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Iraq
INDUSTRIALIZATION
The nonpetroleum industrial sector of the Iraqi economy grew
tremendously after Iraq gained independence in 1932. Although
growth in absolute terms was significant, high annual growth rates
can also be attributed to the very low level from which industrialization
started. Under Ottoman rule, manufacture consisted almost entirely
of handicrafts and the products of artisan shops. The availability
of electricity and lines of communication and transportation after
World War I led to the establishment of the first large-scale
industries, but industrial development remained slow in the first
years after independence. The private sector, which controlled
most of the nation's capital, hesitated to invest in manufacturing
because the domestic market was small, disposable income was low,
and infrastructure was primitive; moreover, investment in agricultural
land yielded a higher rate of return than did investment in capital
stock. World War II fueled demand for manufactured goods, and
large public sector investments after 1951, made possible by the
jump in state oil revenues, stimulated industrial growth. Manufacturing
output increased 10 percent annually in the 1950s.
Industrial development slowed after the overthrow of the monarchy
during the 1958 revolution. The socialist rhetoric and the land
reform measures frightened private investors, and capital began
leaving the country. Although the regime led by Abd al Karim Qasim
excepted industry from the nationalization imposed on the agricultural
and the petroleum sectors, in July 1964 a new government decreed
nationalization of the twenty-seven largest privately owned industrial
firms. The government reorganized other large companies, put a
low limit on individual shareholdings, allocated 25 percent of
corporate profits to workers, and instituted worker participation
in management. A series of decrees relegated the private sector
to a minor role and provoked an exodus of managers and administrators,
accompanied by capital flight. The government was incapable of
filling the vacuum it had created, either in terms of money or
of trained manpower, and industrial development slowed to about
6 percent per year in the 1960s.
After the 1968 Baath revolution, the government gave a higher
priority to industrial development. By 1978 the government had
revamped the public industrial sector by organizing ten semi-
independent state organizations for major industry subsectors,
such as spinning and weaving, chemicals, and engineering. Factory
managers were given some autonomy, and an effort was made to hold
them responsible for meeting goals. Despite Iraq's attempt to
rationalize and reorganize the public sector, state organizations
remained overstaffed because social legislation made it nearly
impossible to lay off or to transfer workers and bureaucratization
made the organizations top-heavy with unproductive management.
The government acknowledged that unused capacity, overstocking
of inventories, and lost production time, because of shortages
or disruptions of supply, continued to plague the industrial sector.
The government attempted to strengthen public sector industry
by pouring money into it. According to official figures, annual
investment in the nonpetroleum industrial sector rose from ID39.5
million in 1968 to ID752.5 million in 1985. As a consequence,
industrial output rose; the government put the total value of
Iraq's industrial output in 1984 at almost ID 2 billion, up from
about ID300 million in 1968 and up more than 50 percent from the
start of the Iran-Iraq War. The total value of industrial input
in 1984 was ID981 million, so value added was in excess of 100
percent. Productivity relative to investment, however, remained
low.
Because of revenues from oil exports, the government believed
it could afford to pursue an ambitious and expensive policy of
import substitution industrialization that would move the economy
away from dependence on oil exports to obtain foreign exchange.
In the early 1970s, Iraq made capital investments in large-scale
industrial facilities such as steel plants. Many of the facilities
were purchased from foreign contractors and builders on a turnkey
basis. But Iraq neglected development of the next stage in the
industrial process, the transformation of processed raw materials
into intermediate products, such as construction girders, iron
pipes, and steel parts. These bottlenecks in turn hampered the
development of more sophisticated industries, such as machinery
manufacture. Plant construction also outpaced infrastructure development.
Many plants, for example, were inadequately linked by road or
rail to outlets. Excess capacity remained a problem, as the large
industrial plants continued to strain the economy's ability to
absorb new goods. In an attempt to overcome these problems, Iraq
imported the finished products and materials it required, defeating
the purpose of its import substitution industrialization strategy
and making the large extractive industries somewhat redundant.
