Iraq: Investing in Infrastructure and Institutions to Create an Environment for Sustainable Economic Revival and Social Progress

Challenge

Although limited data impedes knowledge of the full picture, poverty and human conditions in Iraq worsened in the 1990s and have not improved considerably in recent years.  Iraq has a very low employment rate, only38 percent in 2008, and women especially have very few economic opportunities. The public sector employs 32 percent of all working Iraqi adults and the job creating capacity of the hydrocarbons sector is limited. Continued volatility in oil prices is also a clear reminder of Iraq’s dependence on oil revenues, and underlines the need for economic diversification.

Despite its abundant oil resources, Iraq lacks the capacities to use the revenues from oil for   the maximum benefit of its population.  Iraq’s oil wealth alone cannot generate sustainably high living standards for the majority of its population. The government will need to use the revenues from oil to ensure that the country’s infrastructure is reconstructed and people benefit from better social services. With the prospect of an oil boom, the government now has the opportunity to take concrete actions in this regard.

Weak public and private institutions, coupled with a predominantly statist approach, hinder Iraq’s emergence as a modern, vibrant economy.  Conditions need to be created to enable Iraq’s private sector to come into its own and institutions need to be strengthened and new ones created to unleash the mutually reinforcing forces that would  underpin a long-run economic resurgence. Fiscal institutions need to embed practices of good economic management and long-term fiscal planning, and strong regulatory institutions free of entrenched networks of patronage will be vital.

Service delivery continues to be unreliable.  Only 52 percent of people whose houses are connected to the public water network report that their water supply is stable. For electricity, only 22.4 percent can rely solely on the public network for their housing units. Overall, Iraq’s poverty headcount index stands at 22.9 percent. In rural areas, the poverty rate is 39.3 percent, more than twice the 16.1 percent rate in urban areas. Social assistance in Iraq has been mainly confined to the public distribution system (PDS) and cash-based safety nets, and has often failed to reach the poorest due to poor targeting.

Solution

The Bank has sought to respond to Iraqi priorities and to adjust its support as these priorities changed.  Since re-engagement, three Interim Strategy Notes have framed Bank support for Iraq.  Initially the Bank’s emphasis was on emergency investment operations to improve infrastructure and service delivery in water, education, health and to support the private sector. Subsequently, this was combined with various types of institution strengthening activities in select ministries.  Technical assistance became an important instrument for Bank engagement in areas such as public financial management, social protection and policies for poverty reduction, and pension reform.  Technical assistance priorities were often informed by the findings of related Economic Sector Work (ESW) and Analytical and Advisory Activities (AAA), such as the 2008 Iraq Household Socio-Economic Survey Tabulation Report and the Public Expenditure and Institutional Assessments and Financial Sector Assessment performed in 2011.  For the next three years, Bank support will be under the aegis of the first World Bank Group Country Partnership Strategy (CPS) for Iraq that was presented to the World Bank’s Board of Executive Directors on December 18, 2012.  Recognizing that Iraq’s main challenge is to leverage its own vast public resources and build effective public and private institutions to create jobs and deliver services, the CPS aims to support government efforts to implement its own National Development Strategy. The program of support is organized around three pillars:  (i) improving governance; (ii) supporting economic diversification for broadly shared prosperity; and (iii) improving social inclusion and reducing poverty.  The CPS   includes the existing portfolio, new Bank investment, analytical and advisory assistance, and reimbursable technical assistance.

