(Photo: Staff)
Iraq is a tough place to do business. And according to the World Bank’s Ease of Doing Business report, it is getting tougher. Iraq ranks 164 out of 183 countries this year in ease of doing business, down five spots from the previous year. For a company to register in Iraq, it would, on paper, take on average of 77 days and cost thousands of dollars.
In a country where business owners in a recent CIPE survey listed corruption as their number one concern and the inconsistent application of rules and laws in the top three, this 77days and thousands of dollars would likely be viewed as a “best case scenario.” The opportunities for bureaucrats to delay paperwork and demand bribes for each of the eleven steps to register are numerous. The potential for recourse for the business owner is almost nonexistent.
To illustrate this point, let’s take the step where business owners must obtain a tax registration. Essentially, the business owner applies to the tax agency, and pays the equivalent of about $380 (bear in mind that Iraq’s per capita GDP is around $3,900 per year) in order to certify that he or she is current with their taxes. In a country that still relies heavily on paper filing, this is an arduous and expensive task and is rife for unscrupulous bureaucrats to claim irregularities that cannot realistically be verified. To give a relative comparison, scaling the numbers for the US GDP, this is like an American paying the IRS something like $4,687 to audit them, while knowing that whoever processes the application is likely going to ask for a kickback to not claim there are back taxes owed. This helps explain why in that same survey only 44% of Iraqi business owners reported that their businesses were actually registered.
The regulations for starting a business in Iraq are extremely constrictive, and directly hinder many companies from becoming formal, and thus legally protected. This locks them out from avenues to growth. They are not able to get loans, purchase property, or perform other normal functions a business would do. This means they are not able to invest in future growth, and, along with their employees, remain in the shadow economy with little recourse or protection.
While the problem can seem overwhelming, a solution may shortly be at hand. CIPE is working with a local Iraqi organization, Iraq 2020 Assembly, and other private sector representatives to articulate the issues with starting a business by analyzing the existing Company Registration Law, the law that governs the legal requirements to start a business. As is crucial in any democracy, this sort of advocacy can be the key to ensuring that laws protect Iraq’s overall interest while not unnecessarily stifling economic growth. By updating this law and reducing the burdens to doing business, the Iraqi economy and Iraq’s shadow workers would benefit immensely.
CIPE and Iraq 2020 Assembly have developed recommendations in conjunction with the Iraqi business community, including the Federation of Iraqi Chambers of Commerce, to address issues and put forth a set of concrete solutions for how to improve the process, including such things as streamlining government procedures to reduce the time and number of steps it takes to register and moving many of the procedures online to reduce opportunities for corruption.
This work has garnered significant attention, including invitations from Iraq’s Parliament to present the recommendations as the government works to draft a new law. While the problems may seem insurmountable, the Iraqi Parliament’s positive efforts to bring the private sector into the conversation represent a step in the right direction, identifying real solutions to stimulate growth and strengthening Iraq’s democracy.
CIPE and Iraq 2020 Assembly presented the final policy paper on the Company Registration Law to both private and public stakeholders in Baghdad on February 19.
