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Economy

Iraq corruption menaces both average citizens and outside investors

Samantha Maloof

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While Iraqi forces are still undertaking the slow, grueling effort to defeat the last vestiges of the Islamic State (IS), and 1.8 million people remain displaced, an equally important and perhaps even more complex political and humanitarian challenge is looming over Iraq. That challenge? Iraq’s egregious levels of corruption, which have poisoned the fundamental relationship between the Iraqi state and its citizens.

As protesters in Iraq’s southern port city of Basra made clear last year, corruption in their country does not just mean acts of bribery, but an entire parasitic “looting machine” that extracts resources and deliver nothing in return. Nor are everyday Iraqis the only ones at risk from the country’s endemic culture of graft, with some of the country’s largest investors – such as the French telecommunications giant Orange – seeing their investments expropriated and themselves kicked out of a market that nonetheless badly needs their support.

A parasitic relationship

The fundamental lack of credibility and legitimacy of Iraq’s official government institutions is at the center of the country’s myriad difficulties, from the government’s frighteningly incompetent attempts to fight off IS during the group’s initial onslaught in 2014 to the graft that seems to have permeated every link in the national bureaucracy.

Perhaps the best way to show the extent corruption impacts the governance of Iraq is to take a close look at one of the oft-touted “success stories” of post-war construction: the semi-autonomous Kurdistan Region of Iraq (KRI). Iraq’s largely autonomous Kurdish region, often held up as a model for the rest of the country, is ruled as a fiefdom by powerful Barzani family, who recently gained an almost “monarchic” degree of control after two of its members, Masrour Barzani and Nechirvan Barzani, were recently respectively elected Prime Minister and President of the regional government.

When the Economist Intelligence Unit once claimed that corruption in the Kurdistan region is “not perceived” to be as bad as in the rest of Iraq, it pointed out this is a “small accolade given that Iraq is ranked 171/177 in Transparency International’s Corruption Perception Index.” A closer look reveals the only research suggesting the KRI is less corrupt seems to be a UN report that relies on asking civil servants how many bribes they are offered. If the results this study are to be believed, the percentage of civil servants being offered bribes in one of the most corrupt countries on Earth stands at only 4% in the KRI and 5% in Baghdad, percentages that fly in the fact of reality.

Orange shows no one is safe

One doesn’t need to depend on international statistics to see the depth of corruption in Iraqi Kurdistan. Last month, a deeply reported article in French weekly Le Journal du Dimanche explained how telecoms multinational Orange and its partner firm Agility, two of Iraq’s largest foreign investors, stand to lose more than $810 million and see themselves stripped of their shares in the Iraqi mobile operator Korek by the country’s telecommunications commission (CMC). While the regulators claim that Orange and its partner failed to “honor their commitments,” the companies insist they are being expropriated via a corrupt process.

The key detail in their accusation? The fact that Korek’s managing director is Sirwan Barzani, Nechirvan Barzani’s first cousin and a key figure in the aforementioned Barzani family. Sirwan Barzani, according to court filings from the companies, has misappropriated tens of millions of dollars from the firm through shady loans and self-dealing.

Allegations that Sirwan Barzani and his allies had managed to corrupt Iraq’s CMC were seemingly proven by the Financial Times last year, which discovered the chief executive of the regulatory body living in a London house that belonged to Barzani’s business partners. Over the weekend, the World Bank’s International Center for Settlement of Investment Disputes (ICSID) agreed to take up Agility’s claims against the Iraqi government.

Steep price to pay

Why would one of Iraqi Kurdistan’s most powerful figures manipulate regulatory officials to expropriate major investors? To prevent those investors, it seems, from exercising their options for full control over Korek. With other major companies like Germany’s Siemens and the US-based GE pursuing their own contractors to help Iraq rebuild and expand its highly inadequate infrastructure, the Korek expropriation could have a major chilling effect.

The fiasco surrounding the Barzani family’s willingness to expropriate one of the country’s most prominent investors also speaks to the sheer sense of immunity Iraqi leaders feel when it comes to taking the country’s wealth for their themselves. While the leadership of the KRI presents itself as a reliable partner for the West, the region’s economic statistics remain dismal despite years of outside aid.

Despite its oil wealth, the region faces both a recession and high unemployment – over 20% for those aged 18-34 and 69% among women under 24 – as well as rolling blackouts. Factional control over construction projects and government ministries, meanwhile, has left public education in Iraqi Kurdistan facing dire shortages of both schools and teachers. Of the KRI’s approximately 6,800 schools, it is estimated that 25% need to be demolished and fully half are in need of renovation. Paralyzed by political infighting, the regional government has not seen to any of these pressing needs.

