Business Leader Attitudes Toward Commercial Activity, Employee Relations, and Government in Iraq

Posted in Iraq | 09-Oct-05 | Source: The Center for International Private Enterprise

This year’s survey reveals optimism among the owners and managers of new firms, especially those founded since 1990. The respondents believe that their own firms will grow and succeed and that Iraq’s economy and political system will continue to grow and develop.

To illustrate the progress, stabilization, and current trends in the Iraqi business, Zogby has compared this year’s results with those of its last Iraq survey conducted in late 2004. At that time, Zogby conducted interviews of 454 Iraqi owners or managers of small- and medium-sized enterprises, defined as those with less than 100 employees. Surveys were conducted in Baghdad (264 interviews), Arbil (90 interviews), and Hilla (100 interviews), with a margin of error of +/– 4.7 percentage points.

It must be noted that differences in opinion between different religious communities are hard to measure this year, as a large percentage of the sample (36%) declined to name their religious affiliation.

Iraqi Firms Today

The overwhelming majority of Iraqi companies are small (84%), with fewer than 20 employees. Almost half (44%) employ between 6 and 20 people. Four in ten of the businesses surveyed are sole proprietorships (42%), another one in three (30%) are partnerships or corporations, and one in four (25%) are family-owned.

Those few firms that were established in the 1950s, ‘60s, and ‘70s are primarily in the retail sector, manufacturing, and agriculture. Manufacturing experienced another boom in the 1990s. The service sector began to grow in the 1980s, experienced rapid growth in the 1990s, and continues to prosper. Financial services came into their own in the 1990s and 2000s.

Retained profits are the primary means of capital funding for almost half (46%) of Iraqi companies. Business savings are a reasonably close second (32%). Older firms are more likely to fund their expansions with business savings, while newer ones focus on retaining profits.

More than half of Iraq’s business owners have never tried to borrow money to start or expand their firms (53%). This number is even higher than last year’s (45%), suggesting that most new firms have opened without the aid of loans -- indeed, proprietors of 66% of the firms founded since 2000 say they have never applied for financing. Among those who have, friends and relatives remain the funding source of choice in Iraq, preferred by more than one in three business owners (33%). By some distance, friends and family are followed by private banks (24%) and state banks (17%). Preferences vary by region.

Cash is the preferred method of payment, with seven in ten business owners (72%) calling it their primary means of exchange. Bank transfers are still preferred by 24% overall, but barter and bank credits are not in favor anywhere in Iraq, and credit cards have little penetration.

Throughout most of Iraq, businesses have grown since the end of Saddam Hussein’s regime. Four in ten of those surveyed (43%) say they have added employees since that time, and another three in ten (28%) say their size has not changed -- for a total of 71% that have grown or remained stable. Almost two in three (64%) new businesses -- those that have opened since 2000 -- already have at least 6 employees. Conversely, if we look at the 4% of firms with more than 100 employees, we find that 29% are new businesses.

This growth has continued since the January 2005 elections. One in four companies says its staff has grown in the last several months (24%), and most of the rest have maintained their size (55%). Growth is quite low in Basra and Kirkuk, however. Most firms in both cities have maintained their size (76% in Basra, 67% in Kirkuk), and one in five Kirkuk establishments (22%) have lost staff.

One in three Iraqi businesses (32%) are retail establishments. One in five are factories (21%), followed closely by service providers (20%). Three-quarters of the firms surveyed (76%) sell directly to the consumer, a number consistent with last year’s finding (75%). Another 15% sell to other firms, up from last year’s 10%. Less than one in ten focus on government contracts (7%). Newer firms are more likely to focus on the consumer market.

Almost half (47%) of Iraq’s business leaders visit their chamber of commerce frequently or occasionally. Another 27% say they rarely make use of their chamber, and 19% say they never do. The total percentage of respondents who describe chambers of commerce as beneficial or essential -- 61% -- is substantially lower than last year’s figure, 72%. As we will see elsewhere, the difference may lie in the 17% who are not sure.

More than two-thirds of business leaders (67%) say there is no effective business association of which to speak. One in five (20%) would like to see its chamber disseminate practical information. Owners and managers in Basra (28%) and Hilla (24%) would consider attending workshops on business development.

Looking Ahead

The survey suggests that most Iraqis are optimistic. While less than half of business owners (45%) expect their own firms’ profits to climb in the next six months, nearly three-quarters (77%) anticipate growth in the national economy over the next two years. Only 3% expect a contraction, which is close to last year’s results (1%).

The percentage of business leaders who say they are optimistic about Iraq’s economic future is unchanged since last year: 69%. Optimism more evident in Arbil, where virtually all business leaders (99%) expect positive future economic outcomes. Outlooks are almost as positive in Basra (92%). Business owners in Kirkuk are not as optimistic – just 9% express optimism, while 69% are neutral and 19% are pessimistic.

30% of Iraqi businesspeople want to hire more staff, while 24% want to purchase machinery and a similar number (23%) want to purchase or rent building space.

54% of Iraqis are optimistic about the next six months’ sales figures. Many expect sales to stay flat, but in no city do more than 8% of respondents think sales will drop in the next six months.

38% of Iraqi business owners think employment will increase in the next six months. Half of all the respondents (50%) think that employment has stabilized for the moment. In Baghdad and Kirkuk, 70% and 88% respectively, expect no growth in employment over the next six months.

Nationally, almost half of those surveyed (45%) expect their profits to grow in the next six months, which is a slight drop from the last year’s number of 50%. Only 5% expect profits to decline. 32% expect profits to stay the same, and 18% say that they are not sure.

