High-level Meeting of the Task Force for Economic Reforms and Private Sector Capacity - Summary

 

Within the Framework of the UNDP/MENA-OECD Iraq Co-operation


Paris, 20-21 January 2009


Summary


Since 2007, MENA-OECD has been dedicating significant efforts to the promotion of Private Sector Development (PSD) in Iraq that has become central to the Government of Iraq’s (GoI) policy agenda. On the occasion of previous roundtable meetings held in Baghdad, Iraq (1-2 July 2008) and Paris, France (7-8 July 2008), key issues have been identified as paramount to the revitalisation of the Iraqi economy: the absence of a long-term, programmatic economic reform agenda; the lack of a dialogue with civil society in place for a functional market; the persistent unattractiveness of Iraq’s investment climate; the low management capacity; the absence of functional and complete institutions and/or legislation; the lack of enforcement of existing laws; non-transparency and corruption.

 

Following the Declaration issued in Paris on the occasion of the High-Level Meeting on Economic and Governance Policy Reforms in Iraq co-hosted in July 2008 by MENA-OECD, the creation of a Task Force for Economic Reforms and Private Sector Capacity (TFER) was agreed upon by the GoI, with the support of international donors and stakeholders. It is aimed to guide and support policy and legislative design, regulatory/institutional reform, and project implementation, devoted to diversifying the Iraqi economy through private enterprise promotion and investment as tools for socioeconomic development and stability. In carrying out its mission, the TFER will perform two key functions: (1) the coordination and support to the GoI (central, provincial levels) and civil society stakeholders in policy and legislative design, regulatory and institutional reform, and (2) project implementation act as the main institutional counterpart of the donor programmes in Iraq with regard to economic reform and development through private enterprise enhancement.

 

In order to agree on the working methods and content of the Task Force, a High-level Meeting for the TFER in the Republic of Iraq was jointly organised by the MENA-OECD Initiative and the United Nations Development Programme (UNDP) on 20-21 January 2009 at the OECD Conference Centre in Paris, France. The meeting brought together representatives from Iraq as well as OECD member countries. The delegation from the GoI included senior representatives from the Prime Minister’s Office (economic, legal and reconstruction advisors), the Councils of Ministers, Ministries of Finance and Industry, the National Investment Commission, the Kurdish Regional Board of Investment, and Iraq’s Ambassador to France. Members of the Council of Representatives as well as representatives of the Iraqi Stock Market and Businessmen Association were also attending. Representatives from OECD member countries included the United States (U.S.), and members from the OECD permanent delegations of Canada, France and Italy. Other UN agencies were represented (UNCTAD, UNIDO, ILO).
           

Revolving around the further definition and implementation of both a comprehensive and coherent, framework for Private Sector Development in Iraq, this high-level meeting focused on the launching of the Task Force for Economic Reforms and Private Sector Capacity (TFER) in Iraq. This one is designed to conduct a broad assessment of legislative, institutional and sectoral needs with the aim to assist the GoI to design policies for a comprehensive business climate development strategy, with the support of UN designated agencies and the MENA-OECD Initiative on Investment. In this regard, three main objectives were acknowledged and addressed: (1) finalizing the Terms of Reference of the TFER; (2) defining a preliminary work programme; (3) deciding on immediate priorities for action with the constitution of Working Groups by the TFER.

 

 Day one of the meeting was dedicated to the Organisation of the Task Force for Economic Reforms and Private Sector Capacity, as well as a thorough discussion by participants of its Terms of Reference in order to decide on its structures. The TORs were discussed, revised and agreed on by the GoI’s Head of Delegation, UNDP, OECD and other UN agencies representatives who encouraged active discussion to help identify the most relevant options for enhancing Private Sector Development in Iraq as a central instrument of reform in the Iraqi economic reconstruction.

 

The second day addressed more specifically the establishment of a Work Programme for the TFER and Capacity Building for Private Sector Development (PSD) in Iraq through thematic workshops that dealt more with topics such as the MENA-OECD Business Climate Development Strategy (BCDS), regulatory reforms and revision of the legislative business environment, tax policy and revenue management, corporatisation of SOEs and Public-Private-Partnerships (PPPs), and investment and SME development policies. On this occasion, OECD representatives introduced best practice tools to enhance Private Sector Development by addressing these key reform areas on which the respective Working Groups of the TFER should be concentrating and sharing views with Iraqi representatives. In the final session, participants committed to further defining and implementing the work programme of the TFER through the determination of the next fundamental steps.

