Iraq’s economy needs greater regionalism

February 07, 2012

Iraq’s parliament reconvened last week after the Iraqiyya bloc ended its two-month boycott protesting the alleged persecution of Sunni officials and the arrest warrant issued on terrorism charges for Vice President Tariq al-Hashemi. As the political crisis seems to abate and parliamentary activity resumes, all eyes will turn toward the annual budget discussions and what they reveal about Iraq’s federalism and the ongoing economic tensions in the country.

Almost a decade after the fall of Saddam Hussein’s regime, Iraq’s economy is still in flux. To date, political accords have not been reinforced by necessary economic measures; nor, most importantly, have decentralization policies to redress the negative impacts of the former Baath regime’s economic programs in the provinces and energize these tormented regions’ dormant economies. The measures proposed hitherto have either been incomplete or otherwise neglected in the subsequent stages of their implementation.

For over four decades, Iraq’s governments have pursued economic policies based on a strategy of strict central management that impoverished the rest of the country to Baghdad’s advantage. As the National Development Plan of 2010-2014 indicates, an analysis of Iraq’s economy at the aggregate, sectoral and spatial levels during this 40-year period reveals large disparities between the capital and the rest of the country in schooling, health care, unemployment, literacy, and other development indicators.

Through the nationalization of banks and the wholesale trade in the 1960s, the Baathist regime systematically transferred trade margins and investment funds from the regional provinces to the capital. Since most of Iraq’s non-agricultural products are imported – and because these traded goods usually carry a minimum of 15 percent trade margin – the central government was able to keep the trade margins in the capital and thereby deprived the regions of an important source of saving and investment. This erosion process further worsened when entrepreneurs and skilled workers fled from the regional centers to Baghdad in search of higher wages and better opportunities.

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