Iraq's Arab Spring: Protests rise against persistent poverty in oil-rich nation

Iraq claims to have the world's second-largest oil reserves, but 1 in 6 Iraqis live in poverty. Protests have already forced three provincial governors to resign.

While other Arab countries are rising up against dictators, Iraq’s is already gone – Saddam Hussein, toppled eight years ago, is now almost a distant memory for younger Iraqis. But Iraqis are taking to the streets to ask why millions are living in poverty in one of the most oil-rich countries in the world.

Cellphone repairman Majid Abdul Khalif, who is so patriotic he named his son Iraq and his daughter Baghdad, is incensed he can’t find a full-time job or buy a house.

“I’m Abu Iraq [the father of Iraq] and I don’t have a home!” says Mr. Abdul Khalif, wrapped in an Iraqi flag at Baghdad’s Liberation Square.

Like millions here, he’s grown up with the expectation that the government would take care of him. Those unfulfilled expectations and the loss of billions of dollars to mismanagement and corruption has proved a volatile combination in a country where oil revenue will barely keep pace with the growing population. Protests have already forced the resignations of governors in three southern provinces seen as particularly corrupt.

Millions of people still rely on government food rations, about 1 in 6 live in poverty on about $2 per day, and almost 40 percent of Iraq’s 30 million people are under the age of 15.

"Iraq is a difficult case,” says Simona Marinescu, senior economist with the United Nations Development Program in Iraq. “Iraq is not a country with no resources ... Iraq is a country that has the very strange situation in which the needs of this country grow at a similar pace with revenues – so no matter how much money comes into the budget, their development needs, their basic needs are growing similarly."

Iraq recently recalculated its oil reserves to reflect undated technology and now says it has the world’s second-biggest oil reserves. With oil prices topping $110 a barrel, that is an extraordinary resource.

But with billions of dollars needed to modernize the oil industry after decades of neglect, it will be years before a significant portion of Iraq's oil revenue will go to anything else. And while the oil industry provides revenue, it will never create large numbers of jobs.

“I think there’s an understanding that they have to change things; I don’t think Iraq – with a population this young and this fast growing – is ever going to be a petro-state,” says a US embassy official who asked not to be identified. “Over the next three to five years, they’re going to spend almost all the extra revenue they earn just paying for the infrastructure to get the oil out of the ground and export it.”

Transitioning out of a state-subsidized economy

In addition to the political upheaval that followed the toppling of Saddam Hussein, Iraq has embarked on a revolution of its state-run, oil-centered economy where more than 60 percent of Iraqis work in the public sector.

"The restructuring of state-owned enterprises is required because this economy needs to move out of this oil trap as quickly as possible,” says Dr. Marinescu, who oversees a UN project to restructure 176 state-owned Iraqi companies.

Throughout the 1980s, the Iraqi regime subsidized everything from airline travel to imported whiskey, artificially keeping the economy afloat while it went deep into debt to fight Iran.

After Iraq’s 1990 invasion of Kuwait, sweeping international trade sanctions plunged the country into poverty and its infrastructure into decades of disrepair.

In dilapidated schools across the country today, children sit on the floor because there aren’t enough desks. Many drop out before they finish sixth grade.

Key obstacle for businesses: Lack of electricity

The biggest problem lingering problem is the electricity sector – widely recognized to be a disaster despite massive amounts of money injected by the US and Iraq. Disrepair, security problems, and corruption have meant that Iraqis now still get only about 12 hours a day of power.

It is expected to take another two or three years before Iraq can provide full electricity. The Iraqi government plans to provide more diesel fuel this summer to run private generators and next year to bring in small electrical plants to fill the gap until permanent stations are built.

The lack of electricity means not just that Iraqis swelter in the 130-degree summer heat but also holds back almost all economic growth – for many companies replacing security as the biggest obstacle to investment and rivaling the problem of corruption.

“Power is the biggest problem we face here,” says Mazin al-Asadi, a senior manager for the Zain cellphone company, the biggest private Iraqi employer. “Because of the lack of power we have to put generators in every site – they have to be running 24 hours a day. We get the fuel most of the time from the government but if for one reason or another it does not have the fuel ready for us then obviously we have to go to the black market.”

Government makes concessions

The Iraqi government has made concessions to the demonstrators – delaying the purchase of American F-16 fight jets in order to put more money into the rations system and announcing more government jobs. Prime Minister Nouri al-Maliki in response to demonstrations in February promised a 100-day review of underperforming ministries but has since made clear that Iraqis should not expect services to improve in 100 days.

Marinescu and others say the changes being undertaken are needed for political stability as well as economic reform.

"Right now in the middle of all these frustrations the economy is not creating jobs, the services are not being delivered the way they should – where is their mistrust placed? In politicians,” says Marinescu, a former labor minister in Romania. “You can create stability going from all directions, from top to bottom by delivering and communicating, from bottom to top by giving trust to policymakers."

"In a poor country you cannot create a strong democratic tradition – it is impossible,” she says. “A poor people will never trust a government and a political system unable to deliver.”