 

A first discussion on the Business Climate Development Strategy (BCDS) provided an opportunity for OECD experts to introduce a strategy for increasing investment and competitiveness in Iraq. The BCDS, currently implemented in MENA countries such as Egypt, Morocco and Tunisia, is targeted at improving the business environment to increase investment and competitiveness, thereby contributing to growth and employment. It is a co-operative and systematic approach likely to provide a comprehensive assessment for Iraq in several key areas: business operational environment; factor markets, rule of law.

 

The second discussion on Quality Law Drafting to Improve Business Regulation focused on legal tools quality designed to create a business-friendly regulatory environment and outlined several key dimensions: law quality; benefits for the private sector; building blocks for legal quality; building capacities and trust. It was emphasised by OECD experts that the legal and institutional framework in Iraq should be clear, coherent, consistent and effective to provide a more levelled and fair ground for Private Sector Development. This entails a review of existing legislations and dissemination tools, as well as cooperation means, technical support and assistance and training across government, using in particular OECD policy dialogue and good practices.

 

A third discussion on Tax Policy and Revenue Management proposed the creation of a Working Group on Public Finance Policy Reform (WGPF) in the frame of the TFER, underlining OECD value added on public finance issues and its practical experience on taxation and revenue administration. It was offered to provide the Iraqi Ministry of Finance representatives with technical training on issues such as international tax systems, tax interactions, considerations in taxation of inbound and outbound FDI, and tax treaty policy and negotiation. Another specific proposal was to organise a conference addressing Iraq’s oil development and production regime (allocation between central and sub-central governments), drawing on findings of the OECD “Fiscal Federalism” Network created in 2003 and dealing with all aspects of public finance across levels of government, in both federal and unitary countries. 

 

As for the fourth discussion on Corporatisation of SOEs and PPPs, it addressed the sensitive issue of state-owned enterprises in Iraq. OECD experts first sketched the present Iraqi SOE landscape through a sectoral breakdown by Ministry and stressed persisting problems, all emblematic of other transition economies: over-employment, threat of large-scale layoffs; depleted or obsolete capital equipment; weak financial sector; legal and institutional uncertainties; weak regulatory framework. Fundamental challenges were stressed: defining an effective legal framework and implementing regulatory reforms; improving the quality of management and human resources. In this regard, a range of options were proposed to the GoI: privatisation; corporatisation; commercialisation; PPPs and joint ventures. Using the Guidelines on Corporate Governance of SOEs, an OECD-GoI cooperation was suggested in order to address SOE reform at the “meso-level” for an effective policy implementation, by dispatching experts and through advice based on concrete experience.

 

The last intervention on SME Development in Iraq was focused on key issues in SME policy and tackled respectively the theoretical framework of traditional industrial policy vs. SME policy and MENA-OECD country data, and the ways of building blocks of an effective SME policy in Iraq under present conditions of weak governance. In order to face inefficiencies of Iraqi SME (unproductive, not competitive, high costs, dumping practices), main challenges were identified: entrepreneurship and enterprise creation, cheap and fast business registration and start up procedures, incentives to steer new businesses towards formality, micro-finance network to assist new entrepreneurs, a simple and light regulatory environment for micro-businesses, the introduction of a simple and fair taxation system for micro and small businesses, programmes to improve business skills of small entrepreneurs, the promotion of small business associations, a dialogue with policy makers and no discrimination against small business entities (licenses, public procurement, permits).

 

Overall, attending Iraqi representatives appreciated the efforts of the MENA-OECD Initiative in cooperation with the UNDP and welcomed the formation of the TFER as an essential step toward Iraq’s economic reconstruction and the development of private sector, which already exists but remains very fragmented at present. However, they underlined that the TFER needs a clear mandate, as well as a strong vision and commitment from all parts involved in the process to foster ongoing reforms in the country and overcome persisting difficulties (insecurity, infrastructure obsolescence, water and electricity shortages, high unemployment, widespread corruption, revenue vulnerabilities, lack of funding and human resources in key economic sectors such as agriculture and industrialisation etc.).

 

To conclude, key outcomes of the two-day event were the agreement on the TFER Terms of Reference and the finalisation of its work programme along the co-operation of the GoI with MENA-OECD, UNDP and UN agencies. It was decided that the TFER would be structured around four respective Working Groups (Legislative Revision; Restructuring of SOEs; Small and Medium Enterprise Development and Social Dialog; Investment  Policy), all designed to carry out outlined tasks and to ensure functionality and constant progress in implementing Private Sector Development in Iraq.