INDUSTRY
The non petroleum 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 Ba'ath 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 sub sectors, 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 non petroleum 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 forty-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 (see
fig. 9).
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 on stream, 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, Creosote-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 Germany) 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.
ELECTRICITY
Iraqi electric power consumption increased by a factor of fourteen in
the twenty-year period between 1968 and 1988, and in the late 1980s it was
expected to double every four to five years. Ongoing rural electrification
contributed to increased demand; about 7,000 villages throughout the
nation were provided electricity in the same twenty-year period. The
destruction in 1980 of power-generating facilities near the Iran-Iraq
border interrupted only temporarily the rapid growth in production and
consumption. In 1981 the government awarded US$2 billion in contracts to
foreign construction companies that were building hydroelectric and
thermal generating plants as well as transmission facilities. By 1983 the
production and consumption of electricity had recovered to the prewar
levels of 15.6 billion kwh (kilowatt hours) and 11.7 billion kwh,
respectively. As previously commissioned projects continued to come
on stream, Iraq's generating capacity was expected to exceed 6,000
megawatts by 1986. In December 1987, following the completion of power
lines designed to carry 400 million kwh of power to Turkey, Iraq became
the first country in the Middle East to export electric power. Iraq was
expected to earn US$15 million annually from this arrangement. Long-range
plans entailed exporting an additional 3 billion kwh to Turkey and
eventually providing Kuwait with electricity.
