Industrial Sector and Its Development in Kurdistan Region
The economics of manufacturing industries in Kurdistan suffer from multiple structural imbalances, which are not due to one specific reason or factor but to various obstacles, most important of which are:
- Lack of industrial strategy.
- Lack of coordination between linkage sectors in these economies.
- Absence of coordination in common economic policies.
In the period after 2003, the PS grew stronger year after year and tried to take the leading role in the Kurdish economy as it emerged as a savoir to address the imbalances and the development of productivity, but the signs indicated that it did not address imbalances occurring in the economy, and problems continued. At the same time, some new stronger obstacles are created newly. The government procedures were also necessary but not sufficient to promote productivity growth, efficiency and outsourcing to develop manufacturing and services in the region.
Kurdistan identified a number of strengths and shortcomings of the existing raw material and resources appropriate for developing the IS (Industrial Sector). The KRG has initiated comprehensive investment in development infrastructure. The Kurdistan economy grew very rapidly but regarding the sectorial comparison Kurdistan, the commercial sector developed more rapidly than IS.
While rapid changes in openness and technology require investing on available raw material and resources. The entire criticism are not directed to the MoTI only, while it's directed to the KRG as a whole even KRG’s prime ministers supported investment at whole. During this time, commensurate with the liberalization of trade all around the world, demand for non-petroleum products swelled and the trade volume among developing countries expanded. All of these have affected the direction of the investment towards the external trade and affected negatively the IS in Kurdistan.
The Industrial Strategy Plan does not describe in detail the specific potential, challenges and characteristics of each individual industrial sub-sectors of the Kurdistans’ economy. Further, it is not relevant to the Kurdistan development strategy’s goals and aims. A few sectors are important such as sectors (ISIC) of D26, D28, D15, and D25 and cement manufactures due to it's inter-sectorial relationships and operating huge number of employees. So, these ratios indicate and emphasize the need to adopt the last plan package of effective policies to develop youth, its rehabilitation and its operation.
Significant efforts and improvements are required in the areas of accountability, transparency statistics, planning, economic vision, development policy and strategy. The rapid development and high rate of demand, with no or little regulations, has resulted in high dependency on a business- driven development managed through import. That is resulting of harmful and tied business-politics governance relationships. In spite of that, the relationship should be replaced by national development driven university-governance-business relationships. Currently, there is a low general affirmation on industrial interest is dominating the governance and political aspects. The Kurdistan has also been unsuccessful in creation of new laws for industry sector in Kurdistan resulting in high dependence on out-dated regulations and laws. A strategy of industrial investment is required to be enacted materially and morally in different areas to promote the local MI’s to solve the obstacles facing the IS.
It appears from the number of licensed and non-licensed industrial projects in KRG/ MoCI/GDOID in 2015, the number of industrial projects amounted to 3795 manufactures considering with three cement manufactures too, by CAGR 9.5% related to 2006. However, the top ACR shows in 2015 by 3% despite it was 20.6% in 2013 and this indicates the expansion of private IS where has been encouraged by KRG. It should be mentioned in 2009 private MI’s sector in KR just 39.5% of them were active industries and the rest worked under their capacity due to following crisis in 2008 and the most more activate manufactures were been located in Dohuk by 46.5% in mentioned year. It has to mentioned in the end of year 2015 and the beginning of 2016 private MI's sector in KR less than 10% was active industries due to following KR financial crisis and ISIS terrorist attack to Kurdistan.
From the data demonstrated in KR, the D26, D28, and D15 by 269, 214, and 82 manufactures have occupied first, second, and third rank, respectively in 2003 according to the number of MI’s projects and occupied same sectors by different numbers in 2015 (1024, 953 and 323 manufactures respectively). By considering there is not any MI’s of cement manufactures in PS before 2003 plus the sectors D16, D30, D32, D33, and D37. At the same time, there are some sectors exist in 2015 which does not exist before 2003 such as the manufacture of D16 (Tobacco industry) and D32 even just by one MI’s. However, in 2015, the MoCI had 239 MI’s licenses in PS 60.6% located in Erbil, 25.9% located in Sulaimany and 13.46% located in Dohuk. It is worth mentioning the routine situation for having MI’s licence’s, unfortunately, is full of breaches of supposed laws of economic behaviours.