While international companies like Orange enjoy access to outside recourse, ordinary Iraqis find they seemingly have no choice but to live with systematic corruption and unaccountability every day. Faced with such a bleak picture, and unless the governments ruling over Iraq fundamentally rethink their handling of the country’s resources, it is only a matter of time before the next great period of instability begins.

Samantha is a freshly minted graduate in International Relations based in Cairo, currently working as a research assistant in a small think tank looking at development and inequality in Africa

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Economy

Armenia’s inability to solve pandemic-related economic problems

Orkhan Baghirov

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According to data from the Armenian government, in 2019 the country’s economy grew by about 7.6%,which was the highest figure since 2008. Further data from the Statistical Committee of Armenia show that the trade and service sectors were the main drivers of economic development. In the same period, 9% growth in industrial output and a 4% reduction in agricultural output were also recorded. Inspired by these growth numbers, during a cabinet meeting in January, Prime Minister Nikol Pashinyan said that he was confident that, as a result of the joint efforts of government members, even higher figures will be registered in 2020. However, as a result of subsequent pandemic-related events, his confidence disappeared and difficulties in solving economic problems have proven the inability of the Armenian government to act independently.

Since the declaration of an emergency situation on March 16, economic activity has significantly slowed, thus leading to the creation of various economic problems and a financial deficit. Even though some restrictions were softened in May, that did not lead to a noticeable increase in economic activity. As a result, the economic forecasts for Armenia in 2020 worsened. According to the European Bank for Reconstruction and Development, the economy of Armenia will contract by about3.5% in 2020 as a result of global uncertainty and falling demand. However, the Armenian government is more optimistic in its prediction of a decline in GDP of 2%.

One of the main problems created by the pandemic-related economic restrictions is the impossibility of implementation of government-approved budget projects for 2020. As the forecast for Armenia’s GDP worsens, it will lead to lower tax revenues than initially planned for. According to the Finance Minister, Atom Janjughazyan, with the forecast 2% decline of GDP at the end of the year, tax revenues will decrease by about 10% compared with the planned volume. If the economy diminishes by more than 2%,that will lead to an even greater reduction in tax revenues. Janjughazyan also noted that the government plans to keep budget spending unchanged in order to mitigate the negative consequences and create the preconditions for a quick recovery. Although this decision could help to prevent social discontent and avert some economic problems, it could have long-lasting economic consequences by significantly increasing the budget deficit. With a reduction in taxes generated of about 10%, the budget deficit will double, reaching 5% of the projected GDP or $676.4 million (1 Armenian Dram=0.0021 USD). To run the budgeted projects with such a high level of deficit, the government will have to amend the budget legislation in order to exceed existing restrictions.

Another financial problem for Armenia is related to the implementation of support programs. As the emergency situation has substantially impacted economic development, the government has had to implement support programs. Even though these programs have been important in supporting the economy, they have also created financial problems as the government does not have enough resources to implement them independently. To support the economy, the government approved a support package of $315 million. Of these funds, $168 million will be used for long-term economic development programs;$52.5 million for the elimination of economic problems, social tension and liquidity issues; and $42 million for the redistribution of reserve funds. So far, the Armenian government has approved 20 crisis measures for the implementation of support programs.

Financing the high budget deficit and extensive support programs creates financial problems as Armenia does not have sufficient financial resources. Therefore, Armenia must attract funds from other countries or international financial institutions. Based on the calculations of the Armenian government for financing the combined support programs and budget deficit,it needs to raise an additional$546 million. Armenia already has a large volume of external debt (40% of GDP in 2019) and raising additional funds will significantly increase that debt. Taking on an additional $546 million of debt will increase the government’s external debt by about 10%. Taking into account that, during 2019, the total public debt of Armenia increased by about 14.8%, the increase of external debt by about 10% from only one source shows how seriously it will affect the financial security of the country.

Armenia also is facing economic problems in the energy sector. On April 1,GazpromArmenia, the Russian-owned natural gas distributing company, declared that it was going to ask the Public Services Regulatory Commission (PSRC) for changes to gas prices in Armenia. It proposed to set the same price for all customers beginning from July 1. This change would eliminate the discount for low-income families, thus leading to a 35% increase in price for them but a2.2% decrease for consumers that use up to 10,000 cubic meters of gas per month. The Armenian government was dissatisfied with the offered gas rates as it was already dealing with pandemic-related economic problems and it requested that Russia decrease the price of gas that they sell to Armenia.