Results

Bank supported projects have contributed to Iraq’s reconstruction efforts by financing investments, strengthening government capacity, and providing advisory services and analytic work critical to supporting Iraq’s medium and longer term development efforts.  Selected outcomes include:

Physical Investments in Education, Health, Water Resource Management, Infrastructure, and Telecommunications:  (i) the construction of 76 new schools, and rehabilitation of 133 schools (October 2012); (ii) establishment of a comprehensive, computerized, coordinated emergency response system for the three governorates of Erbil, Sulaimaniyah, and Dohuk (with call centers servicing a new three digit citizen access/emergency number); and the training of two hundred and forty eight paramedical personnel, 20 senior physicians and 200 ambulance drivers (July 2012);  (iii) provision in the Marshlands Area of regular training  to 689 medical professionals and an additional 64 Mother and Child Health (MCH) specialists working in the Primary Health Care Centers (PHCCs), tuberculosis (TB) clinics and mobile clinics each month;  financing of  three mobile clinics  providing an average of 1,837 medical consultations monthly;  financing of four fully operational TB clinics; and provision of  600  home health education visits by Women Health Volunteers to an average of 23,770 families per month; (iv) provision of improved drinking water to over 600,000 people, treatment of 60,000 cubic meters of water daily, rehabilitation of over 400 km of water networks and transmission pipes and around 90 km of sewers and house connections, and training of over 3,000 staff in water resources management and planning, and rehabilitation of two water treatment plants serving about 300,000 people (completed December 2012); (v) repair of the Dokan and Derbandikan hydropower plants (December 2012) thereby  increasing generation capacity from 65% and 60% to 68.5% and 78.5% respectively and laying the ground for the upcoming full rehabilitation of these power plants ; (vi) installation of the telecommunications backbone, operational at 56 sites;  and the inter-banking network, which connects the Central Bank of Iraq and commercial banks with high capacity telecommunications capabilities (operational in 29 sites); (vii) improvement of 118,000 hectares of agricultural land , resulting in measurable improvements in wheat yields under the Community Infrastructure Rehabilitation project with communities reporting better social cohesion due to local collaboration and shared ownership of completed works(December 2012); (viii) progress ramping up to restore original capacity of Hartha Power Station Units 2 and 3 to 400 MW by June 2014; and (ix) 112.5 km of non-rural roads rehabilitated and 103.5 km of rural roads rehabilitated as of February 2012.

Innovative Service Delivery The pilot consultative service delivery program, in Kurdistan, currently in its second phase, and which focuses on empowering communities to implement projects (mostly small-scale infrastructure provision and equipment purchases in 26 under-served communities) had by the end of2012 registered the following results:

• Erbil Governorate: 29,355 beneficiaries (includes: water network renovation, secondary road construction, ambulance provision for health center; school rooms and equipment provided, including for kindergartens)
  
• Slemania & Garmyian Governorate/Admin. Entity: 87,830 beneficiaries (includes: secondary road construction; construction of basic sewerage system, creation of small parks; water well; youth center and sports field; funeral hall)
  
• Dohuk Governorate:  51,661 beneficiaries (includes: renovation of sidewalk for main market area; provision of copying equipment for schools; youth center and sports field; secondary roads construction; secondary road construction/rehabilitation.)
  
• Under the Second Emergency Assistance Program for Primary Health Care in the Marshlands, 92 health care professionals in the 23 project Primary Health Care Clinics have continued to provide health care with the following approximate number of consultations in 2012:

Technical Assistance and Institutional Strengthening:  Outcomes of World Bank technical assistance and institution building support  include: (i) the  Integrated Energy Strategy, and Education Strategy(2012);  (ii) the organization of 73 workshops reaching about 1,680 participants from various private and public sector entities (2006-2012); (iii) from 2009-2012 the development of the institutional system for the newly established State Pension Fund, and of key functions, regulations, and strategies in the areas of public communications, physical infrastructure, investment management and actuarial analysis; (iv) deployment by the end of2012 of the Social Safety Net (SSN) Information System in Baghdad and to all governorates, allowing for the processing of beneficiary payments using a central data base resulting in savings of over US$18 million to the SSN budget through identification of duplicate and ghost beneficiaries; (v) strengthening over the past three years of the capacity of the Ministry of Environment in policy formulation, environmental regulation and enforcement, environmental quality monitoring, and in raising environmental awareness, particularly among school children; development since 2011 of a master plan for municipal solid waste for Baghdad and an action plan for health care waste management; with installation of air quality monitoring stations in major cities; and (vi) support through the  Extractive Industries Transparency Initiative (EITI) Trust Fund to strengthen Iraq’s capacity to execute the Iraq EITI, including the production of five consecutive yearly oil, gas and mining revenues reconciliation and reports, starting with year 2009.  Iraq became the first EITI member to become fully validated and compliant on the basis of its first report (reconciling US$41.25 billion in oil revenues) fully funded by the Multi-Donor Trust Fund.

