurl.com/245f9rm

You can also follow John Drake on twitter at www.twitter.com/johnfdrake

By Ronald P Verdonk, Agricultural Counselor at the U.S. Embassy in Baghdad.

Iraqi agriculture, like other sectors of the economy, has a lot of catching up to do in order to create jobs and play a more significant role in boosting GNP.

Production of grain, vegetables and fruit faces a range of challenges of which the following are the most significant:

• reduced water availability made worse by inefficient irrigation systems;
• intermittent electricity;
• substandard seed quality with few commercially appropriate varieties available;
• insufficient fertilizer, insecticide and herbicide supply;
• under-mechanized production;
• a land tenure system that precludes economies of scale; and
• time-consuming/costly import inspection procedures to the extent feed components like corn and soybean meal, for example, are needed.

Iraq is increasing its use of drip irrigation and greenhouse vegetable production and has an improved supply of locally grown fruits and vegetables though imports of cheap, good quality products from neighboring countries are widely available.

The animal production sector is a key resource base for food security and economic growth in Iraq. Small ruminants – sheep and goats - offer the ability to reproduce on poor quality forage and minimal water. The poultry and fish sector are also enjoying some resurgence but are limited by obstacles to imported feeds.

Due to the interruption in flow of technology and ideas that has occurred since the 1980s, Iraqi agriculture has been unable to stay abreast of agricultural technology developments both in terms of personnel and inputs, and Iraq has become more dependent on imports of agricultural products.

As Iraqi security strengthens and the economy regains its footing, there is little question that Iraqi agriculture can produce more to ensure a greater measure of food security, though under any realistic scenario Iraq will remain dependent upon food imports.

Ronald P Verdonk is an Agricultural Counselor at the U.S. Embassy in Baghdad. He has extensive experience in the agriculture sector, including placements in a wide range of developing economies.

Iraqi Prime Minister Nouri al-Maliki has said he would give up half of his salary, and will not stand for re-election.

According to Reuters, Maliki's media advisor, Ali al-Moussawi, said the premier would forego 50 percent of his $30,000 monthly paycheck to bring his salary closer to other government employees.

"He feels there is a huge difference and says this leads to a kind of caste system in society," Moussawi said. Maliki made the announcement in a statement late on Friday.

Hundreds of people gathered in Baghdad on Saturday to demand better basic services. On Thursday, police fired on protesters making similar demands near the southern city of Diwaniya.

Political analyst Mazin al-Shammari said Maliki's pay cut could be an attempt to soothe public anger.

Maliki was confirmed for a second term in December after nine months of political squabbling over a new government following an inconclusive parliamentary election in March.

He told Agence France-Presse: "The constitution does not prevent a third, fourth or fifth term, but I have personally decided not to seek another term after this one. I support the insertion of a paragraph in the constitution that the prime minister gets only two turns, only eight years, and I think that's enough."

Iraqis complain bitterly about basic services. The national grid supplies only a few hours of electricity a day in a nation where temperatures rise above 50 degrees Celsius in the summer.

Members of parliament make $27,000 a month, according to Safia al-Suhail, a lawmaker from Maliki's State of Law political bloc, but have to pay from their salaries the cost of up to 30 personal security guards who make $635 each per month. Teachers earn about $350 a month.

"I admit that there is no social fairness between the government employees," Suhail said.

(Sources: AFP, Reuters, BBC)

A spokesman for the Iraqi Ministry of Electricity said on Saturday that resolving the energy crisis that has plagued the country in recent years will cost an estimated $6bn [7.2 trillion Iraqi dinars].

Musab al-Mudaris told AKnews that the ministry has asked parliament to provide appropriate funds in the 2011 budget to resolve the shortcomings that will prevent electricity provisions in the coming season.

“The ministry has legal obligations with a number of international companies,” he said.

One such obligation is a $219m contract with the South Korean firm Hyundai to install gas turbines in Iraq’s Qudus power station.

