The impact of volatile oil prices on the growth of the Iraqi economy

- 04-04-2017 | Voice of Iraq Printable version

Years of dominance of oil-exporting countries on the global market has ended, at least in the foreseeable future. Prior to 2014, oil buyers were running behind sellers, after 2014 the opposite became true, as the world oil market was suffering from surplus production from OPEC and non-OPEC countries thanks to modern technology. This surplus caused a drop in the price of a barrel of oil from $ 140 in early 2014 to about $ 23 in the first half of 2016. The question is, what is the impact of this huge decline in the prices of oil and oil resources on the national economy? Or, in particular, how does the fall in oil prices affect global markets?

Economists are divided about the relationship of fluctuations in prices of raw materials to economic development. There is a camp that says there is a negative correlation between the volatility of export resources and economic growth. This camp says that the decline in the prices of exported materials leads to a decline in export resources and in turn reduces the reserve of foreign currencies, which in turn reduces the country's ability to import capital goods (machinery and machinery), which leads to a decrease in the size of capital in the country, This, in turn, leads to a reduction in domestic investments and thus a decline in the number of labor and national income.

The second camp does not find an inverse relationship, but a direct correlation between the fluctuations of export imports and economic growth. This camp says that the repetition of fluctuations in the export market imposed on the citizens of the countries of export is an important lesson is not to rely on exports, but on saving. Which has become a citizen tends to save rather than to consume.
This much savings will in turn support domestic investment, which in turn supports demand for labor and increases national production.

Without a doubt, the Iraqi economy fell within the first camp, which says that there is an inverse relationship between price fluctuations and economic growth, even if economic growth registered a growth of 5%. The source of this growth came from foreign loans, which enabled the government to pay the salaries of its employees and the wages of its workers, starting with some infrastructure projects in some provinces.
However, the economic decline was evident in the face of Baghdad and other provinces of a decline in sales of all kinds, the large number of unemployed, the disruption of government projects, the reduction in the number of building permits, and the reduction of government assistance to many sporting events, social and cultural.

There is no hope that oil prices will return to global markets in the near future, so continuing to rely on oil exports will lead to a further economic downturn and lead thousands of young men and women to gain a job. This situation can not be continued much, especially as Iraq is going to get rid of the elements calling for the crime and the return of the victors of the clans of heroes and sons of the popular crowd to their cities.

What to do? There are many ways that the Iraqi economy can benefit from and compensate for the low prices of crude oil, including the following:

1. Focus on manufacturing industries. It is true that the demand for oil is not equal to its offer, but Iraq can switch to oil industries. There are about 300 industries whose raw materials are crude oil. For example, the refining of all kinds of oil, petrochemicals, iron and aluminum industry, which need great energy.

2. Iraq should not be allowed to import even soda from turkey and chicken from India and South America. The state must focus on the slogan "Made in Iraq". I do not say Iraq should start with the manufacture of cars, planes and tanks, but if it can manufacture what it consumes at home, it will be enough to eliminate unemployment in Iraq. Iraq is well-known for the quality of the textile industry, shoe industry, sewing, cooking and furniture manufacturing. By the way, the streets of Baghdad are full of Iranian cars and South Korea. It is no shame that Iraq is pressing these two countries to build lines to manufacture their cars in Iraq, just as the United States does with the global automakers.

3. The source of wealth is the land and what it produces. This was the reason for Britain's colonization of the hemisphere. Iraq is rich in its land and its arable land and the diversity of its terrain. Iraq can produce all kinds of fruits and vegetables. Basra can produce all kinds of fruit produced by Pakistan, Malaysia and Bangladesh. Wasit Governorate can produce all kinds of vegetables produced by Jordan and Iran. The Mosul alone can supply Iraq with all its needs of wheat and barley. Maysan and Diwaniyah can produce all the Iraqi rice needs.

The provinces of Kurdistan can produce all of Iraq's meat. Therefore, Iraq needs only an agricultural policy led by knights on the weight of our leaders in the army and popular mobilization. Agriculture is not like the industry, so give the orange tree its fruit will need at least five years, while the automaker does not need more than a certain minutes to add another car to its production fleet. Therefore, the agriculture official needs government and public recognition even if the orange tree is delayed in production.

4. Iraq is blessed with its tourist, religious, tourist and cultural sites. All the governors of the country must take care of the tourism sector, because this sector is the only sector through which the world learns about the governorate. But public roads, city cleanliness, clean sanitation, luxury restaurants, and high-end hotels must be worked out. I was surprised by an official in the province of Najaf or Karbala, suggesting that the Iraqi government reduce the number of foreign visitors to his province.

I expected that the official would lose his job after this statement, but I did not hear anything about him. Is not it a shame that developed and late countries are spending billions of dollars to encourage tourists to visit their countries and come up with an official demanding their expulsion. I think this is only in Iraq.

In any case, I do not think the four points above are absent from the memory of the Iraqi government, but the absent is the beginning, because those who do not work do not go wrong, and that the government move and local governments towards the implementation of these projects will move Iraq from recession to the state of movement and growth, After all, Iraq's success in moving its economy from dependence to independence will add another economic theory to economics called the Iraqi Model of Development.