66109 November 2011 – Number 48 SUPPORTING PRIVATE SECTOR DEVELOPMENT IN IRAQ policy, reforms to strengthen and streamline Stephen Rimmer and Mohammed Al-Ani1 regulatory institutions, and the administration of regulations using modern regulatory tools, systems Introduction: While Iraq is a middle-income country and processes. World Bank private sector it faces challenges which are more commonly found development work in Iraq is supported by donors in low income countries. These include dependence including the Swedish International Development on one primary commodity (crude oil); significant Cooperation Agency (SIDA), the US Department of infrastructure reconstruction and rehabilitation State and the UK’s Department for International needs; and poorly performing regulatory policies, Development (DFID). Some of these activities institutions and processes. Iraq’s recent success in include the following: stabilizing its macro economy and budget was an important step towards reversing this situation.  Doing Business. In conjunction with the Doing However, much more needs to be done. For Business group of the World Bank2, a example, oil revenues generate over 95% of budget verification exercise was undertaken in 2010 revenues but the oil sector employs only one per which was published in Doing Business 2011. cent of the labor force. Support for reforms to improve Iraq business enabling environment and Doing Business Developing a strong and healthy private sector is ranking is also being provided, in close necessary for Iraq to develop a diversified and coordination with USAID-Tijara and other resilient market economy with rising living partners. standards. Furthermore progress is needed in diversifying its economy and creating healthy  Investment Climate Survey and Sub-National competition in markets to generate employment and Regulatory Capacity Review: In October 2011, sustainable livelihood's for the majority of its the World Bank will complete the first ever growing population. Iraq’s transition to a more Investment Climate Assessment (ICA)3 survey diversified market economy continues to take place for Iraq which will have surveyed around 800 in a fragile political, security and institutional businesses in Iraq, focusing on a wide range of context. issues impacting on business, including regulatory policies, institutions and processes. The World Bank and Business Environment and In addition, the Bank is currently conducting a PSD Reforms: The Bank's regulatory governance sub-national Regulatory Capacity Review programs focus on supporting a wide range of focusing on regulatory governance in the government-wide policies as well as sector-specific Kurdish region of Iraq and also the Basra reforms to improve the business environment and Governorate. These studies will be important in support the private sector. This support focuses on generating better quality information about sub- key elements of regulatory and private sector national administration in Iraq and sub-national governance, including private sector and regulatory opportunities and impediments to private sector businesses. The Bank will provide extensive support for follow-up policy, institutional and 1 Stephen Rimmer (and Mohammed Al-Ani, Finance and Private governance reforms. Sector Development, The Middle East and North Africa (MENA) Region, The World Bank. This Quick Note was cleared by Simon 2 Bell, Sector Manager, Finance and Private Sector Development, www.doingbusiness.org MENA Region, The World Bank. 3 For more see: https://www.wbginvestmentclimate.org/ important support is provided in close  State Owned Enterprise (SOE) Reform: consultation with other development partners. Working with UN agencies the Bank helped draft the Government of Iraq “Road Map� for  Banking and Financial Sector Reforms: The SOE Reform, covering 180 SOEs which employ Bank is also supervising a $10 million Banking over 630,000 workers. The Bank is actively Sector Reform project which has a focus on the supporting the Prime Ministers Task Force for restructuring of the governance and operations Economic Reforms which leads SOE reform in of two of the largest state owned banks and Iraq. The Bank is also working very closely with building up the Central Bank of Iraq’s capacities the Ministry of Industry and Mineral (MIM) in in banking and financial sector supervision, to reforming 72 SOEs and also the Ministry of help it better oversee and regulate the sector4. Housing and Construction in reforming a Re-establishing a reasonably efficiently further 8 SOEs. Similar support is being operating financial sector in Iraq is key to the provided to other ministries and SOEs and further development of a vibrant private sector. focuses on strengthening the capacity of ministries to oversee and lead SOE reforms.  Financial Sector Review: In conjunction with the Central Bank of Iraq and the Ministry of Specific support includes annual, budget and Finance, the World Bank has recently completed business planning, labor restructuring and a Financial Sector Review. The review lays out performance management and is provided many priority issues which require addressing through experts being based within ministries, in the banking sector, the non-banking sector training workshops and conferences. In and the Central Bank. This report was launched addition, the Bank is supporting the at the Annual Meetings of the World Bank in establishment and operation of an SOE “Asset September 2011. An important feature of this Valuation Unit� within the Ministry of Finance review was agreement on an Action Plan to to improve oversight of SOE assets. This Unit modernize and dramatically increase the will prepare, for the first time, a comprehensive efficiency and effectiveness of the financial inventory of government assets and use across sector in Iraq – in support of further private government modern approaches to value sector development. government owned assets.  Public-Private Dialogue: The World Bank is  Supporting Public Private Partnerships (PPPs) supporting the establishment and operation of a in Iraq: The Government has requested support new business group in Iraq, the “Private Sector in applying PPPs in Iraq. Within this context, the Development Center (PSDC)�. This PSDC better Bank is supporting PPP legislation prepared by coordinates the work of existing business UNIDO. Furthermore, the Bank is supporting groups and Chambers in Iraq and provides the establishment and operation of a PPP Unit professional outreach to stakeholders on private within the Ministry of Finance and the rollout of sector development issues, challenges and three PPP pilots. The Bank is also helping the solutions. Ministry of Electricity review and improve internal governance processes for managing and  Regulatory Reform Unit: The World Bank is launching PPPs. assisting the establishment and operation of a Regulatory Reform Unit within the Council of  Support for Micro and SME Finance: The Iraqi Minister’s Secretariat (COMSEC), to provide authorities have reached out to the Bank to oversight and improved quality control over support them in areas related to micro, small, new or amended business regulations. This Unit and medium scale enterprises. The World Bank will also support government activities which is also working in collaboration with USAID and focus on improving regulatory policies and the International Finance Corporation (IFC) – processes. the private sector arm of the World Bank Group – providing improved micro-finance support to micro, small and medium sized enterprises. This 4 For more go to worldbank.org/iraq November 2011 · Number 48· 2  National Conferences and Knowledge Contact MNA K&L: Dissemination: The World Bank is working closely with the Iraq Parliament and the Laura Tuck, Director, Strategy and International Labor Organization (ILO) to host a Operations. MENA Region, The World Bank series of National Conferences focusing on key Regional Quick Notes Team: governance issues affecting private sector Omer Karasapan, , Roby Fields, and Hafed development. These forums involve a wide Al-Ghwell range of Parliamentary, business, union and Tel #: (202) 473 8177 community stakeholders in debating key issues and identifying together agreed solutions and The MNA Quick Notes are intended to ways forward. These conferences have summarize lessons learned from MNA and other generated interest throughout Iraq and beyond. Bank Knowledge and Learning activities. The For the first time since 2003 they have provided Notes do not necessarily reflect the views of the World Bank, its board or its member countries. a forum for a very wide range of stakeholders to meet and discuss PSD and related issues. In addition, and as a result of these conferences, a new tripartite forum has been established, to include Parliament, businesses, and unions to coordinate and lead the dialogue in Iraq on major PSD issues.  Other Private Sector Focused Projects and Programs: The World Bank is also supporting in Iraq a range of other governance reforms to support private sector development and related infrastructure. This includes telecommunications with a focus on regulatory and institutional reforms; special economic zones (including preparation of draft legislation for Industrial Zones in Iraq); and sector reforms focused on land, education, agriculture, water and electricity. November 2011 · Number 48· 3