Iraqi politicians seem to be very busy trying to figure out who will be leading the country after the last elections. This is what occupies the news and all conversations. But life is elsewhere.
In the past 17 years or so, it seems that we have been preoccupied with one political crises or another. Most of the crises are self inflicted wounds and competition for some meaningless seats. Meanwhile as a society we were behind in all metrics in 2003 and we are further behind in 2021.
Migration Out Of Iraq
For 40 years we have had waves of immigration and a continuous brian drain out of Iraq. Iraqi physicians are among the best in England and the US. As the son of two prominent Iraqi doctors who, unfortunately, returned to serve the country after their study in the West, I could closely relate to the healthcare sector. I also attended Baghdad University, College of Medicine, 1985-1986 before leaving to study abroad. My classmates of that year, who went on to graduate as doctors in 1991, hold their yearly reunions outside Iraq. The majority of them have immigrated and are thriving abroad; England, US, The GCC, Germany and elsewhere. None will come back, furthermore, none of their highly educated and capable off-springs are thinking of ever coming back. Our health system, after being one of the best in any developing country, is now lacking behind many poor and underdeveloped nations. In the past 20 years health services in neighboring countries saw leaps forward and ours saw leaps backwards.
The same happened to our capable engineers, architects, and professors. I graduated from Baghdad College for boys in 1985, not a single friend I have from those days is living or working in Iraq. None will ever think about doing something here, they are all very productive members of their societies whether in UAE, England, US or elsewhere.
The reason I bring this up, is not because the consecutive governments failed to provide an environment to attract some of that talent back, but because they continue on their policies
repelling whole new sectors of the economy and encouraging it to go abroad. The latest being the start ups and the new technology companies.
Web Summit Lisbon
In the beginning of November of this year, the annual Web Summit took place in Lisbon, Portugal. This is to showcase the new tech-startups around the world and introduce them to venture capital funds that ultimately will invest in them. There were 42,000 attendees, from 128 countries, 1500 startups, and 850 investors. It was announced at the Summit that venture capital investments rose from one trillion dollars in 2012 to $12 trillion in 2021. Yes you read it correctly trillion not million or even billion. There were 22 startups from Egypt, eight from UAE, five from Saudi Arabia, 12 from Oman, even one from Lebanon, and zero yes zero companies from Iraq.
It is not that we don’t have a start up seen in Iraq. We have one, and I with few others have been modestly successful in raising capital for it from local and foreign investors, in spite of the obstacles, i.e the government and the bureaucracy, and not because of it. However, it is still an embryonic sector and it seems, like other sectors, the government and its policies are adamant to abort it before it is born.
In the GCC these businesses have thrived, because of ease of establishing them, favorable tax schemes and an eco system that supports its progress. In the GCC it is these start ups that are absorbing the majority of the young population and quickly becoming the place where the oil dependent countries will diversify. In other countries like Egypt and Morocco, the new startups that are only few years old have become main sources of employment for the young, and have taken over established businesses as most valuable companies in their respective markets. This is happening NOW while our politicians are still making up their minds how to divide the pie amongst themselves, as I said life is elsewhere.
To support these businesses, leadership in those countries realized the need for capital to make them thrive. These countries made movement and deployment of capital along with ownership rights the core of their economic policy. Dubai could not have become Dubai without allowing for international investments and ownership rights. Turkey, the 11th economy in the world (based on
PPP) would have never reached that mantle unless it opened its economy in the early 80’s; before that it was a basket case. (In 1980 Turkey’s GDP was $69 bn, Iraq’s $53 bn, 2020 Turkey”s GDP $720 bn, Iraq’s $167 bn.) One could also look at places like Chili and Vietnam, both countries came out of great turmoil and quickly achieved great economic status with the opening of the country and protecting investors’ rights. Countries left behind realized that they had to open up and they changed the laws allowing for liberal foreign ownership. Algeria one of the last ones in the MENA region to do that two years ago.
Best Example, UAE
The UAE’s genius has been to create an environment that would allow entrepreneurs to thrive. This is not a new idea, US was the first to do this and in less than 100 year became the largest economy in the world. Small and large countries have done that and saw their economies leapfrog. In Iraq not only we have not done that, but our government had the audacity to reverse the laws that would permit free investment and movement of capital. Our esteemed parliament reversed a foreign ownership law that proved catastrophic for the sector, I am not sure members of parliament have the understanding what these laws meant. I was shocked that our current business and progress minded President signed it into law, and although this took place during PM Adel Abdil Mahdi term, PM Kadhimi’s government did nothing to reverse it.
Why is this important at this point?