In all three categories -- sales, employment, and profits -- newer companies are more optimistic than the older ones.

Infrastructure

Basic services such as water and electricity have become a major problem in post- Hussein Iraq. Virtually half of all business operators (48%) believe that Iraq’s basic services were better under Saddam. 14% feel services are better now. The discontent is strong in Baghdad (59%) and the strongest in Arbil (96%).

Business leaders are more upbeat about the general business environment than they are about utilities. Roughly half (49%) say the business environment is better now than it was under Saddam. 26% say the business environment was better under Saddam and 22% say there has been no change.

It is worth noting that 20% of respondents in the last year’s poll said they were not sure how to assess the business environment – in this survey only 3% of the respondents had the same answer.

Participation of Women

The number of Iraqi firms that employ women has grown significantly since last year’s survey. In late 2004, 43% of firms employed women, while now the number is 63%.

Older businesses are just as likely to employ women as the newer firms. At least 86% of the oldest establishments, founded in the 1950s or ‘60s, have women on staff. Among firms founded in the 1970s and ‘80s this percentage falls below 56%. Roughly 65% of firms founded since the 1990s employ women.

34% of respondents say women and men have the same opportunities to run a business day-to-day. However, 23% say that women have equal opportunities to get professional jobs, and only 10% say women are free to start a business.

A New Government

Respondents have only slightly less confidence in Iraq’s political future than they do in the economy. 60% say that they feel good about political prospects, while 26% are neutral and 6% are not sure.

Business leaders are generally dissatisfied with the Iraqi government’s contract awards.

Almost half of Iraq’s owners and managers (47%) feel the new government represents and protects their interests. 20% of the respondents disagree that the government has their interests in mind.

The number one way in which the government could help the business owners is to get the security situation under control (33%). In Baghdad, almost half of all business owners and managers (45%) cite security as their greatest obstacle. Other ways in which the government could help the business sector are: support the availability of raw materials (13%), facilitate the movement of goods at the nation’s borders (9%), decrease taxes on incoming goods (5%), and establish more loan and bank facilities (5%).

42% of the Iraqi business leaders describe the constitutional committee as “fair”, and a total of 42% describe the committee as “trustworthy” or “very trustworthy.” Among the constitutional clauses under the discussion, the three most popular with business leaders are: the clause that would make Iraq an officially Arab nation (18%), the clause that would make Iraq a multinational country (16%), and the clause that would make Iraq officially Islamic (13%).

The percentage of business leaders who expect the government’s policies to improve has dropped since last year, from 76% to 69%. The percentage of those who expect policies to worsen has dropped from 9% to 4%.

Opinion is mixed on the current state of security in Iraq. More than half of all business leaders (57%) feel security is better now than it was in the aftermath of Saddam’s fall, but 38% think its worse.

Opinion is rather conclusive regarding the prospects for stability following the election of the new government. The vast majority of repondents agree that Iraq will achieve stability (71%). 27% agree strongly with the statement, 44% somewhat agree, and only 19% disagree.

84% of the business leaders have confidence in the ability of elections to increase regional economic stability.

82% of the respondents believe that opening Iraq’s borders to international business will help their own firms, down only slightly from last year’s number of 86%. An even larger majority want Iraq to open its doors to international trade (90%). Collectively, business leaders are positive on relationships with companies in the Gulf States (23%). No other destination comes close; Syria, Europe, and Turkey are the closest competitors, named by half as many respondents nationally.

An overwhelming 82% of Iraqi business leaders feel that a democratic and diverse government would benefit Iraq’s business community. More than 62% feel that it is possible for Iraq’s business community to influence government policy. In a sweeping change since the last year, they name the political parties they feel can best represent them. Before the election, 72% said they did not know which party represented their views, if any. The most popular party overall is the Iraqi National Accord Movement, favored by 13% of business owners nationwide and 25% in Baghdad. Close behind are the PUK (11%), Islamic al Da’wa (11%), and the KDP (9%).

Barriers to Growth Remain

Businesspeople have had mixed experiences with Iraq’s commercial laws and regulations. Only 39% say the laws are easily available and understandable, while 49% say that this is not the case.

41% want to see more laws and regulations for business. The number is down significantly from the last year’s 62%. 40% want the existing laws to be better enforced.

Apart from security, the most commonly perceived obstruction to economic growth is Iraq’s lack of legal and regulatory enforcement, as agreed upon by 18% of the respondents. Other frequent complaints are outdated capital equipment (14%), lack of information regarding contracts and regulations (13%), high taxation (12%), lack of international partners (12%), and inability to communicate effectively both inside Iraq and abroad (11%).

Lack of Internet access does not strike most businesspeople as a major problem. Many of those who do not use computers or the Internet cite no particular reason for not doing so (32%). Another 24% say computers just aren’t necessary, and 21% say they lack the requisite skills. Notably, responses are similar among older and newer companies.

The number one need of Iraq’s current workforce, respondents say, is computer training (33%) -- up 7% from last year. The second greatest need, down 1% from last year, is English-language training (25%). The need for a better education system is felt primarily in Baghdad (24%). The basic need for more work opportunities is most acute in Kirkuk (43%). New firms are by far the most likely to cite English-language training as their most pressing need.

Business leaders are concerned about corruption in Iraq. More than half (62%) say corruption is a serious problem and more needs to be done to combat it. Most of the remainder agree that corruption is a serious problem, but hold out little hope for change (32%). As far as the costs of corruption go, 38% say that corruption adds more than 40% to their cost of doing business; another 18% say it adds 20–40% to their costs. Respondents identify the two chief sources of corruption as weak property rights (29%) and the extraction of bribes by civil servants (26%).

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