PSD Str… · Web viewDecades of instability, devastating wars and sanctions that have marked Iraq's politics prior to 2003 as well as the long standing centralized economy and

REPUBLIC OF IRAQPRIME MINISTER'S ADVISORY COMMISSION

PRIVATE SECTOR DEVELOPMENT

STRATEGY OF IRAQ

2013 - 2030

(DRAFT)

PRIVATE SECTOR DEVELOPMENT STRATEGY OF IRAQ (PSDS - I) 2013 - 2130 JANUARY 2013

JANUARY 2013TABLE OF CONTENTS

EXECUTIVE SUMMARYINTRODUCTIONVISION STATEMENT AND STRATEGIC OBJECTIVES

PART I: THE PSD STRATEGY AND APPROACH1. OVERVIEW OF THE IRAQI PRIVATE SECTOR: ISSUES AND CHALLENGES 1. 1

.Opportunities for Development

1. 2.

Structure and Performance of the Private Sector

1. 3.

Private Sector Institutions and Associations

1. 4.

The Iraqi UN Global Compact Local Network

1. 5.

The Private Sector Development Centre

1. 6.

Gender Equality and Participation in Economic Activities

1. 7.

Constraints to Development

1. 8.

Overarching Needs

2. OVERVIEW OF MAIN ONGOING PRIVATE SECTOR DEVELOPMENT RELATED PROGRAMMES

2. 1.

Main International Assistance

2. 2.

National Assistance

3. TARGET STAKEHOLDERS

4. APPROACH TO THE IMPLEMENTATION OF THE PSD STRATEGY

PART II: STRATEGIC PATHS5. STRATEGY BASE AND TARGETS FOR THE VISION5. 1

.Strategic Basis

5. 2.

Key Targets

6. THE ROLES OF THE GOI, OF THE PRIVATE SECTOR AND OF THE INTERNATIONAL ORGANIZATIONS

6. 1.

The Role of the GoI

6. 2.

The Role of the Private Sector

6. 3 The Role of the International Organizations

2


.

7. PILLARS OF THE PRIVATE SECTOR DEVELOPMENT STRATEGY

8. STRATEGIC PATHS

PART III: ACTION FRAMEWORK 9. POLICY AND CROSS CUTTING AREAS FRAMEWORK: ISSUES AND

STREAMLINING NEEDS9. 1

.The National Development Plans

9. 2.

Key Policy and Cross Cutting Areas

9. 2.

1.

Key Economic Support Areas

9. 2.

1.

1. Economic Reform and Diversification

9. 2.

1.

2. Access to Finance

9. 2.

1.

3. Business Registration

9. 2.

1.

4. Land Reform

9. 2.

1.

5. SOEs Restructuring and Social Mitigation

9. 2.

1.

6. Public Private Partnerships

9. 2.

1.

7. SME Development and Support Infrastructures

9. 2.

1.

8. Investment

9. 2.

1.

9. Taxation and Customs

9. 2.

1.

10.

Energy, Transportation and other Physical Infrastructures

9. 2.

1.

11.

Quality Infrastructures and Standardization

9. 2.

2.

Sustainable Development Areas

9. 2.

2.

1. Labour Conditions

9. 2.

2.

2. Gender Equality

9. 2.

2.

3. Poverty Alleviation

9. 2.

2.

4. Education and Human Resources Development

9. 2.

2.

5. Health

9. 2.

2.

6. Environment

9. 2.

2.

7. Corporate Social Responsibility and Inclusiveness

3


9. 3.

Streamlining, Prioritizing and Accelerating the Reform Agenda

10.

TARGET ECONOMIC DEVELOPMENT SECTORS

10.

1.

Key Target Sectors for Economic and Social Growth

10.

2.

Overview of PSD Potential in Target Economic Sectors

10.

2.

1.

Industry and Minerals

10.

2.

2.

Construction and Housing

10.

2.

3.

Agriculture and Food Processing

10.

2.

4.

Telecommunications and Information Technology

10.

2.

5.

Tourism

10.

3.

Key Drivers

10.

4.

GoI’s Approach to Direct Support to the Private Sector

10.

4.

1.

Management and Strategic Approach

10.

4.

2.

Targeted Financial Support for Small - Medium Businesses

10.

4.

3.

Eligibility Criteria for GoI Technical Assistance and Financial Support

PART IV: GOVERNANCE, IMPLEMENTATION AND MONITORING AND EVALUATION

11.

GOVERNANCE SYSTEM

11.

1.

Basic Principles

11.

2.

Envisaged Institutional Set Up

11.

2.

1.

The Private Sector Development Council

11.

2.

2.

The Task Force of Economic Reform (TFER)

11.

2.

3.

The Technical Committees

12.

OVERALL IMPACT AND RESULTS

13.

INTERVENTION AND IMPLEMENTATION FRAMEWORK

13.

1.

The Pillars Framework

4


13.

2.

Implementation Framework

13.

2.

1.

Endorsement of the PSD Strategy

13.

2.

2.

Transitional Management

13.

2.

3.

PSD Council Management

13.

2.

4.

Dissemination and Communication

14.

MONITORING AND EVALUATION SYSTEM

14.

1.

Functions and Responsibilities

14.

2.

Appropriateness of the PSD Strategy

14.

3.

Effectiveness of the PSD Strategy

14.

4.

Efficiency of Implementing the PSD Strategy

5


EXECUTIVE SUMMARY

ES 1. Decades of instability, devastating wars and sanctions that have marked Iraq's politics prior to 2003 as well as the long standing centralized economy and State reliance on oil exports for public revenues in the absence of other reliable budget sources have pushed the country into a resource curse and have suppressed the private sector. Most of the over 33,000 national MSMEs operating in Iraq until the late 1990s have closed down due to cheap imports competition and insecurity. Despite the increasing demand that the 3% annual demographic growth rate brings along, market shares of the national productive private sector have remained insignificant due to high production costs stemming from poor infrastructure, old technology and insufficiently skilled labor. All this led to debilitated private sector that has little role or presence, and lacks incentives for expansion and development.

ES 2. Over the last 5 years, the GoI, with the assistance of the international community has made some steps in improving the enabling environment for private enterprise development and to restore competitiveness of local production. Social dialog between the GoI and the Private Sector has been initiated on employment and poverty reduction. The industrial strategy is in the final stage of preparation and massive funding for agriculture has been made available annually within the framework of the Agricultural Initiative. Also, the corporatization of SOEs initiated in 2011 will contribute to the withdrawal of State subsidies and to fair competition in the market, allowing for a gradual replacement of the State monopoly with competitively operating private companies.

ES 3. The Private Sector in Iraq is still suffering from a set of problems and impediments to its development including, but not limited to, inappropriate legislative and regulatory framework and lack of enforcement of the existing framework, the GoI's / Public Sector vision and unfair competition to the Private Sector, incompetent financial instruments, absence of efficient and permanent GoI / Public Sector - Private Sector dialogue and consultation platform and governance system, absence of policies and strategies, non-transparent public procurement system, suboptimal capacity, knowledge and organisation of the Private Sector, inefficient infrastructure and energy supply, complicated entry and exit processes and lack of skilled labor. The impact of this situation has been lack of economic diversification, insignificant contribution of the Private Sector to the GDP and, hence, contribution to the employment and job creation.

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ES 4. The Private Sector in Iraq is dominated by small and very small businesses, mainly operating in retail and trade, construction and transportation services as well as in light industry. The majority of businesses are owned by sole proprietors, with most of the remainder being family partnerships1. Many of the employees in small and medium enterprises (SME) are unskilled, short-term laborers. Iraq only possesses a handful of large, typically family-run multi-industry conglomerates, active in retail, domestic trade and construction. However, large private businesses are emerging in Iraq in ICT, particularly mobile communications, and in technical services for oil and gas industry.

ES 5. In spite of all this, there is tremendous potential for the Private Sector development and engagement in Iraq's economy and development. Article 25 of the Constitution stipulates that "the State shall guarantee the reform of the Iraqi economy in accordance with modern economic principles to ensure the full investment of its resources, diversification of its sources, and the encouragement and development of the private sector". In this context, the GoI have expressed continuous commitment and initiated a set of interventions to contribute to the revitalization of the Private Sector with the support of the international community. Yet, little have been achieved until now and Iraq is still a long way from having an economically, socially and environmentally viable Private Sector system that contributes to economic diversification, sustainable development and poverty alleviation.

Scope, Roles and Management

ES 6. The Private Sector Development Strategy (PSD Strategy) of Iraq is the result of a joint cooperation and consultation among the GoI, the Iraqi Private Sector and the UN Agencies that have participated to the implementation of the Private Sector Development Programme for Iraq (PSDP-I) in the period 2009-2012, with contributions also by other international organizations, particularly the World Bank, USAID, Istanbul International Center for Private Sector in Development (IICPSD) and the dedicated sub-group of the Iraq Partners Forum).

ES 7. The PSD Strategy of Iraq encompasses the policy vision for economic diversification and the programmatic interventions for and by the Private Sector that are conducive to Iraq’s economic growth, poverty alleviation, human development aspirations, peace and stability. It will serve also the purpose of repositioning Iraq among the leading regional economies and for its effective integration in global value chains contributing to the consolidation of the country's image and market rating and leveraging its natural resources' contribution to long lasting growth, democracy and shared prosperity.

ES 8. The PSD Strategy builds on existing institutional arrangements, recent structural reform gains, assessed and shared concerns, policy orientations, ongoing efforts by all actors, particularly GoI, national and international organizations as well as on the existing opportunities. As such, it will basically continue the process of reforms initiated in the last years and that will need now to be further consolidated and accelerated with the commitment of all concerned parties. Moreover, it will provide inputs and

1 International Labor Organization survey of firms.

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references to the new National Development Plan 2013 - 2017, ensuring the needed consistency, synergy and coherence with national interventions in other sectors. For coherence and optimal utilization of resources, it is expected that the GoI will secure convergence of objectives and targets between the PSD strategy and the 5 - year National Development Plan (2013-2017) as complemented by multi-year budget strategies.

ES 9. A sound private sector is a performance criterion for good governance. And while the GoI will initially lead the implementation of Iraq’s PSD Strategy in close consultation and in coordination with the Private Sector, the GoI shall gradually shift from the current role of planner, organizer, capital owner, business administrator, investor, producer and employer to the one of enabler, promoter and guarantor of market freedom. In particular, the GoI will aim, in the coming years, to improve Iraq's Doing Business position from the very low ranks of recent years.

ES 10.In parallel, the Private Sector will need to better organize itself and take a proactive role, to gradually take responsibility for managing, at later stage, some key components of the PSD Strategy. There will be also an important role of the international organizations that are expected to coordinate their agendas for assisting Iraq economic and social development, as well as to provide technical assistance and capacity development as appropriate and as needed, for contributing to an efficient roll out the interventions.

ES 11.The management of the PSD Strategy and the implementation of the planned measures and actions will depend on the establishment (with possible international advisory assistance), of an efficient and proactive governance system, as the key platform for GoI / Public Sector - Private Sector dialogue, monitoring and evaluation and for taking joint decisions, in particular, the formation of a Private Sector Development Council under the authority of the Economic Committee of the Council of Ministers and with the participation of key public and private players and other stakeholders. The PSD Council will be supported by the Task Force of Economic Reform of the Prime Minister Advisory Commission with an important coordination, advisory, monitoring and reporting role.

The PSD Strategy Process and Roll Out System

ES 12.The PSD Strategy process will be dynamic, will undergo annual reviews and progress assessments to ensure consistency with the overall national development vision and goals, inclusive market, private sector-led poverty reduction and achievement of MDGs.

ES 13.The PSD Strategy lies on four Pillars: Pillar 1: Developing and enhancing the private sector knowledge

and institutional competence base of Iraq Pillar 2: Establishing a stable and conducive framework and

domestic market conditions fostering the creation and growth of the Private Sector

Pillar 3: Building a core of competitive, sustainable and inclusive private sector clusters and value chains

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Pillars 4: Establishing an efficient governance system supporting the other pillars.

ES 14.Each pillar has series of strategic objectives, paths and specific targets that ultimately define the action framework of the PSD Strategy for achieving the 2030 Vision's macro-objectives. There are obvious and stringent complementarities and synergies among the four pillars that will support each other.

ES 15.Pillar I 1. Enhancement of the knowledge on the development potential of the

private sector of Iraq through extended surveys at national level, development of a an efficient decentralized business registration system, development of a national and governorate - level information system on private sector dynamics, formulation of sector strategies.

2. Strengthening the Private Sector institutional framework through improved governance system, ICT systems, enhanced capacity and skills for formulation of strategies and participation to the roll out of the Strategy.

ES 16.Pillar II 1. Easy and transparent access to finance for businesses; access to finance is

considered as a first priority area for leveraging reforms also in other areas. The work will focus on needed policy and regulatory frameworks especially for SME financing, the establishment of a system of targeted Competitiveness Funds with possible matching with commercial lending and enhanced capacity of private banks.

2. Establishment of a comprehensive and harmonized framework of policies and strategies in all PSD areas through review, integration and expansion of the work already initiated in key policy areas and addressing also implementation and enforcement mechanisms and instruments.

3.Expansion of ICT networks and systems throughout the country, to enable full access by registered businesses to consent them to undertake researches, identify opportunities and networking in all their business development areas.

ES 17.Pillar III 1. Establishment of an SME Agency and Private Sector Support

Infrastructures through the formulation and adoption of the relevant policy, legislative and regulatory framework for an Agency system (with branches in the governorates and the participation of private banks), inclusive of a specific SME financing policy and regulatory framework for channeling GoI resources and incentives, and supporting the establishments of clusters and value chains through the development of networks of private sector infrastructures (Business Development Services and Centers, Incubators, Industrial Zones and others).

2. Integration of State Owned Enterprises initiated in 2010 with the Private Sector reform processes where the private sector is expected to play a pivotal role, conducive to the SOEs restructuring.

3. Competitiveness and innovation enhancement though further tailoring and adoption of sector strategies prepared under Pillar 1, improved and effective strategic and business planning for the establishment of clusters and value chains (through the support of the SME Agency and PS Support Infrastructures), strategic partnerships and cooperation with national and international educational and academic institutions.

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ES 18.Pillar IV 1. Full, efficient and effective implementation of the PSD Strategy through

the establishment of simple governance structure, the participation of subnational authorities and institutions, including the private sector and the banking system, clear rules and decision making procedures, gradual transfer of management tasks (Pillars 1 and 3) to the private sector and an efficient monitoring and evaluation system

2. Increasing the effectiveness of international development assistance though coordinated and relevant agendas, regular consultations with the PSD Council and joint M&E.

ES 19.The PSD Strategy consequently addresses two groups of interventions: Cross cutting policy areas (measures); and Direct Support to the Private Sector (actions).

Measures in Policy and Cross Cutting Areas

ES 20.Besides access to finance, SME development, infrastructure upgrading, SOE restructuring and social mitigation, constituting per se priority strategic objectives under Pillars 2 and 3, the following other areas will be addressed under Pillar 2 (objective 2).

ES 21.Key Economic Support 2 Economic reform, for streamlining the overall national reform process,

building on the work (draft legislation) developed so far. Business registration, for establishing a modern and decentralized system

and contribute, along with incentives, to the gradual transformation of the informal sector, featuring a great part of the Iraqi economy

Land reform, for creating and adopting a National Land Policy aimed at eliminating a series of barriers (for the private sector and more in general for investors), with focus on needed institutional arrangements.

Public Private Partnership, for establishing the urgently needed policy and legal framework (building on drafting efforts so far) and learning from experiences under way.

Investment, with focus especially on further streamlining the legislative and regulatory framework, to align it with international best practices on updating and expanding Iraq’s Investment Map prepared under the PSDP-I.

Taxation and Customs, The GoI is committed to reforming the taxation system, ensuring the diversification of taxes and enforcement, not only to improve the competition capacity of the private sector but also to reduce informality and to create a stable and effective source of public revenues that will contribute to reducing dependability on oil resources, to finance public expenses and to achieve social justice and economic prosperity. This will be achieved by the adoption of the Tax System Reform Road Map and the actual initiation of the taxation system reform process.

Energy, Transportation and other physical infrastructures. Inadequate supply of electricity is still a critical concern, impacting on daily life despite some recent improvements. The recently approved National Energy

2 These are considered of highest or special priority in the short-medium term; in addition to policies, legislative and regulatory frameworks will be addressed in these and other areas (bankruptcy, competition, company, consumers protection etc), further streamlining the assessment and review work so far.

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Strategy (INESTA) provides an excellent reference framework for the energy intensive industry, but not only. Specific measures will need to be taken also in the transport and other Infrastructures sectors, targeting target not only physical facilities but also processes and services, like cargo handling, customs, trucking sector structure, competition, and regulations.

Quality Infrastructures and standardization, for developing a national system of policy, legislations and regulations, standardization and infrastructures to enhance the trade capacities and performance in Iraq, fostering integration into the regional and multilateral trading system.

ES 22.Sustainable Development Labor, a fundamental area for Iraqi businesses and people; better skills

means better productivity. The proposed modern Labor Code will ensure affordable labor cost and an emerging competitive advantage while taking into account recommendations and concerns expressed by international organizations on various matters (freedom of association, elimination of forced labor, children labor, discrimination, right of employers etc); a more balanced system needs, moreover, to be addressed between Iraqi workers and the increasing number of foreign workers. Improving the supply of quality productive local labour will eventually contribute to reducing dependence of foreign labour.

Gender equality currently addressed by joint efforts of the GoI and UN agencies to implement the comprehensive framework to promote gender equality through proper commitments by the Private Sector and a combination of legal reforms, governmental policies and support programs, and civil society capacity building.

Poverty alleviation, by implementing the National Strategy for Poverty Reduction prepared with the support of the World Bank and adopted by the GoI in 2009 where also the private sector is expected to play a key role.

Education and Human Resources Development, implementing the recently launched National Education Strategy, prepared with the support of the World Bank, UNICEF and UNESCO, addressing the differences and aiming at developing human and institutional resources and designing and implement system reforms. In particular, stricter links and coordination between the private sector, educational, training and academic institutions will be carefully addressed, also as a mean to enhance competitiveness and inclusiveness.

Environment, as addressed by the National Report on Sustainable Development and the NDP for the strict links with development and highlighting the political will and progresses made to improve environmental protection in the past years, also through improved legislation; proper procedures (such as the polluter pays principle) and incentives for less polluting businesses will need to be addressed and introduced.

Corporate Social Responsibility (CSR) and Inclusiveness, shall be adopted and promoted, building on the work of the UN Global Compact3 and relevant commitments by PMAC for enhancing the role and engagement of the Private Sector on a voluntary but socially responsible basis.

3 The UNGC principles are based on universal consensus derived from four major international agreements: 1) the Universal Declaration of Human Rights; 2) the ILO Declaration on Fundamental Principles and Rights at Work; 3) Rio Declaration on Environment and Development; 4) the UN Convention against Corruption.

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Direct Support in Key Target Economic Sectors The Four Axes of Direct Support to the Private Sector

ES 23.Besides measures aimed at strengthening their management roles and their institutional framework especially under Pillar 1, the private sector will have the possibility to benefit of a series of support programmes that the GoI will design and operate with relevant stakeholders, properly supported by specialized national and international expertise.

ES 24.Support programmes will translate into economic and social development actions (or projects) in these priority sectors, considered as the drivers of the Iraqi economy also for leveraging employment opportunities and business development in other sectors:

Industry and Minerals (in particular, oil downstream and, in general, energy intensive industry, non oil minerals and construction materials, mechanical engineering, chemicals, electrical and electronics, solar energy)

Construction & Housing Agriculture, food security and food processing Telecommunications and Information Technology Tourism.

ES 25.In particular, such support will be provided through specific financial, technical assistance and capacity building measures according to well defined and transparent eligibility criteria (including demonstration, replicability), to ensure consistency with the objectives of this Strategy.

ES 26.Coherently with the structure of Pillar 3, four main intervention Axes are considered, formed by a mix of further and specific (specialized) policy work (complementing or integrating the work under Pillar 2), planning and implementation actions:

Axis 1: establishment and operation of SME Development Support System

Axis 2: support to private businesses for integration with the SOEs system

Axis 3: clusters and value chains for competitiveness enhancement and job creation

Axis 4: partnering with national and international technical, and academic institutions.

ES 27.Inclusiveness based clusters and value chains (including also among sectors and linkages with energy intensive industries), shall constitute a priority along all the first three axes. In a context of needed flexibility and higher outreach, the third axes aims at establishing clusters and value chains outside the interventions for SME Development Support Infrastructures and SOEs Restructuring and will focus on specific support actions in the quality, technology upgrade, R&D, innovation, environment and renewable energy and other relevant areas. The fourth Axis shall address specific and separate cooperation with the educational institutions to foster new job opportunities and skills enhancement through trainings and staging, employment schemes for students/post-graduate students; support to technical/technology institutions is also envisaged in such cooperation framework.

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ES 28.Strategic and public-private partnerships shall also constitute a highest and common priority along all four Axes and support will be provided for needed researches, marketing and negotiations.

Financial and Fiscal InstrumentsES 29.A system of financial and fiscal support instruments will be designed and

made available to the private sector within the envisaged intervention axes, formed by adequate “packages of incentives” with an active participation of public and private banks throughout Iraq.

ES 30.In particular, the establishment and operation of a system of Competitiveness Enhancement Funds4 formed by a grant max 30%) and soft loan components to finance seed capital for start up businesses, business registration (for the informal sector), training, R&D, IT development, innovation programmes, prototypes, experimentations, and, in general, pilot development projects consistent with the objective of this Strategy and building also on existing schemes in place, is envisaged.

ES 31.Competitiveness funds (for funding initial operations) might be matched with commercial bank lending, for larger scale initiatives. A more flexible collateralization system as well as fiscal incentives (such as tax exemptions) will be introduced (such as for job creation and other high impact specific actions, and for the informal sector within clear development projects), especially for smaller businesses.

ES 32.Eligibility to direct or indirect (through banks and the SME Agency System) GoI support will be based on cross cutting, strict and most transparent criteria, such as full consistency with the strategic objectives of the PSD Strategy and the NDP, minimum financial and operational performance and standards, consistency with the policy framework objectives and targets as agreed in the framework of the established new Governance system according to this PSD Strategy, clear contribution to job creation, high potential for public-private and strategic partnerships, improved quality, increase of the local contents of products and services and other specific criteria that will be properly defined in the first phase of the Strategy implementation.

Intervention Timeframe and Framework

ES 33.The PSD Strategy will roll out starting in 2013, to gradually reach the overarching Vision’s objectives of 2030, along the four Pillars, each with a number of associated measures and actions. Pillars 1 and 2, constituting basically the Strategic Paths of the process, will be instrumental to the development of Pillar 3, the core Pillar for accompanying and facilitating the engagement of the private sector in programmes and projects along the four envisaged Axes.

