Iraqis turn to entrepreneurship as corruption hinders economy

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Iraq has become more synonymous with war and corruption than entrepreneurship, but things are slowly changing as more people seek opportunities beyond the country’s bloated public sector.

With a population of almost 40 million according to the United Nations (UN) of which almost half is below the age of 19, Iraq is among the bigger markets in the Middle East and North Africa (Mena) region.

It has the world’s second largest proven oil reserves and a gross domestic product (GDP) of about $200 billion, but conflicts and corruption have severely hindered the country’s economy and progression.

Iraq is one of the most corrupt countries in the world and a place where ease of doing business ranks 171 out of 180 economies according to the World Bank. Oil revenues account for more than 90 per cent of government revenue, but the sector employs just one per cent of the population.

The public sector can no longer afford to absorb the thousands of graduates the country produces and as the economy almost ground to a halt with the arrival of the so-called Islamic State (IS), private sector job opportunities also dried up.

But now that the security situation has improved and the economy slowly bouncing back, a small community of entrepreneurs, investors and international partners are working to build up an ecosystem.

“Technology can be a great way to diversify Iraq’s economy, it is a great equaliser to create a stronger middle class which leads to stability,” says Mohammed Khudairi, managing partner at Khudairi Group and one of the founders of the TechHub, a co-working space in Erbil.

The mobile penetration rate stands at about 87 per cent while almost half of the population has access to the internet. For Khudairi, Iraq is “a huge market with huge potential” and now is the time to invest in startups in the country.

He is currently working on developing Iraq Tech Ventures, which recently closed its first seed round in one of the country’s largest e-commerce websites, Miswag, believed to be worth about $2 million.

“People would be impressed by the quality of entrepreneurs, amid the challenges they’re going through there, they’re continuing forward,” says Khudairi. “The real heroes are the entrepreneurs that are dealing with the day to day challenges.”

One such entrepreneur is Mosul-based Yousif Alneamy, who launched Dakakenna in August 2018, an online marketplace delivering goods to the city within 24 hours. Alneamy, a software engineer who graduated from Mosul University turned down several job offers in Europe to launch his company.

“I always had a reason to decline the offer and I had the opportunity to build something successful in Iraq,” says Alneamy. “It was difficult to get a job in Mosul and I always liked entrepreneurship.”

Mosul was one of the major cities to fall to the Islamic State and was cut off from the rest of the country as devastation was wreaked on its infrastructure. As Iraqi forces regained control in 2017, life began to re-emerge, but with fears over landmines planted by IS, movement is still restricted and jobs remain scarce.

“An online store made sense to me and we needed the service [in Mosul],” says Alneamy, who developed the platform alone. With his co-founder, Abdulrahman Nabeel, they have managed to secure 20 suppliers who offer goods like kitchen appliances and watches and handbags. The suppliers are all in Mosul, which enables Dakakenna to offer same day deliveries.

The operation is still small, but Alneamy has plans to expand to other major cities in Iraq.

“When you read the comments of other marketplaces, people have had a bad experience, sometimes they take over a month to deliver a product, if we establish in other cities and use the same business model, people can have a better experience,” he says.

But in order to do so, the company will require investment. As is the case with so many startups in Iraq, Alneamy and his co-founder have been using their own money to fund their business.

“We need to have a next step for the ecosystem,” says Mujahed Waisi, founder of The Station, a co-working space in Baghdad. “We now have a lot of ideas and startups have passed the ideation stage, but none of them have been funded by an institute, they just rely on themselves and their friends and families to start their business.”

Access to capital is one of the main challenges in the country, the financial infrastructure for startups is almost non-existent. The Central Bank launched a one trillion dinar ($840 million) fund to provide subsidised interest loans to small and medium sized enterprises (SMEs) but it has allocated a little over six per cent of that since the requirements and regulations, which includes a full guarantee to repay the loan, make it prohibitive to startups.

“As entrepreneurs we don’t need loans, we need someone to take risks with us,” says Waisi who is now looking to establish an incubator and fund. He is in talks with investors in Iraq and in the wider Middle East region keen to get early picking of the country’s startups. The incubator programme will last a year and will offer up to $50,000 to startups in seed funding.

But investing in Iraq is not so straightforward. The legal framework for investors and startups is such a cumbersome process that most startups do not even bother registering their company. It can take about six months to register a company in Iraq, which leaves investors in a vulnerable position and reluctant to invest.

“There’s no clear rule of law that allows investors to come in,” says Khudairi. “That’s what I’m pushing hard on, to help create a unique category for these startups and allow businesses to get up and running quickly.”

It has been the startups themselves that have pushed regulatory changes. Bazary Online, a marketplace and delivery service in the Kurdistan region helped establish the Suleimaniyah province’s first e-commerce law, while others have helped develop mobile and online payment solutions in a country where only 11 per cent have a bank account according to World Bank data.

But pushing ahead and disregarding government regulation can only take a startup so far. There are so many other hurdles that have prevented the startup ecosystem from reaching its potential. One of the main hurdles is the lack of intellectual property (IP) protection and ideas are easily stolen. There is also a huge skills gap and a wider cultural expectation that favours public sector jobs and an over-reliance on the government.

“There is a hindrance when it comes to government support, funding and infrastructure,” says Zahra Shah, country manager at Re:Coded.  “The education system hasn’t been properly updated and people aren’t being challenged enough to think critically and not to rely on ‘wasta’ [connections].”

Re:Coded is an initiative that provides coding bootcamps to upskill youth in areas affected by conflict. It is planning to offer blockhain workshops which Shah believes will a “game changer” in Iraq and will help fight corruption.

“From my experience, most Iraqis rely on the government,” says Waisi. “But I tell them government employment will not make you a millionaire, you have to be a thief to get benefit from these things, everyone is looking for a government job but the salary is not good.”

As politicians elected on promise of more jobs fail to deliver, the only alternative for the country’s youth will be entrepreneurship.

“You see a lot of talent, there is so much opportunity for startups, every problem you find here is solvable with technology,” says Shah.

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