Proof of source of funds and vague fees: Institutional obstacles hindering trade regulation in Iraq
Manar Al-Obaidi, head of the “Iraq Future” Foundation for Economic Studies and Consultations, criticized on Saturday the obstacles and impediments facing traders in Iraq from the stage of establishing their companies and projects through obtaining hard currency to the banking procedures related to this matter, warning of the consequences of the bureaucracy facing the labor market and its impact on increasing the unemployment rate in the country. Financialnews aggregation
Al-Obaidi said in a detailed post, “After more than three years of implementing the external transfer restrictions, it is not enough to repeat the demand for traders to deal with banks, and then interpret the continued resort of some of them to the parallel market as merely a refusal to comply,” adding, “We are asking the trader to become a banking regulator, while he faces complications from the moment he registers his business.”
According to the World Bank’s Doing Business 2020 report, Iraq ranked 154th out of 190 economies in ease of starting a business, with an average of 8.5 procedures and 26.5 days to establish a company and officially begin its operations, based on the case studied in Baghdad.
The economist stressed that “these figures reveal that the obstacles to establishing businesses preceded the external transfer restrictions by years,” noting that “tightening the transfer requirements needed a parallel reform to make fulfilling them possible.”
State dues
Al-Ubaidi noted that “taxes, social security, fees, and other obligations should be clear and calculable before a merchant makes his decision. However, the abundance of instructions, their overlap, and the difficulty in understanding their application make the final cost unclear to him.”
He pointed out that “the merchant can include a known fee within the cost of his goods, but it is difficult for him to plan for a commitment whose amount or timing he does not know. This is in addition to the financial extortion he is subjected to, which exceeds the money he pays to the state, which accumulates the cost of his trade whenever entering the formal sector becomes linked to uncertainty and its weak attractiveness, even if it allows obtaining currency at the official rate.”
Proof of source of funds
Al-Ubaidi pointed out that “a trader who has been working for twenty years, buying and selling for cash, and reinvesting his profits in merchandise, but he does not have regular financial statements or complete historical records. Today he is required to provide documents explaining how his capital was formed,” indicating that “his activity may be legitimate, but his commercial history is not documented in the way that the bank needs. Here the gap appears: he has an existing business and accumulated funds, but he does not have the financial file that allows verification of them.”
He stressed that “this gap needs institutional treatment: a clear path for documenting the activity and sources of funds, accounting assistance, and requirements that are commensurate with the size of the activity and its risks, without dropping verification or being lenient with illicit funds. A financial record that has not been built over years will not appear simply by issuing new instructions.”
Banking obstacles
The economist stressed that “even a merchant who fulfills his requirements may encounter a bank that does not find sufficient benefit in serving him,” noting that “a small transfer requires verification of the identity of the client, the beneficiary, the source of funds, the invoice, and the purpose of the transfer,” pointing out that “a large part of this work is also required for a large transfer, while the return from a small one may be much less.”
The head of the “Iraq of the Future” Foundation warned that “this disparity creates an incentive for some banks to favor large transfers and set limits or conditions that exclude small ones, and the result is that the merchant whom we ask to move to official channels may not find a banking service suitable for the size of his business.”
Al-Ubaidi ruled out a decline in reliance on the parallel market if the official alternative remains difficult to access, unclear in cost, and limited in service to small traders, calling for the importance of finding alternative solutions that rely on technology and automation to regulate trade and link traders with approved suppliers, banks, and shipping companies.
Digital solutions for businesses
The economist suggested “a digital solution that the merchant enters with a small purchase order, which helps him complete his file, provides a documented invoice from an approved supplier, clarifies the cost of purchase, shipping and fees, collects similar orders, and links payment to the arrival and receipt of goods. Thus, with each transaction, the merchant creates a commercial and financial record that can be referred to.”
He added that “the success of these digital solutions requires that they be accompanied by simpler procedures for registering businesses, declared and accountable government dues, an approved path for documenting funds, and a banking commitment to serving small transactions.”
Al-Ubaidi concluded, “Either we place obstacles, impediments, and ambiguity before the merchant, demonizing him under the pretext that he is the one creating currency market speculation, or we demonstrate a clear lack of understanding of the market and the commercial sector.” He added, “Every small merchant represents a job opportunity for five people directly and five indirectly,” and warned that “the cessation of any merchant’s work, or the decline in his business, means the loss of ten direct and indirect job opportunities in a market where unemployment rates are already high.”
The economist concluded by saying, “Whoever wants to reduce the parallel market must make the official route usable. The trader needs a door he can enter through, a cost he knows in advance, and a bank that accepts his service.”
Shafaq.com