ES 34.The period 2013-2017 is rather dense, calling for numerous groups of activities to be properly organized and undertaken; besides a needed and strict focus on policy and regulatory frameworks, of special importance will be those dedicated to proper programming, planning and design of a

4 Each line Ministry will have different funds and sector specific programmes, featured in any case by a series of common and strategic objectives and criteria.

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series of instruments and actions. The immediate roll out of the Strategy will be, however, ensured by the existing institutions and instruments, that will be properly tailored and strengthened; in this transitional period, a key role will be assigned to the Task Force for Economic Reforms for coordinating and ensuring the implementation of selected priorities jointly agreed with the Economic Committee of the Council of Ministers and the Private Sector.

ES 35.Finally, an efficient monitoring and evaluation system will be established and operated according to best international practices, as a pre-condition for ensuring a sustainable PSD Strategy process. It will, moreover, contribute to enhancing the knowledge of the Iraqi PSD potential

ES 36.Three M and E levels will be addressed: appropriateness of the vision, of the strategic paths and of their

objectives effectiveness of the targeted policy framework and associated

programmes and instruments (Pillar 2) efficiency of specific support programmes and projects to the direct

benefit of the Private Sector and developed with GoI support (Pillar 3).

For each level precise sets of indicators as well as M and E frequencies will be established

ES 37.M and E will be designed and coordinated by the TFER; the M and E Technical Committee will undertake "field" monitoring and preliminary evaluation tasks while the TFER will elaborate final M&E reports and transmit them to the PSD Council, for drawing conclusions and deciding accordingly, also over remedial measures or actions to be introduced along the process.

INTRODUCTION

I1. Numerous analyses of Iraq's economic and social dynamics sine 2003 managed to identify gaps and opportunities. The pilot actions launched since then in different economic sectors, didn't, however, generate the needed impact, especially on the Private Sector growth. The economic and social situation of Iraq calls for consolidating and expanding the work done until now to revitalize the Private Sector into a comprehensive and manageable system of measures within a framework of mutual trust between the public and the private sectors.

I2. The overarching objective of the Private Sector Development Strategy is for the GoI to set the vision, to lead and streamline a support process, building on shared consensus within the GoI itself and between the GoI and the Private Sector, through a coordinated adoption, enforcement and implementation of priority measures at the institutional governance, policy, legislative, regulatory and financial levels, accelerating and complementing the already ongoing agenda of economic reforms and building on ongoing programmes and actions.

I3. The process should let both the formal and informal Private Sector emerging, joining, organizing themselves, therefore contributing also, jointly with the GoI, to the establishment of an efficient, predictable and

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transparent business enabling environment that will eventually lead to economic growth, diversification and job creation.

I4. The PSD Strategy action plan initially focuses, in the short and medium terms, on selected support measures and associated actions for establishing a basic platform of fundamental pre-requisites, in terms of management capacity and knowledge building, legislation and regulation, policies and strategies, governance, financial support instruments, , for both the GoI and the Private Sector.

I5. The PSD Strategy is ultimately for the Iraqi Private Sector and is intended to be (1) a tool for coordination and prioritization of sustainable use of public and private resources and (2) a source of inspiration for all parties involved with the Iraqi Private Sector so to facilitate joint action towards shared goals.

I6. As such, the PSD Strategy constitutes, moreover and most importantly, a tool for knowledge and consensus building, aiming to spur a dynamically evolving and leveraging process rather than being simply a stagnant document. As such, the Private Sector Development Strategy calls for a continuous commitment by all parties involved for timely interventions and needed reviews.

I7. The PSD Strategy of Iraq is the result of a joint cooperation among the GoI, the Iraqi Private Sector and the UN Agencies that have participated to the implementation of the Private Sector Development Programme for Iraq (PSDP-I) in the period 2009-2012, with contributions also by other international organizations (such as the World Bank, USAID and others).

I8. Building on different components and outcomes of the PSDP-I, on the direct work of Iraqi stakeholders as well as of other international organizations, the PSD Strategy constitutes a commonly shared conclusive and endorsed output, establishing phased intervention priorities, measures and viable implementation modalities for all concerned stakeholders, with clear roles and competencies. In particular, it reflects the enhanced and fundamental role of the Iraqi Private Sector in the implementation of economic reform processes and, especially, in co-owning and co-managing the PSD Strategy, with necessary institutional support and facilitation provided by the GoI and other Iraqi stakeholders.

I9. The PSD Strategy of Iraq embeds, moreover, principles and guidelines for private sector’s role in the development agenda, as supported by the UN and the international development community. In particular, looking for future, UNDP-supported principles for a Private Sector Development and Engagement Strategy are integrated to promote and optimize the impact of a well - functioning private sector on Iraqi social, economic and human development, addressing poverty, employment, equality and inclusiveness – targeting women and other vulnerable groups, environment and transparency, among others.

I10. The wide work generated so far by the PSDP-I as well as that of other international institutions succeeded also in clearly identifying and assessing the specific gaps and the challenges ahead for implementing a sound and effective reform process. However, an enormous number of issues need to

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be addressed (with consequent absorption capacity constraints) and there are persistent difficulties for generating a significant impact on the economy and on the private sector. Results to date need therefore to be consolidated and proper priority intervention frameworks to be established, in an attempt also to overcome persistent political and security constraints.

I11. In addition and most important, the particular situation of Iraq calls for a platform of basic pre-requisites for an effective use and management of the PSD Strategy to be established on multiple levels for institutional coordination, knowledge building, partnerships and trust building, management, legislation and regulation, governance, policy and private sector organization, in terms of enhanced capacity, availability of sound and transparent instruments (such as especially in finance) and effective translation into selected sustainable support measures and actions 5that will constitute the spin off or the leverage for gradually implementing other needed actions, expanding and completing the reform process and, at the same time, for a private sector-driven economy and human resources development to gradually and concretely take off.

I12. Thus, priority intervention areas and measures have been jointly selected, distributed over a timeframe consistent also with the National Development Plan (NDP), currently under review, and other relevant ongoing strategic planning work; in particular:

Short term: 2013-2017 Medium term: 2018-2022 Long term: 2023-2030.

I13. While contextualized in a long term vision with long term objectives, the main focus of the PSD Strategy remains on the short and medium term, given also the need for reviews and readjustments to be introduced according to actual developments in the country in the upcoming years and based on the initial assumption that the strategy is a process rather than a static tool.

I14. This document is structured into four main parts, preceded by the Executive Summary and the Vision Statement with its strategic objectives, and followed by a series of Annexes including relevant reports, statistics and other relevant literature:

Part I: The PSD Strategy Context and ApproachPart II: Strategic Paths Part III: The Action FrameworkPart IV: Governance, Implementation and M&E.

5 For the purpose of the PSD Strategy, support measures are those of governmental and both public and private institutional competence, while actions are actual programmes or projects undertaken directly by the Private Sector “on the ground” (downstream).

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VISION STATEMENT AND STRATEGIC OBJECTIVES

VS1. Establishing an economically, socially and environmentally viable Private Sector system that: operates under efficient institutions and a fair and transparent

governance structure is supported by an efficient business environment contributing

to economic growth within an effective transition to open market economy, to creation of job opportunities, to the improvement of the standards of living for the Iraqi people

is regionally and internationally competitive is integrated into the regional and global value chains.

VS2. The vision:

Is ambitious but achievable. Is broad and comprehensive with sufficient flexibility to change

implementation strategies according to new developments. Is the result of a consultative and participatory process engaging

multiple stakeholders to build consensus and agree on implementation means.

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Its implementation is designed in phases that add up to realizing the aspired future vision:

VS3. 2030:

There is rapid growth in the private sector due to the concentrated efforts in private sector development by GoI from 2013 – 2022

Employment in the private sector has increased to constitute 60%-70 % of total employment

Assuming a conservative GDP growth (around 6% CAGR6), the private sector contributes to 45 -50% of the total national GDP

Rapid growth in the oil sector during 2012-2022 cools down, as the non-oil/ gas share of the economy picks up, due to the focus on diversification during 2013-2022. By 2030, the non-oil sector is expected to contribute around 60 - 65% of the GDP.

The share of investment by the private sector has increased to 50 % of total investments

All viable State Owned Enterprises have been restructured, corporatized and fully integrated in a private sector led market economy

VS4. 2022:

There is significant activity in the private sector during 2013-2022, resulting in completion and expansion of actions and support measures initiated in 2013/2014 as well as in investments and infrastructure development, paving the way for rapid growth of the private sector during 2022-2030.

However, the public sector still holds sway, with the private sector expected to grow moderately and provide around 35-40%% of GDP by 2022.

The oil/gas sector is expected to grow rapidly during 2013 - 2022 (8% – 10% annually at conservative estimates) and continues to be a major contributor to the economy.

Ranking of Iraq in World Bank Doing Business report has significantly improved.

VS5. 2017:

The target actions and support measures at upstream and downstream levels, respectively, are successfully operational and the private sector and the GoI are working together in the new joint platforms of major projects in support of several hundred companies.

The Iraqi private sector has acquired awareness on its responsibility as major socio-economic actor and has enhanced its capability to work collectively in an organized structure, contributing to Iraq’s development.

The GoI has a clear understanding of its role as a PSD facilitator, recognizing the private sector as a partner.

6 Compound Annual Growth Rate, defined as the year-over-year growth rate of an investment over a specified period of time

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PART I - THE PSD STRATEGY CONTEXT AND APPROACH

1. OVERVIEW OF THE IRAQI PRIVATE SECTOR: ISSUES AND CHALLENGES

1. The contents of this Chapter provide a brief overview of the current situation of the Private Sector as analyzed in numerous studies and researches7 produced by both Iraqi and international organizations and that can be easily consulted for more detailed information, all practically leading to the same conclusions in terms of issues, need for structural reforms and actual development potential. For the purpose of the PSDS some key aspects and conclusions will be recalled.

1.1. Opportunities for Development

2. As reported, unmet needs of a diverse domestic market and the increasing expanding middle - income class created huge demand for products and services that generated and will continue to generate tremendous market opportunities in Iraq. Demand is growing rapidly as oil revenues and GoI / public sector expenditures increase and individual incomes rise. The domestic private sector, unable currently to satisfy even a small part of this demand, can do so if supported by investment incentives, protection, credit facilities and guarantees, tax exemptions, low corporate tax rates and other measures.

3. According to the IMF's World Economic Outlook (2011), economic growth will be led by oil, but the non-oil economy will also grow at a robust pace reaching 14% p.a. by 2014. Non-oil growth will be driven by public investment in housing, electricity, transportation and water, with growing private consumptions.

4. While still difficult to quantify the actual development potential, various surveys, studies and researches suggest that concrete opportunities exist for the Private Sector to develop and generate growth and employment opportunities, due to several factors of actual and potential competitiveness as identified hereunder:

Substantially qualified and underutilized human resources Growing internal markets of goods and services, such as in

manufacturing, construction (mechanical, housing, infrastructures), ICT, food, chemicals, oil, electricity, religious and cultural tourism sectors8, with a significant opportunity also for import substitution and increasing the local contents.

Agricultural and agro industry sectors, once a leading economic sector of the country and with a large (but not organized) private sector presence, offer long term growth and development potential given the country’s agriculture benefits from substantial arable and

7 Doing Business 2012 and Investment Climate Assessment (ICA) 2012, World Bank; ILO SMEs survey under finalization; Investment Map, UNIDO, 2011; UNIDO PSDPI Consolidation (various reports), 2012; SOEs Restructuring Roadmap, UN and WB, 2010; USAID Tijara programme (various reports), 2010-2012; Iraq’s Industrial Strategy, Ministry of Industry and Minerals and UNIDO, 2012 (under finalization); Iraq Integrated National Energy Strategy INESTA, Booz and Co., 2011; National Development Plan 2010 - 2014; draft National Development Plan 2013 - 2017.

8 According to UNIDO Investment Map and PSDPI Consolidation project, Booz Energy Strategy and several other sources, most promising sub-sectors include: cement, construction materials, glass and ceramics, petrochemicals, fertilizers, beverages, dairy, date palm, food processing, fishery, meat, poultry, tourism.

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grazing land and abundant water, should proper policies and strategies be introduced and implemented, including those fostering international agreements with neighboring countries on water resources management and trade.

The oil industry constitutes a tremendous opportunity for the Private Sector to serve both upstream and downstream productions.

Iraq’s outstanding natural resource base: this goes well beyond oil and gas to other minerals such as limestone, gypsum, silica, kaoline, phosphates, sulphur, bentonite, construction raw material (brick clay, aggregates.

Iraq’s geographical position and physical resources (ports) provide Iraq with a large opportunity for expanding of trade relationships.

The recently initiated programme of restructuring of the SOEs9 is expected to generate several service and manufacture outsourcing opportunities, through the creation of new and specialized SMEs serving a wider client base (than the SOEs) and therefore of new jobs. In particular, with careful selection of the sectors for restructuring, and a phased and prioritized schedule, severe impact from unemployment can be mitigated through a proper mix of actions and tools (early retirement, severance packages, training, employment assistance and education, MSME start-up and development loans and assistance, redeployment support by proper service providers, etc).

Productivity trends are encouraging in several sectors (such as in leather, non-metallic products, plastics and fabricated metal products) especially where competition is higher.

Great potential and need for innovation by enhancing competition in the domestic market through quality certification, ICT use, introduction of modern technologies and, more in general, new and inclusive business models.

Apparent high dynamism in the creation of SMEs since 2007 is an indicator of nascent economic recovery. Business creation and productive investments are also at relatively high levels among MSMEs. Moreover, the overall situation in relation to MSME development is encouraging, showing enormous resilience in the face of insurmountable odds that businesses are being created and are expanding in today’s Iraq. New start up businesses in the context of a comprehensive social mitigation strategy, could utilize SOE assets to house their activities.

The enormous public and private procurement made by the GoI and the large FDIs and IOCs should create a solid economic production base and lead to private enterprise expansion. However, the GoI shall adopt inclusive procurement approach to enhance public procurement system efficiency and transparent. The GoI shall adopt e-procurement as a tool to contribute to transparency and fairness.

1.2. Structure and Performance of the Private Sector

9 According to a recent interview (by Reuters News Agency) with Dr. Adel Kareem, Deputy Minister of Industry and Minerals: private investment in Iraq’s industrial sector is expected to reach $7 billion this year, up from $3 billion in 2011 and the country’s industrial sector currently contributes only 2 percent to the country’s GDP, but he believes that if the political and the security situation calmed down, it would be possible to reach 20 to 25 percent in three or four years; the ultimate goal is the gradual privatization of all 260 government factories, which are run by more 76 state-owned companies.

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5. Organized and comprehensive data and information on the structure and performance of the Iraqi PS do not exist yet, except for what surveyed recently by the World Bank and ILO but limited to selected samples of private enterprises in different sectors; more data and information are available for SOEs, following UNIDO, World Bank and USAID funded surveys and assessments.

6. The Central Statistical Organization (CSO) collects and processes statistics mostly on employment dynamics but no statistics or indicators on performance related are available.

7. A substantial percentage of the Iraqi economy is constituted by the informal sector, most of the firms being not registered, adversely impacting the tax, legal and regulatory system and the quality control system, and ultimately Iraq’s economic and social growth potential.

8. ILO and UNOPS conducted recently a survey of 950 MSMEs in three districts10; while the results cannot be considered as representative of the situation of the whole country and of actual and of specific sector dynamics, it provided some useful information on the structure and distribution of MSMEs (where most microenterprises operating informally): agriculture (5.6%), manufacturing (8.6 %), construction (19.2 %), trade and retail (54.6%), other services (12%). To the opinion of the surveyed MSMEs, access to finance, infrastructure and availability of skilled labor constitute the main success factors for business development and/or expansion.

9. The agriculture sector is featured, from one side, by businesses (farms, on farm, off the farm) dominantly owned by private sector and, from the other side, by overwhelming role of the GoI, through the provision of soft loans or subsidized prices of some products, especially grains, dominating the seeds and agricultural technology market and is still in place, preventing the sector to develop.

10. The agricultural sector was dominated by individual and group farming (Agricultural Cooperatives) until 2003. Following the privatization of some of the state agricultural enterprises in the 1990s’, activities were transferred to individuals or some kind of private agricultural corporates. Yet, the sector currently lacks organized cooperatives or similar structures.

11. The agricultural sector used to be the largest employer in Iraq until few years ago; however, it's providing now only 20% of jobs, almost all in the private sector. Moreover, and in the period 2006 - 2010, the contribution of agriculture to the GDP ranged between 4.4% and 5.8%, but indicated a slight trend of improvement.

12. The contribution of the construction and housing sector to the GDP ranged between 3.5% and 5.0% in the period 2006 - 2010 with annual investment ranging between ID 1.6 to ID 2.2 trillion for the same period. Several factors contributed to the relative improvement in this sector, including increasing domestic investment (both public and private), improved security, increased production and decreased prices of construction material, improved family income and the launch of several housing loan schemes.

10 Sulaymaniya, Marshlands, Hillah.

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13. In the industrial sector, and according to the Directorate General of Industrial Development of the MoIM, the private manufacturing sector includes about 17,500 production facilities formed by public companies (1.5 %), mixed companies (0.2 %) and private companies11 (98.3 %), distributed among the food sector (2463), textiles (2919), chemicals (2251), construction materials (6327) and metal processing (3526). In the period 2008-2010 about 1,400 new industrial projects were licensed by the MoIM (with a peak of 500 reached in 2010). Actual performance is not monitored or recorded, but it is estimated that not more than 20%-25% of the private companies are actually operating or in business.

14. Seventeen industrial mixed sector companies are operating at the moment where the private ownership cannot exceed 75% of the capital, according to the Company Law No. 21 (1997). They produce a wide range of industrial commodities ranging from air coolers, air filters, welding rods, paints to electronic and electrical equipment and appliances.

15. Interesting to note that the Iraqi Federation of Industries accounts for 44,518 members as “industrial projects” distributed among many more sub-sectors12 (compared to the classification adopted by MoIM). The large difference is due to the presence of non registered companies and individuals and of the handicraft sector. As a matter of fact, IFI membership is possible also for individuals without a company, and because registration procedures are simpler and more rapid than with MoIM and other concerned ministries.

16. Between 40 and 50 production-sharing contracts with local and foreign companies have been signed over since 2008, including German, French and Turkish companies (in the cement, fertilizers, automotive, agricultural equipment, mechanics, metallurgy, electrical and electronic industries). more recently, a $1 billion contract was signed with Turkey’s UB Holding to restore the large iron and steel factory that was looted during the 2003 invasion in the southern Al Basra Governorate.

17. A national Industrial Strategy is currently being finalized by MoIM, setting the strategic objectives to be achieved in a short, medium and long term timeframe, consistent with the Private Sector Development and the Energy Strategies.

18. In general and according to World Bank Investment Climate Assessment (ICA) report, productivity13 varies from sector to sector; in particular, Iraqi firms are among the better performing in the region in textile and garments, chemicals, pharmaceuticals, non-metal and equipment sectors, while there is ample scope for improved productivity in food processing and electronics.

19. Still according to the ICA report, labor productivity (defined as total sales/employed worker) presents even more significant variations among sectors; in the chemicals and the pharmaceuticals sector, labor productivity is two times higher than in the electronics sector and higher productivity is found in general among smaller size firms.

11 Defined as “licensed industrial projects”.12 Extraction, food, textile, chemicals, wood, paper, construction materials, basic metals, metals,

manufacture, services etc.13 Total Factor Productivity, as defined in the ICA report of the World Bank

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1.3. Private Sector Institutions and Associations

20. The key issue of involving Private Sector institutions in private sector development and economic reform is that there is not yet a permanent and official joint platform between the public and private sectors for communication, coordination, consultation and dialogue.

21. Some Private Sector institutions have been established by law (IFI, Union of Iraqi Chambers of Commerce and Iraqi Contractors Union) while those established after 2003 on basis of individual or group initiatives have the status of NGOs14.

22. Main findings of a survey of main Private Sector institutions15 conducted by UNIDO in the period 2011-2012, include:

Lack of commonly shared strategies and weak coordination among the institutions.

Weak governance and financial structure of most of the institutions; most of the main federations and unions did not yet conclude elec-tions for new board of directors.

Focus only on advocacy and weak service delivery. Some growing sectors (e.g. mining, chemicals, energy, environment

etc.) are not well represented by the current institutions. Professional association, for example Iraqi Engineers Syndicate, IFI,

Iraqi Contractors Union and the General Union of Farmer Societies are not fully engaged in Iraq’s economic reform and private sector development.

Some key services such as business incubators and technology parks/centers and export support facilities are not offered by the Private Sector institutions at local and national level. Management training, feasibility studies, etc. are only offered at national level and with limited scope.

Weak adaptation to and operation of ICT facilities. Huge sustainability problems causing also several institutions to

compete with each other to secure memberships and financing. Most of the institutions are supported directly or indirectly by the State, thereby losing credibility and independence in the eyes of their members.

23. However, some important initiatives were launched in the period 2010-2012 to provide a framework for private sector cohesion; in particular:

1.4. The Iraqi UN Global Compact Local Network

24. This initiative was launched in Iraq in 2011 in partnership with the GoI (in particular by endorsement of COMSEC) and with the support of UNDP. The UNGC Local Network aims at promoting a socially and environmentally responsible private sector, in alignment with global standards of sustainable and inclusive businesses16.

14 These include, but not limited to, Iraqi Business Council, Iraqi Businessmen Association, Iraqi Private Banks League, etc.

15 UNIDO PSDPI Output Consolidation project, August 2012; surveyed associations: Federation of Industries; Businessmen Union; Federation of Iraqi Chambers of Commerce; Iraqi Institute of Economic Reform; Industrial Development Directorate/MIM; Iraqi Engineers Union; Iraqi Private Banks League; Iraqi Contractors Union; Market Research and Consumer Protection Centre/Baghdad University; The Modern Agriculture Development Centre.

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25. With an initial small number of Iraqi companies who joined the UNGC by committing to integrate in their business operations the 10 principles of the UNGC, a UNGC Local Network was established in October 2011 as a group of Iraqi businesses organized in a structure common to hundred UNGC networks around the world.

26. Since its establishment, the Iraqi UNGC Local Network grew in size and visibility to become an increasingly recognized platform for Iraqi companies committed to raise their standards and contribute to the economic, social and human development of the country, as a partner of the GoI. The UNGC Local Network includes to date about 90 organizations representing private companies, business associations and NGOs from different parts of Iraq and diversified in terms of size and sector.