ESW and AAA:  Through ESW and AAA, the Bank has supported  (i) the recent 2012 Iraq Public Expenditure Review which has yielded interesting findings on the shortcomings of public investment management, budget planning and execution, and fiscal policy, and made recommendations for future actions the Bank could support under the new CPS; and (ii) the Iraq Country Economic Memorandum, currently being finalized, that has framed Iraq's economic policy challenges around the need to ensure that the non-oil economy is not overwhelmed by the rapid development and associated revenue stream from the oil sector, and  proposed some ways to mitigate these risks, including the creation of a transitional saving fund and  various ideas to promote economic diversification.     

International Development Association (DIA) Results

Third Emergency Education Project: As of March 2013, 5760 additional seats available resulting from 10 newly built schools to reduce overcrowding. An additional 26 schools are scheduled for completion by December, 2013.

Electricity Reconstruction Project: Increased capacity of government on project and contract management for power generation projects. Increased overall capacity within the Ministry of Electricity to manage the development of large scale generation and transmission systems. Progress ramping up to restore original capacity of Hartha Power Station Units 2 and 3 to 400 MW by June 2014 once reconstruction of the power station is complete.  This will increase current installed capacity within Iraq by around 5 percent..

Dokan and Derbandikhan Hydropower Project:  Following essential repairs, increase in generation capacity of Derbandikan plant from 60%  to 78.5% as of March 2013 and of Dokan plant from 65% to 68.5%;training of 84 staff for operational and maintenance works in both HPPs;  Studies for the subsequent rehabilitation of both Hydropower Plants  completed; a new training plan is being prepared for the staff of both plants and Ministry of Energy officials working on procurement, financial management, contract management, and environmental and social risks management.

Road Reconstruction Project: 112.5 km of non-rural roads rehabilitated and103.5 km of rural roads rehabilitated as of February 2012.

Bank Group Contribution

The World Bank’s current portfolio for Iraq consists of 22 projects valued at US$854 million funded by the Iraq Trust Fund (a multi-donor trust fund for reconstruction support) and concessional assistance from IDA.  Nearly all Iraq projects are implemented by Iraqi governmental authorities, with implementation support from the World Bank. This helps build capacity and increase local ownership and sustainability.  Four programs (Private Sector Development TA; Consultative Service Delivery; Youth Livelihood Development; and EITI Implementation Support), are funded respectively by grants from the following: World Bank; Agricultural Cooperative Development International/Volunteers in Overseas Cooperative Assistance (ACDI/VOCA); Japan Social Development Fund; and the EITI Multi-donor Trust Fund.

The International Finance Corporation (IFC) has a total committed portfolio of US$347 million in 7 companies in Iraq as of the end of February 2013.  In addition, IFC’s donor financed Iraq Business Assistance Facility (IBAF) is providing Advisory Services to support Iraq’s economic and social development and stimulate private sector led growth.  The IBAF is providing Advisory Services in the areas of capacity building, training, support to micro, small, and medium enterprises (MSMEs), investment climate reforms, corporate governance, and public private partnerships, among others.  Iraq joined the Multilateral Investment Guarantee Agency (MIGA) in 2008.  Since then, MIGA has signed one project in the manufacturing sector for a gross exposure of US$2.5 million as of the end of February 2013.  Private investors have continued to show interest in partnering with MIGA for investments in Iraq.

