Iraq contracts 0.5 percent under pressure from ISIS | Video

World Finance speaks to Baroness Nicholson, Executive Chairman of the Iraq Britain Business Council, about Iraq's economic contraction as ISIS' insurgency drags on

December 29, 2014

The Islamic State of Iraq and the Levant, the jihadist group know as ISIL or the IS, will lead Iraq’s oil dependent economy to contract by 0.5 percent this year, according to IMF predictions. World Finance speaks to Baroness Nicholson about the country’s prospects after “40 years or more of massive horror”.

World Finance: Baroness Nicholson, 0.5 percent doesn’t actually sound that bad, and it’s not as high as initially predicted. So why have predictions changed?

Baroness Nicholson: Predictions have really changed because of the fall in the oil prices globally, and naturally Iraq as one of the key oil producers internationally is automatically affected. The massive invasion of what I would prefer to call the Daesh, the Arab term for ISIL, meaning the so-called Islamic State, has naturally had a great impact on the whole region.

The Daesh invasion has had a terrific impact on the poor city of Mosul and its inhabitants. Recall that Mosul was once, pre-Saddam really, the most booming city in the whole of Iraq, bar Basra, for trade and industry because of its unequalled access to the northern region, to Turkey, and of course in that sense to Iran when Iran is open for business again, and right up further with the Caspian Sea. So the loss of Mosul is drastic.

World Finance: What’s the economic situation on the ground today in Iraq in terms of figures?

Baroness Nicholson: Iraq as a whole has a very large income indeed, but the ministries are not yet able to offer the public services to the level of competence that the population has a right to deserve, so this is quite a gap in time and in actuality between the enormity of the funding pouring into the coffers of the federal government and its capacity to actually use it constructively.

If you think that Iraq has more or less been at war for 30 years, that is not surprising. So it’s taking Iraq time to get back on her feet in terms of services for her people. So I suggest that the enormity of the income, Iraq is the second biggest per capita, theoretically, income in the globe, and the government’s own capacity through the ministries to be able to deliver the services that money should allow them to deliver them to the same standard as other countries with developed economies, that is still lacking. That is the same throughout all 18 governorates.

World Finance: Well Al Jazeera reported that Iraq’s financial sector is facing recession. Did it ever actually recover from the US invasion?

Baroness Nicholson: Iraq has been at war for at least 30 years. Before that, the destruction of the head of government, the royal family, and the destruction of the whole system, which Saddam himself engineered, Iraq has been drastically unstable since then, ruled by terror and ruled by dictatorship. You look at the impact that the Daesh ISIL have had, their dictatorship, Saddam wasn’t very far off that in his last decade at least.

If you just look at health, Iraq had a really good health system, which it took off the British National Health Service system, and then that of course collapsed completely with the amount of war, civil war, invasions. No health system could have survived, and it hasn’t.
That’s why it’s very very difficult to pinpoint one single thing. It isn’t a single thing, it’s 40 years or more of massive horror, which has got worse and worse at particular moments.

World Finance: Well let’s look at oil production now. This is of course at the heart of Iraq’s economy, but OPEC has said that it’s not going to limit production, which means the oil prices are falling through the floor. So what sort of impact will this have on Iraq’s economy?

Baroness Nicholson: 80 percent of Iraq’s oil is produced by I think Shell and BP. But you see the enormity of the income that Iraq has already got, and will still be pouring in, and the federal government’s relative inadequacy in terms of expenditure systems, frankly if they earn a small proportion of that, the country would be much better off in terms of service provision and the population would have all the electricity they needed, and so on.

World Finance: And how are other industries faring?

Baroness Nicholson: Very open for bids and contracts is construction and infrastructure. After this four decades of destruction, my goodness, building is needed. This problem with the jihadists is not going to go away tomorrow. This is going to take quite a long time. So housing is needed. Schools are needed. Many of this deserted population is living in schools, and many buildings are needed as fast as possible, but they must be well done.

World Finance: What can be done to attract private investment, and do the rewards actually outweigh the risks?

Baroness Nicholson: The trade industry, professional services are sorely needed, and it is essential to get in there and do it. It makes business sense, it makes commercial sense, and it makes huge sense for the population of Iraq and thus for the shareholders of the companies in question.

World Finance: How does it make business sense?

Baroness Nicholson: Because Iraq has such a huge possibility of business, and industry. Probably one of the biggest unexplored major energy countries of the globe. Risk is a part of life, risk is with us always everywhere. In that sense, I’m sorry to say that most energy countries do now offer quite a significant degree of risk. Perhaps they always did but we just didn’t notice it so clearly. Libya, Nigeria, and so on, sadly there is risk everywhere.

World Finance: Well the World Bank ranks Iraq 156th out of 189 countries in its ease of doing business report. So what can be done to make it better on this scale?

Baroness Nicholson: It is never easy to do business in a country that has come out of dictatorship. Because dictatorship stops people not just taking risks, but actually making decisions. So people are scared stiff to make decisions in a post-dictatorship country.

World Finance: So how do you see Iraq developing in the future?

Baroness Nicholson: Iraq will undoubtedly develop, and I believe that business and industry, particularly form the West, with the standards that we have adopted in the West with the anti-briberies act here and in the USA, with the World Bank standards, I believe we can transform Iraq for both her people and her businesses and her industries.

All the ethics that come in with a good business, those are the things that can ground a population and can assist a government in starting to recognise what it should do, and how it can do those things. So business and industry and professional services are the key to success.