Post-Conflict Economic Reconstruction in Iraq
Post-Conflict Economic Reconstruction in Iraq
Conflict in Iraq has left deep scars on its economy, infrastructure, and society. As the country embarks on the challenging journey of post-conflict reconstruction, rebuilding its economy is crucial for achieving long-term stability and prosperity.
Context
Iraq has experienced prolonged periods of conflict and instability, beginning with the Iran-Iraq War in the 1980s, followed by the Gulf War in 1991, and the U.S.-led invasion in 2003. Subsequent years saw a rise in insurgent activities and sectarian violence, leading to further devastation.
Key Highlights
The conflict has led to several impacts on Iraq’s economy:
Destruction of infrastructure, transportation networks, and energy facilities.
Loss of valuable human capital due to emigration and death.
High poverty rates and low incomes.
High government deficits and debt.
Reconstruction Areas
Over $220 billion was spent on reconstruction between 2003 and 2014. After recent tensions in 2018, the Iraqi government estimated that an additional $88 billion is required. This figure may be understated, with the true figure being as high as $275 billion. The World Bank’s reconstruction framework involves five pillars.
Governance
This pillar is the most essential, as it focuses on accountability, stability, and legitimacy. Good governance is essential to ensure the continuity of the other pillars.
Reconciliation and Peacebuilding
This involves all levels of society, institutions, social classes, and prominent figures. Education, public awareness, and peace committees will build and preserve national unity.
Human and Social Development
This involves restoring basic social needs, including healthcare, education, urban infrastructure, job creation, and cash safety nets for the most vulnerable.
Infrastructure
This includes the rebuilding of key facilities, such as roads, bridges, airports, water treatment plants, and housing. Programs include home construction and an investment protection framework.
Economic Development
The last pillar involves non-oil employment, tourism development, and private sector expansion. Programs will target youth, agricultural land, banking systems, and attracting foreign investment.
International Support
Iraq Relief and Reconstruction Fund (IRRF)
The IRRF was established by the United States in 2003 to fund Iraq’s reconstruction with $21 billion. It focused on immediate relief, providing food, medicine, water, and general needs.
Iraq Reform, Recovery and Reconstruction Fund
The I3RF was founded in 2018 and is financed by Canada, Germany, Sweden, and the United Kingdom. As of 2022, over $100 million has been paid in and 31 projects have been executed. Areas of focus include innovative pilot programs to increase access to employment opportunities, economic and governance reforms, and coordination of development efforts.
U.S. Agency for International Development
USAID is the largest donor of humanitarian aid in Iraq, providing over $3 billion in assistance since 2014. Its efforts and donations have been and continue to be important for Iraq’s rebuilding efforts.
Siemens Energy
In 2019, electricity company Siemens agreed to reconstruct Iraq’s power grid in a four-phase plan that will provide 23 million people with a reliable supply of power. The company will construct a 500-megawatt power plant and 39 power transformers, and upgrade 40 gas turbines, among more.
Challenges
Oil Overreliance
The country is the sixth-largest oil producer, producing around 4.2 million barrels per day in 2023. Over 90% of the government’s revenue is derived from oil, making it significantly vulnerable to price shocks and market fluctuations.
Corruption
The private sector struggles to expand, which discourages foreign investment inflows. This is due to corruption and government mismanagement, which hinders the business environment and stifles growth.
Effective Management
In 2022, the country’s real GDP grew 7% but fell to 2.6% in Q1 2023 due to inflationary pressures, a depreciating currency, and an economic slowdown. Although Iraq has passed a 3-year annual budget of $153 billion for the first time in history, prudent management and allocation are required to avoid waste.
Policy Recommendations
Prioritize Budget Allocation for Reconstruction
The recently approved budget calls for hiring an additional 370,000 government employees to an already crowded public sector of 4.5 million employees. Instead, the focus should be on renovating key infrastructure, such as the country’s 60,000 km of roads and 1,300 bridges.
Create an Environment Conducive for Business
Iraq’s investment in non-oil industries was only 0.7% of total public spending in 2023. This should be significantly increased, with more funding going into private enterprises, allowing for growth and diversification away from natural resources. In addition, the government should simplify business registration processes, reduce bureaucratic hurdles, and provide incentives for local and foreign investors. This will attract investment and stimulate economic activity.
Focus on Local Institutions
International donors must work with local institutions, not through them. Iraqis want to be involved in their country’s rebuilding. They know their country well and have valuable insights and talent to offer. Organizations should collaborate closely with locals and exchange information and knowledge to combine the expertise of foreign donors and insights of domestic stakeholders.
Develop Human Capital
Although physical infrastructure is necessary, a greater focus should be on people, who are crucial to overseeing the reconstruction efforts and eventually managing new institutions and projects. Youth unemployment stood at 32.28% in 2023, three times as high as adults. Addressing this requires improving education quality, promoting technology, and expanding vocational training.
