The Independent Gateway to Kurdish News and Analyses

Kurdistan’s Economy: Its potential and its challenges

 

Kurdish Herald Vol. 1 Issue 5, September 2009 -

by Delovan Barwari

 

The most essential elements of a nation’s economy are its natural resources and its labor force to convert these resources into end products. Since the liberation of Iraq from the tyrannical rule of the dictator Saddam Hussein, Iraqi Kurdistan has undergone great economic growth as the dual sanctions were lifted that included UN-imposed international sanctions on Iraq and Iraqi sanctions on the autonomous Kurdistan region. With an abundant amount of proven natural resources and a tremendous labor force, Iraqi Kurdistan has the potential to become a regional economic powerhouse.

 

In an exclusive interview with Kurdish Herald, Mr. Falah Mustafa Bakir - the Kurdistan Regional Government’s Head of Foreign Relations - stated that a free market economy has been promoted as the driving force to build Kurdistan’s economy. Mr. Bakir further acknowledged, "The Kurdistan Region Investment Board was created as an institutionalized 'one-stop-shop' for all domestic and foreign direct investment and enterprise. This is a body to which foreign companies refer; the Board streamlines the work of national and international firms and facilitates business in the [Kurdistan] Region. The Board has licensed more than 160 projects, valued at more than $16 billion, thus far."

 

The Bekhal Summer Resort in Iraqi Kurdistan

 

In addition, an investment law was passed and promotes foreign venture by providing numerous incentives and legal guarantees to protect their investment in the Kurdistan Region.

 

The population of the three provinces (Erbil, Dohuk, and Sulaymaniyah) under the administration of the Kurdistan Regional Government (KRG) is approximately 4 out of the total 26 million living in Iraq. With seven established universities in the Kurdistan Region, thousands of students graduate each year, many of whom cannot find professional employment. Based on unofficial estimates, Kurdistan’s unemployment rate is significantly high (nearly 50%) compared to any healthy economy. In addition, according to a published report by Iraq News Monitor, the estimated unemployment of Iraq is over 60%. While these numbers are certainly joyless, they also mean that the availability of professional and unskilled laborers in the Kurdistan Region is abundant.

 

The economy of Iraqi Kurdistan is fundamentally composed of three segments: Agriculture, Crude Oil, and Tourism. Iraqi Kurdistan is geographically located in northern portion of Mesopotamia and naturally has an ample amount of water, making it a highly arable land for agriculture. Most recently, numerous gigantic petroleum reserves have been discovered in the region. In addition, due to its stunning nature and its historical and archeological sites, it has historically been a regional tourist destination, visited by thousands. With all this in hand, Kurdistan has great potential to establish a strong economy.

 

Black gold and its abundance

 

According to various studies, Kurdistan sits on 43.7 billion barrels (bb) of proven oil and 25.5 bb of potential reserves. In addition, the majority of the estimated 200 trillion cubic feet of gas in Iraq is reported to be in Kurdistan Region.

 

Against the backdrop of challenges by the Iraqi central government over the past few years, the Kurdistan Regional Government (KRG) has granted over 30 contracts to foreign companies for the exploration, development, and production of petroleum in the Kurdistan Region, and has began exporting crude oil via Turkey. In addition, a number of refineries are currently being built to meet its domestic energy needs.

 

 

Map identifies the Kurdistan Region's Qara Dagh Block - Photo Courtesy Vast Exploration www.vastexploration.com

 

 

 

In a Kurdish Herald interview with Mr. Ahmad Said - the President and Chief Executive Officer of the Canadian-based Vast Exploration Inc. - he stated that the KRG has been receptive and transparent to their firm with regards to business matters. Yet, he also acknowledged a number of areas that are in need of improvements. Mr. Said stated, "KRG is a developing democracy in the heart of Middle East. As such it is in a transition phase. We have found it to be efficient and transparent. There are deficiencies which are not uncommon to developing countries such as bureaucracy, banking and legal infrastructure. The KRG needs to work on developing these areas as to not hinder their progress and investment potential in the short and long term."

 

Vast Exploration Inc. primarily focuses on the exploration and production of petroleum in the Qara Dagh Block. Currently, it does not intend to conduct business in marketing of products or the refining sector; however, as it has significant operations throughout the world, it would consider potential mining opportunities in the Kurdistan Region in the future.

 

Crude oil is considered as the most critical ingredient needed to cycle the world economy. Dozens of products are distillated as it is processed. The most common concentrates of petroleum are fuels such as ethane, diesel fuel, fuel oils, gasoline, jet fuel, kerosene, and liquefied petroleum gas (LPG); in addition, other derivatives such as alkenes to manufacture plastic, lubricants such as motor oil and greases, wax, sulfuric acid, bulk tar, asphalt, petroleum coke, paraffin wax, aromatic petrochemicals can be manufactured from the residue.