27. While not registered yet as a legal entity, the Iraq UNGC Network has its own governance structure based on a Secretariat and a Steering Committee whose members have been nominated through a transparent election process and according to criteria of geographic and gender inclusiveness and with representations of all the key entities involved (businesses, associations, NGOs, academia in addition to the GoI and UN). On this basis, the Local Network aims to become an effective and reliable counterpart in the dialogue with the Government and other stakeholders, in Iraq and abroad.

1.5. The Private Sector Development Center

28. Established with the support of the World Bank in 2011, the Private Sector Development Center (PSDC) is a partnership between Private Sector representative organizations aimed at identifying key barriers to doing business in Iraq and working with the GoI to resolve these barriers. In particular, its mission is to contribute to business development, investment, economic growth and entrepreneurship.

29. Registered as an NGO, the PSDC is independent, non-political and its membership is open to any interested business organization willing to commit time and effort to resolving constraints to Private Sector development in Iraq, in an effort to develop and advocate solutions to the most pressing problems preventing Private Sector development. It also aims to serve as a communication mechanism to keep the Private Sector members aware of the GoI's reform activities and to help coordinate efforts to engage with GoI. The PSDC is led by a Steering Committee, composed of leaders of 7 Iraqi private sector associations and responsible for prioritizing the work of the PSDC, approving reform recommendations, advocating those recommendations to GoI and monitoring their implementation.

1.6. Gender Equality and Participation in Economic Activities

30. As highlighted in World Bank ICA report, Iraq suffers from particularly significant gender inequality in labor force participation, educational attaining and training.

16 The UN Global Compact (UNGC), the largest global CSR initiative, was launched in 1999 by UN Secretary General as a strategic policy initiative for businesses that are committed to align their operations and strategies with 10 universally accepted principles in the areas of: a) human rights, b) labor, c) environment, and d) anti-corruption.

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31. In particular, a 13% participation in labor force has been recorded, far below that of neighboring countries and mostly concentrated in the public sector or in low wage or even non-wage sectors. Moreover, a very small percentage of surveyed enterprises (7%) have labour as part of their ownership structure, with higher presence in larger size firms than in smaller firms.

32. The Women’s Economic Empowerment (WEE) Report, a study conducted by UNDP in 2011-2012 about status of Iraqi women integration in the economy, reports similar facts based on case studies drawn from economic empowerment interventions throughout all 18 governorates of the country. In particular, the WEE Report describes the challenges and opportunities to women’s employment in the Iraqi economy, making recommendations on how to better engage women in the economy of Iraq (see more details in chapter 9).

33. In a national conference on Women Economic Empowerment in Iraq, held in October 2012 by UNDP and Government – Deputy Prime Minister Office, the outcomes of the report and more generally the challenges for women participation in Iraqi economy were discussed in a joint dialogue between Government, private sector (represented by the Iraq UNGC Network), CSOs and international partners. While several interventions have been undertaken by different stakeholders to improve women’s integration, much more remains to be done to empower Iraqi women and facilitate their access to income generating activities, as employees as well as entrepreneurs, acknowledging that female-owned /managed business positively impact productivity and economic growth – as also demonstrated by the international experience. The conference kicked off a process towards this aim, with the creation of a steering committee – under the DPMO – in charge of developing pilot projects for women empowerment in Iraq, linking also to green jobs and women in technology promotion.

34. Another significant activity promoted to support women empowerment and in relation to private sector institutions, is the project by the Ministry of Women Affairs and the Iraqi private sector - represented by the Iraqi Businessmen Union and the Iraqi UNGC Network. Initial steps have been taken, with draft by-laws prepared with UN-Women support for its establishment under the umbrella of the Iraqi Businessmen Union.

1.7. Constraints to Development

35. Issues and constraints, with associated macro indicators, have been widely reported and they constitute a chain of factors strictly interlinked to each other; the following are mentioned, as aggregating or implying a series of many others within implicit cause-effect relationships17:

From an economic perspective, doing business in Iraq is significantly more expensive than elsewhere, causing a remarkable loss of competitiveness to Iraqi firms and a stagnation of the whole

17 Cumbersome regulations, bureaucracy, corruption, heavy or inefficient taxation, irregular supplies of electricity and gas, political interference in major private sector institutions and organizations, lack of sound legislative and regulatory frameworks, lack of incentives and credit systems, especially for SMEs, and associated difficult access to finance, lack of sectoral strategies, lack of value and supply chains etc.; see also conclusions of ICA surveys.

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economy, preventing foreign and domestic investments from taking off.

From a social perspective, the public sector is the main employer18, while unemployment is growing in the non-public sector; in addition, the oil sector (contributing to about 50% of the national GDP) absorbs 1% of total employment, against 35 % of the agricultural and industrial sectors contributing to only 11 % of the GDP.

Iraq's economy is still oil - dependent, while the private sector is both under-developed and unsupported19.

36. Still according to the ICA report, land, labor market and access to finance constitute the key overarching constraints to private sector development.

1.8. Overarching Needs

37. All analysis and experiences conducted by different international and national organizations, even if from different thematic perspectives, conclude that private sector development can be effectively fostered, in summary, through:

Establishment of a sound governance system, stemming from a common willingness and shared commitment to foster reforms, and aiming at building consensus coordination mechanisms and mutual confidence among GoI institutions and between GoI’s institutions and the Private Sector;

Full roll out of the initiated reform process, through simplification of existing rules and through the rapid establishment, adoption and transparent management of a sound legislative and regulatory framework targeting key areas of immediate priority to enhance both public and private investments, competitiveness and SME development, along with necessary support measures and especially in the framework of PPP schemes; major areas of reform include land management, labor, banking, finance and taxation, SME development.

Diversification of its productive economy also for job creation, especially through the full implementation of the SOEs Restructuring Roadmap and other development support programmes initiated in the last years by various international and national organizations.

2. OVERVIEW OF MAIN ONGOING PRIVATE SECTOR DEVELOPMENT RELATED PROGRAMMES

38. The PSD Strategy builds on recently completed, ongoing and planned international and national assistance20 and national plans and strategies aimed at supporting and/or fostering private sector development in Iraq; such programmes constitute the core of the available instruments that the Strategy intends to build on, framing it into a better coordinated and harmonized framework for further support by the GoI. The following main programmes are recalled, in summary:

18 The public sector, including SOEs, absorbs 40% of the total employment, CSO, 2011 statistics.19 ICA report, World Bank, 201220 Technical and financial

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2.1. Main International Assistance

39. The integrated Private Sector Development Programme for Iraq, implemented by UN Agencies in cooperation with the Task Force of Economic Reforms; it intervened at both upstream and downstream levels addressing key legislative and regulatory reform, labor, land and agricultural policy reforms, SME development, SOEs restructuring, Industrial strategy Business Development Services).

40. Numerous technical assistance and training programmes funded by the World Bank Group and focusing on business planning, SOEs restructuring, corporate governance reforms, Public-Private Partnerships (PPPs) pilots, establishment of an Asset Valuation Unit at the Ministry of Finance (MoF), banking and financial sector reform - including access to finance for SMEs -; in addition, other ongoing projects include Transparency Initiative, Public-Private Dialogue, MIGA supported IFC investments in the agribusiness, finance, services and infrastructure and access to finance21.

41. In particular, support is provided to regulatory reform across several key sectors, including financial sector, industrial zones, Doing Business indicator areas (such as business registration and construction permits), pensions reform, public distribution system, tourism and customs, establishment and operation of central Regulatory Reform Units within the Council of Minister’s Secretariat (COMSEC) at the central Government level and Kurdish Regional Government.

42. The recent 2013-2016- Country Partnership Strategy is structured to pivot around three axes: (i) strengthening state institutions to improve the management of financial resources; (ii) supporting economic diversification, regional integration and sustainable growth; and (iii) improving the delivery of basic services and social protection. They will build on existing programs (public financial management, private sector development, infrastructure, and service delivery).

43. USAID assistance addresses also numerous areas; main programmes include Tijara (Microfinance; SME lending and guarantee schemes, Business Development Services, Business & Investment Enabling Environment, new job creation for youth); Financial Sector Development including Retail Payment System Infrastructure (RPSI); WTO accession assistance, normalization of international trade; Tarabot, aiming at reducing the regulatory burden in core economic areas and creating a national Human Resources Management Information System; Governance Strengthening; School Management / Education; Entrepreneurship and establishment of a Baghdad based Innovation Center.

44. JICA, Japan International Cooperation Agency, is currently providing infrastructure development loans (electricity, water supply, transportation

21 CPS: IFC’s investments have aimed to support the private sector and leverage regional investments, including Erbil Rotana Hotel, a cement company, and the banking, telecommunications, and logistics and warehousing sectors (including through equity investments). Besides its investment engagement, IFC has also provided advisory support in the areas of investment climate, financial infrastructure strengthening, capacity building of the banking/MSME sector and bank risk management, selective SME management training, especially targeting women, and the promotion of public-private partnerships in collaboration with the World Bank.

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…) and the associated capacity development and training assistance for project cycle management replicable models for strengthening Iraqi skills throughout the different stages (programming, planning, prioritization, implementation, financial and technical management, monitoring and evaluation etc), also for enhancing FDIs, as well as on state budget management and on needed standardization legal frameworks.

45. UNIDO has assisted within the PSDP-I three pilot SOEs (petrochemical, glass & ceramics and paper) in partial rehabilitation and restructuring and is currently implementing an integrated Enterprise Development Programme in the three governorates of Erbil, Baghdad and Thiqar, to support private sector development (SMEs), providing training courses for entrepreneurs and public counterpart staff, with focus on ICT development, investment promotion, associated e-learning tools and business counseling with significant results obtained in terms of job creation, investments and partnerships; in addition a feasibility study is under preparation for the development of an Industrial Zone of Al Faw Port area.

46. SME lending schemes provided by the Tijara programme and by the Iraqi Middle Market Development Foundation (IMMDF, funded by the Overseas Private Investment Corporation).

2.2. National Assistance

47. With increasing oil revenues, particularly since 2007 and the shift of international assistance programmes from mostly physical infrastructure and basic services reconstruction, rehabilitation and upgrading into mostly technical assistance and capacity development, the GoI started to allocated increasing amounts of oil revenues for development. In the period 2007 - 2012, the GoI allocated on the General Federal Budget a total of US$ 131.3 billion for the Capital Budget (used for development projects implemented by Central Ministries) and US$ 26.4 billion for the Regional Development Fund (used for development projects implemented by Local Governments). Most of threse allocations have been used to rehabilitate and upgrade the dilapidated infrastructure and basic services while part of it has been used to develop economic sectors, particularly oil production and export facilities, oil downstream industries. Most of the development projects under the Capital Budget and Regional Development Fund are implemented by Iraqi contractors, suppliers and service providers, whether as prime contractors or as subcontractors or joint ventures with foreign partners.

48. Since 2008, the GoI allocated about US$ 1.4 billion to the Agricultural Initiative with the purpose developing agriculture and agro industry, mostly through a scheme of soft loans to private farmers and agribusinesses, with special attention paid to women. And while industry received less attention in the past few years, the GoI is formulating now an Industrial Initiative that involves a scheme of soft loans to private industrial businesses. Meanwhile, both the Agricultural Bank and the Industrial Bank continued to provide commercial loans to businesses in these sectors.

49. To address unemployment and to enhance the economic opportunities for vulnerable groups, the Ministry of Labor and Social Affairs initiated since 2010 the Producible Microloans Programme whereby about US$ 290 million of soft microloans have been provided for 73,493 beneficiaries.

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50. The National Development Strategies 2005 - 2007 and 2007 - 2010 reckoned "Revitalization of the Private Sector" as one of the 4 key pillars governing strategic public actions for reconstruction and development. The National Development Plan 2010 - 2014 and the National Development Plan 2013 - 2017 (under preparation) adopted similar approach.

3. TARGET STAKEHOLDERS

51. The GoI shall lead the process of the PSD Strategy on the short and medium terms, ensuring the strategic paths for gradually achieving the objectives of the vision, and to coordinate the implementation of priority measures and actions presented in Part III and for the Private Sector to organize itself for efficiently advocating its needs and to operate in accordance with the priorities set by this Strategy.

52. Thus, the audience of the PSD Strategy is rather wide and it includes, in particular:

The Economic Committee of the Council of Ministers chaired by the Deputy Prime Minister - Economic Affairs.

The Prime Minister Advisory Commission and its Task Force for Economic Reform.

All PSD relevant central ministries and public sector institutions, including also the SOEs system.

Local governmental institutions. All Iraq - wide private sector institutions. Professional unions (including but not limited to Iraqi Engineers

Syndicate, Iraqi Association of Accountants and Auditors, Iraqi Society of Economists, General Union of Farmer Societies)

Trade Unions All donors’ community supporting or intending to support PSD in Iraq National and international investors and strategic partners.

4. APPROACH TO THE IMPLEMENTATION OF THE PSD STRATEGY

53. The main components of the approach are the following.

The vision sets long term strategic objectives to be achieved by 2030, as a jointly agreed reference framework and guidance for the planned interventions and actions by the GoI and the Private Sector.

Given the numerous challenges ahead, the main focus is, however, on the short-medium term 2013 - 2022), with the GoI assuming the roles of leader, facilitator and coordinator and gradually transferring the one of planner and investor to the Private Sector (except for large size infrastructures, strategic oil downstream industries, mining and mineral industries, where, however, PPP schemes can be envisaged).

The initial phases of implementation will ensure that fundamental pre-requisites will be in place, in terms of:

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A clear and straightforward governance system (starting from the establishment of the proposed Private Sector Development Council) well positioned within the GoI structure and incorporating a well structured, efficient and permanent GoI / Public Sector - Private sector dialogue and consultation platform, supported by clear and efficient instruments and mechanisms for achieving consensus on needed reforms and support measures and for implementing them according to clear institutional competencies

knowledge building, through joint GoI and Private Sector efforts, supported by international development partners, to specify and assess the actual private sector development potential throughout the Iraqi economy, based on achievable inclusiveness and growth targets as well as on a well established business and partnership culture.

fully adopted priority policies and enforced sound legislative and regulatory frameworks

availability of medium-long term financial instruments and regulations for enhancing access to finance especially by SMEs

developing management capacity in all above. As indicated in Chapter 2s on the work developed, ongoing and

planned by both international and national institutions, improving, expanding and integrating it, utilizing already available support instruments and outcomes so far, for enhancing the national relevance

The Strategy fosters support measures at the levels of institutional, policy, legislative and regulatory reforms (along with associated implementation requirements) matched with selected downstream actions or initiatives consistent with the upstream priority reform support measures.

PART II - STRATEGIC PATHS

5.STRATEGY BASIS AND TARGETS FOR THE VISION

5.1. Strategic Basis

54. Steady increase of population. Unemployment kept to minimum, with

the Private Sector becoming the prime employer. Increase of total demand and enlarged markets Heading to peace and stability, activating internal and international

pacts, low level of political and social tensions and conflicts risk Enhanced scientific and technical level of education institutions Better health and welfare standards for citizens Higher degree of technology upgrading, firmly established

intellectual property rights rules Minimum inflation level, sustained Restructuring of SOE’s completed.

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Organizational and supervisory role of the GoI and active private sector role in development and growth

Continuous rise of energy sources (oil) price and economic results of alternative energy sources appeared

Industrial, Investment Free Zones and Technology Parks established Incentives for incoming investment capital established Legislations matching the needs of a developing business

environment Environment awareness prevailed Competitiveness indicators for assessment of economical

performance prevail. The Private Sector system is well organized, governed and

represented through capable institutions and associations Established application of Governance principles to ensure evolution

and innovation; clear roles to central Governance and local authorities established and practiced

Output of links in value chain for supply, production and distribution appears in the existing and future enterprises, based on inclusiveness business models.

5.2. Key Targets

55. High level of infrastructure availability and operability. Private Sector share in non - oil GDP to reach 70 - 80% Employment in private sector to reach at least 60 % of total

employment Private Sector exports share in the overall output of non - oil exports

to reach 70 % Private sector investment rate to reach 50 %/p.a. of total

investments. All State Owned Enterprises have been restructured, viable ones

corporatized and fully integrated in a private sector led market economy.

PPPs in economic sectors and in infrastructure become a widely accepted model of Public Sector - Private Sector engagement.

6. THE ROLES OF THE GOI, OF THE PRIVATE SECTOR AND OF THE INTERNATIONAL ORGANIZATIONS

6.1. The Role of the GoI

56. While initially leading the implementation of Iraq’s PSDS in strict consultation and in coordination with the Private Sector institutions and associations and, later, with the Trade Unions, the GoI shall gradually shift from the current role of planner, organizer, main owner, investor and producer to the one of promoter and facilitator of PSD in Iraq, by:

creating the necessary stability and security conditions in the country to consent business to develop, become more competitive and grow, as well for international expertise to provide any agreed assistance on the ground;

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introducing and applying a fully fledged participatory approach through the establishment a permanent dialogue and consultation platform with the Private Sector based on mutual trust

implementing necessary legislative and regulatory, institutional and policy reforms, coordinating with the other governmental institutions according to competencies;

providing the necessary infrastructure required to revitalise and make competitive the Private Sector.

establishing the necessary financial support system and instruments for the Private Sector to emerge and grow;

establishing, in such context, an attractive investment environment; monitoring and evaluating, introducing necessary adjustments as

needed for achieving planned strategic objectives; organizing and protecting intellectual property rights. ensuring quality standards of domestic and imported products and

commitment to the best environmental practices

6.2. The Role of the Private Sector

57. In parallel, the Private Sector will need to emerge (contributing to the gradual disappearance of the informal sector), organize itself and take a pro-active role in:

strengthening its institutions and associations, improving their sustainability and ensuring a high degree of representativeness of private businesses;

initiating and sustaining dialogue mechanism within the Private Sector to ensure harmonization and coordination of views and agendas;

contributing to establish a dialogue, partnership and advocacy platform with the GoI for fostering Iraq’s economic and social growth in Iraq;

participating to the implementation of the national development plans, to the preparation and implementation of the sectoral policies and plans in cooperation with the GoI and Public Sector to the limits drawn for its intervention;

developing and pursuing inclusive business strategies and models contributing to job creation and to the enhancement of the national value added;

fostering the exploitation of natural, human and technical resources; supporting and creating active and competent professional

organizations to lead all economic sectors; cooperating with other sectors to create a scientific and technological

advanced environment through links with universities, research centers, local and foreign investors and advanced technology suppliers

increasing the local contents and the exports of products and services of local origin.

6.3. The Role of the International Organizations

58. The international organizations will be invited by the GoI to coordinate effectively their agendas for assisting Iraq's economic and social development, as well as to provide management and guidance assistance, as appropriate and as needed, for contributing to an efficient roll out the

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interventions set by the PSD Strategy; the assistance will cover also the Governance system, presented in Chapter 11.

59. Programme and project management, with focus on introduction and application of international best practices, such as for including especially M&E, will be of high priority.

60. Support will be sought also for exposing Iraqi stakeholders to best international practices and for implementing some specific components of the Strategy, both upstream and downstream, through qualified international expertise.

7.PILLARS OF THE STRATEGY

61. The Strategy focuses on the following four Pillars that, as indicated, will build also on already ongoing programmes in the envisaged intervention areas.

PILLAR 1: DEVELOPING AND ENHANCING THE PRIVATE SECTOR KNOWLEDGE AND INSTITUTIONAL COMPETENCE BASE

62. This pillar addresses basic pre-requisites for managing a coherent PSD process by both the GoI and the Private Sector and for justifying specific interventions; it aims at:

acquiring a comprehensive picture of private sector businesses in the different sectors of the Iraq economy, through surveys and improvement of business registration procedures and extended surveys;

the informal sector gradually registering and disappearing; for this purpose, under Pillar 2, proper incentives will be introduced by the GoI and local institutions to let the informal sector emerging;

acquiring and managing a comprehensive knowledge base of private sector (with associated employment) dynamics and specific development potential, aiming, in turn, at:

jointly (public-private) formulating and adopting sectoral and social strategies and policies, which will be based on enhancement of inclusiveness, clustering, innovation, inter-sectoral cooperation and linkages and strategic partnerships;

conducting a joint government - private sector analysis of supply and demand of key skills needed and designing appropriate job creation policies for skill upgrading and capacity building in key sectors (e.g. oil and gas downstream industries, mineral and construction material industries);

developing and operating a national-regional-governorate information system where PSD related information sources, links to specialized websites, economic literature, reviews, reports and specific statistics are uploaded and can be easily consulted and utilized by both the GoI and private sector businesses;

strengthening central and local Private Sector institutions for improving their governance, quality control and quality assurance, environmental and service delivery systems and contributing pro-actively to the achievement of the PSD Strategy objectives.

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PILLAR 2: ESTABLISHING A STABLE AND CONDUCIVE FRAMEWORK AND DOMESTIC MARKET CONDITIONS FOSTERING THE CREATION AND GROWTH OF THE PRIVATE SECTOR

63. This pillar addresses other crucial pre-requisites constituting actually the main key drivers for PSD, so as to create a sound and private sector-oriented Business Enabling Environment; it aims, in particular, at:

establishing and operating targeted and accessible financial instruments for supporting businesses in starting operations, enhancing their competitiveness and in fostering their business development potential;

integrating, streamlining and adopting a priority cross-cutting policy framework, focusing on a number of priority areas grouped into two main categories (cross cutting economic support, social and environment);

in accordance also with the policy frameworks and building on initiated reforms, streamlining, adopting and enforcing the legislative and regulatory processes and frameworks, setting clear priorities and timeframes and introducing sound and efficient implementation (enforcement) institutional tools and mechanisms;

strengthening and expanding Information Technology networks throughout the private sector, for supporting the knowledge building process in the country.

PILLAR 3: BUILDING A CORE OF COMPETITIVE, SUSTAINABLE AND INCLUSIVE PRIVATE SECTOR CLUSTERS AND VALUE CHAINS

64. This pillar addresses interventions directly at the level of enterprises that are supported by, or consistent with, measures taken within the first and second pillars; it aims, in particular:

introducing and/or expanding market and marketing knowledge throughout the private sector (institutions, associations and individual businesses)

restructuring all viable SOEs, integrating them into value chains with the private sector, preparing them for possible privatization;

introducing and applying inclusive business models, that contribute to job creation, gender equality and to the increase of the national value added;

initiating the implementation of already defined strategies, such as the energy, industrial and education and higher education strategies, for their relevance to PSD;

establishing and operating an integrated SME Development Support System constituted by such as national SME Agency, Business Centers, Incubators, Industrial Zones and Technology Parks, based on best international practices and fostering the formation of innovation based clusters and value chains.

