Impact of Economic Globalization on Kurdistan Region - Essay Example

?IMPACT OF ECONOMIC GLOBALISATION ON KURDISTAN REGION TABLE OF CONTENT Introduction Economic Globalisation: Definition 1.1 Kurdistan in the era of economic globalization 1.2 Current Policies or Economic Development Objectives 2. Providing Enabling Environment versus Active Role in Private Sector 3.1 Economic Participation 4. 1. Rate of Economic Activity and Unemployment 4.2. Current KRG Employment 5. Direct Impacts on Various Sectors 6. Conclusion 7. Bibliography IMPACT OF ECONOMIC GLOBALISATION ON KURDISTAN REGION Introduction Kurdistan has been very responsive to global changes since its early history. The concept of economic globalization also greatly influenced the economic growth of this region. The emergence of economic globalization influenced the region’s government to change its economic policies in way that would encourage investments and cross border trade. The Kurdish economy has undergone significant structural changes over the last few decades, and this reshaping process could be attributed to the emergence of economic globalization. This concept has greatly benefited the region to improve the living standards of its people. Today the living standards of Kurds are far better than that of the people from other parts of Iraq. In addition, the Kurdish government has recognized the importance of private sector in enhancing economic stability and sustainability of the region. This paper will critically evaluate the impacts of economic globalization on Kurdistan. 1. Economic Globalisation: Definition Globalization can be defined as “the intensification of worldwide social relations which link distance localities in such a way that local happenings are shaped by events occurring many miles away and vice versa” (Giddens 2008, p.64). Economic globalization is again defined as a “global market operating across and among a system of national labour markets through international economic competition” (Astiz and Wiseman,et al.). 1.1 Kurdistan in the era of economic globalization Under the former regime, Iraq had a highly centralized government. The principle decision making process was located in Baghdad and limited roles and responsibilities were delegated to the 18 provincial governments. The Kurds were not trusted partners of the regime. There are many examples of actions taken that were not in the best interests either of the Kurds or the region, building less health centres, force evacuation from the villages, no primary highways to name few but many. This has resulted in an under-invested region both economically and socially. The Kurdistan region is unique at the present time in Iraq in having potentially three levels of government, National, Regional and Provincial. Still the roles and responsibilities of these levels of Government are not clear. The Kurdish society always tries to achieve self-dependence and retain the integrity of its borders. This concern is also shared by other national and international interests concern with the future of Iraq. The Kurdistan Regional Government (KRG) receives both cash and in-kind allocations from Baghdad amounting to about 14 percent of projected Iraqi federal revenues (World Bank, 2007). The bulk of Iraq’s federal revenues are based on oil (96 percent in the 2006 budget). However the largest cash allocation to KRG is 17 percent of a divisible pool of funds, representing all federal domestic revenues net of a number of expenditure programs. KRG’s share is based on a national estimate of KRG’s population relative to the rest of Iraq1. 1.2 Current Policies or Economic Development Objectives: “Economic growth, being a summary measure of all of the activities of an entire society, necessarily depends, in some way, on everything that goes on in a society” (Lucas 1998). In order to analyze the impacts of economic globalization on the Kurdish region, it is vital to identify the current economic development objectives of the Kurdish government. KRG economic development objectives to date are probably best summarized in the Prime Minister’s speech of 7th of May 2006. “The regional government shall work to reduce unemployment through development of the private sector. Our economy cannot progress without major development in the private sector”. Evidently, unemployment reduction and private sector development are some of the major goals of economic globalization. Advocates of economic globalization claim that improved unemployment rate is a key element influencing the economic status of a region. Similarly, the concept of economic globalization emphasizes the private sector growth, which is inevitable in promoting the sustainable development of an economy. Globalization has been a constant process in Kurdistan, and it has brought significant changes in the economic sector of the region as a whole. The role of entrepreneurship in the region’s financial prosperity is widely recognized. A kind of structural transformation is ensured in Kurdistan from its low income to a respectable high income (Naude 2008). Country witnessed noticeable changes in diverse areas through the active involvement of entrepreneurship. Private sector is a vital factor for the development, and the contribution of entrepreneur is always encouraged here. It is relevant to understand that “entrepreneurship is not only concerned with business success, as measured by profits, but also with subjective welfare and non-economic wellbeing. Entrepreneurship is a catalyst for structural change and institutional evolution” (Naude 2008). The developmental history of the Republic of Korea can be a model in this respect. To illustrate, by promoting indigenous high-technology innovation, Korea continued to pursue high-value-added manufacturing in the 1990s. As per the World Bank report, “domestic wage hikes and the appreciation of the Korean won had resulted in chronic current account deficits, which sparked a series of reforms, including the reform of the financial market” (The World Bank, 2006). The central focus of the KRG’s economic development strategy is to nurture and sustain an innovative private sector. To foster a healthy private sector, there are two essential ingredients. First, the macroeconomic and business climate should be conducive to establishing and maintaining private sector firms in the region. Second, private sector employers need access to a pool of labour from which they