8 Aug 2020

Upgrading Iraq’s Digital Infrastructure to Lay Foundations for Sustainable Economic Growth

For Iraq and the Kurdistan Region of Iraq (KRI), the COVID-19 pandemic could not have come at a worse time, adding sever public health, financial, and economic crises to the months of the political turmoil triggered by anti-government protests in major cities and towns, from Baghdad to Basrah. The plummeting international oil prices and general economic implication of COVID-19, as a result of the lockdown measures to contain the spread of the virus, have necessitated several measures and digitalizing economic activities is just one of them.

In a line with the most desired policy-goal of diversifying the country’s oil-depended economy, Iraq needs to design a comprehensive plan to promote digitalization of its economy. It certainly needs to be part of any economic reform and private sector development programme that is currently discussed to save Iraq from the overwhelming financial and economic crises. The digitalization is expected to lay foundations for sustainable economic growth and create jobs in several services sectors.

Shiraz Jalal
Shiraz Jalal

is business analyst in ICPAR. Her research focus is on Iraqi private sector and labor market. She holds executive master of Business Administration from University of Kurdistan Hewler.

Given the country’s relative advantages and demographic pattern, adding about 800 thousand new entrants to the labor market annually, developing digitally enabled sectors such as banking, trade-in services, public administration, connectivity, and construction would help solving many issues, including the endemic corruption and deficiency in public administration. It also helps creating private jobs for millions of Iraqi graduates who are currently unemployed or under-employed in the country’s military labor market and over-crowded public administration.   

Digital infrastructure is the backbone of any digitally enabled economy and job market. This implies the availability and affordability of high-speed internet, which has not been seen in Iraq. Currently Iraqis are suffering from bad internet speed all over the country as they are provided with 2G and 3G data services, and the poor infrastructure is not going to help creating an enabling environment required to foster digital economic activities, which is expected to be one of the key pillars of diversifying Iraq’s economy, according to a World Bank report. 

To provide and upgrade the digital infrastructure, 4G frequencies is essential. It is the main requirement to deliver any digital-service, transactions, and enabling environment that Iraq’s economy desperately needs. Just next to Iraq, Gulf Cooperation Council (GCC) nations—are already testing 5G technologies that enable faster speeds, better quality, and a whole new range of applications that connect devices and systems at a large scale. In a catchup effort to allocate of 4G frequencies, Iraqi mobile operators would be able to upgrade their networks and provide faster, more reliable, and higher-quality mobile broadband services with right investments in the place.

Potentials to Growth and Challenges

Iraq is seeing the commercial roll out of the ultra-fast 4G network currently with the service providers- Zain Iraq, Asiacell, and Korek Telecom reaching a crucial phase of the Long-Term Evolution (LTE) programme that will deliver the fourth generation network in the country.

The three mobile-phone operators have formally advertised their readiness to launch 4G. They have completed the “testing stage” of the 4G LTE mobile broadband network, and they are also provided with work-license. They are expecting to begin commercial launch in the coming months once they will gain greenlight from the National Communications and Media Commission of Iraq (CMC) and the Ministry of Transport & Communication.  

The 4G LTE network provides speeds that is three-to-six times faster than the current 3G network. It can enable customers to instantaneously access high-bandwidth content and watch high-definition video, transfer large files, view multimedia-rich websites and use interactive mobile apps.

Now, the Iraq’s three mobile operators hold licenses for 2G and 3G airwaves which TeleGeography notes are set to expire in 2022. The current Iraqi government allows the country’s operators to renew their licenses for the next five years – but conditional on the exchange for the extension. Operators must pledge to launch 4G services by early 2021. Additionally, they must pay off half of their debt burdens and unpaid taxes. Even the issue sparked some political discussions as the government is facing budget deficit and trying to increase non-oil revenues by increasing taxes and collecting old debts from firms, including the mobile phone operators.

Digital Economy

The COVID-19 public health and economic implications have pushed us further into the digital world. Behavioral changes associated with the social distancing measures to contain the virus are likely to have lasting effects when the world economy recovers. Therefore, many customers are expected to prefer purchasing services and goods through digital transactions, paying digitally for services and goods that are delivered without any direct interaction between consumers and providers. 

Even without such a required enabling environment, some successful stories have appeared. Despite of the ongoing challenges and poor infrastructure, several tour-agencies in Baghdad immediately shifted their services from tour-organizers to home delivery service providers and online-ordering service providers after the COVID-19 restrictions pushed them out of business in March and April, according to an ICPAR rapid assessment on the COVID-19 economic implications in June 2020. The quick adaptation was an outcome of their street-smart approaches not any tailored training and educational courses. 

The government of Iraq (GOI) has offered its support for efforts and various policy recommendations to digitalize Iraq’s economy and deviate from the heavy cache-based transactions. It is committed to lay foundations for any regulatory and policy framework needed for the digital economy by investing in the required infrastructure. However, the COVID-19 multi-faceted crises and financial strains have limited the GOI’s capacity.  

The Iraq’s National Payment System (NPS) suffers several infrastructural challenges, starting from electricity provision to the network connectivity, so they certainly hold it back from providing viable accesses to the digital payments regardless of all the efforts recently made towards developing the digital payment system. 

However, Iraq has set ambitious targets in its NPS Strategy to catch up in the next five years on debit card ownership, cashless transactions, mobile money and electronic payments. The NPS Strategy for Iraq aims to guide a range of diverse stakeholders in their actions and goals to develop payment systems, instruments, and regulations. The stakeholders range from the Central Bank of Iraq (CBI) to commercial banks, government agencies, non-bank e-money providers, telecommunications and technology companies, as well as the end users of payment products: Iraqi citizens and businesses. A recent positive development is the issuance of e-Wallets: the GoI through the CBI has licensed two Payment System Providers (PSPs) to deliver this service. Usually, Iraq has been in the list of the economies financially un-secured, and it is difficult it is for banks in U.S.A, UK, EU  or other developed countries to process the payments.  

As part of its COVID-19 initiatives, CBI facilitated the process for Iraqi citizens to open e-wallets from their homes through a simplified e-KYC35 process using only their IDs. The GoI is currently running a campaign to promote the usage of cashless and contactless payments solutions (i.e. e-wallets/ POS/ POC and ATM’s) through the launch of the e-wallet scheme, the issuance of a promotional public information campaign including video etc. 

Digitalizing the Iraqi economy is certainly needed for any economic reform and private sector development programme, which recently overshadowed policy discussions in Baghdad. This will help detecting much of the corrupt and elicit activities within the economy and public administration. It also helps creating many jobs and improve efficiency in many sectors in addition to facilitate the business enabling environment Iraq’s private sector desperately needs. The process is doable while Iraqi policy makers are discussing economic diversification and deviating from the heavy oil dependency under the ongoing demographic and political pressures in Iraq’s major cities.

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