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WEEKLY NEWSLETTER
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Iraq
Index
Students learning foundry (tool and dye) skills at a
technical instruction center
Courtesy United Nations
Figure 9. Economic Activity, 1988
The nonpetroleum industrial sector of the Iraqi economy grew
tremendously after Iraq gained independence in 1932. Although
growth in absolute terms was significant, high annual growth
rates can also be attributed to the very low level from which
industrialization started. Under Ottoman rule, manufacture
consisted almost entirely of handicrafts and the products of
artisan shops. The availability of electricity and lines of
communication and transportation after World War I led to the
establishment of the first large-scale industries, but industrial
development remained slow in the first years after independence.
The private sector, which controlled most of the nation's
capital, hesitated to invest in manufacturing because the
domestic market was small, disposable income was low, and
infrastructure was primitive; moreover, investment in
agricultural land yielded a higher rate of return than did
investment in capital stock. World War II fueled demand for
manufactured goods, and large public sector investments after
1951, made possible by the jump in state oil revenues, stimulated
industrial growth. Manufacturing output increased 10 percent
annually in the 1950s.
Industrial development slowed after the overthrow of the
monarchy during the 1958 revolution. The socialist rhetoric and
the land reform measures frightened private investors, and
capital began leaving the country. Although the regime led by Abd
al Karim Qasim excepted industry from the nationalization imposed
on the agricultural and the petroleum sectors, in July 1964 a new
government decreed nationalization of the twenty-seven largest
privately owned industrial firms. The government reorganized
other large companies, put a low limit on individual
shareholdings, allocated 25 percent of corporate profits to
workers, and instituted worker participation in management. A
series of decrees relegated the private sector to a minor role
and provoked an exodus of managers and administrators,
accompanied by capital flight. The government was incapable of
filling the vacuum it had created, either in terms of money or of
trained manpower, and industrial development slowed to about 6
percent per year in the 1960s.
After the 1968 Baath revolution, the government gave a higher
priority to industrial development. By 1978 the government had
revamped the public industrial sector by organizing ten semi-
independent state organizations for major industry subsectors,
such as spinning and weaving, chemicals, and engineering. Factory
managers were given some autonomy, and an effort was made to hold
them responsible for meeting goals. Despite Iraq's attempt to
rationalize and reorganize the public sector, state organizations
remained overstaffed because social legislation made it nearly
impossible to lay off or to transfer workers and
bureaucratization made the organizations top-heavy with
unproductive management. The government acknowledged that unused
capacity, overstocking of inventories, and lost production time,
because of shortages or disruptions of supply, continued to
plague the industrial sector.
The government attempted to strengthen public sector industry
by pouring money into it. According to official figures, annual
investment in the nonpetroleum industrial sector rose from ID39.5
million in 1968 to ID752.5 million in 1985. As a consequence,
industrial output rose; the government put the total value of
Iraq's industrial output in 1984 at almost ID 2 billion, up from
about ID300 million in 1968 and up more than 50 percent from the
start of the Iran-Iraq War. The total value of industrial input
in 1984 was ID981 million, so value added was in excess of 100
percent. Productivity relative to investment, however, remained
low.
Because of revenues from oil exports, the government believed
it could afford to pursue an ambitious and expensive policy of
import substitution industrialization that would move the economy
away from dependence on oil exports to obtain foreign exchange.
In the early 1970s, Iraq made capital investments in large-scale
industrial facilities such as steel plants. Many of the
facilities were purchased from foreign contractors and builders
on a turnkey basis. But Iraq neglected development of the next
stage in the industrial process, the transformation of processed
raw materials into intermediate products, such as construction
girders, iron pipes, and steel parts. These bottlenecks in turn
hampered the development of more sophisticated industries, such
as machinery manufacture. Plant construction also outpaced
infrastructure development. Many plants, for example, were
inadequately linked by road or rail to outlets. Excess capacity
remained a problem, as the large industrial plants continued to
strain the economy's ability to absorb new goods. In an attempt
to overcome these problems, Iraq imported the finished products
and materials it required, defeating the purpose of its import
substitution industrialization strategy and making the large
extractive industries somewhat redundant. Imports of various
basic commodities, such as plastics and chemicals, doubled and
tripled in the 1970s. Most imports were consumed rather than used
as intermediate components in industry; when imports were used as
industrial inputs, value added tended to be low. Concurrently,
tariffs and other trade barriers erected to protect domestic
infant industry from foreign competition impeded the importation
of certain vital materials, particularly spare parts and
machinery. The growth of small-scale industries in the private
sector and the rise in the standard of living in general were
inhibited by such restrictions. Subsidized by oil revenues, the
industrialization strategy yielded growth, but only at great
cost.
