22 Feb 2019

Kurdistan Needs At Least 306 Thousand Jobs

The upcoming KRG‌s cabinet would be facing several political and economic challenges. Risen unemployment is just one of them, but it would be the most resilient one if it would not be addressed properly and smartly by policy makers. 

Some basic calculations show that the KRG needs to create at least 357 thousand job opportunities so as to cope with the current 13.53% unemployment. If policy makers will not address it very soon, the number will rise and the issue would get more complicated given the region’s 2.3 %  population growth and its unstable oil-dependent economy.
The KRG‌s e economic hardships have come from the recent financial crisis that hit Iraq and almost the whole region due to low oil price, ISIS war, and the political instability that followed Arab Spring protests. The KRG‌s challenges could be seen as part of the whole Iraq’s cyclical unemployment. Moreover, what exacerbated the region’s economic situation is Baghdad-Erbil disputes, escalated after the KRG‌s independent oil export in 2013. 

Mohammed Hussein
Mohammed Hussein

is policy director and political-economy analyst at ICPAR. He holds a master’s degree in specialized economic analysis: Economics of Public Policy, from the Barcelona Graduate School of Economics.

Iraqi federal government held the region’s 17% of national budget share in 2014 and decreased it almost to 12.67 % in 2018 following the Kurdistan’s ill-fated independency-referendum. KRG has not been able to compensate the budget cut by its oil revenue. Therefore, the economic crisis has affected Kurdistan Region more than the rest of Iraq. For instance, in 2018 the KRG‌s public employees received only 9 months-salaries, while the federal government’s employees were paid all their 12 salaries.

2019 Budget Law, a Hope for Optimists  

In addition to the financial crisis, major Baghdad-Erbil disputes over oil, territories, Peshamrga budget have not been resolved. KRG continues exporting its oil independently, and it has gotten only 317 billion IQD monthly transfer from Baghdad to pay its civil servants. However, Article 10 of the Iraq’s 2019 budget law obliges the federal government to pay the KRG‌s civil servants and Peshamrgas if the KRG will contribute 250,000 bpd of its own oil to the federal government’s exports. If the KRG will not contribute this volume of oil, it will have to compensate for revenue-lose lack of the its oil-contribution will causes. The tricky article, came as a compromise point between Kurdish and Arab leaders, is quite left for politicians‌different interpretations.
The budget law will increase the KRG‌s monthly transfer to 522 billion IQD (from 317 billion), but it is still not clear how the both governments would keep committed to the law. In the past 5 years, both Baghdad and Erbil violated budget laws and interpreted them based on their own calculations and interests. Therefore, what guarantees implementing the 2019 budget law is their good and normal relation rather than anything else. 
Since both Iraq’s and the KRG‌s business cycles are driven by oil price, there are always possibilities of budget shortages and consequently resource scarcity driven disagreement between them.

No Planned Solution
 Amid these economic and political issues, the increase in unemployment in Kurdistan has always been a topic for policy discussions by various actors and entities. It was taken as a topic for the recent parliamentarian election campaigns in the region, but it is still not clear how the Kurdistan’s newly elected leaders would address it. 
According to Kurdistan Region’s Statistics Office (KRSO), unemployment rate in the second half of 2015 was 13.53. Given the region’s 6 million estimated population in 2019, about 393,466 active job seekers are unemployed based on the following calculation.
According to the KRSO‌s data, 60.60 % of the region’s population is in the range of working ages (between 15-64 years old). A large portion of the region’s people are inactive labor force (26.4% of the whole working age population), so currently 393,466 people are unemployed and actively searching for jobs. This number is just 13.53 of the region’s total active labor force. To lower this unemployment rate down to 3 percent (which could be an acceptable level), the region needs at least 306, 000 newly created jobs.
Keeping the region’s economy growing sustainably, the KRG needs to create more jobs. Public sector can’t take a big share of this job creating process since it is already overcrowded. Thus, private sector jobs should be priority for policy makers. Potentials are in the private sector if the other factors will not turn up against it, especially the region’s political and security instabilities.

Unusual Economic Trend 

 In a normal setting, 2-3% economic growth is enough to satisfy job creation, but this is not a case in the KRG due to the nature of its rentier (oil dependent) economy and inefficiently overcrowded public sector. The region has always had big growth rate fluctuated between 7 and 10 till 2014. Even after the 2014 crisis and exactly in 2015 it stayed about 2 percent. However, this growth is not associated with normal and adequate job creating dynamics since it was mostly driven by oil revenue. 
Oil revenues create more than 90 percent of the region’s exports, but the KRG‌s oil sector has created approximately 2 per cent of the region’s jobs, (about 25 thousand people work in the oil sector,) according to a multiple data sets from KRSO, KRG‌s ministry of natural resource (MNR), and a field study recently published in a *book on the region’s labor market. 
The oil sector, which is the main revenue generator, can create only 2% of all the jobs of the region. If the KRG‌s economic growth depends on oil sails, it is not going to create jobs proportionally to its economic growth. For instance, If the region‌s economy will grow by 4% in 2019 due to any oil price fluctuation or the KRG‌s production capacity (the two possible scenarios), we will not see the same improvement in job markets. Since the oil sector only creates 2 percent of jobs. The growth will be reflected by 2 percent in the job market. 

