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Private Sector Development
Developing a vibrant private sector in Iraq is essential to the establishment of long-term economic growth, employment, and the creation of a nation of stakeholders. Complying with IMF commitments and ameliorating the economic effects of Saddam-era policies requires a sustained reform agenda. USAID supports economic development and employment generation through its Private Sector Development Program, "Izdihar" ("prosperity" in Arabic), by encouraging key private sector institutions and reforms. The project is designed to help Iraq attain sustained, higher economic growth rates that are private sector-led, employment generating, and equitable.
Historically a society with a strong merchant class, Iraq's private sector was devastated by decades of Ba'athist mismanagement, sanctions, and conflict. Since September 2004, the Private Sector Development Program has helped promote a market-based economy across six areas:
- Privatization. The majority of economic activity in Iraq is funneled through over 500 state-owned enterprises, creating an unsupportable system. Through technical assistance and support, USAID is helping the Government of Iraq (GOI) privatize much of the economy, removing a major burden from the national budget and revitalizing the private sector. In 2005, USAID helped draft the privatization law and provided assistance to create a Privatization Committee to reduce redundancy, increase efficiency, and ensure a transparent privatization process.
- Trade and Market Access. Through sector studies and regulatory guidance, USAID is helping reconnect Iraq with the international market, allowing the country to benefit from management acumen, capital, and technology as well as goods and services. In mid-2005, USAID assisted the GOI in submitting the Memorandum on Foreign Trade Regime, the first step in joining the World Trade Organization (WTO). The accession process will oblige Iraq to reform its trade regulations and establish an open, market based economy.
- Investment Promotion. By promoting foreign investment and removing the barriers to private sector-led growth, USAID helps create a dynamic, market-driven economy that will generate employment. Drawing on USAID support, the Government of Iraq has established Iraqi Investment Promotion Agency (IIPA) and the Iraq Trade Information Center (ITIC) to encourage international investors. The Investor Roadmap and a Competitiveness Study prepared by USAID analyzed investment constraints and outlining corrective policies.
- Capital Markets. USAID is helping the GOI reform the legal, regulatory, and structural elements of Iraq's non-bank financial markets (e.g., insurance, pension, equity, and commercial debt). To date, USAID has worked with other U.S. Government agencies to establish the Iraq Stock Exchange and Iraqi Securities Commission, essential to attracting foreign direct investment and privatizing state-owned enterprises.
- Business Skills. USAID support for accounting reform helps integrate Iraqi businesses into the global financial system. As of December 2005, USAID has delivered nearly 40,000 hours of training in international accounting standards, enabling businesses to secure loans and manage accounts.
- Micro, Small and Medium Enterprises. USAID is working with private banks and microfinance institutions to develop their lending capacity. The availability of loans is essential for private sector growth. Previously, USAID provided technical assistance for Coalition Provisional Authority's $21 million micro-credit program. More recently, USAID awarded long-term grants to three international NGOs to support development of sustainable microfinance operations, encouraging job creation countrywide. Two indigenous micro-finance institutes in key cities have received essential funding while a third, in Fallujah, will be receiving support in coordination with the U.S. military. Technical advisors are also building capacity at the Iraq Company for Bank Guarantees, an organization that will provide loan guarantees to private banks and microfinance institutions to support lending to micro, small and medium enterprises (MSMEs).
Proposed Next Steps (through September 2006):
- Privatization. USAID advisors will train Iraqi officials in techniques and issues raised by privatization.
- Trade and Market Access. USAID will support the Government of Iraq in drafting answers to questions on the Memorandum on the Foreign Trade Regime. Work is continuing with the Government of Iraq on developing WTO accession documentation (ACC4, ACC5, ACC8, and ACC9). USAID is also helping ensure that necessary laws - including copyright, customs valuation, intellectual property, and technical barriers to trade - comply with WTO guidelines.
- Investment Promotion. The Private Sector Development program will continue to support the Investment Promotion Agency (IPA) and follow up on the Competitiveness Survey.
- Capital Markets. To advance the Iraq securities market, USAID is supporting development of Operational Procedures and Rules based on the existing Interim Law of Securities. An EDGAR-like securities information database is being developed to provide the means to store issuer filings (85 current companies) and make them accessible to the public.
- Business Skills. USAID will help train 250 credit managers and loan officers in progressive credit management practices, and cash flow based lending. Technical advisors will provide business association training to help associations establish themselves as industry advocates.
- Micro, Small and Medium Enterprises. USAID will complete the disbursal of three large grants totaling more than $17 million for microfinance. Technical experts will assist in establishing up to seven indigenous MFI's providing $1.8 million in violence-prone areas to help rebuild small enterprises and jump-start provincial economies. USAID will also provide continued support to building capacity at the Iraq Company for Bank Guarantees to facilitate increased lending in the microfinance sector.
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