Imports of various basic commodities, such as plastics and chemicals,
doubled and tripled in the 1970s. Most imports were consumed rather
than used as intermediate components in industry; when imports
were used as industrial inputs, value added tended to be low.
Concurrently, tariffs and other trade barriers erected to protect
domestic infant industry from foreign competition impeded the
importation of certain vital materials, particularly spare parts
and machinery. The growth of small-scale industries in the private
sector and the rise in the standard of living in general were
inhibited by such restrictions. Subsidized by oil revenues, the
industrialization strategy yielded growth, but only at great cost.
In the late 1980s, the cumulative fiscal effects of the war with
Iran forced Iraq to reverse priorities and to focus on the export
side of the trade equation. Although the government previously
had attempted to diversify the economy in order to minimize dependence
on natural resources, it was now forced to concentrate on generating
export income from extractive industry, in which it had a comparative
advantage, rather than on producing more sophisticated manufactured
goods. At the same time, in conjunction with its gradual move
toward privatization, the government ceded greater responsibility
to the private sector for the manufacture of light consumer items
as import substitutes. In 1983 legislation exempted the private
sector from customs duties and from excise taxes on imported spare
parts and on machinery needed to build factories. The private
sector was also given tax exemptions for capital investment and
for research and development spending. Finally, the replacement
of sole proprietorships by joint stock companies was encouraged
as a means of tapping more private investment. In a 1987 reorganization,
the Ministry of Light Industries was renamed the Ministry of Industry,
and the Ministry of Industry and Minerals was renamed the Ministry
of Heavy Industry. New ministers were appointed and were charged
with improving both the the quality and quantity of industrial
output; large parts of the state bureaucracy that had controlled
industry were abolished.
According to official Iraqi figures, the total industrial labor
force in 1984 consisted of about 170,000 workers. State- operated
factories employed slightly more than 80 percent of these workers,
while 13 percent worked in the private sector. The remaining 7
percent worked in the mixed economy, which consisted of factories
operated jointly by the state--which held a major share of the
common stock--and the private sector. Men constituted 87 percent
of the industrial work force. According to the Iraqi government,
in 1984 there were 782 industrial establishments, ranging in size
from small workshops employing 30 workers to large factories with
more than 1,000 employees. Of these, 67 percent were privately
owned. The private sector owned two-thirds of the factories, but
employed only 13 percent of the industrial labor force. Privately
owned industrial establishments were, therefore, relatively numerous,
but they were also relatively small and more capital-intensive.
Only three privately owned factories employed more than 250 workers;
the great majority employed fewer than 100 people each. Private-sector
plant ownership tended to be dispersed throughout industry and
was not concentrated in any special trade, with the exception
of the production of metal items such as tools and utensils. Although
the private sector accounted for 40 percent of production in this
area, the metal items sector itself constituted no more than a
cottage industry. Figures published by the Iraqi Federation of
Industries claimed that the private sector dominated the construction
industry if measurement were based not on the number of employees
or on the value of output, but on the amount of capital investment.
In 1981, such private- sector capital investment in the construction
industry was 57 percent of total investment. By this alternative
measurement, private sector involvement in the textile and the
food processing industries was above average. In contrast, about
fourty-six state-owned factories employed more than 1,000 workers
apiece, and several industrial sectors, such as mining and steel
production, were entirely state-dominated.
In 1984 Iraq's top industry, as measured by the number of employees,
was the nonmetallic mineral industry, which employed 18 percent
of industrial workers and accounted for 14 percent of the value
of total industrial output. The nonmetallic mineral industry was
based primarily on extracting and processing sulfur and phosphate
rock, although manufacturing of construction materials, such as
glass and brick, was also included in this category. Production
of sulfur and of sulfuric acid was a priority because much of
the output was exported; phosphates were likewise important because
they were used in fertilizer production. Mining of sulfur began
at Mishraq, near Mosul, in 1972; production capacity was 1.25
million tons per year by 1988. With the help of Japan, Iraq in
the late 1980s was augmenting the Mishraq sulfur works with the
intent of boosting sulfur exports 30 percent from their 1987 level
of 500,000 tons per year and of increasing exports of sulfuric
acid by 10,000 tons annually. Iraq was also attempting to increase
the rate of sulfur recovery from oil from its 1987 level of 90
percent .
Phosphate rock reserves were located mainly in the Akashat area
northwest of Baghdad and were estimated in 1987 at 5.5 billion
tons--enough to meet local needs for centuries. A fertilizer plant
at Al Qaim, linked by rail to the Akashat mine, started production
in 1984; it was soon converting 3.4 million tons of phosphate
per year into fertilizer. As the Al Qaim operation came onstream,
Iraq became self-sufficient in fertilizer, and three-quarters
of the plant's output was exported. Iranian attacks on Iraqi fertilizer
plants in the Basra area, however, cut Iraq's surplus. In 1986
Iraq obtained a US$10 million loan from the Islamic Development
Bank to import urea fertilizer, and in 1987 Iraq continued to
import fertilizer as an emergency measure. Meanwhile, additional
fertilizer plants were under construction in 1987 at Shuwairah,
near Mosul, and at Baiji. Their completion would bring to five
the number of Iraqi fertilizer plants and would increase exports
considerably.
Another important component of the mineral sector was cement
production. Iraq's 1987 cement production capacity was 12 million
tons, and the government planned a near doubling of production.
Domestic consumption in 1986 was 7.5 million tons, and the surplus
was exported, 1 million tons to Egypt alone.
In addition to the nonmetallic minerals industry, several other
industries employed significant percentages of the work force.
The chemical and petrochemical industry, concentrated at Khawr
az Zubayr, was the second largest industrial employer, providing
work for 17 percent of the industrial work force. Chemicals and
petrochemicals accounted for a relatively high 30 percent of the
total value of industrial output because of the high value of
raw material inputs and the higher value added-- more than 150
percent. The labor-intensive textile industry employed 15 percent
of industrial workers but accounted for only 7 percent of the
value of total industrial output. A major state- owned textile
factory in Mosul produced calico from locally grown cotton. The
foodstuffs processing and packaging industry, which employed 14
percent of the total industrial labor force, accounted for 20
percent of total output, but the value added was less than 50
percent. Light manufacturing industries based on natural resources,
such as paper, cigarettes, and leather and shoe production, together
accounted for 10 percent of the value of total industrial output.
By the mid-1980s, efforts to upgrade industrial capacity from
the extracting and processing of natural resources to heavy industry,
to the manufacturing of higher technology and to the production
of consumer items were still not fully successful. An iron and
steel works built in 1978 by the French company, Creusot-Loire,
at Khawr az Zubayr, was expected to attain an annual production
level of 1.2 million tons of smelted iron ore and 400,000 tons
of steel. Other smelters, foundries, and form works were under
construction in 1988. (In 1984 this sector of the economy accounted
for less than 2 percent of total output.) Manufacture of machinery
and transport equipment accounted for only 6 percent of output
value, and value added was fairly low, suggesting that Iraq was
assembling imported intermediate components to make finished products.
A single factory established in the 1980s with Soviet assistance
and located at Al Musayyib, produced tractors. In 1981, Iraq contracted
with a company from the Federal Republic of Germany (West Germay)
to develop the domestic capability to produce motor vehicles.
Plans called for production of 120,000 passenger cars and 25,000
trucks per year, but the project's US$5 billion cost led to indefinite
delays.
By the late 1980s, Iraq had had some success in establishing
light industries to produce items such as spark plugs, batteries,
locks, and household appliances. The electronics industry, concentrated
in Baghdad, had grown to account for about 6 percent of output
with the help of Thompson-CSF (that is, Compagnie sans fil) of
France and the Soviet Union. Other more advanced industries just
starting to develop in Iraq in the late 1980s were pharmaceuticals
and plastics.
Data as of May 1988
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