Iraq Exports Need to Grow

As the Memri Economic Blog reported, Iraq’s central bureau of statistics announced that total Iraqi exports of oil and goods rose by $11.9 billion from 2006 to 2007. ($41.26 billion in 2007 compared with $29.36 billion in 2006). However, $10.92 billion of that increase (92%) was due to crude oil. Since then oil exports have further increased, not just in value but in quantity, thanks in part to the improved security situation.

But, as I pointed out in my previous entry, the oil sector doesn't and won't employ many people (less than 1% of the population at best), so gains in oil production do not translate to increased employment. In a 2006 estimate the CIA estimated unemployment of 18-30%, while the Brooking Institution estimated 25-40% last year. In some villages it is much higher, and it has become clear that without employment there cannot be stability.

US administered microgrants are a small start, nurturing small service-sector businesses and restaurants, as are the small US sponsored "Industrial Zone" for vehicle maintenance, but neither can be expected to generate exports. Instead those service jobs will depend on the health of the oil industry and will suffer the swings of the market, more so when the US departs. At some point in the future we can expect the world to shift away from hydrocarbons, at which point Iraq better have an alternative money maker. The only other serious sector at this time is government, either employment by the Government of Iraq or payments from the US to stand guard (i.e. Sons of Iraq).

This article reports that one large company, Diyala Food Company, shut down, releasing thousands of employees. This is particularly sad when you consider that the US buys hundreds of millions of dollars of food for its military in Iraq, none of it from Iraq. The US should find a way to leverage its forces' huge logistical demands in Iraq, for everything from construction supplies and housing trailers to food. That would create companies that would be able to continue functioning after the US withdrawal.

The US and the Government of Iraq should consider the South Korean example. Before the Korean War the north was actually wealthier than the south due to greater natural resources. Since then, South Korea has experienced one of the fastest economic growth rates in history, largely due to heavy government sponsorship of large companies in key industries for export. There are many differences between Iraq and South Korea, large oil reserves in Iraq being one of them, but also similarities that may be instructive and which I will attempt to further explore on this blog in the future.