Smoke billows from a key oil refinery damaged by ISIL attacks in northern Iraq in June. Repairs are expected to take more than a year.
After months of political wrangling in Baghdad and advances made by the Islamic State of Iraq and the Levant (ISIL) – also known as IS or ISIS – the Iraqi Parliament finally approved a new, more inclusive government led by a new prime minister, Dr. Haider al-Abadi, in early September.
At a recent roundtable event with Iraqi and U.S. experts, held under the Chatham House Rule, participants expressed cautious optimism over the new government. However, in the uphill battle to confront immediate threats to the country’s security, Iraq’s economic crisis has largely been ignored.
According to one participant, the fact that the new cabinet of ministers included members of Iraq’s various minority groups, and that three leading political rivals – former Prime Ministers Nouri al-Maliki and Iyad Allawi and former parliament speaker Usama al-Nujaifi – were given posts as vice presidents, was a good sign.
Another in the room pointed to the moderate leadership of Iraq’s new Prime Minister. Dr. Abadi, who belongs to the Shi’ite Islamic Dawa party, has a reputation as a political moderate, was educated in the UK, and has served on various Iraqi parliamentary committees since 2006, including those for finance and economics. A change in political leadership at the top, the participant argued, could rebuild trust between the central government in Baghdad and Iraq’s marginalized communities. More importantly, Abadi has pledged to foster national dialogue, political reconciliation, and decentralization.
Iraq’s economic challenges – high unemployment, poverty, rising prices, and food shortages – will only contribute further to the security crisis if they are not addressed. More than 50 percent of the goods imported into Iraq – including raw materials and food – have been blocked at the only official border crossing with Jordan, which is now under the control of ISIL. Iraq’s final budget for fiscal year 2014 remains unapproved by the Iraqi Parliament, and since the economy is dominated by the public sector – the government and state-owned enterprises employ about half of Iraq’s total workforce – the lack of government spending has ground the entire economy to a halt.
At the end of the day, ordinary citizens in Iraq are bearing the brunt of economic damages caused by the regional insecurity and the political process in Baghdad.
These economic problems have directly fed the violence and instability. While some young people have joined ISIL for political reasons, many also see it as an escape from poverty and the lack of economic opportunities. In an exclusive interview conducted with a former ISIL fighter, he said that young recruits felt compelled to stay and fight because ISIL commanders “spent money, gave us food, clothes, cars and respected us so much that leaving the camp felt like betraying the good deeds of those people.” ISIL reportedly pays its members $400 USD per month, a good wage for Iraq, attracting disgruntled youth across the country and region.
ISIL is the symptom of two larger problems in Iraq – a youth bulge, and poverty. Today, nearly half of the population is under the age of 19 and 18 percent of young people (15-25 years) are unemployed, according to the UNDP. About a quarter of the 31 million people in Iraq live on less than $2.2 a day, the international poverty line, and the 1.8 million refugees and internally displaced people inside Iraq are adding economic burdens to their host communities. Moreover, business owners are closing their shops in the central governorates (Anbar, Salahuddin, Diyala, and Kirkuk) and fleeing violence.
To stop the proliferation of bombings and mass executions, Iraq must begin by addressing the roots of violence. This requires far more than just military operations. To overcome the security challenges, the new administration will need to develop a comprehensive strategy on economic development and pursue market reforms with a sense of urgency. More importantly, the government in Baghdad must recognize private sector growth as the top priority for Iraq, on par with the critical threats posed by ISIL and other militant groups. Creating meaningful jobs is the only way to provide young people the dignity and economic opportunities they deserve.
To restart the economic cycle, the new administration will need to first approve the country’s budget, which will encourage consumer spending. Baghdad will also need to restore the rule of law and rebuild investors’ confidence in the market, which requires strengthening the security forces at both the national and provincial levels, not just to defeat ISIL but to provide a credible deterrent against future violence.
Most importantly, Iraq’s private sector needs to start driving job creation. To spur private sector growth and attract foreign investment, policymakers at the national and provincial level must tackle government corruption, address the country’s bloated bureaucracy, and reduce the practical barriers to doing business, such as complex business regulations, bureaucratic red tape, and inability to access finance. Furthermore, by building new electrical grids and maintaining safe roadways, Iraq can improve its overall investment and business climate.
Confronting ISIL requires both the short-term military responses currently in place and long-term economic solutions. As one participant in the roundtable put it, “you can’t just bomb ISIS out of existence. It is about addressing the roots of radicalization.” The only way to be optimistic about Iraq’s future is if Prime Minister Abadi’s administration can win the war against ISIL and secure a win for the economy as well.
Ricky Chen is a Program Assistant for the Middle East & North Africa at CIPE.