 

The majority of all the electrical, mechanical, or manufacturing products produced throughout the world contains or requires petroleum based products. Hence, the world economy is greatly reliant on not only crude oil, but also on petroleum derivatives. Therefore, as an economic development measure, it is essential for KRG to further diversify and expand its oil industry and develop the infrastructure for this special sector. Implementing such projects will generate thousands of jobs for its citizens, and will increase the domestic products exported from Kurdistan.

 

Agriculture: Moving back towards self-sufficiency

 

Kurdistan is believed to be where humans first domesticated animals and planted crops. In a scientific publication by Rice University School of Science and Technology, it was reported, "Recent archaeological finds place the beginning of agriculture before 7000 B.C. and animal domestication (mostly dogs used as hunting aids) thousands of years before that. There is some evidence that the people of Shanidar, in Kurdistan, were domesticating sheep and planting wheat as long ago as 9800 B.C."

 

With over 10,000 years of experience, and a fertile land, it is certainly ironic that the great majority of its agricultural products are imported from the neighboring countries of Turkey and Iran.

 

Many factors have contributed to the loss of what was once known as the breadbasket of the Middle East. Perhaps the greatest factors were the decades of oppression and the wars waged by various Iraqi regimes against the people of Kurdistan. Most significantly, in the late 1980s, Saddam Hussein’s forces brutally destroyed over 3,500 villages in the infamous Anfal campaign that killed over 182,000 innocent civilians. Tens of thousands of survivors were forced out of their homeland and became refugees, and many are currently living in the Diaspora. In addition, the great majority were forced to abandon their villages and moved to the Kurdish cities. As a result, the backbone of the agricultural economy in Iraqi Kurdistan took a devastating hit.

 

In a press release, the former Prime Minister of the Kurdistan Region, Nechirvan Barzani, stated that the year 2009 will be dedicated to the agricultural sector. A five-year plan has been set for achieving self-sufficiency. Some of the methods intended to implement the plan is tackling the challenges through solving the agricultural land issues, applying modern technology, encouraging citizens to return to their villages, and attracting local and foreign private investors to invest in Kurdistan.

 

According to The National - an online magazine - the KRG plans to invest $10.5 billion in the next few years in the agricultural sector: "Among its many goals, the strategy calls for doubling of milk production to 400 million liters per year, building 30 agricultural factories and providing farmers access to $100m of micro-loans annually to run their businesses."

 

Based on the same report, KRG officials have been accommodating various investment delegations from Western Europe, the US, and other locations. The first investment thusfar is by a US-based private equity firm known as The Marshall Fund, which took place in the form of an investment of $6 million into the development of a Tomato Paste and Fruit Processing Plant in Harrir, a small town north of Erbil.

 

KRG Head of Foreign Relations, Mr. Falah Mustafa Bakir © Kurdish Herald 2009

Tourism

 

Another segment of the Kurdistan Region’s economy with significant potential is tourism. The tourism sector is quite new to KRG and some limited planning and work has been gone underway. Mr. Bakir stated,"“Quality hotels are being built across the [Kurdistan] Region, and we are seeing more and more international visitors. We plan to take advantage of the mountains and to offer tourists a glimpse of the archeological and historical sites throughout the [Kurdistan] Region on visitor-friendly tours. A number of foreign tour companies have commenced operation already."

 

Iraqi Kurdistan is a region with stunning natural sites and is dominated by gorgeous mountains, waterfalls, and rivers, and an amazingly beautiful countryside. In every city, one can find pleasure and let loose by touring various sites. Kurdistan is also a region that is rich in history and includes such archeological sites as the Sumerian-built citadel known as 'Qalat' in Erbil, the infamous Shanidar cave where Neanderthals first buried their dead with flowers, the Zoroastrian and Assyrian sites in Dohuk, what is believed to be the home of the biblical 'Three Wise Men' in Amadiyah, the Delal bridge from the Roman Era in Zakho, and many more.

 

 

Amediyah is a unique and historic city located high atop one of many mountains in the Kurdistan Region - Photo Courtesy Goran Sadjadi © Kurdish Herald 2009

 

Nevertheless, there are some political challenges that must be resolved in order to fully develop the tourism sector in certain areas of the countryside. The unresolved Kurdish issue in Turkey and Iran has been a cause of numerous cross-border military operations and aerial bombardments near the strongholds of the Kurdistan Workers Party (PKK) and the Party for Free Life in Kurdistan (PJAK). In addition, during the Iraq-Iran war, millions of land mines were planted in the country side, and these still must be cleared to make the region safe.

Kurdistan certainly has the fundamental ingredients -- a considerable amount of natural resources and a healthy labor force -- to become a strong economic force in the region. KRG has managed to progress greatly in various sectors, with massive development projects since the fall of Saddam Hussein. Nevertheless, there are numerous challenges, shortcomings, and unresolved political issues that must be dealt with through unity, commitment, and objectivity, in order to achieve the ultimate dream.

 

 

 

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