As the talks with Russia did not lead to desired results, the PSRC accepted the changes but kept the price for domestic users and low-income families unchanged. The PSRC wants the average weighted price of 1,000 cubic meter of gas be set at $266.7 USD,$16.43 below the price that Gazprom Armenia had proposed. The price of natural gas will increase from $212 to $224 per thousand cubic meters for agricultural companies, and from $242 to $255.92for consumers who use more than 10,000 cubic meters of gas per month. The new prices will enter into force on July 19, except for thermal power plants. Despite the fact that PSRC was able to prevent price changes for ordinary citizens, the new rates will create unemployment problems. In order to operate with accepted price changes Gazprom Armenia has to lay off about 1500 employees and reduce its annual revenues about 6%.

The inability of the Armenian government to solve its economic problems with its own financial resources or to diversify its energy imports will lead to significant economic problems. Many countries around the world are facing economic and financial problems and are therefore looking to obtain foreign assistance, and this reduces opportunities to access foreign finance by intensifying competition. Therefore, it is not currently easy for Armenia to attract financial resources. The dependence of the energy sector on the price policies of other countries also creates economic instability. Even though the PSRC was able to avoid natural gas price rises for ordinary citizens, it cannot prevent unemployment issues and price rises for businesses. Therefore, countries that are dependent on foreign financial assistance and are unable to implement independent economic and energy policies during the pandemic and in the post-pandemic period will face serious economic issues. Taking into account that social and economic problems were among the main drivers of the change of government in Armenia in 2018,the pandemic-related economic problems will also have political consequences.

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Economy

Coronavirus Impact On The World Of Work Traverses National Borders

Dr. Arshad M. Khan

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With the coronavirus lockdown, one aspect of our lives has been revolutionized … the world of work.  Computers have facilitated the transition and the coronavirus forced a real-life test.  For jobs where it is possible, we are working from home and many of us like it that way.

There are countries that have been doing it long before the coronavirus — at least in numbers far in excess of other industrialized countries.  In the Netherlands 14.1 percent of workers say they usually work away from the office compared to 4.7 percent in the UK and only 3.6 percent in the US.  Only Finland is comparable.  

Finland also allows flexible hours.  Indeed such flexibility has a basis in law ever since the 1996 Work Hours Act giving most workers the right to adjust workplace time.  Thus 92 percent of companies allow flexible hours there (a notable example being an employee who works remotely from Malaga, Spain!) compared to about three-quarters in the US and UK, a half in Russia and only 18 percent in Japan.   Employees can start or finish their workday up to three hours earlier or later.  A new Working Hours Act came into effect on Jan. 1, 2020 through prior legislation, fortuitously given Covid-19.  This now permits workers to schedule up to half their working hours away from the workplace.

Both Finland and the Netherlands also benefit from a culture of trust and equality; also practicality, a quality that small countries nurture to compete with the giants beside them.  Think Russia in one case and Germany for the other.

Flextime has other benefits.  Studies report higher output and efficiency.  When workers are allowed to pick their hours, they drift towards when they want to work.  In Finland, they still have to average 40 hours per week over each four-month period.  Nevertheless, working at a time most suitable for their individual circumstances implies they are working at their best, which also translates to most productive.

HSBC, the large UK bank, looked at what is driving UK productivity growth in a 2018 study.  Eighty-nine percent of respondents cited the importance of flexible working hours and work-life balance rating them higher than financial incentives.  One-in-five also cited poor work-life balance as the main reason for leaving a prior job, ranking it higher than limited opportunities or salary increases.

Meanwhile in the Netherlands, where 98 percent of homes have high-speed internet access, there is also a culture of trust, plus a combination of technology, attitude and expectation to make remote working a success.  King Willem-Alexander issued a photo of himself working from home to encourage others to do the same during the pandemic.

But then, the Netherlands is different.  ING, an Amsterdam-based bank, is now trying out a policy of unlimited vacation time for pilot groups of workers.  They can take as much time off as they want provided their work and set tasks do not suffer.

There must be something in all this for Dutch men averaging 163 cm (6 feet) are the tallest people on earth.  At 179.6 cm, the Finns are not far behind. 

