The Future of the Iraqi Economy: A Path to Sustainable Development and Economic Diversification
The Future of the Iraqi Economy: A Path to Sustainable Development and Economic Diversification
1-6-2025
Researcher Shaza Khalil
Iraq, a country long associated with oil wealth, is now at a critical economic crossroads. With natural wealth worth over $16 trillion, ranking it ninth in the world in terms of resource reserves, Iraq has the potential to transform its oil-dependent economy into a diversified and sustainable one. The Prime Minister’s financial advisor, Mazhar Mohammed Salih, has been vocal in emphasizing that the country’s economic future depends on transforming its natural wealth into productive capital assets. He asserts that this transformation will be essential for the country’s long-term growth and economic diversification.
The scope of Iraq’s natural resource wealth
Iraq’s economic future depends largely on its ability to manage its vast natural wealth. With one of the largest oil and gas reserves, Iraq tops the world rankings in terms of natural resource density per square kilometer. However, despite Iraq’s strategic importance in global energy markets, its oil-dependent economy is often characterized by instability, with fluctuations in oil prices or political instability significantly impacting the country’s growth.
In recent years, it has become clear to the Iraqi government that the future will not depend solely on oil exports. Instead, there needs to be a broader vision of how to invest Iraq’s natural resources. These resources include minerals, agricultural potential, and other untapped assets that can spur broader economic transformation.
As Saleh accurately points out, Iraq’s natural resources represent not just raw commodities, but untapped opportunities to stimulate industrial diversification and value chains. By manufacturing products from these natural resources, Iraq can create value chains that go beyond extraction and export. This would help increase national income, reduce dependence on oil exports, and generate opportunities for sustainable development.
The need for economic diversification
The economies of countries that rely heavily on oil depend on crude exports as their primary source of revenue, which represents a major weakness in these economies. Oil accounts for more than 90% of Iraq’s exports and public revenues, making it vulnerable to economic disruptions resulting from fluctuations in oil prices. While oil will remain a dominant force in the global economy, it is no longer wise for a country like Iraq to place all its economic hopes in a single sector, especially given the long-term global shifts towards alternative energy.
Economic diversification is not just an option for Iraq, it is a necessity. The Iraqi government must take bold steps to explore and develop alternative sectors. Saleh emphasizes that moving beyond oil and gas requires a change in the way the Iraqi economy is structured. This includes rethinking how to invest resources other than oil and gas, and developing industries that can replace imports and contribute to exports. A
manufacturing renaissance
is one of the most promising ways to diversify the Iraqi economy through industrialization. Iraq’s fertile lands and mineral and natural resources provide a strong foundation for a number of industries such as textiles, cement, chemicals, and agro-processing.
By processing raw materials locally into finished goods, Iraq can create a wide range of value-added products for domestic and international markets. The agricultural sector, in particular, holds enormous potential. Iraq has some of the richest fertile land in the Middle East, and agricultural production can help meet the growing demand for food domestically and regionally. However, the challenge lies in addressing the lack of investment in this sector and using outdated technology that can be modernized to improve yields, efficiency, and sustainability.
For example, Iraq could develop industries that process its raw agricultural products such as dates, wheat, and barley into value-added products such as juices, oils, and packaged food products. This would not only reduce Iraq’s dependence on food imports, but would also help create jobs, encourage innovation, and expand its export portfolio.
Similarly, Iraq’s mineral resources such as sulfur, phosphate, and gypsum could form the basis of a chemical and building materials industry. The mineral extraction and processing industries hold great potential to support domestic infrastructure projects and export markets.
A New Economic Model: From Extraction to Investment
To achieve economic diversification, Iraq must adopt a comprehensive economic model that focuses on the strategic use of its resources. This will require significant investments in both the public and private sectors. Public sector investment, particularly in infrastructure and education, will be critical to laying the foundation for sustainable growth. On the other hand, the private sector must be encouraged to play an active role in building these industries through favorable policies, regulatory reforms, and incentives.
Saleh points out that this model of “transforming natural resources into productive capital assets” requires a comprehensive reorientation of Iraq’s economic strategy. The government must prioritize sectors outside of oil and gas, and provide incentives for private sector development in manufacturing, agriculture, and other emerging sectors.
At the same time, Iraq must invest more in modernizing its human capital. Vocational education and training programs will be essential to ensure that the Iraqi workforce has the skills needed to drive growth in new industries. Developing technical and entrepreneurial skills will also help foster the creation of small and medium enterprises (SMEs), which are essential for job creation and economic dynamism.
Sustainable Development: A Path to Long-Term Growth
To create sustainable growth, Iraq must also address the significant challenges of environmental sustainability, resource management, and good governance. Uncontrolled exploitation of natural resources can lead to environmental degradation, resource depletion, and conflict. Therefore, Iraq’s economic transformation must be accompanied by strong policies that ensure long-term environmental preservation.
In addition, Iraq’s political stability will be critical to ensuring the success of this transformation. The economic reforms needed to harness Iraq’s natural resources will only succeed in an environment of stability and transparency in governance. The government must work to improve public sector efficiency, reduce corruption, and build trust with investors and citizens alike.
Conclusion: The Way Forward
Iraq’s economy is at a turning point. Iraq’s vast natural resources hold enormous potential to drive growth and development, but only if the government and private sector work together to transform the economy away from its dependence on oil. By investing in manufacturing, agriculture, and other sectors, Iraq can build a dynamic, sustainable economy that provides opportunities for generations to come.
Mazhar Mohammed Salih’s vision of a “natural resources renaissance” provides a clear blueprint for Iraq’s future. By transforming its resources into productive assets, Iraq can build a thriving, multi-sector economy that stands the test of time. However, achieving this transformation will require bold leadership, strategic investments, and a strong will to build a more resilient and sustainable economic foundation.
Economic Unit / North America Office
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