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By Shwan Hassan:
After the US invasion of Iraq in 2003, Kurdistan as an underdeveloped region wanted to make an economic leap to a developed stage where it could stand on its own feet. It has failed to achieve this goal due to the lack of an effective strategy.
The Kurdistan Regional Government (KRG) began attracting foreign companies through a rational approach (the ‘Other Iraq’ campaign). Since then, 11,496 companies, foreign and local, have put their assets into investment in Kurdistan. Their total capital invested is approximately $17,000,000,000.
The KRG encouraged this process but without giving priority to the most important sectors and so investment became concentrated in the most profitable areas, especially construction. Two reasons have been given to justify this imbalance.
First, there was a need to re-build a country ruined by conflict. There is, for example, a program called ‘housing box loan’ which gives residents long-term loans to buy housing units.
Second, the capital payback period is from the outset of the construction process – shorter than for other sectors. Investors immediately start to receive their capital back in monthly payments. This is very appealing, especially in an unstable country like Iraq.
However, there has been a huge waste of land because architects in Kurdistan are wedded to horizontal design. And, more significantly, the housing sector cannot make the same contribution to overall economic development as manufacturing.
Kurdistan is like a man who has serious leg injuries – the cure does not lie in providing plastic surgery to his face.
The KRG did not start the process strategically. This means that the region suffers from a lack of many of the pillars that are essential for effective investment. The KRG needed to invest in a few specific sectors in preparation for a bigger campaign, rather than encourage wide-ranging and unsystematic investment.
Having said this, in order to have a healthy investment process in the future we should focus on our potential. We need to create a helpful environment. This article is an attempt to show that the investment process in Kurdistan has not achieved its objective due to a weakness of the following three pillars.
1. Financial markets:
Money is the only commonly accepted means of exchanging goods and services. It is a dynamo for economic development. Unquestionably, foreign investment needs international currency exchange facilitated by the banking system, but this sector has not been developed as necessary. The problem is not a non-existence of bank buildings, but rather the lack of a culture of dealing with banks by our government and ordinary people. Government should build trust between customers and bankers. The KRG, however, has handicapped its own banks, using them just to distribute salaries. The KRG must support the development of a reliable banking system which will stimulate the money cycling process, help foreign investors and boost the economy.
2. Small-to-medium sized enterprises (SMEs):
By SMEs I mean mainly the smaller local companies and family businesses. By encouraging this phenomenon, the KRG can educate more of our people to be effective in business. The KRG must encourage local entrepreneurs and this can boost foreign investment in two ways.
First, foreign companies can join the small businesses and expand them as joint ventures.
Second, these local SMEs can cooperate with large foreign companies in any new entrepreneurship.
In addition, these domestic projects can be considered as a guaranteed contribution to the infrastructure which will create many job opportunities. It is true that the Kurdistan parliament has issued some laws supporting agricultural projects, but laws are nothing with bad implementation. Instead of investing their money to open a factory or build a company, our businessmen and entrepreneurs are simply importing goods from neighbouring countries while the KRG frequently blames the people for not investing their money in long-term projects.
3. Labour market:
Unfortunately, statistics and data about the labour market are not readily available. However it is clear that foreign companies bring their own staff and professional labour with them – often they only use Kurdish people as guards to protect their projects. This shows that Kurdistan does not have a labour force that can satisfy global markets.
Almas Heshmati (2007) – who was a professor in economics at the university of Kurdistan/Hawler – believes that the high dependency of Kurdish society on foreign labour is a direct result of the “low quality of education and this low quality is a result of a long period of lack of resources, ineffective organisation, rapid expansion and mismanagement of higher education”.
Despite having twelve public universities and five private ones, Kurdistan’s higher education sector cannot supply what is demanded by the market. It is a catastrophe that universities in Kurdistan can produce graduates who lack marketable (e.g. computer, language, communication) skills. Our chronically weak education system causes unemployment because job seekers do not meet global labour market standards. This is not just a problem for the foreign investment sector – it also affects public organisations.
The KRG needs to focus on education, more than any other sector, because this is the key to success.
Statistics are available at the Kurdistan Board of Investment website