PILLAR 4: ESTABLISHING AN EFFICIENT GOVERNANCE SYSTEM SUPPORTING THE OTHER PILLARS

65. This pillar aims at ensuring an adequate and efficient governance system, fully shared by the GoI / Public Sector, KRG, governorates, financial institutions, and the Private Sector, for agreeing upon, designing, coordinating, implementing, monitoring and evaluating the envisaged measures and actions set in this Strategy; it aims, moreover, at:

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establishing a shared willingness and commitment platform for all relevant key stakeholders for accelerating the Private Sector development and economic reform agenda;

enhancing dialogue and the coordination efforts among different central and regional and governorate - level public and private institutions;

establishing a permanent GoI / Public Sector - Private Sector platform for dialogue, achieving consensus and for a coordinated management of the PSD Strategy;

establishing a clear and coherent institutional set up that: builds also on arrangements already in place, thorough the

creation of a PSD Council and thematic work teams or groups; is operated on the basis of clear rules and procedures for

smooth and efficient decision making processes.

8.STRATEGIC PATHS

66. The vision is essentially a static snapshot, whereas the strategic paths should explain how to get there. The strategic path charts the path to a more diversified and technology / knowledge intensive private sector. This means that the Strategic Paths must focus on the sequences of changes in the private sector system that need to be initiated in order to trigger processes of self-reinforcing dynamics of reforms, upgrading, restructuring and innovation which ultimately drives the private sector system towards the vision.

67. The strategic paths along with possible achievable targets spread in the 2013 - 2030 timeframe are presented in the Table - 1.

68. The subsequent Chapters elaborate on, and present, specific measures and actions that will be taken for achieving such targets and gradually achieving the vision’s long term objectives.

69. As outlined, the process will be dynamic, with possible reviews of the PSD Strategy and intermediate visions’ objectives along the paths and according to actual results, while the ultimate objectives of the 2030 vision will be maintained to guide the entire process.

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TABLE - 1. STRATEGIC PATHS

PILLAR I: DEVELOPING AND ENHANCING THE PRIVATE SECTOR KNOWLEDGE AND INSTITUTIONAL COMPETENCE BASE

STRATEGIC OBJECTIVES

2017 2022 2030 RESOURCES AND INSTRUMENTSTargets Strategic Paths Targets Strategic

Paths Targets Strategic Paths

70.

Enhance the knowledge on the development potential of the Private |Sector of Iraq

50% increase of registered Iraqi private businesses in at least 9 of the 18 governorates. Initial availability of statistics also on businesses' performance and sector dynamics.Improved access to data and information by the Private Sector.

National surveys All governorates National surveys

All governorates

National surveys (updating)

World Bank and ILO surveys; COS surveys and statistics; Records of Union of Iraqi Chambers of Commerce and Iraqi Federation of Industries

Introduction of regulated financial, fiscal and other development incentives for formal and informal sector businesses to register in 9 governorates.

50% increase of registered businesses in all governorates and availability of complete statistical set on businesses' performance and sector dynamics in all governorates.

Review, change and/or integrations of financial and fiscal incentives.

Disappearance of the informal sector.

Review, change and / or integrations and / or elimination of financial and fiscal incentives.

Existing support funds at ministries and international supported programmes.

Development of a national IT based e-business registration system throughout Iraq

Establishment and functioning of a decentralized business e-registration system in all governorates

Full roll out of the e-registration system.

Files and records of the Ministry of Trade, line ministries, governorates, nation - wide and local Private Sector institutions and associations.Pilot activities launched under the Tijara project.Best international practices and experiences.

Development of pilot national information

Establishment of a full scale national and

IT systems and databases in line Ministries, PS

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systems and networks on the Private Sector at central, governorate and Private Sector institutions level.

governorate - level system of specialized information tools for statistical reviews and access by the Private Sector for business development.

institutions and associations

Formulation, adoption and implementation of strategies and social mitigation plans in priority sectors (industry, agriculture, construction, tourism, IT))

Preparation and adoption of sectoral strategies at national and governorate levels with the participation of line ministries and Private Sector institutions and associations.Formulation of national social mitigation strategy and plans.

Establishment of a comprehensive and dynamic strategy and social mitigation framework covering all economic sectors.

Review and integrate national and governorate sectoral development strategies and plans

Review, update and integrate national and governorate sectoral development strategies.

Work developed by international organizations (World Bank, UN, USAID).

71.

Strengthening the Private Sector institutional framework

Adoption of clear, transparent and independent governance systems

Preparation of institutions' and associations' strategies, completion of BoDs and set up of efficient management structures.

Strengthening of the governance systems.

Reviews of institutions and associations strategies.

Strengthening of the governance systems.

Reviews of intuitions and associations strategies.

Existing legislation, bylaws, acts, decisions and other relevant documents.

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Achievement of at least 50% (average) sustainability of all key Private Sector institutions and association.s

Review of the legal frameworks, bylaws, and financial management system of Private Sector institutions and associations.

Achievement of at least 70% (average) sustainability of all key Private Sector institutions and associations.

Continue review of the legal frameworks, by laws, and financial management system (including membership fees and state contributions) of Private Sector institutions and associations.

Achievement of 100% sustainability of all key Private Sector institutions and associations

Continue review and update of the legal frameworks, by laws, and financial management system (including membership fees and state contributions) of Private Sector institutions and associations.

Financial records of Private Sector institutions and associations; membership fees and sate contributions/subsidies.

50% of Iraqi businesses are members of key institutions, organized in relevant sectoral unions and benefiting of their services.

Formulation of a reorganization plan for the Private Sector institutional framework. Formulation, adoption and implementation of institutions' and associations' strategies. Strengthening the competencies and the IT systems.

50% increase of membership in Private Sector institutions and associations.

50% increase of memberships in PS institutions and associations.

List of members of PS institutions and associations.

PS institutions and associations actively participating in the PSD Strategy governance system, in the preparation and disseminations of sectoral and social mitigation strategies and in a number of priority interventions under Pillar 3.

Full roll out of the PSD Strategy with active Private Sector institutions and associations participation. Public sector - private sector dialogue fully in place.

Establishment of joint teams of specialized experts in relevant disciplines. Networking and cooperation with international similar institutions and associations.

Increased role of the Private Sector in contributing to the full implementation of Pillar 2 and in the management of Pillar 3 of the PSD Strategy.

Expansion and full consolidation of strengthening processes.

Position papers and other relevant documentation produced by the PS institutions and associations.Work developed by international organizations (World Bank, UN, USAID).

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PILLAR II: ESTABLISHING A STABLE AND CONDUCIVE FRAMEWORK AND DOMESTIC MARKET CONDITIONS FOSTERING THE CREATION AND GROWTH OF THE PRIVATE SECTOR


2017 2022 2030 RESOURCES AND INSTRUMENTSTargets Strategic

Paths Targets Strategic Paths Targets Strategic Paths

72. Easy and transparent access to finance for businesses

A targeted decentralized credit and targeted funding and guarantee system is established to support start up businesses and enhance competitiveness, operated by both state-owned and private banks at equal terms and conditions, and effectively utilized by at least 10% of the registered businesses.

Review, amendment, preparation and adoption of relevant policy (decentralized SME Development and Financing), legislative and regulatory frameworks and instruments. Establishment of Competitiveness Fund System (by intervention sectors and areas) to be utilized under Pillar 3.

Full decentralization of SME financial support system and instruments, effectively and efficiently utilized by min 20% of the registered businesses.

Monitoring and evaluation reports.Review and update of the SME financial support policy, regulatory and fiscal frameworks.

Full decentralization of funds' management. SME support financial instruments effectively and efficiently utilized by min 40% of the registered businesses.

Review and update of the financial and fiscal instruments.

Already available SME financing, credit, soft loan and guarantee schemes (Tijara, IFC, IMMDF, MoA, MoIM, MoLSA, etc).

73. Establishment of a comprehensive and harmonized framework of policies and strategies in all PSD areas

Adoption and implementation of priority key policies (for cross cutting economic support, social and environment), consistent and building on sectral strategies developed under Pillar 1.

Establishment and full operation of specialized and public-private joint Technical Committees, under the coordination of the PSDC.Enhancement of the whole

Updating and integration of policies and strategies. Achievement of 70% of the objectives,

Review of the PSD Strategy and other relevant policies and strategies.Work and recommendations of the Technical Committees

Review, updating and integration of policies and strategies. Consolidation of the achievements at least at the same previous levels.

Review of the PSD Strategy and other relevant policies and strategies. Work and recommendations of the Technical Committees

Already drafted or adopted polices and strategies.Work conducted under Pillar 1.

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Achievement of at least 50% of the objectives of the PSD Strategy.

legislative and enforcement process also through the establishment and operation of implementation agencies.

74. Establishment, adoption and enforcement of coherent and harmonized legislative and regulatory frameworks supporting PSD

Adoption and enforcement of priority legislative and regulatory frameworks (economic reform, land regime, PPP, SME support system, companies, investment, competition, public procurement).

continuation and expansion of the process, targeting other areas and reviewing already adopted legislation and regulations for completing the needed national framework, complemented by consistent regulatory frameworks in the Governorates

Already drafted or adopted legislative and regulatory frameworks.

75. Expansion of IT networks and systems throughout Iraq.

Access to IT networks and systems by all registered businesses under Pillar 1 in 50% of the governorates

Developing IT infrastructure and collaborative schemes between public and private service providers and operators. Financial and fiscal incentives.

Access to IT networks and systems ensured for all registered businesses under Pillar 1.

Expansion of IT infrastructure.

IT systems utilized by 100% of registered businesses.

Full roll out of the IT service industry

Current IT expansion programmes.

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PILLAR III: BUILDING A CORE OF COMPETITIVE, SUSTAINABLE AND INCLUSIVE PRIVATE SECTOR CLUSTERS AND VALUE CHAINS




76. Establishment of an SME Agency and support infrastructures

Establishment and initial operation at pilot level of a national SME Agency with branches in 6 governorates. A number of clusters and value chains established; 3-5 industrial zones and at least 1 business incubator established in each key economic target sector across Iraq.

Finalization and adoption of the policy, legislative and regulatory framework for the establishment and operation of a national SME Agency system with the participation of Private Sector institutions and private banks. Relevant integration and coverage in the sectoral strategies (Pillars 1 and 2).Establishment of an integrated funding system, with targeted competitiveness funds, commercial loans and other resources.

Gradual expansion of the SME Agency system to cover 12 of the governorates. Achievement of 50% sustainability of the SME Agency System.

Further strengthening and expansion of the SME Agency and support infrastructures system.

Full sustainability of the SME support infrastructure. The established system of clusters and value chains absorbs 10 - 20% of total Private Sector employment.

Transfer of the SME Development Support System (Agency and infrastructures)..

Preparatory work, reviews and projects by international organizations (UNDP, ILO, UNIDO, World Bank Group, USAID) in relevant areas. Other works and project by Iraqi institutions.

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77. Integration of State Owned Enterprises with the Private Sector

Completion of the restructuring of all viable SOEs and at least 50 strategic PPPs established with national/ international private sector businesses.Creation of new business and jobs for excess employees for at least 30% of the employees of all (viable and non-viable) SOEs.

Completion of the classification and asset valuation of the SOEs of all line ministries and establishment of an SOEs Corporatization Agency (under Pillar 2)

Completion of the corporatization of the restructured SOEs and 30% increase of the n. of strategic and public - private partnerships. 100% financial self reliance achieved for all viable SOEs.All viable SOEs become part of well defined clusters and value chains with significant no. of new jobs created.

Full adoption and enforcement of the relevant legislative and regulatory frameworks under Pillar 2.Initial privatization of selected viable SOEs.

The SOEs system of Iraq efficiently managed by the Private Sector except for strategic industries/sectors controlled by the state. Total employment in the established value chains and clusters amount to about 15% of total employment of the private sector.Contribution of 30% to the total private sector contribution to the non - oil GDP (70%).

Further integration in global chains and continuation of the privatization processes.

SOEs Restructuring Roadmap. State budget allocations for SOEs. Restructuring plans, already implemented and ongoing PPPs, social mitigation plans and studies undertaken by international and national organizations.

Implementation of restructuring and social mitigation plans and improved corporate governance, with the participation of the Private Sector and creation of partnerships and value chains between restructured SOEs and SMEs, and academic and educational institutions.Launch of visibility and dissemination campaignAchievement of consensus through establishment of a dialogue platform among SOEs, private sector, trade unions and local institutional stakeholders.Definition and initial adoption of liquidation procedures for non-viable SOEs

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78. Competitiveness and innovation enhancement, through technology upgrade, quality, adoption of inclusive business models, establishment of clusters and inter-sectoral value chains and strategic partnerships among private businesses (other than those established within the SME System and SOEs restructuring process) and among the latter and national and international educational and academic institutions

Increased employment in 50% of registered private businesses and increase of business profitability. At least 20 clusters and 20 value chains, and 50 strategic partnerships established in key economic target sectors

Formulation of sectoral strategies (Pillar 1) and preparation and implementation of strategic business development plans.Effective and efficient utilization of targeted funding instruments (established under Pillar 2) also through the SME Agency and PS infrastructure support system.

50% employment increase and 50% increase in the number of clusters and value chains. Integration in global markets and chains.

Review and update of strategies. Further integration in global markets and chains.

The cumulative (including above areas) employment in the Private Sector has reached 60% of total employment and the contribution of the Private Sector to the non - oil GDP has reached 70%.

Review and consolidation of all relevant support measures and actions.

Projects undertaken and reports prepared by international and national organizations in all relevant areas. Energy and Industrial strategies.

10 inter-sectoral value chains established. linking the industry, agriculture, construction and energy sectors.

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PILLAR IV: ESTABLISHMENT OF AN EFFICIENT GOVERNANCE SYSTEM SUPPORTING THE OTHER PILLARS




79. Full and efficient implementation of the PSD Strategy

Establishment and operation of an efficient governance system.

Design of the governance system and CoM Resolution / CoR legislation establishing the PSD Council supported by the TFER and specialized Technical Committees in the different target areas of the PSD Strategy, with the participation of relevant public, Private Sector, unions and financial sector representatives, both at central and governorate levels.

Decreased GoI financial support and initial transfer of the management of selected components of the revised PSD Strategy to the Private Sector (constituting at least one - third of the members of the PSD Council).

Review and adoption of relevant resolutions or acts.

Two - thirds representation by the Private Sector in the PSD Council. All components under Pillars 1 and 3 are entirely managed and implemented by the Private Sector.

Further reviews and adoption of relevant resolutions or acts.

The Task Force for Economic Reform. Existing NGOs PSD advocacy groups. Existing sectoral committees and working groups.Draft Economic Reform Law.

Preparation and adoption of clear and transparent bylaws, regulations and procedures at all levels of the governance system.

Completion of the set up of the governance system and full roll out of the PSD Strategy.

Further strengthening of the governance system though enhanced skills and competencies, as required.

Reviews, as required.

Establishment and operation of a transparent and efficient monitoring and evaluation

At least 50% of the objectives effectively and efficiently achieved in the

Full roll out of the monitoring and evaluation system and review of the

At least 80% of the previous objectives effectively and efficiently

Further review of the PSD Strategy.

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system of GoI support effectiveness and Private Sector performance and dynamics. Achievement of at least 30% of the objectives under each Pillar.

other Pillars Pillars.

PSD Strategy. achieved in all Pillars.

80. Decentralization of PSD Strategy management

Minimum 15% of representation by the local Private Sector and Local Governments in the PSD Council.

Formulation and adoption of a national decentralization policy within the framework of the economic reform process.

Min 30% of representation by the local Private Sector and Local Governments in the PSD Council.

Enhancement of the consultation processes between local governments and the local Private Sector.Enforcement of relevant governorate level resolutions or acts

Full decentralized management and implementation of the PSD Strategy, with the GoI supporting through measures of national interest.

Further strengthening of local management capacity.

Present central - local consultation mechanisms and committees

81. Increased effectiveness of donors' assistance to PSD

Fully coordinated and consistent international assistance programmes and projects, with focus on enhancement of management capacity.

Exposure to best international practices; provision of capacity building and management advisory assistance to the PSD Council, the TFER and the Technical Committees.

further consolidation and international networking assistance as required

Current and planned international assistance

Regular consultation mechanisms between the PSD Council and international organizations, for setting and achieving objectives consistent with those of the PSD Strategy. Joint Monitoring and Evaluation

A number of international funded assistance and management capacity building projects successfully completed, contributing to the

Joint monitoring and evaluation

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management and implementation of the PSD Strategy.

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PART III - THE ACTION FRAMEWORK

9. POLICY AND CROSS CUTTING AREAS FRAMEWORK: ISSUES AND STREAMLINING NEEDS

9.1 The National Development Plan

82. The National Development Strategies 2005 - 2007 and 2007 - 2010 revolves around four major pillars that will govern strategic public actions for reconstruction and development: (i) strengthening the foundations of economic growth; (ii) revitalizing the private sector; (iii) improving the quality of life; and (iv) strengthening good governance and security. Alternatively, the National Development Plan 2010 - 2014 and the draft National Development Plan 2013 - 2017 adopted a sectoral approach, allocating a chapter for Private Sector development.

83. The NDP 2010 - 2014 aims to achieve GDP growth of 9.38 percent per annum; to generate 3 to 4.5 million new jobs; to diversify the economy away from oil with gradual increase of contribution of production, agriculture, industrial sectors, and tourism; and strengthen the role for the domestic and foreign private sector, both in terms of investment and job opportunities. Poverty rates are targeted to reduce by 30 percent from the 2007 levels by focusing on comprehensive rural development, and provision of basic services such as education and healthcare, particularly for vulnerable groups. It focuses on environmentally sensitive economic and social development and using available natural resources in a sustainable way. It also aims to strengthen the role of local governments to bring service delivery and economic development closer to the people.

84. In the NDP 2013-2017 under preparation, the section dedicated to PSD will be consistent with the principles and the objectives of the PSD Strategy.

9.2 Key Policy and Cross Cutting Areas

85. Policy and cross cutting areas are classified into two main groups: (1) key economic support areas and (2) sustainable development areas.

86. The following provides an overview of the present situation, pending issues and of measures that will be taken for streamlining the entire framework of key cross cutting and policy areas relevant to PSD.

9.2.1. Key Economic Support Areas

9.2.1.1. Economic Reform and Decentralization

87. While the economic reform process constitutes the overall framework for the growth of the Iraqi economy and for all key reforms in the different areas of the economy, it still needs to be properly institutionalized and formally adopted by the GoI.

88. For this purpose, a draft Law of Economic Reform law was drafted by UN agencies, approved by the Cabinet and sent to the State Shura Council in February 2011 for review. The draft is still pending as of December 2012.

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89. The draft law aims specifically at defining the principles based on which the economic reform policy in Iraq should be formulated in order to comply with Article 25 of the Constitution by which the State guarantees the reform of the Iraqi economy in accordance with modern economic principles to ensure the full utilization of its resources, diversification of its sources and the encouragement and development of the private sector, ensuring the transition of the centrally planned Iraqi economy towards a market economy by giving the Private Sector a fundamental role in the development and the market growth of economic enterprises and in reducing the financial burdens on the federal treasury in particular and on the national economy in general, improving the efficiency of economic projects, increasing their productivity and competitiveness and putting an end to the waste and dissipation that have badly affected the economic resources of the Iraqi people.

90. The establishment of an Economic Reform Council was foreseen in the draft law, tasked, in summary, with coordinating the preparation and adoption of the needed economic reform policy framework; it envisaged the participation of both public and private sector representatives.

91. The draft addresses, among its objectives, the decentralization of the economic governance by granting more significant roles to local governments in economic planning, public investment and public-private partnerships as well as fiscal decentralization to secure the financial capacity of governorates to fund economic development needs.

92. The GoI is committed to accelerate the final review process, adoption and enforcement of this fundamental law, along with specific regulations that will need to be prepared especially for decentralization processes and establishment of a governance system fully consistent with the PSD Strategy. Also, Local Governments shall be encouraged to adopt a set of measures to improve the local business environment to create innocuous competition climate among governorates.

93. The proposed Economic Reform Council could be effectively merged with the governance system set by the PSD Strategy (establishment of a Private Sector Development Council, see Chapter 11). This requires reconsideration of the draft Law of Economic Reform to incorporate provisions for the proposed PSD Council.

9.2.1.2. Access to Finance

94. As outlined by the WB CPS (2013 - 2016), the GoI has recognized the importance of improving the performance of the financial sector, including creating a level playing field for non-state banks, improving access to finance for micro, small, and medium Enterprises (MSMEs), and improving financial sector regulation and governance. Iraq’s financial sector is underdeveloped and dominated by state-owned banks, weak private bank participation and access to finance by firms. The system is not aligned with international standards and governance structures are weak. Going forward, it will be important to accelerate the current reform program, including clarifying the roles of state-owned banks, restructuring the two largest banks – Al Rafidain and Al Rashid– and removal of barriers for private banks in doing business with the state-owned banks and put in

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place concrete measures to create a level-playing field between private and public banks. It will also be important to create a better enabling environment to allow access to finance, including improving credit systems, contract enforcement, and bankruptcy regulations.

95. This Strategy sets type of instruments and utilization modalities that the GoI in cooperation with the banking sector as addressed in Par. 10.4.A specific strategy, tailored especially for small-medium size businesses, will therefore need to be jointly and rapidly prepared and promptly implemented, even in the presence of still pending legislative, regulatory and capacity constraints that will be also addressed, but gradually. In particular, it is suggested to frame measures and interventions supporting access to finance within the SME Development Support System (see Chapter 10, Axis 1), and based on clear objectives and eligibility criteria, responding to the goals of this Strategy.

9.2.1.3. Business Registration

96. Efficient business entry and exit procedures are of fundamental importance for PSD, as already outlined and widely reported.

97. The system currently in place is featured by long and cumbersome procedures, heavy bureaucracy, conflicts between institutions over responsibilities and competencies, practically contributing to widening of the informal sector.

98. There is an urgent need to have a one stop shop. as successfully developed in other countries, minimizing approvals, clearer pre-requisites and, in general, simplified procedures. In addition, an IT-based e-registration system linking governorates with central institutions needs to be urgently developed.

99. To have a well functioning business registration, along with proper incentives, is vital for the gradual disappearance of the informal sector; this calls for a closer cooperation among relevant institutions (Ministries of Trade, Finance, line ministries and their offices in the governorates) and will consent also to improve Iraq’s ranking in the World Bank’s Doing Business.

100. Initial recommendations undertaken in the framework of Tijara programme need to be consolidated, expanded and enforced, taking into account best international practice. In particular, the set of recommendations on needed legislative and regulatory reviews provided under Tijara will be carefully addressed by the GoI; they address minimum capital as dictated in Company Law 21, new regulations for Companies Registrar, coordination with the Chambers of Commerce, Law on Commerce, “supervisory” role of ministries and the establishment of Registrar branches in the governorates.

9.2.1.4. Land Reform

101. Secure access to land is a crucial factor for poverty reduction, livelihood of the rural population, food security, investment security and economic and social growth of the private sector.