Educated Unemployed  

According to the KRSO data, 36.49 of Kurdistan’s unemployed are graduates from community colleges and higher educational institutions. Here, the region needs to come up with smart job creation policy to these educated young people. It can’t just hire them by security and police institutions like what it used to do between 2004 and 2012. These educated and skilled job seekers want to do some work relevant to the skills they were trained on in their colleges. 
The KRG needs to deal with the risen unemployment by both private and public sectors. It has to come up with a smart plan to utilize its private sector companies in a job creation strategy. More than 46 % of the region’s jobs are created by private sector and 50.35 % by public, according to the KRSO data. These figures show that private sector has not played its key role in the job creating process. It also tells how things went wrong with the region’s economic policy. 

Reversing What Went Wrong 

Some familiar solutions could help the KRG overcome this unemployment in a better way. It can use an expansionary fiscal policy to expand the money supply in the economy and use budgetary tools to either increase spending or cut taxes. By these mechanisms, it can provide consumers and businesses with more money to spend. Practically, for KRG this policy means terminating the austerity measures and saving-policy it pursued in 2015; based on which it slashed public payroll by half and stopped financing almost all service and re-construction projects following the 2014-crises.
Plus, KRG recently started to pay back local contractors‌and private banks‌loans which is a right way to help the market revive and create more jobs. This could be the most effective way to boost the region’s economy while KRG can’t have an expansionary monetary policy (through a central bank) to increase money supply or lower interest rate that aims in increasing aggregate demand. These macro tools are exclusively monopolized by Iraqi federal government. 

Overcrowded and Un-Productive Public Sector  

Previously, KRG‌s job creating policy was mostly depending on public sector. The region’s ruling parties Kurdistan Democrats Party (KDP) and Patriotic Union of Kurdistan (PUK) hired hundreds of thousands of people based on their patronage system. It was basically to get their political loyalties rather than doing anything economically productive. 
Although the same ruling parties are still running the region, but recent economic crisis has shown how deep their trouble was by having 1.4 million people on public payroll, more than half of the region’s active labor force (2,691,178). 
Now, the ruling elite is facing a real budget constrain, and hardly they can hire someone even based on certain needs due to overcrowding the public-sector institutions. 
The problem is not just 1.4 million people are on the public payroll, and it is rather lack of productivity. The majority of these public employees do not do anything productive. Many of them got hired to do nothing except for giving their support to the ruling parties. It is the same clientelism policy that has been in place since early 1970s in the whole Iraq.
That clientelism terribly damaged agriculture and some labor-intensive private businesses in KRG due to the flow of oil money. It attracted labors from most productive farming and agricultural businesses to jobs in government institutions and security forces. It almost died out agriculture in the region prior to 2014. 
This strategy proved to be wrong. Now, KRG needs to help recovering its agricultural sector and private businesses in order to create jobs away from government institutions. 

What Policy Makers Need to Do?

Creating jobs in private sector needs policies and regulations that can create incentives to shift job seekers‌attention from public to private sector. To do so, several issues need to be addressed. First, the region needs an adequate pension-system for private sector employees similar to what exists in public institutions. There should be an adequate insurance system, unemployment benefits, job search institutions that reduce gaps between employers and job seekers. 
Reforming relevant laws to better organizing private sector businesses and labors could activate many small companies and create more jobs. Market related policies and laws should be reformed in the way that motivates entrepreneurship and help small and big firms revive their economic activities. 
 Plus, the region’s devastating corruption has to be addressed in order to help the private sector recovering. With this level of corruption, it is hard to see positive impacts of any policy. The existing heavy monopoly should be reduced to get market competition, equal business opportunity that ease doing business in the region. With a business-friendly environment, Kurdistan’s stability can attract many foreign investments.
Any foreign direct investment can greatly contribute to the Kurdistan’s economic growth and ultimately create many jobs; in addition to reduce corruption and existing heavy bureaucracy, smart and digital banking system is also necessary. Kurdistan and Iraq can’t move forward attracting foreign investment with the current banking system and cash-based economy.

*You can read the whole study at the recently published book in Kurdish:
 Oil Labor Forces in Kurdistan and Iraq, Rebin Fatah, 2018. Printed.

Leave a Reply

%d bloggers like this: