Tasks and Challenges of the reconstruction of the Iraq

1
Tasks and Challenges of the reconstruction of the
Iraq

• Baghdad Economic Research Center

2
Development Priorities

• Build sovereign, transparent, and good government
• Restore critical infrastructure
• Support economic and social transition
• Promote growth and social protection.
• Launch Economic reform
• Promote private sector development

3
Legacy of old regime

• Three decades of wars and conflict
• Corrupt political system
• Resources mobilized for wars and regime
  protection
• Centrally planned command economy
• Misallocation of resources
• Degradation of the environment
• Neglect of infrastructure
• Hyper inflation

4
Human Resources

• Young population of 27 million
• 72 percent of the population is under the age of
  25
• with generally well-educated and well-trained
  workforce

5
Gross Domestic Product 1968-1980

• oil dominated growth in GDP 1970s and 1980s
• Poor performance of other sectors
• Agriculture share in GDP fell from 16 in 1968 to
  4 in 1980
• Manufacturing share fell from 9.1 to 4.5 in the
  same period

6
Per capita Income 1980-2001

• Per capita income fell from 3600 to 600
• Food rations introduced as part of OFF
• Once affluent, Iraqis become critically dependent
  of food ration from OFF

7
Hyper Inflation

• Old regime finances its expenditure by inflation
  tax
• Average annual inflation rate during 1990s
  staggering 53
• Families impoverished as real income eaten up by
  inflation
• Families spend 60 of income on food

8
Unemployment

• Unemployment rates rose from a low level of 4.5
  in 1987 to 16.7 in 1997.
• In recent months this figure almost doubled
  28.1
• Under-employment also widespread
• true unemployment levels rise to a staggering 50
  of the active work force.
• Oil sector provides little employment

9
Collapse of Infrastructure Services

• In 2003 most of infrastructure was in near state
  of collapse
• Poor maintenance
• Little investment
• Poor, depleted and corrupt management
• Billing systems and associated revenues that
  maintained operations have collapsed
• Serious hazards to health of the population

10
Electricity

• Generating capacity around 9 MW pre 1991
• Generating capacity 4.5 MW in 2003
• Generating capacity 3 MW immediately after recent
  conflict
• Generating capacity Feb 2004 is 4 MW
• 1 billion of renovation projects in pipeline
  under OFF
• More investment is planned

11
Drinking Water

• 25 percent of the overall population has no
  access to potable water
• Only 9 percent of the urban population outside of
  Baghdad is served by sewage systems while the
  rural areas and the north of Iraq do not have
  piped sewerage systems
• Risk to health of the population high
• Rehabilitation of water works underway

12
Transport and Communication

• Less than three phones for every 100 people in
  2003
• Airway transport stopped since August 1990.
• Railway traffic fell from 3.7 million passengers
  in 1990 to 2.1 million passengers in 2002
• Extensive network of 24,000 miles of roads and
  highways, but poorly maintained
• Single deep-water port is at Umm Qasr

13
Sharp decline in Health standards

• Gains in health standards in 1970s and 1980s.
• Gains lost in 1990s.
• Increase in infant mortality rate from 25 per
  1000 live births in 1989 to 108 mortality per
  1000 live births in the 1990s
• Life expectancy at Birth fell from 62.5 years in
  1987 to 58.5 in 1997

14
Education System

• Despite growth in population the number of
  schools actually declined
• Politicization of education system
• Serious congestion in system
• Increase in drop-out rates
• School buildings damaged by conflicts and poor or
  no maintenance

15
Environment

• degradation of water quality and quantity
• inadequate management and treatment of municipal,
  military and industrial wastes
• deforestation, desertification and loss of the
  Mesopotamian Marshlands
• absence of a national environment protection
  policy

16
Housing

• share of housing and construction in GDP
  decreased from 6.5 percent in 1989 to 0.2 percent
  in 2000
• a deficit of some 1-1.5 million housing units
• existing stock of houses is poorly maintained