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102. In Iraq, the development of a functioning formal land market supported by mortgage finance is hampered by many factors, such as:

High transaction costs for registration of land transfers. Unresolved land disputes. Fragmented ownership. Illegal land subdivision and unregistered land transactions. Rent control and unbalanced landlord-tenant relations. Inability to foreclose on residential property. An incompetent and ineffective land taxation regime.

103. The Land Reform Programme was initiated in early 2011. UN-HABITAT has been supporting the activities of the Working Group for Regulating Land Tenure (Ownership) and Utilization. The milestones of this process are:

Berlin Statement and Process for Formulating National Land Management Policy (2011).

Institutional Development programme , with the creation of a High Committee for Land Management responsible for the formulation and maintenance of the National Land Policy.

Land Governance Assessment Framework (LGAF) , as a diagnostic tool developed by the World Bank for the evaluation of the legal framework, policies and practices regarding land and land use within a region or country.

National State Land Inventory Demonstrator , a pilot (Nahrawan of Baghdad) computer based info system has been launched in Al Nahrawan Nahiya (sub-district) of Baghdad Governorate to raise awareness of the benefits of a National State Land Inventory with key stakeholders with input from representatives from the ministries of Municipalities and Public Works, Construction and Housing, Agriculture, Finance, Industry and Minerals and Defence.

Legislative / Institutional Assessment . Urban Land Tenure Investigation Proposal for the elimination of fragmented ownership (including

tassaruf rights). Education of Land Professionals . Draft State Land Management Policy . That will be distributed for

consultation in early 2013.

104. To further streamline this important work so far, the GoI has agreed with UNHABITAT to cooperate in the short-medium term on the following work agenda:

Establish the Higher Committee for Land Management, secretariat and associated technical support groups.

Prepare a study in rural land tenure to provide evidence and guidance to the formulation of the National Land Policy and implement a pilot.

Prepare a study in peri-urban land tenure to provide evidence and guidance to the formulation of the National Land Policy and implement a pilot.

Prepare a study into the management of geospatial information across Iraq and the formulation of the National Spatial Data Infrastructure (NSDI) Policy and implement initial recommendations.

Provide training and technical assistance to relevant ministries and local governments in the creation of state land inventory pilots.

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Review and evaluate baseline institutional and professional capacity and establish links with international land management centres and develop curriculum.

Establish a post-graduate educational program on land management in cooperation with one dedicated Iraqi University and partnering with a qualified International University.

Create a Land Policy website and knowledge resource. Obtain agreement on the initial National Land Policy green paper

through stakeholder engagement, public consultation and sign off by the Council of Ministers.

Initiate implementation of more effective state land management and strengthen corresponding legal framework.

Continue development of a more comprehensive National Land Policy white paper.

105. In addition, during years 2014 and 2015 it is planned to conduct activities in the following areas involved in continuing the development and implementation of a comprehensive National Land Policy:

Strengthened land governance. Improved effectiveness of public land management. Reduction of land conflicts Improved capacities of Iraqi land professionals for land administration

and management. 9.2.1.5. SOEs Restructuring and Social Mitigation

106. Reform of Iraq‘s SOEs is urgently needed in order to level the playing field for the private sector thereby bolstering economic diversification and growth. High priority actions for immediate and full implementation thus include:

Implement the Government of Iraq Road Map for SOE Reform; Establish a Public Private Partnership (PPP) unit within the Ministry of

Finance; Enact a best-practice PPP law as well as a complete set of sector-

specific modern commercial laws and regulations; Conduct a complete review of government assets, including their

viability and potential; Develop support measures for excess employment, including

mechanisms for absorption into the private sector22 .

107. The restructuring and the subsequent corporatization (transformation into joint stock public companies, laying the foundations for possible future privatization) of the SOEs constitutes a key objective of this Strategy for the revitalization of the Iraqi Private Sector, expected to play a pivotal role in the process.

108. The Ministry of Industry & Minerals, counting the highest number of SOEs in Iraq, has recently launched a call for proposals by international consulting firms and organization to undertake a series of tasks ranging from assert valuation up to the identification of potential partnerships, for about 25 SOEs. It will be followed by other line Ministries in the framework of earmarked allocations in 2012 and subsequent state budgets.

22 World Bank, ICA

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109. An Asset Valuation Unit has been recently established (with World Bank support) in the Ministry of Finance that shall introduces methods and systems to support the restructuring and corporatization processes of the SOEs.

110. The Roadmap for SOEs Restructuring, prepared under the coordination of UN PSDP-I Agencies with the support also of the World Bank and adopted by the Cabinet in 2010, will be fully implemented, along with necessary institutional arrangements at central level (Agency for Corporatization) and in line Ministries23 and possible readjustments as needed for an efficient roll out of the process.

111. International assistance will be sought to ensure an efficient management and process implementation based on consolidated experiences in numerous transition economies, also in terms of monitoring & evaluation of the impact of the work of the consulting firms and needed social mitigation measures for excess employees.

112. In this framework, sectoral strategies will also be prepared in cooperation with Private Sector Institutions and Associations (Pillar 1) to better guide the reform process as well as for enhancing the integration of the private sector with the SOEs system.

113. In the social mitigation area, building also on the initial preparatory and planning work conducted by UNIDO and ILO, both national and SOEs specific social mitigation plans will be prepared, fostering establishment of new start up businesses for excess employees and job creation through governorate/local private sector support infrastructures and adequate technical and financial assistance.

9.2.1.6. Public Private Partnerships

114. The GoI assigns highest importance to this policy area, as aimed at boosting integration of the public economic system with the privates sector. It intends in particular (i) to establish a favorable legal framework to expand the provision of infrastructure and public services facilities and improve their reliability and quality for accelerating economic growth; (ii) to mobilize private sector resources for financing, construction, maintenance and operation of infrastructure and public services facilities projects; (iii) to improve efficiency of infrastructure and public services facilities by introduction of modern technologies and management techniques of the private sector ; (iv) to enhance public-private partnership arrangements by applying the principles of competition, transparency and integrity in the award of public-private partnership contracts; and (v) to remove undesirable restrictions on private sector participation in infrastructure and public service facility and project development and operation.

115. While the current Public Companies Law No. 22 (1997) allows some forms of PPP (mixed companies, production sharing agreements etc), there is a need to establish a clear and comprehensive legislative and regulatory

23 For instance, Restructuring Units and Restructuring Support Teams, as suggested in the Roadmap, or similar working groups in and among line and central Ministries need to be established or strengthened.

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framework. For this purpose, a draft framework law applicable to all economic sectors, including infrastructure, along with specific regulations for public procurement, was prepared by UNIDO (with support by the World Bank) and is currently under review by the Working Group for Legislation of the Task Force for Economic Reforms. Consultations with the private sector will be organized to receive feedback and recommendations.

116. A prioritization plan for PPPs in the different sectors of the Iraqi economy will also need to be prepared along with specific regulations (for each sector). Further international specialized assistance will be sought for this purpose.

117. At present, 6 PPPs have been implemented and several more and in the implementation stage, The whole process need however to be accelerated and extended, involving also PS Institutions and Associations, for the formulation and enforcement of a final legislative and regulatory framework, as instrumental also to the SOEs reform agenda and other PSD areas.

9.2.1.7. SME Development and Support Infrastructures

118. The PSD Strategy will focus on the development of an integrated and geographically distributed SME Development Support System establishing an SME Agency system throughout Iraq with a linked network of support infrastructures integrating, expanding and replicating ongoing SME development support initiatives

119. As reported, both the World Bank and ILO conducted recently a series of surveys of private enterprises; the World Bank focused on 756 registered firms (selected with the Central Organization for Statistics) throughout Iraq and ILO on over 4,000 MSMEs in selected Governorates, covering also the informal sector.

120. The World Bank survey concluded that electricity, instability, and corruption are the three most severe obstacles to doing business in Iraq, followed by access to finance, informal sector competition, access to land, theft/crime/disorder, and taxation.

121. The most recent surveys of ILO (2010-2011) covered the Marshlands, Hillah City, and Sulaymaniya Governorate and aimed at

Creating a profile of the local MSE sector in each area; Analyzing legislative, administrative and business environment in

which local MSEs operate; Assessing the most urgent needs of MSEs and better understand

major challenges they are facing; Developing recommendations for governmental institutions and

technical assistance agencies for possible support.

122. Both surveys confirmed that informality is the dominant feature of the micro and small business sector in Iraq. Moreover access to credit and BDS are severely lacking, for both formal and informal enterprises alike. The forms of support that do exist are almost exclusively based on informal family and social initiatives.

123. There are however some positive indicators which bode well for the future of MSME development in the country. There is an apparent dynamism in the creation of new MSEs since 2007, indicating signs of a nascent economic

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recovery. Business creation and productivity investments are also at relatively high levels. In summary, main needs for SME development are:

Better access to financial markets (e.g., improved banking services, venture capital and SME financing), including access by micro-enterprises to micro-finance services;

Business management advice and skills development; Better market information and facilitation services; Skills development and productivity enhancements.

124. In addition to microfinance support training, bank lending and guarantee schemes; Tijara, in particular, established a network of eight BDSs throughout Iraq.

125. In addition, a draft policy and a draft law have been recently prepared by ILO for possible review and integration in the upcoming periods. The main components of ILO work include:

Policy Framework for MSMEs development, based on five pillars: 1) creation of a conducive business environment; 2) improving access to markets (expand import/export opportunities); 3) promoting sustainable growth of MSMEs; 4) improving MSME representation and advocacy; 5) filling knowledge gaps and monitoring changes

Establishment of a specialized SME Agency but with focus mostly on policy work rather than service delivery.

126. ILO work highlights moreover the need to increase engagement of MSMEs in business membership organizations, the importance of social dialogue and private-public dialogue as instruments for exchanging information and reaching consensus, the need for business reforms for creation of sustainable enterprises, need for access to financial and business development services (BDS)s.

127. UNIDO implemented since 20028 an important Enterprise Development Programme in the three governorates of Erbil, Baghdad and Dhi Qar, to support private sector development (SMEs), providing training courses with focus on ICT development, investment promotion, associated e-learning tools and business counseling. 600 Iraqi entrepreneurs and 160 Iraqi counterpart staffs were trained, and 35 international partnership agreements were concluded; more remarkably, 20 million USD investments were mobilized and around 1000 jobs were created.

128. Another important instrument fostering the establishment especially of clusters of SMEs are Industrial Zones aimed at stimulating business development activities across a specific area they constitute a useful adjunct to wider economic reform and are also complementary to project or sector specific investment promotion efforts.

129. In particular, main advantages and benefits of Industrial Zones include: concentration of economic activity in specific locations for improved urban planning and/or environmental impact management; opportunities for incubation of new businesses and the establishment/expansion of value chains by clustering similar or linked industries; provision of stable and competitively priced land and services for businesses; stimulation and absorption of new technologies; assurance of security for business

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investments and assets through the location specific provision of security services.

130. The World Bank has conducted two feasibility studies of Industrial Zones in Erbil and Basra, along with related legislative & regulatory assessments and UNIDO, in coordination with the Ministries of Planning and Industry and Minerals, as well as with the National Investment Commission, private sector institutions (Chambers of Commerce, Federations of Industries and Engineers and Agro-industries), is currently preparing a feasibility study and the related policy & legal framework for the development of the Industrial Zone for Al Faw Port (Basra). In addition, under World Bank funding, a draft Federal Law for Industrial Zones was prepared.

131. Besides the need to conduct further surveys gradually covering all governorates and establishing proper information tools (under Pillar 1), at the light of all above initiatives and based on successful international experiences in many transition economies, SME Development calls for a national policy and legal framework to be rapidly prepared, adopted and gradually implemented addressing needed instruments (financial and infrastructural) in an integrated, coherent, synergic, efficient and harmonized context, gradually evolving toward decentralized functions and responsibilities.

132. In particular, an integrated SME Development Support System will be designed formed by dedicated funds and earmarked financial support packages, an SME Agency “system”, formed by a central institution with regional branches, and by a series of support infrastructures, building on recent an ongoing work previously recalled.

133. Such infrastructures include Business Development and Counseling Services or Centers, Incubators for start up businesses, Industrial Zones, Industrial Parks, Innovation Centers and other similar infrastructures.

134. Proper coordination and linkages among the SME Agency system and such infrastructures to enhance synergies and job creation opportunities will need to be properly established.

9.2.1.8. Investment

Policy Framework

135. An investment Map was produced for the National Investment Commission in the framework of the PSDP-I as a first attempt to make available a series of market development potential profiles in selected sectors and to analyze identified and specific investment opportunities in such sectors. The Map covered only 5 pilot governorates and addresses also management and dissemination requirements.

136. The work so far will therefore be gradually reviewed, updated and extended to all other governorates and complemented also by a national investment strategy, for which guidelines were also provided.

137. The Map as well as other previous work by other international organizations provide an initial reference for the formulation of sectoral strategies and will

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constitute a most important component of the proposed national and governorate - level information system at disposal of the private sector as well as of national and foreign investors, addressed under Pillar 1 (Private Sector Knowledge and Competence Building).

Legal Framework

138. A series of legal assessments, amendments and recommendations were prepared in the framework of the PSDP-I. Main remarks and recommendations that were provided are summarized here below.

Law N°13 develops in broad terms its aim (article 2) but remains silent as to its priority objectives. It does not state whether it is primarily addressed to the needs of domestic private investment or to foreign direct investment. Nor does it state whether it is mostly concerned with removing legal impediments to investment or with encouraging investment.

The law is not clear as to its economic development objectives which are not specifically declared except by reference in article 15 for the allocation of exemption and specific benefits to the nature of the activity concerned, its geographical location and its contribution to manpower employment and its effect on driving the economic development, and for considerations of national interest.

According to the assessment, and based on the concept that the investment law should be aimed at both protecting local investment and attracting foreign investment, various gaps were identified that have not been properly addressed yet also in recent amendments.

139. In summary:a. The economic objectives of the GoI is to be more effectively

translated into the legislation;b. Need for better clarifying the role of private sector representatives

and their designation for participating to management investment policies;

c. License eligibility should be clearly outlined and automatic where criteria are met;

d. The Iraqi law should specify the types of seizures (Article 12.3) that relate to investment;

e. Protection vis-à-vis the local courts should be made clearer for the sake of investors, and international arbitration should be seriously considered in the same regard;

f. Exemptions and advantages (i.e. compensation) to investment should be better specified and defined and in particular the exemption of corporate income tax might not be related to licensing and to the threshold amount of the investment but only to incorporation;

g. Various impediments, such as the sanctions under article 14 and 27.3 of the Investment law need to be removed for attracting investments;

h. Need for strengthening and clearly defining the role of National Investment Commission as a central and capable investment unit to ensure higher efficiency in the investment processes and implementing relevant policies that should be of competence of specialized institutions and organizations at central and governorate level.

9.2.1.9. Taxation and Customs

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140. Law of Income Tax No. 113 (1982) still governs he corporate and individual income tax in Iraq with only slight developments since 2003, specifically, the reduction of the individual income tax rates from 10-40% to 3-15%, increasing the legal allowance and subjecting GoI employees to income tax just like the private sector employees (CPA Order 49 of 2004). However, the overall structure and substance of the taxation system remained unchanged. Later, Chapter V of the Investment Law No. 13 (2006) grants investment projects tax and duty exemptions up to 15 years exemption among several privileges.

141. In general, the current taxation system in Iraq: Has been designed for a centrally planned and managed economy. Provides little or no guidance to the requirements of compliance. Gives the State Tax Commission officers a wide margin of discretion

and inconsistence implementation. Is complicated and suffers from several deficiencies and

inconsistencies that make its implementation and the compliance with difficult or even impossible.

Lacks adequate supporting legislations and regulations to ensure accurate implementation.

Lacks adequate administration structure and capacity, especially in information technology.

142. To improve the business environment in general and private investment, both domestic and foreign, and in line with Articles 25 and 26 of the Constitution, the current approach of taxation and tax policy should be abandoned and a new approach should be adopted that considers tax as an economic instrument used to encourage domestic and foreign investment and the private sector in general. The new taxation system should be well - designed to satisfy the criteria of equity, neutrality and simplicity.

143. As for the custom duty, a uniform 5% custom levy on imported goods have been imposed since 2003, a totally unfavorable rate for the straggling domestic private sector. And while the new Custom Tariff Law No. 7 (2010) imposes custom tariff rates of 5 - 40%. However, the effectuation of the new custom tariff has been delayed until now for a variety of reasons. Needless to say that the new custom tariff, when effectuated, will contribute to reducing commodity dumping and to improving the competitiveness of the private sector.

144. As part of the GoI commitment to reform the taxation system, and under the TFER, the Working Group on Tax Reform supported by PSDP - I and USDAID drafted a Tax System Reform Road Map. The Road Map sets the principles, legal basis and requirements for taxation system reform that leads to a coherent, predictable, private sector - incentive tax structure.

145. The GoI is committed to reforming the taxation system not only to improve the competition capacity of the private sector but also to create a stable and effective source of public revenues that will contribute to reducing dependability on oil resources, to finance public expenses and to achieve social justice and economic prosperity. This will be achieved by the adoption of the Tax System Reform Road Map and the actual initiation of the taxation system reform process.

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9.2.1.10. Energy, Transportation and Other Physical Infrastructures

146. Electricity is perceived as a great impediment to "life" and to the operation of government and the private sector. Inadequate electricity is seen by Iraqis today as a top concern, impacting on daily life. Despite some recent improvements, power supply continues to fall well below demand, with a national average of only 8 hours per day in 2009. In addition, power shortages are estimated to cost the Iraqi economy around US$43 billion per year. Iraq’s generation, transmission, and distribution systems are in significantly degraded condition and new power generation capacity is urgently needed to meet demand. Rural areas suffer more from electricity shortages than urban areas because they are less able to purchase generators. Although Government is undertaking a major electricity generation investment program that expects to add about 10000 MW of new generation by 2015, significant challenges remain for development of Iraq’s energy sector. These are not only physical (in nature; they are also financial, economic, legal and regulatory (also for transmission and distribution), and institutional. Iraq also needs to increase the rate of utilization of the large volumes of gas it produces in association with oil, and to stop flaring it. This huge gas resource can fuel most of the power generation needed in the country for decades, and thereby help with the current power shortage. Gas can also provide a critical resource to the development of new industries (petrochemicals and heavy industries). However, the Iraqi gas institutions need support to increase their capacity, set out and implement a strategy, and monitor the huge investments required to treat the gas and bring it to the plants24.

147. Although the objective of diversification presumes a lessened dependence on the energy sector, the spillovers from the management of this sector will play a critical role in the non-oil economy.

148. Specific actions will need to be taken in key cross cutting support sectors, including Energy, Transport and other Infrastructures. The recently approved Energy Strategy (INESTA) provides an excellent reference framework for the energy intensive industry, but not only.

149. Interventions in the transport infrastructures will not target not only physical facilities like ports and roads but processes and services, like cargo handling, customs, trucking sector structure, competition, and regulations.

9.2.1.11. Quality Infrastructures and Standardization

150. Since the lifting of the UN sanctions in 2003, Iraq has been attempting to further trade relations with the regional and international trade community. In this regard Iraq participated in 2007 and 2008 in two Working Party meetings to promote its WTO accession for which the Ministry of Trade is leading the process through a high level ministerial committee. This step is required to bring its trade regime at par with the multilateral international trading system.

151. However, throughout this time Iraqi consumers have been suffering from low quality products, commodities and household appliances since neither goods manufactured in Iraq, nor those imported from abroad, are subject to

24 2013-2016 Country Partnership Strategy, World Bank

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quality control standards. The awareness and application of quality assurance and quality control techniques in the production, the distribution and the importation of products is necessary to safeguard the public against the hazards of spoiled food and faulty appliances.

152. In 2010, a regional program on quality infrastructure upgrading was initiated with the financial support from the Swedish International Development Agency (SIDA), aiming at the implementation of the regional standardization strategy endorsed by all Arab countries through the Arab Industrial Development and Mining Organization (AIDMO). This regional initiative was the basis for identifying specific complementary national needs, and was the origin for the request made by the Ministry of Planning (MoP) and the Central Organization for Standardization and Quality Control (COSQC) to SIDA and UNIDO to initiate the formulation of a full-fledged national technical assistance project for upgrading the country’s national quality system (i.e. legal framework and infrastructure).

153. The overall objective of the project that started in summer 2012 is to enhance the trade capacities and performance in Iraq and fostering integration into the regional and multilateral trading system, while the specific objective is to upgrade the national quality system (i.e. legal framework and infrastructure for standards, accreditation, metrology, and conformity assessment) following international best practices for creating the enabling environment needed for a better trade performance and consumer protection.

154. The first and a major output of the project shall be the development of a national quality policy which will define the overall framework of the national quality system of the Republic of Iraq, based on a clear division of quality functions across institutions, and internationally-recognized quality infrastructure in the fields of standardization, metrology, accreditation, and conformity assessment.

155. The GoI will sustain the process, by adopting key measures in its national policy legislation and plot a course for improved quality infrastructure, along with needed legislative reforms.

9.2.2. Sustainable Development Areas

156. Sustainable development refers to the use of resources aiming to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for generations to come.25 The concept of sustainable development is usually broken out into three constituent parts: environmental sustainability, economic sustainability and social sustainability.

157. The several issues related to these three areas are particularly relevant to private sector development, some in a more direct way (like labor, environment, education and skill development) and some less directly (such as poverty, health). However all have a dual impact, on one hand affecting private sector sustainability (for instance where health or education systems are bad, private sector growth is significantly hampered) and on the other hand offer wide opportunities for business engagement, through

25 The term was first used in the document ‘Our Common Future’, issued by the World Commission on Environment and Development in 1987, defining sustainable development as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs’’.

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business models that ensure economic, social and environmental sustainability.

158. The engagement of the private sector in these activities, in parallel or in partnership with the public sector, is also commonly called Corporate Social Responsibility (CSR) or Corporate Sustainability, standing for the responsibility of corporate to contribute to social and environmental development and at the same time reduce risks on business performance (see section below).

159. The GoI has addressed sustainable development as a major area for country’s development in occasion of its participation at the Rio+20 Conference on Sustainable Development (June 2012), where the National Report for Sustainable Development in Iraq was presented26, defining the vision of Iraq to ensure sustainable development and policies and measures taken to support of this vision. The report highlights that concern to the social and environmental dimension has been lost in Iraqi policies and economic activities since the 1980s, due to the focus on wars, international sanctions and security

160. Some of the social-economic and environmental issues related to sustainable development relevant for PSD in Iraq are described hereunder in more details.

9.2.2.1. Labor Conditions161. On the policy and legislative side, the first Labor Code dates back to 1987,

was then amended by the CPA in 2004. The amendments concerned child and youth labor.