Perhaps employers over here in the US will be enlightened by the statistics.  If there is a silver lining in this dark coronavirus cloud then, it could be in the world of work.

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Economy

Covid-19 and its impact on Belt and road initiative and CPEC

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Nowadays, Covid-19 is increasing rapidly in Pakistan. As of June 30 the amount of confirmed cases had risen to 208359 along with 4254 deaths. Tremendously a very bad situation of Pakistan economy as well as global economy due to this pandemic era. Coronavirus effects many business and major Flagship project in Pakistan like CPEC development due to shortage of local labour. The China-Pakistan Economic (CPEC) is a part of ambitious Belt and Road Initiative (BRI) which runs through South-East Asia, South Asia, Central Asia, Russia and Europe by land as well as 21st century Maritime Silk Road, a sea route flanked by China’s coastal regions with South-East and South Asia, the South Pacific, the Middle East and Eastern Africa, all the way to Europe.

The China-Pakistan Economic Corridor badly effect and now most of the people concerned about CPEC development and its impact of covid-19 on development projects. Specifically the CPEC development were also stopped because of the absence of local labour who were forced to stay at home due to lockdown and  to avoid further spread of Covid-19. In addition, the government of Pakistan and china also announced the travel restrictions which delayed the availability of workforce. All business areas and business centers in the port of Gwadar are completely closed, and the impact of all these problems on CPEC and its branches. But there is encouraging news that the port of Gwadar is still operating under strict policies.

Covid-19 has already had a significant impact on the global economy, influencing production, supply chains and the movement of people and goods. Since the outbreak and increasing the cases of corona virus, many people concerned about the impact of covid-19 on CPEC development projects. Most of the people says it has no impact but some people says it has huge impact on development of CPEC. As per my opinion it has a huge Impact on CPEC development. According to the challenging situation Chinese government decided to work again on BRI projects. Chinese government believe that once the pandemic crisis is over BRI projects will lead the world economy recovery and sustainable development.

As our honorable PM Imran Khan said multiple time that corona virus is not going anywhere, we have to live with this epidemic situation following SOP otherwise survival in Pakistan is much difficult as compared to developing and developed countries. If all Factories, industries, and development teams closed for certain time, Pakistan economy will goes down for sure and people will die due to hunger and unemployment. Consequently, the Pakistan Government is in full consultation with the government of China as well as Chinese companies working on the CPEC projects. In this regard, Pakistan government is taking preventive measures and providing full protection to Chinese workforce on CPEC. In addition, the Chinese workers who are returning to Pakistan have to endure double quarantine system for their safety as well as the safety of other workers too.

Contemporaneous, we must be aware of the fact that there is a force in the world that does not want to see CPEC’s success, so they indiscriminately amplify the impact of the pandemic on CPEC development. The Chinese and Pakistan government both nations agreed to continue this project and overcome difficulties caused by Covid-19 and support CPEC construction. Both governments have upheld close communication and coordination on particular issues of CPEC projects. Chinese companies have implemented closed management, and all CPEC projects have maintain prevention and control plans and implemented them very strictly, therefore effectively preventing the invasion of the novel coronavirus. As far as I know, there is no Covid-19 spread at the construction or development sites.

In addition, the Chinese companies contributing in the construction of CPEC projects are also actively making assistances to the prevention and control of the pandemic in several locations in Pakistan, donating material to local government’s offices, schools, and hospitals. When the world suffering from corona virus, china was there for supplying material and help to various nations in the form of medical equipment, protection accessories and medical supplies. It’s a bit challenging circumstances in China in pandemic situation but china prove his kindness in front of other nations that increased the trust of countries in China.

It is still unclear situation when local and global economic activities become stable, which also creates uncertainty about the feasibility of these projects. In the same way, other cross-border corridors and the Silk Road Belt and Road Initiative (BRI) are also facing delays and cancellations. Despite difficult circumstances, the Chinese are promoting BRI, gradually resuming development work and building the health Silk Road. Beijing China is much confident that BRI will lead the global economic recovery after resolving the crisis.

The most common broader issue nowadays is whether the planned BRI projects can be delay in the current economic environment. For instance, it was recently stated that nearly seven to eight years after the creation of CPEC, less than one-third of the development projects had been completed. Since sustainability of financing for BRI projects is already a challenge, and Chinese capital projected to be organized to meet the basic and domestic needs, the pandemic and the resulting slowdown in economic growth will be even more delayed and could even be a death sentence for Some Belt and road Initiative projects as well as CPEC.

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