In the late 1980s, the cumulative fiscal effects of the war
with Iran forced Iraq to reverse priorities and to focus on the
export side of the trade equation. Although the government
previously had attempted to diversify the economy in order to
minimize dependence on natural resources, it was now forced to
concentrate on generating export income from extractive industry,
in which it had a comparative advantage, rather than on producing
more sophisticated manufactured goods. At the same time, in
conjunction with its gradual move toward privatization, the
government ceded greater responsibility to the private sector for
the manufacture of light consumer items as import substitutes. In
1983 legislation exempted the private sector from customs duties
and from excise taxes on imported spare parts and on machinery
needed to build factories. The private sector was also given tax
exemptions for capital investment and for research and
development spending. Finally, the replacement of sole
proprietorships by joint stock companies was encouraged as a
means of tapping more private investment. In a 1987
reorganization, the Ministry of Light Industries was renamed the
Ministry of Industry, and the Ministry of Industry and Minerals
was renamed the Ministry of Heavy Industry. New ministers were
appointed and were charged with improving both the the quality
and quantity of industrial output; large parts of the state
bureaucracy that had controlled industry were abolished.
According to official Iraqi figures, the total industrial
labor force in 1984 consisted of about 170,000 workers. State-
operated factories employed slightly more than 80 percent of
these workers, while 13 percent worked in the private sector. The
remaining 7 percent worked in the mixed economy, which consisted
of factories operated jointly by the state--which held a major
share of the common stock--and the private sector. Men
constituted 87 percent of the industrial work force. According to
the Iraqi government, in 1984 there were 782 industrial
establishments, ranging in size from small workshops employing 30
workers to large factories with more than 1,000 employees. Of
these, 67 percent were privately owned. The private sector owned
two-thirds of the factories, but employed only 13 percent of the
industrial labor force. Privately owned industrial establishments
were, therefore, relatively numerous, but they were also
relatively small and more capital-intensive. Only three privately
owned factories employed more than 250 workers; the great
majority employed fewer than 100 people each. Private-sector
plant ownership tended to be dispersed throughout industry and
was not concentrated in any special trade, with the exception of
the production of metal items such as tools and utensils.
Although the private sector accounted for 40 percent of
production in this area, the metal items sector itself
constituted no more than a cottage industry. Figures published by
the Iraqi Federation of Industries claimed that the private
sector dominated the construction industry if measurement were
based not on the number of employees or on the value of output,
but on the amount of capital investment. In 1981, such private-
sector capital investment in the construction industry was 57
percent of total investment. By this alternative measurement,
private sector involvement in the textile and the food processing
industries was above average. In contrast, about fourty-six
state-owned factories employed more than 1,000 workers apiece,
and several industrial sectors, such as mining and steel
production, were entirely state-dominated.
In 1984 Iraq's top industry, as measured by the number of
employees, was the nonmetallic mineral industry, which employed
18 percent of industrial workers and accounted for 14 percent of
the value of total industrial output. The nonmetallic mineral
industry was based primarily on extracting and processing sulfur
and phosphate rock, although manufacturing of construction
materials, such as glass and brick, was also included in this
category. Production of sulfur and of sulfuric acid was a
priority because much of the output was exported; phosphates were
likewise important because they were used in fertilizer
production. Mining of sulfur began at Mishraq, near Mosul, in
1972; production capacity was 1.25 million tons per year by 1988.