Comparing CAGR in three provinces in terms of the number of MI’s projects KR had growing by 9.5% in 2015 related to 2006 and the province of Erbil took the highest rate by 12.47% (by 2301 manufactures) after that Dohuk by 8.64% (by 511 manufactures) in 2015. However, in terms of the number of industrial projects quantitatively the province of Erbil took the highest numbers which its number accounted 2301 manufactures by 60.6% of total number of industrial project in KR in 2015 and in Sulaimany its number accounted 983 by 25.9% of total number of industrial project in KR in 2015.
Regarding the pharmaceutical sector in KR, the AwaMedica was the first manufacture for medical production in KR, which could product 37 medical types in 2011 and it has plan for increasing its types of medical to 52 medical types.
Regarding the development of three provinces in terms of multiplicity of the manufactures types, were in provinces of Dohuk and Erbil. However, with that, there isn’t installed any kind of the sectors D30, D33 and D35 in Dohuk, as well as D17, D30, D32 and D33 in Erbil. However, the advantages of three provinces in KR had been in the production of D26 and D28, D15, respectively in 2015. However, in 2009 the wind and dust had affected negatively on declining the production, especially in agriculture and industry sector.
In general, the purpose of the investment is to overcome the barriers imposed by capital market imperfections to entry into industry and at least to increase investment. Even investment incentives in KR have also been a barrier to competition. Through the incentive system, established firms have not obtained the cost advantages well that have helped them to consolidate their market position. Entrants, competing with scarce fiscal resources, have been at a relative advantage to well informed incumbents. Furthermore, the KRG, with its very small share of the banking system, has also directly controlled the allocation of credit, and credit from public banks has often been extended on the basis of political considerations.
From the data, the volume of industrial capital investment in the PS continues to increase due to an increase in the number of industrial projects, which increased from 149.41 M.USD before 2003 to 745.7 M.USD in 2011 (without the cement sector) by CAGR 19.56% increased to 2871.92 M.USD by CAGR 36.73% in 2015 related to 2006. However, it should be mention that, the high level of industrial capital investment in Sulaimany returns to the cement sector. Therefore, if the cement sector is taken by capital of 1390 M.USD the CAGR rise to 34.38%, this is except the cement sector that the lowest ACR of capital investment by (-11.8%) was in 2010. It is worth mentioning the annual ration of volume of industrial capital investment in 2014 was -48.88% related to 2013 and 92.88 of this collapse return to mal-investing in the province of Dohuk in mentioned year.
Compared to the CAGR in three provinces in KR in terms of capital investment for MI’s shows the province of Sulaimany ranked highest CAGR by 27.44%, province of Erbil and Dohuk ranked second and third by 17.3% and 15.7%, respectively. While if it does not take to consider the investment value of cement sector from total value of capital investment in three mentioned provinces, it shows the capital investment in province of Erbil is more than both provinces of Sulaimany and Dohuk. The reason of increasing the rate of CAGR in province of Sulaimany returns to investing 1390 M.USD in cement sector in this province.
Regarding the development of three provinces in terms of the capital investment in multiplicity of manufactures types the sectors of D26 and D15, respectively, have a lion share in capital investment, while shows the capital investment in D15 exceed than D26 in the provinces of Erbil and Dohuk in 2007-2008, respectively. That is reason which goes back to the plurality and the heavy demand for food and beverages products in one hand, and heavy demand for construction, re-construction of buildings by the PS, and increasing the government contracting and investments sharply to create the public buildings and roads,.. etc in previous years.
Kurdish economists almost agreed "in KR made a lot of investments which local companies could do that, particularly residential housing, and the shortcomings plaguing some laws on the local product protection to make domestic investment difficult, because foreign products could be defeated local products in the field of competition that the local investors could not afford to invest in the field of industry".
At the same time, Kurdish economists Hoshyar Marouf believes: "Foreign investment, according to the data, has seen progress in all fields, especially in the housing sector, construction, and services even in agriculture, but did not advance in the productive sectors and the bulk of the investment is in the field of housing is achievable by local investors. They are more numerous than foreigners, and the proportion of foreign investment must be raise in the productive sectors."
