Surviving the COVID-19 Crisis: Preliminary Findings of the Economic Impact on Iraq June 2nd, 2020
The COVID-19 pandemic is
inflicting serious damage on the world’s economy. Unemployment rates are through the roof, oil prices have collapsed, businesses are shutting down and whole sectors are struggling to stay afloat. Iraq was not exempted from being hit by the world-scale crisis.
A country that is heavily reliant on oil exports with poor infrastructure and a low level of preparedness for such a crisis, Iraq is facing a special set of challenges during these times. This research aims to evaluate the current situation in an attempt to quantify the magnitude of the crisis on various business sectors and individuals alike, which can be used in the formulation of a plan to emerge from the current crisis and stimulate economic recovery.
A combination of quantitative and qualitative methods was adopted to collect data. An online survey comprising 3 main sections (demographic information, employee/daily wage workers section and business shops/property owners’ section) was conducted to gain an insight into individual perspectives and semi-structured interviews were conducted with businesspeople and experts to consolidate the insights gained through the survey with recommendations on effectively passing the crisis.
Convenience sampling was used for the online survey, while snowball sampling was used for interviews.
Statistical Package for Social Sciences (SPSS) was used to analyze data from the survey, while thematic qualitative analysis was conducted on the interviews after being transcribed to English. More than 680 individuals responded and interviews were conducted with 15 experts. The majority of respondents (more than 50%) were of the 20-30 age group and from Baghdad. Three-quarters of respondents were males and the rest were females. About 95% of respondents were literate with more than 50% of them holding a bachelor’s degree. Private sector employees formed the majority of respondents (33.5%), while unemployed individuals, business owners (shops/property) and daily wage workers had almost similar response rates (17%); public sector employees formed a relatively lower rate of responses (12.1%). Stress levels significantly increased among all workers, especially among daily wage workers and private sector employees. Also, changes towards a more stressful attitude were more prominent in the southern provinces. The study showed that public sector salaries and social support were the most stable income sources. Daily wages and private sector salaries significantly decreased as being the main sources of income, while savings and having no source of income significantly increased during the crisis. A period of 2-4 weeks was mainly reported when respondents were asked how long their savings can last. However, savings lasting less than a week was significantly more reported by daily wage workers and unemployed individuals, while savings lasting 1-3 months was significantly more reported by private and public sector employees denoting a significant association between employment status and how long the savings could last. This crisis had a dramatic effect on salaries and working hours. The study showed that about one-third of respondents had their salaries cut off while a quarter of them was laid off, stopped working or closed their businesses. Unpaid salaries and pay cuts were significantly more frequent with private-sector employees while laying off and closed businesses were significantly more than 5 reported in daily wage workers and shops/property owners, respectively. A “no effect” was significantly reported more by public sector employees. Insights and perspectives from the interviewed experts corroborated the findings of the survey. Most of the experts expressed that public sector employees are better standing financially and are less affected by the current crisis, while a heavier toll was inflicted on private-sector employees, considering that the vast majority of private-sector employees do not have social security and have no contracts signed with their employers. They also reported that many private-sector employees were forced to take unpaid leaves or had their salaries completely cut off or discounted because businesses could fail if they paid salaries.
However, employees of large corporations are still getting paid normally, while employees of small and medium businesses were impacted by this. Moreover, according to the interviewed experts, daily wage workers are likely to be the most affected during this crisis and unemployment rates are projected to increase due to layoffs, decreased revenues and business operations. As to the impact on businesses according to their size, there were two opinions presented during the interviews. The first one is that large businesses are going to pass this crisis, but the small and medium ones are not due to their lack of resources and cash flow. The second opinion, however less prevalent, was the complete opposite stating that bigger corporations will sustain more damage because they are less able to adapt and modify their operations than smaller businesses. As per the different sectors of businesses, they all have been affected to various extents. Iraq’s income relies massively on oil exports (forms 90% of Iraq’s government revenue) and oil prices are plummeting during this crisis. Hence, there will be a plethora of detrimental consequences on various sectors and on top of them is the energy sector. Also, the construction sector relies heavily on governmental investments, and since oil prices are falling, many construction projects have been put on hold.