With the help of Japan, Iraq in the late 1980s was augmenting the
Mishraq sulfur works with the intent of boosting sulfur exports
30 percent from their 1987 level of 500,000 tons per year and of
increasing exports of sulfuric acid by 10,000 tons annually. Iraq
was also attempting to increase the rate of sulfur recovery from
oil from its 1987 level of 90 percent
(see
fig. 9).
Phosphate rock reserves were located mainly in the Akashat
area northwest of Baghdad and were estimated in 1987 at 5.5
billion tons--enough to meet local needs for centuries. A
fertilizer plant at Al Qaim, linked by rail to the Akashat mine,
started production in 1984; it was soon converting 3.4 million
tons of phosphate per year into fertilizer. As the Al Qaim
operation came onstream, Iraq became self-sufficient in
fertilizer, and three-quarters of the plant's output was
exported. Iranian attacks on Iraqi fertilizer plants in the Basra
area, however, cut Iraq's surplus. In 1986 Iraq obtained a US$10
million loan from the Islamic Development Bank to import urea
fertilizer, and in 1987 Iraq continued to import fertilizer as an
emergency measure. Meanwhile, additional fertilizer plants were
under construction in 1987 at Shuwairah, near Mosul, and at
Baiji. Their completion would bring to five the number of Iraqi
fertilizer plants and would increase exports considerably.
Another important component of the mineral sector was cement
production. Iraq's 1987 cement production capacity was 12 million
tons, and the government planned a near doubling of production.
Domestic consumption in 1986 was 7.5 million tons, and the
surplus was exported, 1 million tons to Egypt alone.
In addition to the nonmetallic minerals industry, several
other industries employed significant percentages of the work
force. The chemical and petrochemical industry, concentrated at
Khawr az Zubayr, was the second largest industrial employer,
providing work for 17 percent of the industrial work force.
Chemicals and petrochemicals accounted for a relatively high 30
percent of the total value of industrial output because of the
high value of raw material inputs and the higher value added--
more than 150 percent. The labor-intensive textile industry
employed 15 percent of industrial workers but accounted for only
7 percent of the value of total industrial output. A major state-
owned textile factory in Mosul produced calico from locally grown
cotton. The foodstuffs processing and packaging industry, which
employed 14 percent of the total industrial labor force,
accounted for 20 percent of total output, but the value added was
less than 50 percent. Light manufacturing industries based on
natural resources, such as paper, cigarettes, and leather and
shoe production, together accounted for 10 percent of the value
of total industrial output.
By the mid-1980s, efforts to upgrade industrial capacity from
the extracting and processing of natural resources to heavy
industry, to the manufacturing of higher technology and to the
production of consumer items were still not fully successful. An
iron and steel works built in 1978 by the French company,
Creusot-Loire, at Khawr az Zubayr, was expected to attain an
annual production level of 1.2 million tons of smelted iron ore
and 400,000 tons of steel. Other smelters, foundries, and form
works were under construction in 1988. (In 1984 this sector of
the economy accounted for less than 2 percent of total output.)
Manufacture of machinery and transport equipment accounted for
only 6 percent of output value, and value added was fairly low,
suggesting that Iraq was assembling imported intermediate
components to make finished products. A single factory
established in the 1980s with Soviet assistance and located at Al
Musayyib, produced tractors. In 1981, Iraq contracted with a
company from the Federal Republic of Germany (West Germay) to
develop the domestic capability to produce motor vehicles. Plans
called for production of 120,000 passenger cars and 25,000 trucks
per year, but the project's US$5 billion cost led to indefinite
delays.
By the late 1980s, Iraq had had some success in establishing
light industries to produce items such as spark plugs, batteries,
locks, and household appliances. The electronics industry,
concentrated in Baghdad, had grown to account for about 6 percent
of output with the help of Thompson-CSF (that is, Compagnie sans
fil) of France and the Soviet Union. Other more advanced
industries just starting to develop in Iraq in the late 1980s
were pharmaceuticals and plastics.
Data as of May 1988
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