The sharp decline in investment in the KR of Iraq as a percentage of total private FDI is less reflection of changes in the KR than it is a sign of rapidly accelerating investment elsewhere in Iraq. With most of the upcoming major oil and gas deals located in southern Iraq, the Kurdish share of private FDI will remain relatively low over the next few years. However, the overall volume of investment (at 10.8 billion USD in 2009) should continue to increase.
One of the investment purposes is recruiting the workforce and found more and more workforce opportunities. Considering the technologies in account increasing the number of MI’s has direct relation with increasing the workforce opportunities (and vice versa). Therefore, with increasing the number of MI’s it is seen the volume of workforce in private IS increased due to an increase in the number of MI’s which increased from 4212 labour in 2003 to 19090 labour in 2011 by CAGR amounted to 18.28% in 2011 related to 2003 without workforce opportunities cement manufactures. While if add the 2400 labour of cement manufactures, the number of workforce will increase to 21490 labour in 2011 by CAGR amounted to 19.85% related to 2003. It is worth mentioning it is increased to 30989 labour in 2015 by CAGR 12.87% related to 2006(without cement manufactures) and by 34259 labour by 14% in mentioned year.
The growth rate of the province’s workforce opportunities number related to the total workforce number in KR shows that; the half of industrial workforce number was in the province of Erbil by 18264 workforce, while the province of Sulaimany (except cement manufactures) has 24.8% of total workforce number in KR if add the number of cement manufactures this rate rises to 32% of total workforce in KR in 2015.
Through the forecoming it shows that the number of public MI’s is a very small and the private IS characterize by the dominance of its leadership branches (especially construction, metal, and food) on the domestic industrial economy and due to the movement of construction of large witnessed by KR. This matter prompting the investors to move towards investment in such projects as a result of the growing demand for its products and the secured profit. Which led to the direct savings of investors to buy real estate, construction and business processes completely were away from the areas of industrial investment. Therefore, KRG should provide more guaranties to helping establish and expand a stable investment climate which agreed with the current situation towards economic reform and have a positive influence on the diversification of economic activities, to ensure the development and growth of most branches of the MI’s and agricultural sector and services.
Public manufactures had almost stopped their production for different reasons, and then all of their challenges was the financial deficit, and according this matter did not establish any other public manufacture since 2009. While almost of there had gone or on-going to privatization by MoCI despite existence of a lot of obstacles and problems that may prevent the realization of the required level.
By contrast, the private IS is continually expanding and as it described previously not in required level yet due to several constraints suffering domestic and foreign investment in KR, including: incomplete or non-readiness of infrastructure, lack of financial markets in addition to the presence of high levels of inflation, and lack of a clear vision for the political system in this area, in addition to the existence of financial and administrative corruption in most of government departments.
The achievement of goals is moved by promoting investment in general. The relationships between the governance, politics and industrial business need to be regulated according to the interest of private IS by increased transparency and accountability to building the ID in Kurdistan.
Thus, as a priority, the authorities in Kurdistan need to think about future industrial strategies depending on the mining and agriculture sector as the MI’s are the main and right way for reconstruction and development of Kurdistan.
Moreover, KRG must adopt a strong industrial strategy by setting the accurate scientific plan to action to find a radical solution to the economic crisis that the Kurdistan industrial economy is suffering from in its current situation.
To conclude this strategy, which contains the vision, plan and detailed measures to improve the competitiveness, Kurdistan will have a critical role to play particularly, because of the uncertainty of the global economy, a perspective investment and business environment in Kurdistan for industrial needs local and foreign investors to be ensured. It appears from the SWOT analysis that, there are many challenges for Kurdistan to be overcome in order to avoid that it prevents the achievement of the goals of proposing the good industrial strategy, or it reduces the desired benefits of moving. There is no doubt that the time factor has become a main specific imposed itself at the time it may not give the officials at the Kurdistan level wide margin to overcome these challenges.
Abdul.Razzaq Othman Nawandaie (Economist (Ph.D))
Head of Board of Industrial zone
Ministry of Trade and Industry