Transportation and logistics were unquestionably severely hit as well due to the curfew. Whole business operations relying on transportation froze except for the transportation of food. The travel sector also took a harsh hit since countries are shutting borders and airline companies are cancelling flights by the thousands. Not to mention that the travel-suited season has passed which is crucial for travel agencies. The curfew has left the e-commerce sector struggling. They could receive orders but not deliver them to customers. They were left with stock debts and fixed costs payments despite not generating revenue. Brick and mortar stores suffered a larger impact than e-commerce although groceries, pharmacies and bakeries were less affected because they were allowed to operate with fewer restrictions. However, after the lockdown, they have a great potential to scale up their businesses because people’s behaviour is changing as they tend to avoid crowded places. As for education, private schools were under financial stress. They were unable to pay their teachers’ salaries because, for many schools, tuition fees are paid every month. Even 6 though private universities were relatively financially standing better due to the payment of the fees which usually takes place one or two times a year, they are facing multiple challenges and many are unable to pay their staff.
Also, the increasing trend towards e-education surfaced more challenges arising from staff unpreparedness and the internet. Although the internet service capacity was increased by 25% to relieve some of the burdens on internet service providers, maintenance and operation were difficult during the curfew. The banking sector has experienced problems on multiple levels. Most private banks clients are contractors working with the government, and since the government is in debt to those contractors, the activities of private banks have been limited. Moreover, the liquidity in banks is at a minimum because of the reserve requirement in the CBI and the fact that people usually open current accounts, and therefore decreasing the banks’ ability to invest. In conclusion, the COVID19 crisis has adversely affected businesses and individuals alike and a robust plan needs to be devised to outlast this period.
Recommendations:
- Diversification of the sources of income for Iraq is crucial to be less vulnerable to fluctuations in the oil market
- The government must start implementing a bailout plan, or it will eventually be unable to pay public sector employees their salaries.
- Supporting the sustainability of paying the salaries of public sector employees is essential, otherwise, the whole economic cycle will be impacted causing a further recession and an increased rate of unemployment and business closure.
- Disparities in public sector employees’ salaries must be reduced.
- Daily wage workers and unemployed individuals should be included in a social relief package able to cover their daily essentials. The current 30 thousand Iraqi dinars per month package of support is not enough for their essentials and should be increased.
- Individuals who have taken loans from banks and are due their payment time need to be exempted from paying extra fines or interest that might have occurred during the crisis.
- Private sector businesses that have their employees registered for social security can be supported through the social security fund. Also, this will encourage unregistered workers and businesses to seek registration.
- If the previous recommendation is implemented, an awareness campaign should be launched for private-sector employees and businesses to encourage them to register in social security.
- Market assessments need to be conducted after this crisis to detect the most needed skills in the market. Accordingly, TVET centres could be activated to train unemployed people in those needed skills.
- Relief packages for SMEs could be issued by the CBI through private banks to save them from permanently shutting down, such as bank loans with a concessional interest rate.
- Businesses need to be exempted from taxes, tariffs and customs for at least the period of the crisis, giving a priority to registered businesses.
- A plan for stimulating multiple business sectors through domestic and foreign investments must be developed. • Increasing banks’ liquidity to support individuals and SMEs is essential for the current situation.
- Agriculture and the food industry must be supported to ensure food security and, also, contribute to job creation.
- The industrial sector must be supported on many levels to cover the local needs of various sectors which will also lead to an increase in GDP and employment.
- Improving the internet service is essential to meet the exponentially growing demand; therefore, decreasing band costs for internet companies is essential to enable them to increase capacity and improve the internet service.