162. In 2010, a review process was initiated by the Government that requested International Labor Office (ILO) of the UN to provide comments and recommendations (within the PSDP-I). Before such comments could be submitted, the Government revised the Code, holding a first a first hearing by the Labor and Social Affairs Committee of the CoR.

163. The amended version of the Code was shared with the ILO only during the course of 2011 and raised a series of concerns by ILO and various international organizations that were presented and discussed also in important events that took place in 2012 (in Geneva among other venues).

164. Iraq did not ratify yet the "Convention on Freedom of Association and Protection of the Right to Organize" laying the basis for social dialogue between Workers and the Employers while this should be carefully addressed. The present version of the Labor Code excludes the workers of the public sector, including those employed in the SOEs. In addition, there is a perceived need in particular to strike an appropriate balance between the roles of the private sector and the state in regulating the labor market, which is necessary to both protect fundamental rights at work and to promote economic development and investments.

165. ILO and other international organizations have recommended examining and readdressing various aspects; in particular:

26 The report was prepared by the Higher National Preparatory Committee for the Rio+20 and the Technical Committee, composed by members of several line Ministries under the chairmanship of the Ministry of Planning.

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Role of the PS in ensuring fair jobs Discrimination issues and inclusiveness Rights of Workers and Employers Improvement of definitions of protection against direct and indirect

discrimination, sexual harassment, HIV/AIDS status, and pay for women and men for work of equal value

So called “light work” by children between the ages of 13 and 15, i.e. and associated right to learning (schooling).

Cumbersome and costly recruitment, contractual and registration procedures

Salaries increase and annual payment requirements Approval of business closure.

166. On the private sector side, principles of CSR include respect of labor rights as key area for businesses responsibility and sustainability, implying that voluntary actions can be taken by companies to improve labour conditions (for instance through corporate codes, day-to-day operations, etc…).

167. In Iraq, the companies that joined the UN Global Compact and are members of the Iraq Network committed to the following four principles of the UN GC related to labor:

Uphold the freedom of association and the effective recognition of the right to collective bargaining;

Elimination of all forms of forced and compulsory labor; Effective abolition of child labor; Elimination of discrimination in respect of employment and

occupation.27

9.2.2.2. Gender Equality168. The participation of women in Iraqi development is quite low, with women in

Iraq facing more challenges then men in terms of economic opportunities, access to employment, education, finance and other services. This poses a significant limitation in social justice, inclusiveness and human /labor rights in Iraq.

169. According to the Inter-Agency Information Analysis Unit (IAU) of the UN, only 14% of all women across the country are either working or actively seeking work and of those more than one in five is unemployed. Conditions appear to be worse for young women: only 10% of women aged 15-29 are working or actively seeking work, of which over a third are unemployed; the unemployment rate for young women climbs to 41% for those with a diploma or more and as high as 68% for those with a bachelor’s degree. The difficulties faced by young educated women may be linked to the limited opportunities for women in the labor market. The vast majority of employed women (94%) are in the public sector. The private sector offers little for women: of all private sector employees, only 2% are women. Of those women with private sector jobs, 71% have little or no education and most work in agriculture. With four out of five rural women working in agriculture, the Iraqi government has identified the high reliance on women for

27 The Communication on Progress (COP) that UNGC members are required to submit every year includes reporting on company’s policies and practices in implementing the principles on labour (as well as on human rights, environment and anti-corruption). The COP submitted by Iraqi companies members of the Iraq UNGC Network are accessible on http://www.unglobalcompact.org/participants/search?commit=t&country%5B%5D=88&page=1&per_page=100, where the list of members is also available.

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http://www.unglobalcompact.org/participants/search?commit=t&country%5B%5D=88&page=1&per_page=100

http://www.unglobalcompact.org/participants/search?commit=t&country%5B%5D=88&page=1&per_page=100


agricultural labor as a specific obstacle to development in rural areas, as highlighted in the last NDP28. In other sectors with potential private sector employment, women generally find it more challenging to integrate as most jobs are male-dominated work in construction.29 An even more vulnerable group is the one of widows; there are between one to three million estimated female-headed households in Iraq as a result of decades of war and violence30. The Iraqi government has developed a social welfare program intended to help widows financially, but the allowance is deemed insufficient, and many do not receive it.

170. Under the 2005 Iraqi Constitution, women enjoy equal rights to employment without discrimination, but certain discriminatory elements remain within Iraqi legislations, which delineate women’s economic choices. Although women economic empowerment is addressed as a priority in the major development planning tools – the NDP and the Strategy for Poverty reduction - there is a lack of legislative power necessary to put these plans into practice.

171. The GoI and UN agencies are working to implement the comprehensive framework needed to promote gender equality through a combination of legal reforms, governmental policies and support programs, and civil society capacity building. The UN currently has more than seventeen national and local projects focused on gender issue. UNWomen reviewed five core legislative areas from Gender perspective (Iraqi Constitution, Civil Code, Economic Reform law, labour Code, and Social Security and Retirement Laws.

172. In particular, recommendations to the Government include: enhance legal frameworks for women, raise official and community awareness; allocate fi-nancial and human resources to empower women; recommendations to the private sector include: adopt frameworks to support women employees, introduce inclusive business and hiring models, sexual harassment regulations, day-care support.

173. On the private sector and CSR side, in the recent conference on WEE held in Iraq (October 2012, jointly organized by Government, UN and private sector), the Principles for Women’s Empowerment were launched, as a set of guidelines for companies to improve fair treatment conditions and integration of women in the workplace.31 Iraqi companies members of the UN GC Network embraced these principles, in recognition of the need for more women to enter the private sector in Iraq, as more equality and women participation could increase business performance as well.

9.2.2.3. Poverty Alleviation

174. The GoI started to recognize the presence of poverty in the country only after 2003, mainly through the support of international organizations, in particular the World Bank, which helped identifying key information such as

28 IAU Women in Iraq factsheet, May 2012.29 World Bank Group, “Rebuilding Iraq: Economic Reform and Transition,” (2006).30 International Committee for the Red Cross31 The Principles for Women’s Empowerment are a set of international guidelines formulated by the

UN Global Compact and UN-Women to offer guidance to private sector worldwide on how to empower women in the workplace, marketplace and community.

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the poverty line, percentages, number of poor and poverty gap, and developing strategies to address the problem. The poverty line in Iraq is defined at IqD 77,000 per individual/month, which is more than US$ 2 a day. The poverty percentage reached 23% and the poverty gap is at 4.5%, with an increase in the rural areas (9% against the 2.7% in urban areas).32 Overall, poverty in Iraq is widespread but at low levels, affecting in particular the vulnerable groups such as widows and the displaced. Iraq’s comparative absence of absolute poverty is largely a result of the universal food rations under the Public Distribution System (PDS), but this does not capture the worsening of livelihood for ordinary people.

175. The National Strategy for Poverty Reduction, developed with the support of the World Bank and adopted by the GoI in 2009, complements into the NDP in its focus on poverty alleviation. The goal outlined in the PRS and the NDP is to reduce poverty by 30 %, from 23 % in 2009 to 16 % in 2014, through higher incomes and better health, education, social protection and housing services for the poor. In addition, the PRS sets out specific goals in terms of human development: (i) reduce illiteracy rate by half (from 28 to 14 %), (ii) reduce the number of individuals covered by the PDS and restrict coverage to those who are below the poverty line by 2014; and (iii) bridge the gender gap, including through higher women participation in the labor force, and higher ratios of girls to boys in literacy and primary and secondary education.

176. The role of the private sector in reducing poverty is considered in the PRS only to a limited extent; it refers to the private sector as a key player – together with Government and civil society – in four elements embodied in the strategy, namely: 1) Creating income-generating opportunities for the poor; 2) Empowering the poor to exercise their rights; 3) Capacity building for the poor to qualify for work and increase productivity; 4) take part in the establishment of effective social safety net.

9.2.2.4. Education and Human Resources Development177. The existence of a system to raise human capital is a key factor for

economic and capacity growth in both the public and private sector; productivity-led growth requires skilled labor.

178. Iraq’s education system is suffering from a history of under-funding, degradation of infrastructure, and loss of human resources. Although the country has a legacy as a center of education and culture, there is a significant problem of illiteracy (especially among women).

179. Reconstruction of the education system is underway, but major efforts are still needed to address the massive backlogs in school construction and maintenance, deficient human resource development, poor management at all levels, outdated curriculum and teaching methods, and poor policy and system development that accumulated over previous decades.33

180. Overall, the education system suffers from poor quality and relevance, and the graduates from the system lack the required skills to enter the labor market. The education level in the adult population is also very low; only 11% of Iraqis have at least a diploma, half the population has primary or

32 National report on Sustainable Development (June 2012), reflecting data from the 2010 Poverty Assessment.

33 WB CPS, October 2012

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intermediate education only, and 38 % have no formal education. In addition, regional and urban/rural differences as well as gender discrepancies in literacy rate and quality of education provided are marked, creating great disparities in economic and social growth. Iraq will have difficulty achieving productivity growth without quality education and expansion in market size and for this better global and regional integration is essential.

181. A national education strategy, prepared with the support of the World Bank, UNICEF and UNESCO was recently launched; it aims at addressing the differences and at developing human and institutional resources in order to allow line ministries to plan strategically, and at designing and implement system reforms. The TA consists of two main pillars: (i) support to the National Education Strategy for Iraq (NESI); and (ii) capacity building in strategic planning and policy design.

182. The Private Sector needs to be seen as an integral player in the enhancement of education, both as a direct provider - for instance developing inclusive business models as social enterprises to fill the gaps in services that public sector cannot fulfill, or by providing vocational training and other skill development services to its own employees / suppliers / other businesses in the value chain - and as a partner, linking and cooperating especially with academia and other educational institutions so that they can better prepare the required human resources that the private sector and markets can absorb.

9.2.2.5. Health183. Prior to the 1980s, Iraq’s health system was considered the most advanced

in the region; however, the impact of war and conflict resulted in the failure of the system to meet basic health needs. Some improvements have occurred in the last decade, mostly attributed to better access and utilization of maternal and child health service. These signal that Iraq will remain on track in reaching the MDG goal of reducing child mortality by 2015, while the goal of reducing maternal mortality seems harder to achieve, mainly as a result of weak governance and oversight, wide urban/rural disparities in access to quality care and shortage of facilities and qualified health professionals.

184. Iraq spends about 3.3 % of GDP on healthcare (US$137 per capita), relatively modest for its level of socioeconomic development. While about 75 % of total health spending in Iraq is public, spending is highly concentrated in pharmaceuticals (37 %) and administration (22 %), showing deep inefficiencies in health expenditures.34

185. The improvement of health services is another key need to ensure sustainable development in Iraq; just like education. While the GoI can undertake appropriate policies to improve the quality of health services and the sector efficiency, there is wide scope for private sector’s engagement as provider of professional health services under social entrepreneurship schemes, as well as individual actor committed to safeguard and improve the health of its stakeholders – especially the employees and the consumers – as a priority for increasing productivity and market demand.

34 WB CPS, October 2012

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9.2.2.6. Environment

186. A World Bank study estimated that the annual economic cost of environmental degradation in Iraq ranges from 4.2-8.1% of GDP. High levels of air and water pollution require management and investment to improve performance of all relevant sectors (e.g. sanitation, oil, agriculture, etc.). In addition, Iraq is in the grip of a water crisis after recent years of severe drought, wiping out crops in some parts of the country and causing an unusually high number of sandstorms. The proportion of households using an improved water source has remained at around 80 % since 1990. In rural areas, this figure is just 57 %. Municipal and hazardous waste are manifested in every urban center and most villages in Iraq with poor or non-existent collection services. Iraq faces also considerable challenges in sanitation: 84% of the population uses an improved water supply facility, however, just 26 % of the population is covered by the public sewage network, which drops at 2 % in rural areas. An alarming 83 % of Iraq’s wastewater is untreated, contributing to the pollution of Iraq’s waterways and environment in general35.

187. The National Report on Sustainable Development in Iraq gives special emphasis to environment and its relations with development, highlighting the political will and progresses made to improve environmental protection in the past years.

188. The NDP also addresses the issue of environment as a priority for Iraq’s development, setting strategic goals and means to achieve them; as such, it’s the first development plan in Iraq to point out at the relation between environment and development as an issue for country’s sustainability.

189. An Environmental Management Project is under completion by the World Bank, aiming at strengthening key institutional and regulatory functions of the Ministry of Environment to enable it to undertake environmental policy analysis and coordination, formulate laws and regulations, monitor environmental quality, promote environmental awareness, and conduct technical studies.

190. However, in none of the reports clear reference is made to the role of the Private Sector and of its duties; environment is definitely an area that can provide numerous opportunities for Public - Private Partnerships and will therefore be addressed by the GoI

191. Only in terms of CSR, environment is a key area of business responsibility and sustainability, as voluntary actions can be taken by companies to improve environmental conditions (for instance through corporate codes, day-to-day operations, etc…).

9.2.2.7. Corporate Social Responsibility (CSR) and Inclusiveness

192. CSR addresses the role and engagement of the private sector to impact sustainable development in its social and environmental dimensions. It is primarily a voluntary engagement by businesses, integrating principles of sustainability in their business operations at company level or through collective business action as well as undertaking projects that can impact

35 Ibidem

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the lives of the communities they operate, in particular through inclusive business models, i.e. businesses that include all groups – and in particular vulnerable groups such the poor or women - on the demand side as clients and customers and on the supply side as employees, producers and business owners at various points along the value chain.

193. CSR can be also a concern of the GoI, when there is political will to promote business’s role in social and environmental issues, through policies and laws that incentive their engagement and/or through support voluntary business activities in these areas.

194. In Iraq, the first major CSR initiative has been the establishment of the UN Global Compact Iraq Network in late 2011, a cluster of businesses that voluntary committed to embrace, support and enact within their sphere of influence, a set of 10 principles in the areas of human rights, labour standards, environment and anti-corruption.36 The initiative is demonstrating to be effective as a mechanism for Iraqi companies to address social issues such as child labour, youth employment and skill development, women empowerment, environment awareness, dialogue with civil society and academia. Initial steps to design and launch inclusive business models have also been taken, in the effort to address poverty and social exclusion.

195. At policy level, Iraq lacks a policy on CSR or specific measures to support private sector engagement in sustainable development. The NDP addresses some of these issues in the section on private sector, putting among its first objectives the ‘Enhancement of the private sector’s developmental role’, including goals such as the increase of private sector’s contribution to GDP, capital formation and job creation; however no clear measures are defined on how to achieve this goal.

196. On the other hand, the Government has been supportive and played an important role in the launch of the UN Global Compact in Iraq, in partnership with UNDP and the private sector itself. The Council of Minister Secretary General backed the initiative and assigned human resources to sustain it, signing also an MOU in October 2011 to endorse the establishment of the Iraq UN GC Network. The Prime Minister Advisory Committee (PMAC) has also joined with the mandate, given in end of 2012, to support the Iraq Network and further engage with private sector in advancing sustainable development in Iraq.

9.3. Streamlining, Prioritizing and Accelerating the Reform Agenda

197. All the international community that is supporting Iraq in fostering PSD, shares the concerns of slow decision making processes and delayed reforms. The present processes are featured by weak implementation capacity, unclear rules and processes and duplication of roles among some Ministries.

198. In this context, this Strategy constitutes a revised and structured platform for addressing priorities, concerns and obstacles to PSD, according to a phased and shared programme.

36 The UNGC principles are based on universal consensus derived from four major international agreements: 1) the Universal Declaration of Human Rights; 2) the ILO Declaration on Fundamental Principles and Rights at Work; 3) Rio Declaration on Environment and Development; 4) the UN Convention against Corruption.

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199. While all key policy areas are actually of utmost importance for sustaining PSD in Iraq, immediate priorities will need to focus on policies, legislative and/or regulatory frameworks as well as on arrangements and mechanisms for ensuring their efficient enforcement and implementation and that can rapidly make available to the private sector (for immediate utilization) instruments (initiating from financial instruments and simplification of regulations) and that are needed, from one side to ease their daily businesses and, from the other side, to consent the private sector to plan and implement its diversification and expansion.

200. Needed legislative and regulatory reforms calls for sound implementation and therefore enforcement system to be established or improved.

201. For these purposes, building also on ongoing international and national supported programmes, recommendations and lessons learned, specific support actions and tools will be designed and developed, with the commitment of all relevant stakeholders, offering businesses the concrete opportunity to contribute to the achievement of economic and social strategic objectives of national interest.

202. This calls at the same time for private businesses to strengthen their capacity in terms of organization and strategic planning, in consistency with the PSD Strategy, to exploit the opportunities offered by the GoI in the framework of its reform and “tooling” efforts.

203. The work ahead is huge and prioritization is needed; however, the Iraqi Private Sector has shown a high degree of resilience, meaning that even in an initially and partially improved business enabling environment, business can actually grow and develop, while waiting for other reforms to be gradually introduced.

204. What is most important is to start a process, taking decisions and actions, within an achieved consensus at national and governorate level, putting aside political and other divergences and interests, other than contributing to the recovery and growth of the non-oil economy.

205. Preparation, adoption and implementation of support measures require first of all that a more efficient process is established, calling for many actors in Iraq to join, coordinate and harmonize their already ongoing efforts, sharing the same commitment and willingness, in the framework of a sound and straightforward Governance and Implementation system, presented in Chapter 11.

10. TARGET ECONOMIC DEVELOPMENT SECTORS

10.1 Key Target Sectors for Economic and Social Growth

208. As widely reported, despite a legacy of wars, sanctions, state dominance and cumbersome regulations, Iraq has all ingredients for fostering a sound diversified economy and contributing therefore to its economic and social growth.

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209. Analysis and reviews so far concluded that the key driving economic sectors for economic diversification, for leveraging employment and development opportunities in others are37:

Industry and minerals (in particular, oil downstream and, in general, energy intensive industry, non oil minerals and construction materials, mechanical engineering, chemicals, electrical and electronics, solar energy)

Construction & Housing Agriculture, food security and food processing Telecommunications and Information Technology Tourism.

210. All these sectors can offer tremendous employment opportunities; however, actual employment growth will depend to a great extent on synergic linkages among them. For instance, neither agriculture nor tourism could be a major national employment driver on its own, but they have tremendous growth potential and strong linkages with the service sector where the bulk of the jobs lie for the Iraqis. Similar considerations apply to the importance of the telecommunications and IT sectors that play obviously a key role in contributing to access to information and dissemination (Pillar 1).

10.2 Overview of PSD Potential in Target Economic Sectors38 10.2.1. Industry and Minerals211. Numerous analyses have been conducted in the Industry and Minerals

sector, all agreeing on the following opportunities: The recently started SOEs restructuring agenda of the GoI,

especially with the GoI allocating ID 100 billion (about US$ 83.3 million) to finance restructuring plans proves for SOEs39, provides a tremendous framework opportunity for the participation of the private sector.

High clustering potential with the private sector in the chemical and petrochemical industry sector, specifically fertilizers, polymers and plastics, cleaners, caustic soda and chlorine. Noteworthy is that chemical industries comprise about 80% of the industrial output worldwide.

Construction materials sub-sector: it is a fast and growing industry in Iraq given on-going reconstruction and development efforts. Demand for improved infrastructure is growing. Years of war, sanctions and underinvestment have left Iraq’s infrastructure dilapidated.

The construction industry can provide the focus for a strategy linking energy intensive industry to broader national benefits; Key sub-sectors within the industry are big users of energy, such as cement and steel 40.

Iraq has huge potential for pharmaceutical industries with a market of massive demand, a well established pharmaceutical industry (Samarra and Ninawa factories), substantial experience and qualified human resources. Yet, this industry requires restructuring, massive investment, know - how and licensing, improved marketing and intensive training.

37 Brief sector profiles are provided in Annex…38 For details see Annex.., 39 About 25 SOEs of MIM are expected to benefit of this initial programme.40 World Bank, Oil Revenue Management for Economic Diversification, 2012

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10.2.2. Construction and Housing

212. With an annual population rate of growth of over 3% and with an estimated, with a current deficit of 759,000 housing units, with an estimated demand for 2 - 2.5 million until 2020, with the extensive ongoing reconstruction and development in all sectors, particularly infrastructure and basic services, with the abundant financial resources available to Iraq, demand on construction material will increase steadily and substantially in the coming years. Considering that domestic production has been able to cover only part of the demand, the Private Sector have an excellent opportunity to play an active role in construction material and housing industry.

213. Construction material and housing industries will benefit from the huge resources of raw constructional material (aggregates, cement raw material, brick clays, dimension stones, glass sand, etc.), a huge market and reasonable financial schemes (Real Estate Bank, Housing Fund and private commercial bank loans). Construction and housing industries have substantial clustering potential and are labour intensive.

10.2.3. Agriculture and Food Processing

214. Three powerful factors need to be taken into account in order to gauge the prospects for growth of the sector: firstly, Iraq’s growing population. With a population projected to almost double over the next two decades, demand will grow spectacularly for food. Secondly, as the country stabilizes and prospers, the average disposable income of the population will rise significantly. The protein content in the diet will also rise, and demand for processed foods with a longer shelf-life and quality standards is also likely increase. Thirdly, early entrants in the packaged food sector will gain quick consumer acceptance. The demand for processed food products is high and growing (edible oils, tomato paste, milk products, poultry), but the market is currently dominated by imports.

215. In this context, agriculture can deliver two important outcomes to Iraq: acting as a bulwark for the rural sector, and setting the stage for competitiveness in one non-oil traded sector in future years41.

10.2.4. Telecommunications and Information Technology

216. The telecom sector has provided some success stories, but remains heavily under exploited. The liberalization of mobile telecom attracted several foreign entrants and generates one of the few significant sources of non-oil fiscal revenue. The fixed line backbone reaches all regions of the country, however is largely underutilized due to poor service quality and high tariffs. The telecom/ICT sector provides potential connectivity to Iraqi citizens, government departments including local governments and private sector, using mobile telephones, Optical Fiber Cable, Microwave, and other fixed lines and wireless technologies. Combined with high-performing and affordable international telecom connectivity, the sector will directly contribute to improvements in the business and trade environment of the country. Broadband internet connectivity and ICT in general are key inputs

41 World Bank, Oil Revenue Management for Economic Diversification, 2012

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for transformation across many sectors, and can help spur job creation, innovation and entrepreneurship, particularly among youth42

217. In recent years, the sector has seen significant growth in foreign direct investment, particularly in mobile and internet technologies; this is largely due to the existence of an independent regulator and renewed openness to foreign companies. The development of telecommunications technologies means that the limited fix-lined penetration in the country is not a hurdle to connecting households and businesses to telecommunications networks.