17
Agriculture

• On average, agricultural production levels have
  been declining by 2.6 percent per year since
  1990.
• low productivity levels were mainly attributed to
  ill-thought agricultural policies
• much of infrastructure was destroyed
• Irrigation system neglected

18
Iraq's Reconstruction and the International
Community

• The World Bank and the UN summed up Iraq's
  needs-assessments to a figure equal to 36
  billion
• of which 9 billion needed during 2004
• A meeting of donors to raise funds for rebuilding
  Iraq took place in Madrid, Spain on October
  23-24, 2003
• 73 countries and 20 international organizations
  participating in the Donors Conference pledged
  over 13 billion in loans and grants
• Austria pledged 1.94 m in 2004 and 3.53 m
  between 2005 and 2007

19
Management Principles of donors funds

• Projects are selected in accordance with
  priorities set by Iraqis
• Execution of projects by Iraqis whenever possible
• Maximum possible degree of transparency
• No double funding of projects

20
Trust Funds

• Trust Fund of the World Bank
• Trust Fund of the United Nations Development
  Group administered by the UNDP
• Bilateral agreements with Iraq

21
UN Commitment

• The World Bank and the UN presented their
  needs-assessments for Iraq to the Donors
  conference in Madrid
• areas of health, education, agriculture, water
  supply and sanitation, economic management, and
  investment climate areas of health, education,
  agriculture, water supply and sanitation,
  economic management, and investment climate
• estimates of reconstruction cost can be found at
  www.worldbank.org/iq

22
Ministry of Planning and Development Cooperation

• Ministry of Planning and Development Cooperation
  is focal point of coordination between
  stakeholders
• Minister of Planning chairs Iraqi Strategic
  Review Board

23
Reconstruction Program for 2004

• Ministry of Planning and Development Cooperation
  prepares a 4 billion reconstruction program for
  2004
• 727 projects are included in the program
• The ministry secures funding of 1 billion for
  donors at Abu-Dhabi conference donors on February
  28, 2004

24
Economic Reform PoliciesUnderway

• transform the Iraqi economy from a state
  dominated centralised economy into an market
  based economy
• Promote private sector in economic reconstruction
  as a prime engine for economic growth
• Create jobs for the unemployed
• Put in place rational monetary and finance
  policies

25
Banking Reform

• Iraqs private banks can process international
  payments
• New currency in place
• interest rates liberalized
• Central Bank independence secured by new statues
• Three foreign banks secure licenses to operate
  for first time in decades in Iraq.

26
Foreign Investment

• 100 percent foreign ownership and management of
  Iraqi business entities except in natural
  resources sectors, including oil
• Legislation permitting foreign investors to hold
  long-term leases of real property for up to 40
  years, but not ownership
• Long-term investment opportunities for foreign
  capital now exist with the Iraqi State-Owned
  Enterprises (SOEs) primarily in the manufacturing
  sector

27
New Company Commercial law

• the amendments allow any Iraqi or foreign person
  or legal entity to establish or own an interest
  in a company in Iraq
• Registrar in the Iraqi Ministry of Trade to
  either approve or disapprove in writing within 10
  days any application to register a new company

28
Trade liberalization

• All tariffs, duties and fees for goods entering
  or leaving Iraq were suspended through December
  31, 2003
• A uniform five percent Reconstruction Levy
  (tariff) on all goods imported into Iraq will be
  levied in the near future. Exemptions from this
  import duty include food, medicine, and clothing.
• World Trade Organization approved Iraqs request
  for observer status.

29
Tax Reform

• Income tax and property rental taxes were
  suspended through the end of 2003.
• Individual and corporate income taxes are to be
  reinstated but at a rate of 15 percent for
  companies and a maximum rate of 15 percent on
  individuals

30
Capital Market reorganized

• Moves are under way to reopen the capital market
  for trade of shares and securities of private
  listed companies. There are some 120 companies
  listed in the market with an estimated net
  capitalization market of over 250m.
• Fair and transparent systems of trade put in
  place
• International accounting standards adapted for
  market and listed joint stock private companies