On top of the $6bn demanded, Mudaris said that in order to strengthen Iraq’s generating capacity, an investment of between $3bn and $4bn a year is needed.

Former Electricity Minister Karim Washid was forced to resign due to public pressure last summer, following protests about electricity shortages.

According to government figures, the energy available to Iraq is around 9 thousand megawatts, while demand is estimated at up to 14 thousand megawatts during the summer months.

(Source: AKnews)

Iraq expects private investment in its economy to triple to $30 billion [36 trillion Iraqi dinars] this year, as energy, agriculture and housing projects accelerate now that the country has formed a new government, a senior government official said on Tuesday.

Investment exceeded $10 billion last year, Salar Mohammed Ameen, vice chairman of the National Investment Commission (NIC), told Reuters on the sidelines of an energy conference in Istanbul.

Some $4 billion of investment will be in Iraq's electricity sector, Ameen said.

(Source: Reuters)

By Thomas W. Donovan, Managing Partner at Iraq Law Alliance, PLLC.

Introduction

On December 20 2010 a new unity government was announced, whereby former Prime Minister Nouri Al Maliki maintained his position and Iyad Allawi, who won the most seats in the March 2010 election, joined in a special power-sharing deal. Unsurprisingly, the upstream petroleum industry was one of the salient issues that contributed to the almost 10-month impasse in the formation of a new government. Despite the long hiatus with no functioning government (during which time Al Maliki did not relinquish his day-to-day duties), once the new government was formed, several systemic changes occurred in quick succession.

Replacement of oil minister

The most significant change in the new unity government relevant to the Iraqi petroleum sector was the removal of Hussain Al Sharistani, who was minister of oil from 2006 to 2010. Sharistani, a longtime industry insider who was the pivotal architect in the 2009 and 2010 petroleum bid rounds, now holds the arguably more powerful ministerial appointment of deputy prime minister for energy - a position which did not exist before the unity government was created. Industry analysts believe that this appointment was due both to the new power-sharing arrangement and to a move to create more of a working relationship between the fiercely territorial Ministries of Oil and Electricity. A better relationship between these two ministries is needed to reform the electricity sector following the Ministry of Electricity's purchase of 56 fuel oil electricity turbines from General Electric and Siemens (the so-called 'mega-deal').

Infrastructure continues to be the key focus of reconstruction efforts in Iraq, as the country grapples with electricity shortages, a scarcity of housing and insufficient transport links. In BMI’s view, improving core economic social infrastructure provision should help place the country on the path to economic normalcy.

The key areas of focus continue to be:

Electricity: Iraq's power sector has opened up to allow a number of companies to enter the market and reap the potential rewards on offer. Back in May 2010, the government announced a new target for the electricity sector, to generate 27,000 megawatts (MW) of electricity by 2013. With current nameplate capacity standing at around 15,000MW, this includes almost doubling capacity in three years. This target is ambitious to say the least. Tenders have been released to install 28 of the 72 gas turbines ordered in 2009, which is a good start in a sustainable solution. This quarter saw new contracts awarded for the installation of 20 gas turbines, which were purchased from General Electric (GE) in 2008. The contracts, which are worth a combined US$900mn, were awarded to three Turkish companies: Calik Enerjim, Enka Insaat and Eastern Lights.

Transport: In light of growing demand, there are a number of projects under way or in the pipeline to improve transport infrastructure. The rail and port networks appear to be the main areas of interest at present; however, both the airports and the roads are also in great need of investment. In the last quarter, seven government funded road projects were finalised in Missan province, Iraq. Four roads have been newly paved, with three highways also finalised. The roads range from 4km to 27km in length and all lie within the province to the south of Baghdad.

Iraq’s Ministry of Electricity has today issued a tender for the supply of equipment at Mosul power station.

• Please click here to download details (in Arabic only).

The closing date for the receipt of bids is 15th February.

The Ministry has also issued tenders for the rehabilitation of boilers in Salahadin.

Please click below to download details (in Arabic only):

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The closing date for the receipt of bids is 6th February.