Partners

Seventeen donors have contributed to the World Bank-administered Iraq Trust Fund. The Bank has also been cooperating closely with other donors in the implementation of its programs. The key donors, in terms of volume of financial transfers, are the United States, Japan, the World Bank, the European Union, and the Swedish International Development Cooperation Agency (Sida). There has been close coordination and consultation with United States Agency for International Development and the European Union on financial management reform and with the United Kingdom Department for International Development (DFID) and Sida on the reform of the private sector.  The Bank and the Agence Francaise de Developpement (AFD) have been exploring co-financing possibilities in the water sector and the Islamic Development Bank has expressed interest in co-financing the forthcoming transport corridor and trade project. Donors work together through the Iraq Partnership Forum, which meets monthly to coordinate and harmonize development assistance to Iraq.  The government of Iraq is taking an increasing role in improving alignment, harmonization and coordination among the different donors supporting Iraq.

Moving Forward

Going forward, Iraq faces the challenge of improving security, restoring the rule of law and strengthening public sector governance which in turn will enable much-needed private sector development. With a combination of lending and technical assistance, the World Bank will support the development of prudent management and a robust policy environment, so that Iraq’s abundant natural and human resource base can be a source of economic and social revival.  Catalytic investments financed by the Bank , AAA,IFC advisory and investment engagement, MIGA guarantees , and reimbursable services will be the main building blocks of the Iraq Country Partnership Strategy.

Beneficiaries

The implementation of the Environment and Social Policy Procedures at the beginning was stumbling to a certain degree but in the last two years the Iraqi government officials in Ministry of Labor and Social Affairs (MOLSA) noticed that they had to activate the project and cooperate with the donors. Rewarding results were gained due to this cooperation; a fundamental data base was built and central Baghdad was linked to all other governorates. In addition to this, MOLSA purchased advanced technological equipment that is currently serving the Social Protection Department (Mr. Salem, Director General of Social Welfare).

These outcomes have convinced the government officials of the benefits of this technical assistance fund, especially after providing training to the department's technical staff, who are now capable of transferring this knowledge and sustaining both themselves and the project. Without this grant MOLSA would have never accomplished today's achievement. Besides, the acquired exposure from Learning Visits to Georgia, Indonesia, Turkey and Lebanon is invaluable. Learning from countries that have advanced knowledge in the Social Protection applications had a very positive impact on the staff members who joined these visits and who are working in these areas. This learning has expanded their horizons (Mr. Salem, Director General of Social Welfare).

My village in which I live is 15 kilometers away from the Primary Healthcare Center (PHCC). I was feeling unwell for a while and I did not know what was wrong. One day the mobile clinic reached our village and I went to consult the doctor. When he listened to my complaint he asked to check my blood sugar. He found that I have diabetes and he started to advise me on my food program. I realized how essential these visits were of mobile clinics to the deprived areas.

I am a pupil in Al Ikhlas primary school. My younger brother suffered from frequent attacks of diarrhea and we did not pay too much attention to it. One day I attended a lecture delivered by my teacher, Mr. Waheed Mohammed about diarrhea. He brought a piece of sponge and a glass of water. He showed us at the beginning the dry sponge then he submerged it in the water. He said the dehydrated child who complained from frequent loss of fluids by diarrhea is like this dry sponge, while the healthy child is like the wet sponge. I realized the dangers of chronic diarrhea.

We do a lot of things in the field of health awareness. One day during a visit to a family I used to see, a woman who just given birth put her child in her lap and darkening his eyelids with "kohl". She thought it would l make his eyes bigger, but I started to explain to her that this material contains lead which harms the eyes and that what she was doing was an unhealthy habit.

I am a Woman Health Visitor and during one of my visits to a family I see, a woman who had just given birth was putting ash on her neonate umbilicus. I asked her why she used the ash and she told me that it helped in treating the discharge from the umbilicus. I explained to her the real risks of such a remedy in treating the infection of the umbilicus. I told her to consult the PHCC to treat this illness properly.