Iraq Economic News and Points To Ponder Saturday Morning 5-16-26
The New Government's Approach Is To Transition From A Rentier Economy Model To A Productive Economy Model In A Progressive And Systematic Manner
Articles Economy News – Baghdad Dr. Aqeel Jabr Ali Al-Muhammadawi / Academic and Consultant
Thinking about and theorizing about transitioning to a productive economy is not merely a purely governmental political orientation, an ideological approach of the executive authority, or a slogan to be merely touted. Rather, it is an inevitable and realistic necessity governed by data and assessments of the current situation, geopolitical risks, figures and indicators, and proactive analysis of the reality of declining federal budget revenues and the clear challenges to the determinants and capabilities of national economic growth in the current situation.
This necessitates economic restructuring and modernization with new, innovative, and unfamiliar pioneering models. Particular priority should be given to developing and presenting an advanced, proactive, and unfamiliar economic intellectual methodology that aligns with the directions and objectives of the organic transition to a productive economy, and with unique, advanced economic engineering models prepared both proactively and subsequently, to accelerate the process of a radical and firmly established structural transition.
Modernization (from the French "modernize," meaning "to modernize") is generally understood as the process of introducing or implementing improvements that meet contemporary requirements. Furthermore, the consistency of this established understanding of modernization in economic literature can be explained by two interconnected aspects.
The vital and radical transition to a productive and innovative economy, the revitalization of the national economy, and the implementation of projects that affect employment growth and development - constitute a strategic approach to economic re-engineering to achieve intensive economic growth.
Firstly, as a process of modernizing the social system as a whole, that is, the transition from a backward society exhausted by wars and crises to a new, more advanced society. For example, from a traditional (agricultural) or functional and public occupational society to an industrial, knowledge-based and innovative society, and from there to a post-industrial society.
Secondly, as a process of fundamental structural transformations targeting the structure of the economy, it occurs in various areas of social life in their organic interconnectedness.
In this regard, it is common to distinguish between social, political, cultural, ideological, and other forms of modernization. Naturally, economic modernization acquires particular structural importance.
It should be noted that two understandings of economic modernization can be found in modern economic literature, one narrow and the other broad.
Moreover, each has a dual interpretation, determined by a similar dual methodology. From the perspective of the techno-economic approach, in its narrow sense, the essence of this concept is reduced to the industrialization of the economy, whose historical starting point was the Industrial Revolution of the 18th and 19th centuries, which took place in the advanced European countries.
In its broader sense, it refers to any qualitative and fundamental changes that occur in various sectors of the economy.
From the perspective of political economy, economic modernization, in its narrow sense, refers to fundamental changes inherent in the forces of production. In its broad sense, it refers to such changes encompassing both the forces of production and the relations of production, as well as the institutions associated with them.
It aims to change the prevailing model from one that relies on raw materials, crude oil, or rentier economics to one based on creating real added value, with models prepared in advance and later in due course, increasing labor productivity, and developing the infrastructure, knowledge, and technology, which is available at the present stage, given the harnessing of all resources, capabilities, and capacities for this purpose.
The radical transformations affecting all aspects of public life in the wake of recent tensions in the Middle East and the increasing instability and uncertainty have led to a renewed focus on choosing a unique new economic model to modernize the Iraqi economy within the context of contemporary realities.
In this regard, studies emphasize the relationship between the traditional model inherited from the era of centralized rule—the "backward development" model—and the "advanced development" model.
Based on this, the thesis that has become the most widely accepted in scientific circles is that the Iraqi economic development model based on raw materials has almost exhausted its potential.
Therefore, the proposal to move to a catch-up development model, which Japan, then South Korea and some other countries, particularly in the Asia-Pacific region, have successfully implemented, seems very logical.
The essence of this model lies in borrowing and transferring institutions and technologies that have proven successful in developed countries to national institutions.
While it is possible to borrow technologies or institutions primarily, the catch-up development model remains a viable and effective driver of tangible growth and development. China, for example, borrows modern technologies and adapts its national institutions to the new circumstances.
As for Iraq, it is natural that the catch-up development model requires fundamental adjustments and an economic methodology that aligns with the nature of modernization and the transition to a productive economy, along with appropriate plans and strategies.
The experiences of Japan and China are not merely meant to serve as models to be emulated, but rather as strategic pathways for catch-up development.
Advanced development, but in specific and limited areas, as is the case in Iraq, is not a substitute for regressive development. The difference is clear: regressive development must be pursued comprehensively in almost all areas, while advanced development should be pursued in very limited areas.
Therefore, we should proceed from the premise that modernization, under contemporary conditions, can encompass both post-industrialization and alternative modernization, and can also occur in a distorted form. Reducing it to mere standardized manufacturing does not bode well at present.
However, it is important to bear in mind that the modern economy is still industrial in its essence, and Iraq urgently needs an advanced strategic vision and innovative and productive development that goes beyond crisis management and gap-filling, and beyond the usual theoretical diagnostic approach in preparing strategies, methodologies, and plans.
The consolidation of innovative thinking and post-industrial innovations, as a general rule, requires industrial support or depends directly on a growing industrial and innovative base. Moreover, industrial innovations themselves still play a vital role in the modern economy.
"Abstract" post-industrialism, despite its apparent appeal, carries the risk of seriously distorting modernization—both in the scientific and practical sense.
This also applies directly to the Iraqi economy. The objective need to modernize it is driven by internal and external factors, as well as other reasons.
