Foreword and Acknowledgments
Iraq’s recent political development has seen remarkable progress: a new political system and constitution have given rise to competitive elections, crucial policy development in such areas as the regulatory framework for governance and investment, and the creation or strengthening of relevant government agencies. In this context, the MENA-OECD Initiative on Governance and Investment for Development, within the framework of the International Compact for Iraq (ICI), conducted a series of capacity development workshops and policy consultations with the Iraqi government in 2007-2008, addressing the substantive reform challenges presented in this publication.
The challenges ahead for Iraq in managing economic recovery and implementing governance reforms remain considerable. While security improvements and increased oil revenues allowed economic reconstruction to take a substantial step forward over the period 2007-2008, there are still many concerns regarding the country’s future, particularly in fields such as security, infrastructure, electricity production and distribution, water and fuel supply, and telecommunications. High unemployment rates remain a source of urgent concern. Reforms in governance have allowed a relative rehabilitation of Iraqi institutions and progress in the rebuilding of the state, but this process must be further consolidated. At the economic level, challenges remain numerous, with investments remaining modest due to persistent political uncertainties. The decline of oil prices since 2008 has forced the Government of Iraq (GoI) to reduce its budget for reconstruction plans, and that, combined with the failing state of the country’s oil infrastructure, is likely to prolong severe financial problems, impairing the capacity of the GoI to implement its ambitious agenda. Also, as the United Nations Conference on Trade and Development’s (UNCTAD) 2008 World Investment Report emphasises, FDI inflows into Iraq have remained low – USD 448 million in 2007 – and are directed mainly at oil and petrochemical investment projects.* They have, in fact, been lower than in any of the neighbouring MENA countries apart from Kuwait.
Promoting Investment in Iraq and the MENA Region
Iraq faces considerable economic, political and security challenges. Although security has improved since 2007, it remains problematic, and high perceived levels of corruption in the public and private sectors, closely interlinked with a "resource curse", continue to impede government policies and deter investors. In order to overcome these serious obstacles to economic development and investment, the government of Iraq (GoI) has committed to anti-corruption and investment reforms – prerequisites for progress in all other areas.
International Investment Agreements and the Iraqi Investment Law
This chapter reviews the bilateral and multilateral agreements that inform Iraq’s investment framework, as well as the growing body of domestic provisions stemming from the 2006 Investment Law, in light of the GoI’s stated objective to increase investment in the country.
Fighting Corruption in Iraq
The GoI has become increasingly aware of the risks posed by corruption to its country’s development and investment programme. "Corruption" as a term covers a multitude of sins, but is frequently defined as the "abuse of public or private office for private gain". It distorts economic decision-making and saps economic activity, diminishing the quantity and quality of domestic and foreign investments and aid projects, while businesses that disregard good governance are unduly rewarded with dominance. This, in turn, curbs growth and undermines the credibility of governmental institutions in public opinion. Corruption is particularly critical in countries rich in resources and torn by major military conflicts since the 1990s. They are prone to instability and weak rule of law,1 and opportunities to divert revenue from resources on a grand scale are plentiful, while punitive measures are almost non-existent.2 As many Iraqis observe, corruption also exacerbates sectarian conflict, hampers the re-establishment of functioning public institutions operating under the rule of law, and deters the development of a business-friendly climate. Multiple rounds of information exchange between the GoI, Iraqi business actors, and MENA-OECD have confirmed the existence of widespread corruption in Iraq and its inherent link to the country’s slow economic recovery. Strikingly, the Transparency International Corruption Perceptions Index published in 2008 ranks Iraq 178 out of 180 countries.
Improving Transparency in Government Procurement Procedures
Public procurement is a particularly corruption-prone government activity. Governments around the globe have grown increasingly alert to the risks of corruption and to the need for greater transparency and accountability in public procurement given its tremendous importance, both economic (10-15% of gross domestic product)1 and strategic (procuring the goods and providing the services that administrations need).
Promoting Integrity and Preventing Corruption in the Public Service
Expectations of citizens, businesses and civil society drive governments to ensure appropriate standards of integrity among public officials. Enhancing integrity and preventing corruption is a key consideration in their day to day work as they seek to maintain trust in government and public decision making.
Mapping Risks in Public Procurement
Corruption affects public procurement in developed and developing countries alike. To fight it, however, any good practitioner must first study and understand it. This chapter explores the techniques used to misappropriate funds and seeks to draw up as comprehensive an inventory as possible of the types of fraud and corruption that have tainted public procurement. The aim is to make stakeholders (public procurement practitioners, elected officials, businesses, investigators, magistrates, etc.) aware of the risks of fraud and corruption.
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