218. The current National Development Plan indicates that there were more than 15 million mobile phone users in 2008 (estimated in about 20 million users at present). The GoI is planning 100% coverage by 2014. Currently, whereas fixed-line penetration stands at around 4.9%, mobile phone penetration is around 69% and continues to grow. Additionally, the market has remained open to foreign companies to increase domestic competition and price competitiveness; two of the three main mobile companies operating in the country are foreign operators43.

219. However, the use of IT by enterprises and private businesses is still limited and definitely insufficient to meet nowadays challenges; while the market is growing, it constitutes a tremendous opportunity for many service companies and centers to be created or expand at governorate level.

10.2.5. Tourism

220. Tourism presents another potential trigger for economic development, building in particular on religious sites and Iraq’s climate variation.

221. Iraq is experiencing a rising number of national and regional tourists to its natural, cultural, and religious heritage sites. The country’s attractions, which include the ruins of ancient civilisations, world heritage sites, holy sites for Jewish, Muslim, and Christian religions, and natural landscape, are being visited by millions of visitors annually. The government’s plan to improve and expand transport infrastructure will enable even more tourists to come visit the sites.

222. Visits to Iraq for pilgrimages have proven extremely resilient despite the vast logistical difficulties for mass movements of people, and indeed the security concerns directly associated with such visits.

223. 1.544 million tourist arrivals were reported in 201045, almost double the level of 2008. Millions of attendees at the major pilgrimage sites in Karbala and Najaf are reported, and those arriving by land are not fully captured in the official statistics. Thus the total number of visitors is already in the millions, even with the current security situation46.

224. While this activity is concentrated in the south of the country due to the historical importance of shrines and seats of learning, there are important

42 World Bank, Country Partnership Strategy, 201243 UNIDO, Investment Map, 201144 World Development Indicators45 Most recent year available46 World Bank, 2013-2016 CPS

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religious sites all over the country. Since pilgrims come from other countries on what can be a milestone visit for them, they tend to stay for some time and require typical tourism services such as hospitality, real estate, transport, food, and accommodation47.

10.3. Key Drivers

225. The overarching key driver for PSD and for measures to be taken by the GOI can be summarized as follows:

Growth of population and needs High potential and need for regional integration providing

opportunities for increasing market size with beneficial effects for the efficiency of Iraq’s traded goods sector and its consumers and for accessing global markets48

Abundant energy resources and opportunity for oil sector downstream industries

Associated increasing demand for products and services Availability of abundant human capital resources Availability of natural resources, other than oil Increase need and strong opportunity for innovation The recently initiated SOEs reform A growing and committed private sector banking.

10.4. GoI’s Approach to Direct Support to the Private Sector

10.4.1. Management and Strategic Approach

226. The GoI interventions will include specific financial, technical assistance and capacity building support measures and actions (in terms of targeted programmes, instruments and clear and transparent procedures) that private businesses will have the opportunity to utilize for achieving their strategic objectives within a sound national strategic framework.

227. Such programmes will be developed and implemented in selected priority sectors and/or areas, as explained below, and will need to encompass well defined prioritization, demonstration, replicability and other eligibility criteria responding to the objectives set by this Strategy.

228. In terms of overall management, the focus will be on: Efficient planning, programming and design of programmes Demand driven interventions Adoption and application of Monitoring & Evaluation and

Accountability best practice principles Decentralized approach and involvement of local public and private

stakeholders, including private banks for SME financing and other forms of financial assistance

Involvement of selected central and governorate level Private Sector associations in the planning, design, coordination and follow up of the agreed support programmes.

229. In terms of strategic approach, four intervention Axes are considered, for all target economic sectors:

47 World Bank, Oil Revenue Management for Economic Diversification, 201248 World Bank, Oil Revenue Management for Economic Diversification, 2012 ; UNIDO, Investment Map, 2011

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Axis 1 Support to the establishment of a national overarching SME Development Support System, formed by an SME national and governorate level financing system for supporting actions in all axes, with the participation of public and private banks, local public and private institutions a national SME Agency System49 and a network of regional or governorate SME support infrastructures (SME Agency branches, Industrial Zones, Business Development Services or Centers, Incubators, Business and Technology Parks and others as defined in the relevant policy framework addressed under Pillar 2/Chapter 9).

Axis 2 Support to private businesses for integration with the SOEs system (all line Ministries), for creation of clusters and value chains aimed at developing and implementing collaborative and/or sub-contracting arrangements for improving product quality, joint manufacture, joint market researches, joint marketing and training programmes, establishment of service outsourcing facilities and companies utilizing redundant labor force.

Axis 3Initiatives aimed at supporting the formation and operation of clusters and value chains (other than under Axes 1 and 2)50, with focus on competitiveness enhancement and job creation through improved quality of products, services and management system, technology upgrade, inter-sectoral linkages51, Public-Private52 and strategic Partnerships, inclusiveness and other , including also support to the formation of competitive private medium-large size firms, to enhance efficiency and quality53, pursuing integration and value chains and clusters with MSMEs;

Axis 4Support to partnering with national and international technical, educational and academic institutions for skills enhancement and joint cooperation programmes that can have an impact on economic and social development.

10.4.2. Targeted Financial Support for Small - Medium Businesses

49 Central Agency with branches in the governorates; the participation of banks will be important to channel financial resources to SMEs, matching GoI supported financial incentives with commercial financing.

50 Competitiveness enhancement and job creation is clearly a cross cutting target for all Axes; Axis 3 fosters clusters and value chains that are not necessarily linked to or depend on the SME Agency System or SOEs Restructuring Plans that might require some time to be fully established; therefore, Axis 3 will need to be launched immediately in a wider outreach and most flexible context.

51 Especially with energy intensive sectors52 Other than with SOEs.53 In Iraq the attention at present is more on micro and small size businesses, while quality can be

better ensured by medium size well organized firms.

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230. A system of financial and fiscal support instruments will be made available to the private sector within the envisaged intervention axes, based on:

Gradual elimination of pure subsidies and grants. Establishment and operation of a system of Competitiveness

Enhancement Funds54 formed by a grant and soft loan components to finance seed capital for start up businesses, R&D and innovation programmes, prototypes, experimentations, and, in general, pilot development projects consistent with the objective of this Strategy and building also on existing schemes in place :

Grants will constitute a minor part of these packages (not exceeding 30%) , to finance registration procedures and requirements (for the informal sector), technical assistance also for training) for designing and preparing new and inclusive business models and strategies focusing on above areas especially on formation of clusters and inter-sectoral value chains, training, market, technology and strategic partnership researches, business planning, environmental protection, employment and basic tools and instruments (such as for IT).

The grant component will finance also wages subsidies for new employees for 2 years to ensure sustainability.

5 to 10 years maturity soft or low interest loans (from 2% to 5 % i.r./p.a., depending on types of actions) will fund actual implementation actions as planned or designed under the grant component; the GoI will allocate earmarked resources for subsidizing interests (to cover the difference to commercial loan interests).

A new and more flexible collateralization system will be introduced, to support both start up and existing businesses in accessing the new instruments, through dedicated new guarantee schemes and trade finance mechanisms, to be made available by both public and private banks.

Matching instruments and mechanisms with existing SME lending schemes and commercial lending, for larger actions.

Clear, selective, simple and transparent application procedures by private businesses will be designed and adopted, based on the quality and on the actual effectiveness of the proposed interventions, in terms especially of contribution to economic and social growth and degree of representativeness.

A 2-year tax exemption will be introduced for both the informal (once registered) and the formal sectors for projects aiming specifically (indicatively) at job creation, import substitutions (increase of the local contents) and other strategic elements that will be properly defined in the design phase of the instruments.

Microfinance, will also be targeted, building on the ongoing work by various institutions established especially under Tijara and other international assistance; interventions in this area will be framed in the context of a wider local economic development context (sector and thematic priorities, clusters and value chains with the participation of SMEs and SOEs) to enhance their actual effectiveness and impact.

54 Each line Ministry will have different funds and sector specific programmes, featured in any case by a series of common and strategic objectives and criteria.

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10.4.3. Eligibility Criteria for GoI Technical Assistance and Financial Support

231. All sectors mentioned above have a high PSD potential; priority for initial governmental support should focus on above key strategic areas, responding to given eligibility criteria in the framework of identified drivers and of the Strategy’s objectives.

232. Such criteria will need to be properly defined in detail during the initial programming and design phases of the envisaged support. They include:

Consistency with the strategic objectives of the NDP and the PSD Strategy.

Consistency with the policy framework objectives and targets as agreed in the framework of the established new governance system according to this Strategy

Contribution to job creation also through inclusiveness models Capacity to develop sustainable business clusters as geographical

concentrations of interconnected manufacturers, specialized suppliers, service providers, and associated institutions in a particular field that are present on the national, regional or governorate levels.

Clear competitiveness enhancement through public-private and strategic partnerships, improved quality, Increase of the local contents of products and services and other specific measures.

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TABLE - 2. DIRECT SUPPORT ACTIONS FOR THE PRIVATE SECTOR

AXIS 1: SME DEVELOPMENT SUPPORT SYSTEM

Target Sub-Areas

Pillar Relevan

ce

Eligible components for GoI Support Instruments and Resources

Policy and Legislation

Direct Technical Assistance Actions

Implementation Actions

Available Instruments and

Resources

New Instruments to be created under Pillar 2

International Assistance

SME Agency with branches in selected governorates with bank participation

1, 2, 3 Review, integration approval, adoption and enforcement of relevant national policy, legislative and regulatory frameworks, including for SME financing. Sectoral strategies.

System design, manuals of operation, bylaws and regulations, business planning, inclusiveness business models, training and capacity building (also for the banking sector), international networking. Businesses' mapping, market surveys, business planning, manuals of operation, regulations.

Buildings, IT, equipment and facilities, staffing.

Draft policy and law. State Budget allocation. Private banks’ and Private Sector participation.

Management and organizational capacity building. Capacity building for the banking sector.

Business Development Services and Centers

2, 3 Existing Tijara network.

Targeted competitiveness funds

Counseling and advisory assistance

Incubators 2, 3Industrial Zones

2, 3 Finalization of a national strategy and of legislative & regulatory framework in relevant priority areas land, infrastructures, PPP, National IZ Board etc). Sectoral strategies.

Buildings, IT, equipment and facilities, physical infrastructures, staffing and organization.

World Bank feasibility studies in Erbil and Al Basra; UNIDO feasibility study for Al Faw Port; draft legislation (WB, UNIDO).

State and governorate budget allocations for funding infrastructures and local staffing. Private sector resources. Targeted competitiveness funding support.

Management and organizational capacity building assistance.

Clusters and value chains in key target economic sectors

1, 3 Sectoral inclusiveness strategies.

IT facilities and networks, databases, support facilities.

IFC, IMMDF, Tijara and Private sector resources. UNIDO Enterprise Development Programme.

Targeted Competitiveness Funds. Private sector resources.

Counseling and advisory assistance; specialized sectoral assistance.

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supported by the SME Agency System

AXIS 2: PRIVATE SECTOR INTEGRATION WITH THE SYSTEM OF STATE OWNED ENTERPRISES

Target Sub - Areas

Pillar Relevan

ce

Eligible components for GoI Support Instruments and resources





Resources

New Instruments to be Created under Pillar 2


Participation in restructuring of SOEs

1,2, 3 Preparation of sector strategies (Pillar 1).

Design of collaborative strategies, training.

Joint workshops, Common information system.

State budget allocations for SOEs Restructuring Roadmap; Restructuring plans of line ministries.


Process management assistance and formulation of plans.

Strategic and public-private partnerships

2,3 Finalization of PPP law, regulations and formulation of national strategy.

Identification and design of partnership schemes, training.

Support facilities, marketing and other support actions.

State budget allocations for SOEs. Private sector resources.


Specialized technical and training assistance

Social mitigation

1,2, 3 Formulation of national and local policies and strategies.

Surveys, skill gap analysis and training needs assessment, preparation of specific plans, training/retraining for excess employees.Design and training of service outsourcing systems and new businesses.

Participation in establishment of new businesses and creation of new jobs for excess employees.

State budget allocations for SOEs; preparatory plans (MIM).

Targeted competitiveness funds.

Process management assistance and formulation of plans.

Clusters and value chains (with SOEs)

1, 2, 3 Finalization of SME Development policy and coverage in sector strategies, legislative and regulatory frameworks.

Surveys, business planning, inclusiveness business models, design, researches and studies, training and capacity building.

IT and other support facilities.

ILO and World Bank surveys. UNIDO enterprise development Programme, UNIDO work on quality infrastructures. Financing schemes by IFC, Tijara, IMMDF and other national lending


Management and specialized assistance. International networking.

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programmes. GoI / public sector - private sector dialogue platforms

3, 4 Preparation of plans and agendas

Workshops and support events

As targeted components of competitiveness funds

Management assistance

AXIS 3: CLUSTERS AND VALUE CHAINS FOR COMEPTITIVENESS ENHANCEMENT AND JOB CREATION

TargetSub - Areas

Pillar Relevan

ce

Eligible Components for GoI Support Instruments and Resources





Resources

New Instruments to be Created under Pillar 2


Product and service quality

1,2 3 Finalization and adoption of SME Development and other relevant policies and strategies (sectoral, quality, innovation), and associated legislative and regulatory frameworks

Surveys, business planning, inclusiveness business models, design, researches and studies, training and capacity building

Prototypes, applied researches, national and international certifications, marketing actions, IT facilities, and other support facilities

ILO and World Bank surveys. UNIDO Enterprise. Development Programme, UNIDO work on quality infrastructures. Financing schemes by IFC, Tijara, IMMDF and other national lending programmes


Management and specialized assistance

Quality managementTechnology upgradeInter sectoral linkages and synergiesIncrease of local contents in products and servicesInnovation, renewable energy sources and environmental protection

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Strategic and public-private partnerships

AXIS 4: PARTNERING WITH NATIONAL AND INTERNATIONAL TECHNICAL, EDUCATIONAL AND ACADEMIC INSTITUIONS

Target sub-areas

Pillar relevanc

e

Eligible components for GoI Support Instruments and resources


Direct technical assistance actions

Implementation actions

Available instruments and

resources

New instruments to be created under Pillar 2


Joint Research and development in target sectors and sub-areas

2, 3 Completion and contributions to Science & Technology Strategy (under preparation).

Formulation of sectoral plans and strategies. Design of actions and training. Study tours.

Research equipment and facilities

Existing collaborative schemes. UNESCO Science and Technology Strategy for Innovation.


International networking. Management and specialized assistance for national and international certifications.Quality

assurance and certification

Contribution to the formulation of national quality infrastructure & standardization policy framework

Plans and strategies Certifications and commentary actions

Ongoing work in quality management policy area

Training and staging of students

Integrations and contributions to the national Education Strategy

Training, negotiation and preparation of agreements.

IT and other support facilities

National Education Strategy. Existing VET and TVET structures.

International networking and provision of specialized trainers.Training

and employment of post -graduate

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studentsSupport to upgrading of Technology and Training and Educational institutes and centers

Preparation of relevant plans and strategies

Preparation of specifications and design; training and capacity building. Study tours

Equipment and facilities

Previous assistance provided by international organizations

Specialized assistance.

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PART IV - GOVERNANCE, IMPLEMENTATION AND M & E

11. GOVERNANCE SYSTEM

11.1. Basic Principles

233. This chapter addresses the institutional and organizational requirements needed for the efficient and effective implementation of the PSD strategy. Efficient and effective implementation requires a system of governance based on provisions, regulations, legal and organizational standards, that guide the process of sustainable PSD, and define the roles of the GoI and of the private sector in managing this process, in addition to striking a balance in decision-making. This is in addition to mechanisms that promote the participation of stakeholders in strategic planning and policy implementation. Monitoring and evaluation procedures will need to be in place to ensure effective decisions and proper implementation by GoI stakeholders, private sector institutions and other organizations mandated with the actual implementation of the various components of the Strategy, with a view to achieving the objectives and the 2030 vision.

234. The economic development environment in Iraq is volatile. There are a lot of fast-paced changes that are closely linked to the economic and political climate on both the regional and the international fronts. The private sector system is thus affected by internal and external influences that impact the implementation of the PSD strategy and, as such, it is important to take into consideration those factors and how they are likely to change in a way that may interfere with implementing the strategy.

235. Such factors include internal (political stability, population growth, social peace, quality of education, underdeveloped infrastructure and services lengthy and faltering legislative and regulatory reform, lack of and / or suboptimal commitment to visions, policies, strategies and plans, volatile revenues related to single - commodity economy, etc.) and external factors (fluctuating oil prices, global economic and industrial growth, international competition standards, FDI flows, technology transfer, etc.).

236. Four overarching factors are fundamental to the effective and speedy implementation of the strategy:

oil revenues (exports and prices); quality of education; political stability; and adoption and enforcement of the required legislative and regulatory

changes.

237. Different implementation scenarios will need therefore to be drawn as a reference for adapting, through efficient monitoring and evaluation (see Chapter 14) of the performances within the strategic paths and for introduce consequently remedial measures in real time.

238. Strategic governance follows a set of fundamental principles: A balanced and proactive role for the GoI which entails

strategically guiding and directing the PSD while striking the balance between centralized coordination and decentralized approach.

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The active participation of all stakeholders which balances out the centralized leadership role of the state, through innovative and effective participation mechanisms. As such, all parties interested in fostering PSD must be effectively and proactively involved in laying down its governing policies.

Cooperation and partnership on the national and local levels in which the GoI, the private sector and the specialized support institutions participate.

Monitoring and evaluation sustainable PSD will need to respond for adaptation and learning needs based on the existence of a consolidated information base. The process of monitoring the domestic and international environment, as well as the evolution of the PS system itself should be the basis for assessing the progress on the strategic paths towards achieving the vision and performance targets and to identify new emerging challenges through well defined mechanisms, institutional arrangements and procedures.

Capacity building a governance system that supports the strategy cannot be discussed in isolation from its supporting prerequisites; an educated and well-trained officials, managers, labour force and a modern innovation oriented infrastructure are integral to the success of the governance system.

11.2 Envisaged Institutional Set - Up

239. The institutional system for the governance of the implementation of the PSD Strategy of Iraq needs to be featured by: (i) simplified and clear set up, bylaw and internal procedures; (ii) straightforward and efficient decision making processes allowing also for a rapid mobilization of stakeholders, by institutional competence, for effectively streamlining, adopting and implementing policies; and (iii) appropriate positioning that ensures access to and involvement in the decision - making process within the GoI (particularly CoR and CoM), to the private sector and to the public

240. For this purpose, the PSDS envisages the establishment of the Private Sector Development Council (PSDC) - -under the Economic Committee of the Council of Ministers with the Task Force for Economic Reform becoming the core of the proposed PSDC and the establishment of national and governorate - level Technical Committees for each key target strategy area and associated implementation programmes.

241. The whole system will build on already existing institutional arrangements, committees and thematic working groups:

Ensuring the continuation and streamlining of all ongoing activities, also through possible unifications or incorporations of existing committees or working groups

Introducing needed amendments to existing agendas and mandates to better meet the PSD Strategy objectives and requirements

Establishing new Technical Committees at both central and governorate levels, where missing, in key intervention areas

Further enhancing the management, technical skills and competencies at all levels also through the assistance provided by international expertise.

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242. The envisaged structured is summarized in Figure - 1.

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PRIVATE SECTOR DEVELOPMENT COUNCIL TASK FORCE FOR ECONOMIC REFORM

ECONOMIC COMMITTEE OF THE CoM MINISTERS

PRIVATE SECTOR INSTITUTIONS AND ASSOCIATIONS

FINANCIAL INSTITUTIONS

TRADE UNIONS SME, CORPORATIZATION AND OTHER AGENCIES (ONCE ESTABLISHED)

NATIONAL AND GOVERNORATE - LEVEL TECHNICAL COMMITTEES (PILLAR 1) (Business Registration, Surveys, Sector and Employment Strategies, Information System, Strengthening, PS Institutions)

CoR COMMITTEES

LINE MINISTRIES

INDEPRENDENT EXPERTS (NATIONAL AND INTERNATIONAL)NATIONAL AND GOVERNORATE TECHNICAL COMMITTEES (PILLARS 2 AND 3) (SOEs Restructuring, Social Mitigation, PPP, SME Development Support System including Finance, Land reform, Investment, Labor, Education, Taxation, Quality, Environment)

NATIONAL TECHNICAL COMMITTEE FOR MONITORING AND PRELIMINAY EVALUATION


Figure - 1. Governance System of the Private Sector Development Strategy

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11.2.1. The Private Sector Development Council243. The PSD Council constitutes the highest level institution that will oversee

the management and implementation of the PSD Strategy and will take decisions for the measures and actions to be adopted by the single or groups of GoI and Private Sector intuitions according to roles and competencies.

244. The TFER will provide inputs and advice to the PSDC, based on the work developed by the Technical Committees in the different target areas. Decisions of the PSD Council will be submitted to the CoM for approval or endorsement, when required.

245. The PSDC will be chaired by the Deputy Prime Minister - Economic Affairs and co-chaired by the Chairman of PMAC. The Task Force for Economic Reform, with its current structure, working groups and mandate, shall be an integral part of the PSDC. All key stakeholders will be represented in the PSDC to ensure wide national consensus to needed reforms and mobilization of relevant institutions for measures and actions to be adopted; members of the PSD Council will include, as shown, representatives of:

Parliamentary Committees (Legal Committee, Financial Committee, Economy and Investment Committee).

Central Ministries and non - ministerial entities (MoF, MoP, MoIM, MoT, MoLSA, Central Bank of Iraq, National Investment Commission).

Kurdistan Region Government Private sector institutions and associations, including also – but not

limited to, key federations, unions and NGOs Financial institutions, including public and private banks, insurance

companies, ... Independent experts (national and international) Trade Unions National SME, SOEs corporatization and other PSD support relevant

agencies when established. Local Governments (on rotation basis)

246. At least one - third of the membership of the PSDC should be allocated to the Private Sector Representatives.

247. The tasks of the PSD Council will be: Reviewing and deciding on policies, strategies, programmes,

mechanisms and processes specific to PSD and, following CoM approval, mobilization of relevant institutions and organizations for their implementation, according to the Pillars of the PSD Strategy;

In particular and in the above context, streamlining and proposing the adoption of the economic reform legal framework as much as private sector development is concerned, including also and decentralization)

Coordination with Central Ministries, KRG and non - ministerial entities of the efforts towards a successful PSD process;

Coordination of the preparations for and implementation of restructuring of SOEs, with the participation of the private sector and ensuring the implementation of social mitigation plans and the establishment of corporate governance across the sectors of the national economy;

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Preparation of national and governorate - level strategies and plans as set by the PSD Strategy in the social and economic development areas;

Simplification of regulations affecting private businesses; Review and drafting of laws, regulations, instructions, circulations

and standards that govern the market, institutions and organizations of relevance to PSD;

Formulation of policies, studies, and programs, and draft needed legislation in order to establish an effective federal and taxation system favoring PSD;

248. In addition, the PSD Council will: monitor and evaluate the implementation of policies and programs

for PSD in accordance with the objectives set by the PSD Strategy; prepare annual reports on the implementation of each of the tasks

set in the PSD Strategy and submit it to the CoM and PS institutions for approval.

