Development and Corruption in Iraq

Stephen DeAngelis

December 10, 2008

With the Iraqi parliament having recently approved a new security pact with the United States and a change of administrations just around the corner, there has been a lot of speculation about Iraq’s future. The bedrock of a brighter future is, of course, security; but dealing with corruption is almost as critical. That is why the dismissal of oversight officials there has caused great concern [“Premier of Iraq Is Quietly Firing Fraud Monitors,” by James Glanz and Riyadh Mohammed, New York Times, 17 November 2008].

“The government of Prime Minister Nuri Kamal al-Maliki is systematically dismissing Iraqi oversight officials, who were installed to fight corruption in Iraqi ministries by order of the American occupation administration, which had hoped to bring Western standards of accountability to the notoriously opaque and graft-ridden bureaucracy here. The dismissals … have come as estimates of official Iraqi corruption have soared. One Iraqi former chief investigator recently testified before Congress that $13 billion in reconstruction funds from the United States had been lost to fraud, embezzlement, theft and waste by Iraqi government officials. … While some Iraqi officials defended the dismissals, saying there had been no political motivation, others pointed to the secrecy involved as supporting their view that those removed had lost their posts without good cause. Each of Iraq’s 30 cabinet-level ministries has one inspector general. These oversight officials are supported by varying budgets and staffing. Although some of the inspectors general have been notably quiet, others have vigorously investigated both current and former ministers and other senior officials, and the top echelons of Iraqi officialdom have found ample reason to fear them. In one case, investigations of a former electricity minister landed him in jail before he escaped and fled to the United States, and an Oil Ministry inspector general detailed extensive smuggling and extortion schemes that he said bedeviled the industry. A former public works minister, a Kurd, complained before she fled the country that her ministry’s inspector general at the time, a Shiite, had been hyperactive and had brought charges based more on political considerations than actual wrongdoing.”

There has undoubtedly been abuse on both sides (i.e., incompetent inspectors and corrupt officials) — power has a corrupting influence all its own. The key is to find honest, respected, and fair oversight officials. The worse thing that the Iraqi government could do is dismantle the oversight system and let corruption run rampant. No one likes to have people looking over their shoulder, but the spotlight needs to shine in places where great public trust has been placed. The growing fear is that vacated positions will be left unfilled or that political hacks willing to turn a blind eye to corrupt practices will be appointed.

“When Parliament recently proposed a law formalizing the professional requirements that must be met by a candidate for inspector general, [Sheik Sabah al-Saeidi, a Shiite lawmaker with the Fadhila Party who heads the Integrity Committee in the Iraqi Parliament] said Mr. Maliki’s cabinet strongly opposed it. ‘They want it to become a political appointment,’ Mr. Saeidi said of the oversight position. ‘They are trying to restrict anticorruption efforts all over the country.’ … Mr. Maliki’s stance on oversight was most vividly illustrated by his long-running feud with Judge Rathi al-Rathi, the former head of the Commission on Public Integrity, an oversight agency created by the Coalition Provisional Authority. After Mr. Rathi’s corruption investigations repeatedly embarrassed the Maliki government, the prime minister’s office supported corruption charges against Mr. Rathi himself. Mr. Rathi’s backers considered the charges to be trumped-up. Ultimately, Mr. Rathi was forced out and fled Iraq in the summer of 2007, saying he had received numerous threats to his life. He was recently granted asylum in the United States, said Chris King, a former United States Embassy official who was a senior adviser to the integrity commission.”

Corruption is corrosive because it breeds secrecy, siphons off critical resources, and fosters a criminal environment. Just as importantly, corruption discourages foreign companies from making desperately needed investments in a country’s economy. Those are just a few of the reasons that people who lack integrity cannot lead a country into a better future. Blog reader and friend Critt Jarvis pointed me to another article that underscores the fact that corruption remains a big challenge in Iraq along with other bureaucratic challenges [“Funds starting to flow into Iraq,” BBC, 13 November 2008]. Before addressing the corruption problem, the BBC report begins with the security situation.

“Iraq desperately needs more foreign investment – and the downward slide of oil prices increases the pressure on a country whose government gets 90% of its budget from oil revenues. But there are huge hurdles – the security situation, legal problems, political hold-ups and frustrating delays in getting government permission to start big new projects. Fear of violence is still part of everyday life, but Sa’ad al Kawaz, the manager of an air-conditioning company, insists the situation is improving. ‘Sometimes we cannot go out, because violence forces you to stay at home,’ he says, but demand for his product is increasing as more buildings, factories and hospitals are built. ‘Iraq needs to be rebuilt and it is worth staying here and working and investing,’ he says.”

Although most of Enterra Solutions’ work has been done in northern Iraq, the BBC report notes that the next area ripe for development is in the south.

“The region around the southern city of Basra is key to the drive for new investment, because it contains 70% of Iraq’s proven oil reserves and has direct access to the sea-routes of the Gulf. Michael Wareing, the head of the Basra Development Commission, which is funded by the UK government, says investment interest has been growing as the security situation improves. ‘We are involved at the moment with just under 20 individual companies, not just British, but also European and from the Middle East region,’ he says. ‘A wide variety of industries are interested, not just oil and gas, and each company has its own concerns such as security in a local area, the availability of loans, and legal and contractual issues.’ Many companies no longer focus on the security position and would be happy to invest in the country if it remains stable. The big issue now is turning much more to the ability of the government to issue specific contracts. ‘It’s complicated,’ Mr Wareing says, ‘particularly on the larger projects, because they have to be approved locally and by central government. We are actually seeing a lot of tenders being issued at the moment and a lot of bids being made.'”

The article points out that the central government is well aware of the importance of foreign direct investment for helping create a sustainable economy.

“To encourage investment in the country, the government in Baghdad is offering companies tax-free status over 10 years, along with a promise not to nationalise them. ‘We have been looking at state-owned industries where there is a need for investment to improve facilities, to improve manufacturing plants, so we have been looking at assurances in terms of the future intentions of the government,’ Mr Wareing says.”

So what are the biggest challenges to increased investment — corruption, the current financial crisis, and red tape.

“There remains … a widespread perception that corruption is rife in Iraq. Mr Wareing points out that companies are well aware of the challenges, including corruption, but as those companies operate all over the world, they do not compare operating in Iraq with the UK or the US. ‘They make a comparison with other countries where they currently operate, and that applies to both corruption and the security situation,’ he says. The current financial upheavals around the world could deter investment in Iraq, however. ‘Obviously companies have to balance the risk and the opportunity,’ Mr Wareing says, ‘particularly in the south around Basra, which offers both an international airport and ports leading to the gulf.’ Rather than domestic politics or the credit crunch, the biggest challenge is getting through the contracts system. ‘It’s not surprising considering how young the current government is, both at a provincial and national level,’ he says, ‘but what’s encouraging is that we are seeing a lot of contracts being awarded on a number of quite major projects. Providing we can continue to have a stable security position, there is no question there continues to be a lot of opportunity in Iraq,’ he adds.”

I agree with Wareing that opportunities abound in Iraq. My enthusiasm is only tempered by lukewarm Iraqi efforts to rid its system of corruption. Rather than dismantling its oversight system, the government needs to strengthen it. When corruption is uncovered in high places, the government should pride itself in having done its job rather than being embarrassed by the revelation that colleagues betrayed the public’s trust. Iraq’s government, like its businesses, need to gain the world’s trust. Operating transparently and adopting international standards are the best ways to earn that trust.