It is important because we are facing another brain drain in Iraq and in a year it would be too late to stop it. Our entrepreneurs will exit the country and head to greener pastures in neighboring countries. As I mentioned, I and few others have been modestly successful in attracting some capital into Iraqi startups. Those startups are in the beginning of their expansion and are very hungry for capital, they would be loss making companies for years to come. (Amazon did not generate profit for 17 years yet it is one of the largest companies in the world.) As we move forward we will need investments in these companies. Venture funds are very excited to invest, despite the dangers in Iraq. However, when they see the limits of investments for foreigners, and that there will be no chance of an exit through an international buyout or a listing on the stock exchange in Iraq, they back off and spend their cash elsewhere: GCC and Egypt are high on their list. Of course this law also stopped foreigners investing in the nascent Iraqi Stock Exchange.
Not sure anyone in the government knows of or cares about what a great source of investment and employment the capital markets are, but they managed successfully to stump its growth. Trading volumes all but collapsed on the ISX. There are 45 brokerage houses in Iraq, soon their employees will be asking for government jobs!
This set back does not stop entrepreneurs. What is taking place right now is that we are all examining how to move our companies off-shore to the GCC or further ashore where the laws are even more liberal and established. Delaware seems like a very good idea, Luxembourg is also on the list. The idea is to raise funds in the offshore entity and expand it even internationally while keeping the Iraqi operations as a branch of the offshore company circumventing the ownership limits. Incidentally the ownership law also gives priority to international companies operating in Iraq and not local one. On the face of it this might be a good solution for us, but for Iraq it could not be worse. To start with all the ancillary businesses that should thrive on investments would be transferred where the offshore company is located. Namely, any legal, banking, human resource, marketing and other resources. These companies will depend on banking and legal services in those countries and when the time comes they will sell shares abroad and not in Iraq, depriving the population in Iraq from benefiting from investing in those companies and also killing any financial market activity that would accompany this.
This latest exodus out of Iraq would be painful and would shrink our economy further. If we want to lessen dependence on oil and have a vibrating private sector our politicians should start listening. Our politicians are still fighting over what color to paint the kitchen while 1/2 of the house is on fire and the other 1/2 is being dismantled and taken overseas. (I actually know of one foreign investor who is dismantling his manufacturing investment in Iraq and moving the factory to Jordan!) In the past 40 years there has been great systemic shifts in the world, we in Iraq missed most of that, we are about to miss this one also.
Experts, Experts, Experts
I am not sure what will all the so called Iraq experts do if we had a functioning country! In the past 17 years a whole genre has been established of experts who analyze the situation in Iraq. Universities around the world started Iraq sections. Iraqis tend not to read their analysis or listen
to them, they typically talk between themselves from their ivory towers. But they make a funny bunch, making a living giving their opinion on what is happening in Iraq. On the other hand we have very little expertise on how to put the country on good economic footing. We do need experts but we need more business and economy expertise and less political expertise. (Saudi Arabia is spending $1.5 bn a year on advice to transform its economy.) UAE, Saudi and Qatar, managed to suck practically all the consulting talent in the region. We missed many boats and I am sure we will miss this one too.
When Iraq is talked about, it is always mentioned that we have human capital and that we are a very young country. This in economics is a good combination for growth, but I think not; Ignorant humans with no productive work are a human burden and not capital. This could only lead to a very large unproductive society, completely dependent on oil for basic living. Oil a resource that is quickly loosing its luster, meaning that larger population will depend on less resources mainly to eat. We have been selling oil to buy yogurt to give it to people who pretend to work. We will do the same with the new economy. Meanwhile the gap will widen between us and the world. Further keeping Iraqis enslaved to a corrupt political system.
Any Solutions?
The solutions are simple and tried, time and again and in many countries and regions around the world. We do not need to reinvent the wheel, as we have already invented it once before in Iraq. All one needs to do is to read any of the reports about ease of doing business and follow its recommendations. Many of our politicians play mouthpieces to these reports. However, we lack all implementation. We are incapable of quickly implementing and reversing years of bureaucracy and corruption. Any solutions that would benefit the population in general and move the control away from the government, would ultimately affect few individuals negatively, yet we leave it up to those same individuals to agree and implement the needed changes. Do you see where this is heading? Nowhere turnarounds happened very slowly and it is counterproductive to follow the band-aid mentality, fixing problems in a reactionary way and piecemeal. These problems are more like cancer than flu. In a flu you can take some flu medicine, wait a bit and you would be back to normal. Cancer needs more radical solutions, in our case it needs a quick but difficult operation. Iraq needs a team to lead the economy and have the power to implement and change
things. This team should have the authority to hire and fire. Pass laws and directives quickly and be able to invest, in talents and in processes. This will undercut the authority of many of those who are seeking political positions, but that would be the courageous thing to do by our politicians. It is the only way to grow Iraq