249. The precise definition of the management system and of procedures, as well as the preparation of the bylaws of the PSD Council, will constitute the immediate activity for the implementation of the PSD Strategy; in this context, specific roles, competencies and procedures for all envisaged governance levels, will be further specified.

11.2.2. The Task Force of Economic Reforms (TFER)250. The TFER, through its Working Groups and building on its current work

agendas, will be the core of the PSD Council, providing various technical inputs to the PSDC in addition to its current mandate. In summary, the TFER:

In consultation with the CoM Economic Committee initiate the process for the establishment and operation of the PSD Council;

Propose the formation and establishment of the Technical Committees, analyzing and reviewing the agendas and performance of the committees and working groups presently operating both in the central Government and in the Governorates in the target intervention areas, and, in coordination with Governorate Councils and Private Sector Institutions, suggest improvements in terms of needed quality, skills and number;

Collect, review and organize conclusions, proposals, studies and reports produced by the Technical Committees for submission to the PSDC, along with its own opinion;

Prepare periodic progress reports on the performance and results of implementation of the PSD Strategy within the planned intervention areas, for circulation among the members of the PSD Council;

Verify data gathered by different sources; Organize, on behalf of the PSD Council, monitoring and evaluation of

the performance of the private sector system within the scope of this Strategy, and prepare M&E reports for submission to the PSD Council;

Prepare the agendas for the meetings of the PSD Council; Organize the meetings of the PSD Council; Give presentations and provide explanations on topics to be

addressed in the meetings of the PSD Council.

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11.2.3. The Technical Committees251. In addition to the establishment of a specialized Technical Committee to

undertake Monitoring and preliminary Evaluation tasks, two groups of Technical Committees are envisaged, one under Pillar 1 and the second under Pillars 2 and 3.

252. The Technical Committees shall be formed of highly qualified Iraqi experts and international advisers with proved experience and specialized in the different thematic areas, building, as mentioned, also on and/or incorporating existing structures in both central and local governments.

253. Members of the Committees will be appointed by the concerned Central Ministries, Private Sector and Financial Institutions, according to thematic relevance and competencies.

254. Upon mandate assigned by the PSD Council through the TFER, the Technical Committees shall elaborate all methodological, technical, procedural, management and implementation aspects relevant to capacity building and training, knowledge and competence building, horizontal and vertical policies, legislation, regulations and specific programmes for supporting PSD, as set in Chapters 9 and 10 and in accordance with the objectives of this Strategy. In particular:

255. Under Pillar 1, a Technical Committees shall be established for coordinating, developing or preparing for the work to carried out by Central Ministries and/or Private Sector Institutions:

Business registration, surveys and information system development and dissemination

Sector, Social Mitigation and Employment national plans and strategies

Strengthening of the Private Sector Institutional framework.

256. Under Pillars 2 and 3, a Technical Committees shall be established, addressing interventions in both policy areas and private sector support programmes:

SME Development Support System (SME development policy area and Axis 1)

SOEs Corporatization, PPP and Social Mitigation for excess employees (relevant policy areas and Axes 2 and 3)

Cooperation between the Private Sector and Technical/Technology, Educational and Academic Institutions fostering also international networking and strategic partnerships (relevant policy areas and Axes 4 and 5)55

Taxation and fiscal incentives (relevant policy areas and Axis 1) Land reform, Investment and Labour (relevant policy areas and Axes

1 to 4).

257. The structure of the Technical Committees is indicative and subject to possible modifications (in terms of number and competence areas). The system will need to be featured in any case by a high degree of flexibility and especially by efficient coordination and effective synergies among Committees and within the Committees, to ensure the needed consistency

55 Covering also quality and Environment

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and harmonization of support measures, among different measures and direct support programmes to the private sector.

12. OVERALL IMPACT AND RESULTS

258. The Private Sector Development Strategy of Iraq is seen as basic policy instrument for gradually guiding the repositioning of Iraq among the leading regional economies and for networking with international contexts in a coordinated and structured manner through:

the adoption of the various policy, legislative and regulatory measures, through the coordinated implementation of development actions by means of the instruments made available by the GoI

the enhanced capacity of both GoI / Public Sector staff and of the Private Sector,

and given: the resilience and the dynamism of the Iraqi private businesses,

despite all constraints the presence of a series of strategic opportunities and resources

other than oil a young generation eager to learn and apply best management

practices and therefore, the presence of minimum sets of conditions for

initiating a well organized private sector development process

the implementation of the PSD Strategy is expected to generate an enormous positive impact on its international image, first of all, and then on the economic growth and poverty alleviation of the country, and therefore on the population wealth and on the employment.

259. The chances for Iraq are tremendous, considering the present global financial crisis, calling also for new areas and resources to be developed and therefore for new investments to be made.

260. From this perspective the Strategy and its outcomes should therefore be viewed as a basket of opportunities at disposal of national and international investors.

13. INTERVENTION AND IMPLEMENTATION FRAMEWORK

13.1. The Pillars Framework

261. As described in the previous Chapters, the PSD Strategy will roll out in the framework of the four Pillars, as overarching intervention areas, each with a number of associated measures and actions.

262. Pillars 1 and 2, constituting basically the Strategic Paths of the process, will be instrumental to the development of Pillar 3, the core Pillar for accompanying and facilitating the engagement of the private sector in programmes and projects along the four envisaged Axes.

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263. Pillar 4 (Governance and Implementation System) will be instrumental for ensuring the full roll out of phased interventions in the other three Pillars, as described in Chapter 11.

264. There are obvious strict linkages among the four Pillars as shown schematically in Figure - 2.

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PILLAR 1: DEVELOPING AND ENHANCING THE PRIVATE SECTOR KNOWLEDGE AND INSTITUTIONAL COMPETENCE BASE OF IRAQ

DATA, INFORMATION, SECTOR STRATEGIES AND INFORMATION MANAGEMENT AND ACCESS TOOLSPILLAR 3: BUILDING A CORE OF COMPETITIVE, SUSTAINABLE AND INCLUSIVE PRIVATE SECTOR CLUSTERS AND VALUE CHAINS

ACHIEVEMENT OF THE STRATEGIC OBJECTIVES OF THE 2030 VISION

ECONOMIC GROWTH AND NEW JOBS

PILLAR 2: ESTABLISHING STABLE AND CONDUCIVE FRAMEWORK OF DOMESTIC MARKET CONDITIONS FOSTERING THE CREATION AND GROWTH OF THE PRIVATE SECTORPOLICIES, LEGISLATION, REGULATIONS, ENFORCEMENTS, FINANCIAL, IT AND OTHER INSTRUMENTS

PILLAR 4: GOVERNANCE AND IMPLEMENTATION SYSTEM

Figure - 2. Linkages among the four pillars of the Private Sector Development Strategy

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13.2. Implementation Framework

265. Considering that the PSD Strategy: comprises 3 terms that extend over a time span of 18 years (2013 -

2030); is envisaged to be a dynamic process rather than a stagnant document;

and will undergo annual reviews, progress assessments and revisions to

ensure consistency with the overall national development vision and goals and the developments in legislative and regulatory frameworks,

no attempt shall be made, at this point, to formulate a detailed implementation plan. In fact, the implementation of the PSD Strategy will not be a one-time event but will involve review and adjustments, at both the operational and organizational level. Accordingly, the proposed benchmark steps and a general timeline for immediate and short term implementation steps: initiation, implementation, monitoring and evaluation have been designed to ensure that this process preserves organizational flexibility, strengthens institutional comparative advantages, and capitalize on of synergies within the PSD Council.

266. On basis if the above, and since the period 2013 - 2017 will be rather dense, comprising several implementation activities as well as intensive focus on legislative and regulatory frameworks, the proposed implementation framework will focus on the short - term (2013 - 2017) only, where international advisory and technical assistance shall be most needed.

267. The most critical step to roll out the PSD Strategy after endorsement by the CoM) will be the establishment of the Governance System, particularly the PSD Council, which might take some time. Until then, the role of coordination and implementation of key priority actions will be assigned to the Task Force for Economic Reforms.

13.2.1. Endorsement of the PSD Strategy 268.

1. PMAC, as the GoI's focal point for the PSDP - I and PSD Strategy, shall submit the PSD Strategy to the Council of Ministers for review and endorsement.

2. The Council of Ministers shall: a. review and endorse the PSD Strategy;b. assign the Task Force for Economic Reform under PMAC to undertake

the overall coordination and interim management of the PSD Strategy implementation in the transitional period until the PSD Council is established;

c. on recommendation of PMAC and the TFER, issue instructions and assign duties and responsibilities to the competent GoI entities to facilitate the implementation of the PSD Strategy;

d. decide on the governance system for the PSD Strategy, particularly, the mandate, structure, duties and responsibilities, job descriptions and mode of function of the PSD Council

3. The envisaged timeframe for this step is April - September 2013.

13.2.2. Transitional Management

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269.1. Until the PSD Council is established, the TFER working under PMAC shall

undertake the transitional management of the PSD Strategy process. This shall include:

a. Follow - up on the endorsement of the PSD Strategy and the associated and pursuant actions by the Council of Ministers;

b. Recommends to the Council of Ministers the mandate, structure, duties and responsibilities, job descriptions and mode of function of the PSD Council;

c. Draft a revised structure, ToR, job descriptions and mode of function for the TFER with its new capacity under the PSD Council;

d. Suggests the structure and drafts the ToRs and modes of function of the Technical Committees under the PSD Council;

e. Prepares an interim action plan to ensure that the implementation of the PSD Strategy takes off without delay and to sustain the momentum created by the PSDP - I and PSD Strategy consultation process; and

f. Undertakes such actions an measures as shall be explained hereunder to ensure the initiation and implementation of the PSD Strategy process.

2. UN agencies and other international organizations shall support the TFER in conducting the aforementioned functions.

3. The envisaged timeframe for this step is April - December 2013.

13.2.3. PSD Council Management270. When installed and operational, the PSD Council shall undertake the overall

management and implementation of the PSD Strategy. In general, the PSD Council shall:

1. prepare, in line with the Phased Overall Action Plan, regularly review, adjust and ensure integration with national and sector strategies of a comprehensive Implementation Framework for the short - term (2013 - 2017);

2. prepare, review and adjust annual Action Plans in line with the short - term Implementation Framework, mobilize resources, including budget allocations; and

3. endorse the Monitoring and Evaluation System and the complimentary Monitoring and Evaluation Plan (s) to the annual Action Plans as prepared by the National Technical Committee for Monitoring and Evaluation (2013 - 2017);

13.2.4. Dissemination and Communication271.

1. The TFER, during the Transitional Period, and, later, the PSD Council shall ensure the widest dissemination and communication of the PSD Strategy among the Federal Government institutions, Regional and Local Governments, Private Sector organizations and associations, including those in the diaspora, academic and research institutions and to the public at large using various communication channels and materials, including face to face communications, conferences, workshops, seminars and other public events with the overall purpose of raising awareness of the PSD Strategy. In particular, the PSD Strategy shall be disseminated and communicated to the

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members of the Council of Representatives, Kurdistan Region Parliament and Governorate Councils to ensure the facilitation of implementation and enforcement of the PSD Strategy.

2. The TFER and, later, the PSD Council shall prepare a comprehensive dissemination and communication strategy and national / sectoral / local dissemination and communication plans in line with the short - term Implementation Plan and the annual Action Plans.

272. Table - 3 shows the envisaged rollout time frame of the Four Pillars System and

of its main components over the whole time span of the PSD Strategy (2013 - 2030).

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Table - 3. Rollout timeframe of the Four Pillars System and of its main components.

Main Components Objectives Expected ResultsTIMEFRAME

2013 - 2017

2018 - 2022 2023 - 2030


Design, development and update of a national and governorate business registration system

To acquire a comprehensive knowledge of the number, distribution and other basic information of Iraqi businesses also for statistical, legal and transparent fiscal purposes

Disappearance of the informal sector

Design and development of National and governorate information systems on / for the private sector

To enhance the knowledge of the private sector on performances, dynamics, support instruments and opportunities

Ensured access to databases and information sources for researches and business development

Formulation and review of sector development and employment strategies

To contribute to the prioritization, design and launch of specific actions and programmes for economic and social growth

Assessment of the actual development potential of target economic sectors and of the role of the private sector and prioritization of implementation programmes

Strengthening the mandate, the governance, the IT system and the competence of private sector institutions and associations

To achieve consensus between the public and private sectors for the roll out and management of the PSD Strategy

Increased representativeness, improved services and enhanced GoI / public sector - private sector dialogue


Design of SME financing and incentives system integrating or in coordination with existing tools and instruments

To foster SME development, investments in SMEs, competitiveness and job creation

Efficient use of resources by the private sector for achieving the Strategy objectives.

Establishment of a system of targeted Competitiveness Funds support systems in ministries, by key sectors and intervention areas, to be managed through the SME Agency / System and in cooperation with the banking sector

Streamlining of policies legislation frameworks and of

To establish an integrated, harmonized, coherent and

Economic and social growth effectively and efficiently supported

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enforcement implementation mechanisms

business development and inclusive job creation conducive framework of policies, strategies, legislations and regulations. Adopted and fully enforced frameworks

by adopted and enforced policies, strategies, laws regulations


2013 - 2017

2018 - 2022 2023 - 2030

Simplification of existing regulationsPending priority frameworks (economic reform, SME finance and development under Pillar 3, Axis 1, land, SMEs, taxation, investment, PPPs, public procurement, competition, bankruptcy, competition, companies)

Other frameworks Strengthening IT access networks

To contribute to access to information

Enhanced knowledge of information sources, tools, instruments and opportunities for the private sector

PILLAR 3: : BUILDING A CORE OF COMPETITIVE, SUSTAINABLE AND INCLUSIVE PRIVATE SECTOR CLUSTERS AND VALUE CHAINS

Preparation of final policy and regulatory framework and design of the SME Development Support System (Axis 1)

To establish a well organized and structured system to support SME development throughout Iraq

Adopted frameworks

Implementation of Axis 1 (SME Agency and branches, support infrastructures, clusters and value chains)

Efficient integrated and highly specialized service delivery by the SME Support system

Planning and strategies for integration of the private sector with the SOEs (Axis 2)

To enhance the participation of the private sector in the SOEs restructuring and corporatization processes

Enhanced specialization and competitiveness of established clusters, value chains and partnerships with restructured and corporatized SOEs, with a significant number of partnerships in place

Implementation of Axis 2 (value chains, clusters, partnerships) Review of sector strategies (from Pillar 1) and detailed design of actions and programmes (Axis 3)

To support private businesses and job creation not supported in the framework of Axes 1 and 2 building on selected success

Competitive and innovative value chains established throughout Iraq

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factors and key driversImplementation of Axis 3 (quality, upgrade, inter-sector linkages, partnerships)

Completion, preparation and adoption of national and governorate policies on Innovation under Pillar 2 (Axis 4)

To enhance specialized job creation opportunities fostering innovation

Adopted frameworks

Preparation, design and implementation of identified cooperation projects

A number of cooperation agreements in place and rolling out


2013 - 2017

2018 - 2022 2023 - 2030

PILLAR 4: GOVERNANCE SYSTEM

Design and endorsement of the Governance System

To achieve the objectives of the PSD Strategy

Adopted resolution by the GoI

Initial roll out of the PSD Strategy through existing institutions and mechanisms

To keep momentum, ensuring the continuity of initial/ongoing reform measures and actions

Set up of the PSD Council and of the Technical Committees

Achievement of 2030 Vision objectives through timely reviews and adjustments of intermediate objectives and through other remedial measures and programmes

Monitoring & Evaluation and PSD Strategy management Transfer of the management of Pillars 1 and 3 to the private sector and decentralization of the PSD Strategy management

Enhanced coordination and effectiveness of measures and actions taken through Iraq

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14. MONITORING AND EVALUATION SYSTEM

273. The establishment of an appropriate monitoring and evaluation system is a pre-condition for realizing and managing a sustainable PSD process and introducing corrective actions along the paths. It also contributes to an improved knowledge of the PSD potential in Iraq and to strategic decision making.

274. While the PSD Council will be ultimately responsible for drawing conclusions, reporting to the CoM and take or propose decisions accordingly, modern monitoring and evaluation systems rely increasingly on the involvement of all concerned stakeholders and ensures the contribution of their experiences and, thus, enabling achievement of continuous improvement process. In other words, a sound M&E system requires that M&E tasks are undertaken at all levels of the PSD system and by all stakeholders according to their specific roles and mandates, in a framework of decentralized awareness and responsibilities.

14.1. Functions and Responsibilities

275. A comprehensive and integrated M&E system encompasses functions that are basically distributed in three levels:

Level 1: M & E of the Appropriateness of the PSD Strategy.

276. This level is concerned with the general direction of the PSD strategy and strategic paths and how they contribute to resolving the challenges that face the Iraqi economy. Thus M&E on this level is concerned with whether the vision, the strategic paths, and the objectives of the PSD strategy are still appropriate in view of developments at the national and international level, or whether they need to be revisited.

Level 2: M&E of the Effectiveness of the Proposed Policies and Support Programmes in Achieving the Objectives of the PSD Strategy.

277. This level of M&E focuses on whether the strategy policies and programs are adequately suited to implementing the vision and strategic directives through monitoring the objectives. On this level the M&E system needs to set benchmarks from which it can compare performances.

Level 3: M&E of the Efficiency of Implementing the PSD Strategy.

278. This third level addresses whether the specific initiatives, programmes and projects for implementing the PSD strategy have been properly implemented, and whether the implementation is cost efficient.

279. As such, this level is the highest level of monitoring and the most detailed, and requires substantial resources. This level is the foundation of M&E’s hierarchical structure as identified in the following Figure.

280. Within the envisaged governance system (Chapter 11), the overall management and coordination of these tasks will be under the responsibility of the TFER, while the Technical Committees will be

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Appropriateness of the PSD Strategy

Effectiveness of the PSD Strategy

Efficiency of Implementing the PSD Strategy

Level of M&EMonitoring Target Evaluation Questions

Context

Private Sector System

Measures and Actions Have the measures and the actions taken to implement the PSD Strategy been implemented properly?Is the PSD strategy implemented in a cost-efficient manner?

Does the PSD strategy with its different measures tackle the challenges effectively?

Are the right challenges addressed by the PSD Strategy?

responsible for the actual implementation (monitoring and preliminary evaluation) on the field.

Within the envisaged governance system (Chapter 11), the overall management coordination of these tasks will be under the responsibility of the TFER, while the technical Committees will be responsible for the actual implementation (monitoring and preliminary evaluation) on the field.

14.2. Appropriateness of the PSD Strategy

281. The appropriateness of the PSD Strategy is monitored and evaluated in order to reflect, at longer time intervals, whether the chosen strategy is indeed appropriate to address the most important challenges the Iraqi economy and of the private sector are confronted with. This includes questioning the intermediate strategic objectives of the vision and system level targets, as well as the more specific key dimensions that were identified and the main policy inroads chosen in terms of strategic thrusts or priorities.

282. It will be also important to concentrate efforts on some particularly relevant developments, for instance by selecting some countries for benchmarking purposes or by focusing on some key areas (axes). It may also require fostering collaboration with other monitoring activities in Iraq and international organisations (UNIDO, World Bank, USAID etc.).

283. The M&E of the appropriateness should be conducted at least twice during each timeframe period.

Major Issues Guiding QuestionsChanges in domestic context What major developments in the national economy and society can

be observed / anticipated that may affect the orientation of the PSD Strategy?

Changes in international context

What major developments on the international scene can be observed / anticipated that may affect the orientation of the PSD Strategy?

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Relevance of system level targets

Do the system level targets reflect the main future needs of society and economy?

14.3. Effectiveness of the PSD Strategy

284. Under this level, the process of monitoring and evaluating the PSD strategy as such is addressed, i.e. the main aspects to be considered, the main indicators to be used, and the timeframe for revisiting the Strategy, in consistency with the strategic objectives of the vision (short, medium and long terms).

PS System IndicatorGDP Increase the PS contribution to GDP Employment

Increase percentage of employment in the private sector

Investment Increase percentage of investment by the private sector Value added

Increase the growth rate of value added in the private sector system

Local content

Increase the share of Iraqi products from domestic market demand to % 50

Exports Increase exports to regional and global markets Governance Establishment of an institutional and regulatory framework that encourages

constructive relations between related stakeholders; reduce variations in concerns and interests intersections.

Are the necessary learning, consultation and mobilisation mechanisms in place to ensure a continuous / rolling improvement process of the PSD Strategy and its implementation?

14.4 Efficiency of Implementing the PSD Strategy

285. The implementation of the Strategy will require the rollout of measures at policy and regulatory levels, as well as of associated key programs and projects. Therefore, the monitoring and evaluation system will focus on groups of / or individual interventions, and on how they will be implemented and with what results.

286. Basic guiding process principles include: Definition of clear objectives for all specific interventions, and of clear

indicators for their achievement; Prior assessment of the implementation impact of the interventions; Regular monitoring of progress and periodic assessment to allow for

possible adjustments; Final evaluation to assess the level of achievement of objectives and

to learn for the design of follow-up actions.

287. The efficiency will therefore be monitored and evaluated on basis of the action plan presented in Chapter 13, taking into account the strategic objectives associated with the relevant strategic paths (Chapter 8).

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TABLE - 4. MONITORING AND EVALUATION MATRIX



OVERARCHING INDICATORS

COMPONENTSPOLICIES AND CROSS CUTTING AREAS PROGRAMMES AND PROJECTS

Intervention area Objectives Indicators Measures and Actions Objectives Indicators

Enhance the knowledge on the development potential of the private sector of Iraq

Strengthening the PS institutional and associations' framework






Easy and transparent access to finance for businesses

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Establishment of a comprehensive and harmonized framework of policies and strategies in all PSD areas

Expansion of IT networks and systems throughout the country

PILLAR 3: : BUILDING A CORE OF COMPETITIVE, SUSTAINABLE AND INCLUSIVE PRIVATE SECTOR CLUSTERS AND VALUE CHAINS





Establishment of PS and SME Agency and support infrastructures

Integration of State Owned Enterprises with the Private Sector

Competitiveness and innovation enhancement

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PILLAR 4: GOVERNANCE SYSTEM





Full and efficient implementation of the PSD Strategy

Decentralization of PSD Strategy management

Increase of the effectiveness of donors' assistance to PSD

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