How Iraq can boost its economic recovery
Iraq’s economy has been showing positive signs of recovery. Baghdad needs to capitalize on this by diversifying its economy, attracting foreign investment and spending on rebuilding its infrastructure in order to create jobs and further improve its economic situation.
Iraq has great potential for attracting foreign investment. This can be partially accomplished by strengthening the country’s bilateral and multilateral economic and political ties. For example, it was a step in the right direction when Iraq in June signed 11 memorandums of understanding with Egypt covering several sectors, including tourism, finance, administrative development and diplomacy.
This development could also help address Iraq’s electricity shortage and ultimately reduce its reliance on electricity imports from Iran. According to the Iraqi prime minister’s media office, the two sides explored ways to “overcome administrative and financing obstacles, optimizing the federal budget to advance vital infrastructure projects in the electricity sector. During the meeting, a comprehensive review of the projects was conducted, focusing on advanced infrastructure projects related to electric power production, distribution, and private sector initiatives.”
This positive development provides an opportunity for many Egyptian companies to invest in Iraq. Iraq can use its oil in exchange for other services that Egypt can provide, such as participating in the construction of its infrastructure.
In addition, Iraq has entered into a multilateral cooperation agreement with Jordan and Egypt, which focuses on deeper economic integration. This alliance will definitely yield gains for each country in various fields, such as the commercial, security and financial sectors.
Another positive development was the multibillion-dollar agreement that was signed between the Iraqi government and France’s Total Energies last month. This will also help address Iraq’s long-standing electricity shortage. The $27 billion agreement is considered the largest foreign investment in Iraq’s history. It is worth noting that, as part of the project, Saudi Arabia’s ACWA Power will build a 1,000 megawatt solar power plant in central Iraq.
This development will reduce Iraq’s dependence on gas imports from Iran and alleviate tensions between Washington and Baghdad over Tehran.
Iraq has to obtain a sanctions waiver from the US in order to import electricity and to pay Iran. It heavily relies on imported gas, particularly from Iran, in order to meet the demands of its population. Baghdad last year agreed to repay $1.6 billion of debt to the Iranian government in order to ensure a steady gas supply through the summer. It should be noted that Iraq itself holds about 111 trillion cubic feet of proven gas reserves, the 12th most in the world. However, years of conflict have prevented Iraq from investing in its gas industry.
It is important to point out that Iraq’s alliances with Jordan and Egypt should not be viewed as competition for the relationship between Baghdad and the Gulf states. It is in Iraq’s interest that its regional policy is based on pursuing diplomacy, dialogue and common interests in order to strengthen bilateral and multilateral relationships with the Gulf states as well.
The Gulf states can play a critical role in improving Iraq’s economy and bringing more stability and security.
Dr. Majid Rafizadeh
The Gulf states can play a critical role in improving Iraq’s economy and bringing more stability and security to Baghdad. To accomplish this objective, Iraq’s regional policy ought to be grounded in respecting the national and security interests of the Gulf states. Saudi Arabia and the UAE last month reached an agreement with Iraq to devote $6 billion in order to support investments in Iraq, as well as to create business councils.
Another effective method to improve the economy is lowering unemployment in the country by creating jobs. Iraq can use part of its oil revenues to fund reconstruction efforts, which would not only improve its infrastructure but would also inevitably lead to the creation of jobs. The Iraqi parliament in June approved a development projects budget of 198.9 trillion dinars ($153 billion) for 2023 to enhance services and rebuild its infrastructure. Deputy Speaker Shakhwan Abdullah Ahmed said in a statement: “Basic services must be secured, infrastructure rehabilitated, employment and work opportunities provided, affected areas reconstructed, and the suffering of displaced people ended.”
The political establishment ought to ensure that division or corruption does not prevent such an invaluable and critical project from materializing.
In addition, it is vital to Iraq for the government to diversify its economy. Iraq, OPEC’s second-largest oil producer after Saudi Arabia, unfortunately heavily relies on oil exports for its revenues. Oil exports account for nearly 95 percent of Iraq’s federal budget revenue. Such dependence on oil puts the country at great risk when prices plummet, as occurred in 2020.
Economic diversification can be accomplished in Iraq by strengthening the private sector, investing in infrastructure and other industries, promoting tourism and, more importantly, investing in renewable energy.
The Gulf states can be great models for Iraq. Economic diversification has been the goal of all Gulf economies since they began pumping oil out of the ground. Despite the enormous riches “black gold” provides, successive Gulf Cooperation Council governments have rightly long been cognizant of the fact that oil wealth cannot last forever. Renewable energy also helps reduce fluctuations related to the energy process.
In a nutshell, Iraq’s economy is showing positive signs. Baghdad needs to prioritize rebuilding its infrastructure, creating jobs, attracting foreign investment, diversifying its economy away from oil, investing in renewable energy and building strong cooperation with other Arab nations, particularly the Gulf states.
• Dr. Majid Rafizadeh is a Harvard-educated Iranian-American political scientist.