Almost half of Basra's smaller manufacturers have closed in the face of a market flooded with cheap imports. Yet due to the current financial crisis and sinking oil prices, they are more important than ever.
Made in Iraq: Cigarette packet from the Iraqi State Tobacco Company.
Today Basra woodworker, Haj Karim Nasser, is taking apart what remains in his workshop. He will sell everything that's left. Nasser has made furniture here for around 25 years. The smell of wood dyes and wood shavings permeates the space. But Nasser, who has had to close up and lay off 25 staff, has become just another of the latest victims of the open market policies pursued in Iraq since 2003. Nasser now will now work selling foreign exchange in one of Basra's markets.
“We just couldn’t compete with the cheap, imported stuff,” Nasser told NIQASH. The cost of producing a bedroom suite in our workshop was around US$1,600 and we'd sell it for US$2,000. But you can get Malaysian-made suites here for about US$1,250. The quality is not comparable. But for many people here the cost was more important than the quality.”
In Basra, hundreds of similar business, small workshops and factories have had to close. According to Basra's Union of Industrialists there used to be about 15,360 industrial operations in the province, in around 13 industrial areas, producing a wide variety of products. Between now and 2003 around half of these have been forced to close thanks to a lack of government support, high taxes on raw materials and a market flooded with cheap competitors from outside Iraq, they say. A number of government-run factories in Basra which produced iron, steel, paper and fertilizer, were also shut down, which led smaller businesses who used to get their raw materials from these, to shut too.
“The way that the market in Basra has been flooded by cheap clothing has led to the closure of around 70 local businesses, including sewing workshops run by local women,” says Sajad Salman, who lobbies on behalf of local businesses. Often goods are sold at higher prices in their countries of origin than they are in Iraq, Salman argues. “So how do these products sell for something like US$2 when there's a border tax and shipping fees?”
There are no laws to protect the domestic market and we are being flooded with cheap imports, agrees Majid Rashak, who heads the Basra Union of Industrialists. “There is no plan to develop industry in Basra, there's no plan to regulate industrial areas here nor are there any plans to help those people who have been made redundant or who have retired from private industry,” Rashak complains. “Nor have there been any commitments by international companies to employ local workers if they are setting up in Basra.”
Rashak confirms that since 2003 about half of all the private plants and workshops in Basra have closed and that thousands of workers have been laid off. Numbers gathered by the Basra Investment Commission, a body tasked with encouraging investment in the province, indicate that almost half of all economically active locals are employed by the government; that is equal to almost a quarter of all individuals living in Basra. And the same Commission expects the province to become one of the most important economic areas in the whole Middle East – Basra has some of the country's largest oil fields and it's only ports as well as a strong agricultural sector.
However the recent decrease in global oil prices has had a detrimental impact on Iraq's economy, where the budget was predicated on oil remaining at a certain, higher price. This shortfall together with the expensive security crisis means the government is less able to support local industry. Many local analysts believe that the country should be developing sectors other than oil in order to overcome these issues.
“The government could help with this,” says Nabil Jaafar Abdul Redha, a professor of economics at the University of Basra. “By exempting raw materials used by the private sector from duties or by reducing their taxes so that local companies can better compete with international ones. It also needs to protect local emerging industries from international competition. It could do all this by making rules about the kinds of materials allowed into Iraq, ensuring they conform to certain standards.”
Potential investors and small local businesses also face plenty of other problems – the scarcity of land, the deterioration in infrastructure, problems with transport and power, high interest rates on loans and the lack of trust in Iraq's never-quite-stable banking sector. Although Basra is fairly safe, the ongoing national security crisis is obviously also causing issues around things like transport into other areas, the availability of materials from elsewhere in the country and the potential for employees to go into certain, unsafe areas.
Many small businesses are not particularly tech-savvy either, Abdul Redha notes. “Only around 22 percent use computers and only about 9 percent have the Internet,” he told NIQASH.
Additionally many of the small and medium-sized businesses in Basra are not formal companies and this also causes problems when it comes time to access more technology, skilled labourers or federal funding. “And this leads to corrupt and non-competitive practises,” Abdul Redha concludes.