< Back to Iraqi Dinar in the News April 1st, 2011

Small business struggles in Iraq

 

BAGHDAD | Fri Apr 1, 2011 5:20pm EDT

BAGHDAD (Reuters) - Frustrated by little support from his government and chasing a dream of having his own business, Iraqi nurse Sabah Jassim pooled his savings and turned to a private bank to develop a medical clinic in Baghdad.

Jassim is one of hundreds of entrepreneurial Iraqis eager to start up small and medium enterprises (SMEs) following the 2003 U.S.-led invasion of Iraq that toppled Saddam Hussein.

Development in Iraq has been stifled by decades of economic sanctions and war and SMEs, often seen as the backbone of a country's economy, have made little progress in Iraq due to high start-up costs and scant government funding.

Chronic power and water shortages, ongoing security concerns and high customs tariffs have all made it difficult for a sector to emerge.

"There is no government support. I depended on Ashur bank and on myself. With their help I completed the project," said Jassim, who runs a medical clinic that offers dentistry, gynecology, pharmaceutical and x-ray services in Baghdad's impoverished Ubaidi district.

"Thank God my business is successful, but it could bring in more money if it wasn't for my expenditure on electricity, water and other things," he added.

Eight years after the 2003 U.S.-led invasion, Iraq's national grid is only able to meet a fraction of its power needs and the country's official unemployment rate sits at 15 percent although the actual figure is believed to be around 30 percent.

Iraq has around 35,000 licensed industrial projects, but 85 percent of these businesses lie idle and the remaining 15 percent work at 20 percent of their designed capacity, according to Basim Jameel, a member of the Iraqi Industry Union, a support body for industry.

Abdul-Hussein al-Anbaki, Prime Minister Nuri al-Maliki's economic adviser, said SMEs contributed very little to Iraq's GDP and had so far failed to attract much funding from the government due to the high cost of establishing projects.

"We suggested to allocate $200 million and to include them in the 2011 budget ... and to give them loans with around a 2 percent interest rate," Anbaki said.

"Unfortunately this money was not allocated from the 2011 budget. We are hoping to include them (SMEs) in the supplementary budget, hoping the oil prices will be better."

Iraq's vast oil reserves supply about 95 percent of the state budget. Deals struck with foreign firms, if successful, could quadruple its output capacity and give it the money it needs to rebuild after years of war, sanctions and neglect.

PRIVATE HELP

Jassim took around $25,000 from his savings and got a $25,000 loan from private bank Ashur in 2010 for the medical center, which he repays on a monthly basis at an interest rate of 12 percent.

He said he spends around $850 a month on electricity, water and other costs to run the center, out of about $5,000 the clinic brings in per month. He employs 15 people.

Iraq has seven state-owned banks and 36 private lenders, but credit is still costly and hard to get.

Suha Salim, head of the credit department in the private North Bank, said it had financed more than 600 SMEs since 2004 for a total cost of $191 million.

Salim said the bank, which currently has a capital of $107 million, gives loans of between $5,000 and $250,000 at an interest rate of 11 percent on a monthly pay-back basis.

Reviving Iraq's SME industry is crucial in helping to resuscitate the economy and create jobs, said Sherwan Mustafa, manager of the Iraqi Company for Financing SMEs, which was established in 2009 by USAID and has helped finance 785 businesses through nine private banks.

The company provides loans of between $5,000 and $250,000 at an interest rate of 10 percent, Mustafa said, mainly to SMEs in the industrial, healthcare, tourism and agriculture sectors.

He said SMEs in Iraq contributed 0.5 percent to GDP.

"Encouraging, supporting this sector could add a big value to the Iraqi economy," he said, adding that the company was hoping to arrange 3,000 loans this year which would create 305,000 new jobs.