For stability, Iraq needs to crack down on corruption
That corruption is entrenched in Iraq should come as a surprise to no one, so Prime Minister Mustafa al-Kadhimi's issuance of arrest warrants against a group of 58 officials for corruption comes at an important time. Corruption from the highest to the local political level is one of the chief factors preventing Iraq from attaining peace, order, and economic progress, and the fact that the PM's warrants concern a sitting and former member of parliament, a former minister, and a host of other functionaries at various levels, is a poignant testament to how deep the rot truly extends.
Between cartels of corrupt political officials, businessmen, and militia who distribute state-destined funds amongst themselves as well as a recent ruling from the International Center for Settlement of Investment Disputes (ICSID) which only serves to implicitly endorse the status quo and entrench venality even further, the situation is hardly confidence-inspiring. among the international investment community, whose help is sorely needed to help rebuild the country's crumbling economy, and is increasing the pressure on a PM elected on a platform of anti-corruption promises.
The enduring legacy of Bush and Blair
Iraq's iniquitous state infrastructure can be traced back to the US-led (and UK-supported) invasion of the country almost two decades ago, after the removal of Saddam Hussein created a power vacuum. American attempts to reform the parliamentary system fell woefully short, contributing to a political system in which cronyism ran rampant and the public sector swelled unsustainably. Between 2004 and 2016, those on the payroll of the state ballooned from 850,000 to between seven and nine million, with all the top-ranking jobs doled out to the well-connected elite.
It's not just in government that jobs are dished out unfairly or sold to the highest bidder, either. The crooked customs setup is so profitable that, according to the AFP report, minor clerks will pay bribes of up to $100,000 to station themselves in lucrative outposts, in turn accepting their own bungs to falsify documents, under-declaring quantities, and misrepresenting cargo loads. To place the scale of the subterfuge in some sort of context, the Iraqi government collected $818 million in duties in 2019, which was itself lauded as a significant improvement on the $768 million gathered the year prior. The actual figure that should be paid in customs is closer to the $7 billion mark.
Unattractive to FDI
Unsurprisingly, this has had a significant knock-on effect on the country's population, with unemployment at 31.7% and poverty reaching 40% last year. And people are angry – a recent poll found 82% of Iraqis are concerned or very concerned about top-level corruption, and mass protests have become a regular occurrence. That volatility is an unattractive prospect for potential overseas investors in the first place. But when the government's own machinations are taken into account, Iraq becomes a no-fly zone for FDI interests altogether.
This condition was on open display in the case of global logistics conglomerate Agility, for example. After a deal with Iraqi telecoms company Korek went sour, Agility filed a claim for $380 million of misappropriated funds with the International Centre for Settlement of Investment Disputes in 2017. Four years on, the World Bank-affiliated tribunal delivered a verdict ruling in the defendant's favor, despite the significant evidence of malfeasance among Iraq's National Communications and Media Commission (CMC) presented by Agility. In response, the Kuwait-based company called the decision "fundamentally flawed" and highlighted just how unwelcoming a precedent it has set for other international investors.
The Agility case has garnered lots of international attention since it first began and is the main factor in explaining why Iraq has recorded falling FDI inflow for eight years running. With foreign investors in fear of arbitrary seizure of their assets, it's easy to see why Iraq was placed at 172nd out of 190 countries on the Doing Business rankings in 2020.
Al-Kadhimi in a corner
The damage to investor confidence threatens to hurt the Iraqi economy even further, at a time when its unhealthy dependence on the oil industry has already been shaken by plummeting prices and a coronavirus-related drop in demand. Indeed, PM Mustafa al-Kadhimi is now fighting fires on several fronts, though the corruption saga remains the common denominator in all of them and the biggest priority on his agenda given his strong stance on the subject before his election.
To his credit, he has made certain strides on the issue. Shortly after taking office in May last year, he set up a committee to address corruption throughout the political system, with no fewer than seven officials arrested in the first three weeks of its operation. Two months later, one of his own inner circle was also detained, demonstrating his integrity, even-handedness, and determination on the matter. However, although his most recent string of arrest warrants is another escalation in the anti-corruption fight, individual arrests are akin to trying to quench an inferno with a water pistol. What's really required is comprehensive systemic reform, which even his own senior advisors have admitted may well be beyond the beleaguered PM.
A perilous path ahead
Whether or not that pessimistic prognosis will turn out to be accurate, al-Kadhimi has his work cut out for him. Iraq is the 20th most corrupt country in the world, loses billions of dollars in unpaid taxes to bent lawmakers and lawless gangs, hosts up to 40,000 armed men who harbor more allegiance to neighboring Iran than they do to Baghdad and it regularly witnesses violent civilian unrest. A tall order is an understatement.
Nonetheless, al-Kadhimi must somehow plot a route through the chaos. Doing so will involve the apprehension and removal of rotten apples in the political system as he has already instigated, but it will also demand greater engagement with civil societies dedicated to fighting corruption and the creation of a stronger, confident state that will quieten the concerns of the international investment community. The road ahead is a perilous and protracted one, but al-Kadhimi must now step up and show that he is the right man to lead the Iraqi people along with it.
(Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)