The Most Important Internal Factors Are:
1) The crisis situation that the Iraqi economy is going through, as a result of the fragility of the liberal market capitalism model, which the country quickly transitioned to after the political transition on 9/3/2003;
2) Consolidating the narrow specialization of Iraq’s economy in raw materials within the global capitalist economy, which negatively affects the structural and systemic transformation of the local economy in light of contemporary reality;
3) A significant decrease in the value of fixed assets, inevitably leading to the destruction of the economic material and technical base, stagnation, and deterioration;
4) Weak application of advanced scientific and technological developments in various sectors of the economy (except for defense and security industries, etc.), which hinders its transition to an innovative development path;
5) A severe shortage of highly qualified personnel in key sectors of the Iraqi economy, resulting in decreased productivity.
6) A significant decline in investment in fixed capital and a lack of regulation of the real and parallel economy, which hinders economic recovery and sustainable growth;
7) The continuation of bureaucratic monopoly and the exacerbation of corruption (in the absence of a mature civil society) in light of the fragility of the economic system and non-compliance with the provisions of the Competition and Anti-Monopoly Law for multiple reasons, most notably the weakness of the system to incline or implement the force of the law, which prevents the possibility of rapid development of Iraqi entrepreneurship and effective interaction between the state and the business sector;
8) A sharp increase in social and economic disparities between different segments of society, which threatens the stability of Iraqi society;
9) The low efficiency of the existing economic management system, which was established on a liberal doctrine focused on applying free market principles that, in the context of private markets, somewhat conflict with semi-centralized management decisions. This underscores the importance of activating competition regulation in markets and products under Competition and Anti-Monopoly Law No. 14 of 2010.
It is important to note that the factors mentioned above do not operate in isolation from each other, but rather within their overall unity.
Understanding this unit requires a sound scientific concept of socio-economic development in Iraq. Unfortunately, it must be acknowledged that this concept has not yet been developed (despite the numerous different versions published in recent years).
We believe the difficulty lies in the following: to address this issue, it is essential to first understand the basic patterns of development in both the global and local economies.
Secondly, a clear understanding of the methodology for developing this concept and its structure, with the last section to be dedicated to the main trends for modernizing the Iraqi economy and its development prospects;
Third, the distinction between this concept and the Iraqi economic development strategy, as is evident not only from scientific publications, but also from the various programs adopted by the Iraqi government.
At the same time, any strategy (including the proposed economic strategy to be organized in the new government) is developed on the basis of appropriate concepts, models and purposeful objectives.
The transition to a production-intensive economy requires the following:
- Shifting the focus from broad growth (increasing the number of workers) to qualitative improvements in production (increasing labor productivity - return per worker).
- Technological update:
Accelerating the application of advanced technologies (artificial intelligence, autonomous systems, and digital platforms) in industries and the social sphere, as outlined in the Economic Development Guidelines 2026.
- Structural restructuring:
Any increase in the share of high-tech and efficient industries that ensures GDP growth while reducing overall labor costs.
- At this stage, the national economy should also be revived by:
- Supporting demand: The recovery of business activity is stimulated by rising household incomes and easing monetary policy (the Central Bank of Iraq points to signs of this recovery at the beginning of January 2026).
- Sector whitewashing: Implementing plans to remove certain sectors of the economy from the circle of concealment in order to increase the tax base.
- Investment cycle management: Considering the impact of monetary policy on the investment cycle to stimulate growth at potential rates.
— The relationship to employment and job creation (2026):
- Improving the quality of employment: Moving from informal or low-productivity work to work in advanced technology sectors.
- Human Resources Management: Implementing retraining programs to meet the new labor market requirements.
The shift from a rentier economy to a productive economic model necessitates a paradigm shift: from growth based on resource exploitation (exporting raw materials) to growth based on efficiency, innovation, and increased labor productivity. The following is a comprehensive methodology for implementing this shift, based on an analysis of key factors:
Key trends in transformation:
Technological modernization: The transition to the fifth technological paradigm (robotics, information technology) and the sixth (nanotechnology, biological, and cognitive technologies).
The innovation economy involves the widespread adoption of innovations, the establishment of knowledge-intensive industries, and the development of human capital as the primary resource. It is crucial to establish this model in Iraq to invest in knowledge and modern technologies, and to utilize available human resources and the necessary infrastructure.
Circular economy: A renewable model that reduces waste and improves resource utilization (moving away from linear "consume and dispose" thinking).
Structural transformation: diversifying the economy, reducing dependence on the raw materials sector, and developing high-tech industries.
- Key implementation mechanisms:
1- Investing in people: Education, science and health care become the basis of productivity, transforming from expenditure items into sources of economic capital.
2- Public-private partnerships: Combining market mechanisms with government support for vital industries and infrastructure.
3- Digitalization of operations: Implementing digital platforms to improve logistics, production, and consumption.
Transformation management approaches.
There are two main approaches to implementing the transformation:
- The central approach: Adopting a unified national strategy, which is available for major strategic projects that boost the national economy and create significant job opportunities, especially in petrochemical, oil, refinery and gas projects (as is the case in the European Union, China and Japan).
- The decentralized approach: Implementing initiatives at the city, regional, or individual business model level, which is available for entrepreneurship, development, and achieving real growth in GDP (as is the case in the United States and Canada).
Characteristics of the transitional phase: Institutional changes:
The old institutions based on direction or raw material economies are being replaced by market and innovation institutions, and this requires a revolution in the restructuring and engineering of existing institutional structures.
Sustainable development: Implementing the Sustainable Development Goals, particularly rational production and consumption patterns. This transformation is not merely about technological change, but a shift in the socio-economic system, focusing on long-term sustainability and the creation of new value, while establishing the principles of innovative development.
This approach aims to ensure sustainable development and the comprehensive revival of the real economic sector, and to stimulate and activate domestic economic actors, through projects with a direct impact on employment, sustainable development, innovative development, value-added creation, and income growth, despite the slowdown in GDP growth (expected at 0.5-2.5% for 2026, according to the scenario).