can hire qualified employees. Over the last two decades when the concept of economic globalization has been becoming increasingly recognizable, the Kurdish economy undoubtedly underwent considerable progress in all respects, and the current living standards in contrast with the past and in comparison with other parts of Iraq are higher. In addition, in our proposed platform, we have designed further development plans for all areas of economic growth and service delivery, such as education and higher education, health, agriculture and irrigation, roads, resolving the housing problems for low-income citizens, increasing the income level of the individual and the living standards of the lower class. Like other nations worldwide, the government of Kurdistan gives primary focus to economic development. The government is trying to improve the living quality of people by broadening the choices available to them. Over the last decades, the Kurdish region notably improved economic production and human indicators such as life expectancy and literacy (Jung 2004, 76). One method for developing a robust economy is to understand obstacles that cut across all sectors when it comes to starting or expanding a business. The Kurdish government has identified how the lack of credit availability becomes a potential threat to the private sector growth. Consequently, the government has taken a number of strategic measures to address this issue. The second method is to identify the sectors for which conditions are particularly favourable for private sector growth, and to provide a fertile environment for new businesses to form and for foreign businesses to expand into the region. In order to offer a friendly market environment to domestic as well as foreign marketers, the Kurdish government is planning to liberalize its market laws and regulations. A third method for achieving private sector growth is to privatize some functions that the government currently performs. While some functions are inherently governmental, the private sector can perform others without compromising the ability of the KRG to serve its citizen. Converting some government functions to private sector pursuits is a direct way to create private employment opportunities. Currently, the Kurdish government has privatized some of its key sectors and is considering the privatization of more governmental sectors over the coming years. 2. Providing Enabling Environment versus Active Role in Private Sector: One can define providing an enabling environment for the private sector as the government creating a policy environment in which the private sector can thrive, but not otherwise engineering how the private sector looks. In this approach, the government sticks to its “core competencies” of providing public goods that the private sector does not have an incentive to provide and enacting and enforcing laws and regulations that ensure the orderly conduct of business. Beyond this, the government does not provide special incentives to any particular sector. Through this concept, the Kurdish government is striving to create more private employment opportunities and improve the overall economic status of the region. In the presence of such an environment, this approach relies on the competitive market forces and forces of supply and demand, locally and internationally, to identify the “comparative advantages” (sectors in which the country has the lowest unit cost of production) of the economy and allocate productive resources appropriately. Undoubtedly, it can be stated that the practice of providing enabling environment has been greatly enhanced in the Kurdish Region with the emergence of economic globalization. As opposed to providing only an enabling environment, the government can actively target certain sectors by providing special incentives such as tax holidays (“industrial targeting”), exemptions from import duties, low-cost loans, free land, or price guarantees. The hope is that these incentives will steer the private sector toward these preferred sectors. The Kurdish government greatly relies on this concept to attract more foreign marketers and thereby boost the foreign direct investment in the country. It is clear that the government cannot provide employment to all citizens. Therefore, this private sector promotion approach of Kurdish government would notably assist the region to resolve issues associated with unemployment to a great extent. In this section, a snapshot of the labour force in the KR is showed, including the level of economic participation, employment by private and public sectors, and employment by economic activity or sector. These summary statistics provide a general context for the subsequent discussion on strategies to increase private sector employment and opportunities for privatization. The preliminary statistics presented in this section are calculated using the IHSES-20072. This section gives a clear view of the positive effects of the economic globalization. 3. Economic Participation: Table 4 presents the economic activity rate (the percentage of the population 15 years or older who reports wage or non-wage earnings) for the KR and the rest of Iraq3. The table also presents the unemployment rate (the percentage of the labour force that is unemployed). Compared to the rest of Iraq, the Kurdistan Region has a slightly lower labour-force participation rate; however, the overall unemployment rate is half of that in the rest of Iraq. In other words, while the population of the KR is slightly less likely to join the labour force, once they decide to enter the labour force they are much more likely to find a job and stay employed. 4.1. Rate of Economic Activity and Unemployment Region Rate of Economic activity,% Unemployment rate,% Men Women All Men Women All Kurdistan Region 69.7 12.9 40.3 508 7.2 6.1 Baghdad 74.6 12.2 43.8 11.5 15.0 12.0 Other Governorates 75.7 13.0 43.8 12.9 11.4 12.7 Source: IHSES-2007 (Vol.ll, Table 5-4) Next, an examination of the type of employment in which the KR labour force engages is shown. Figure 3 presents the percentage of labour in wage and non-wage (“self-employed”) jobs. Around 60 percent of the labour force in the Kurdistan Region is engaged in wage earning jobs. Since non-wage jobs are particularly important in the agricultural sector, the IHSES asked non-wage respondents to classify themselves into agriculture and non-agriculture jobs; 16 percent of the labour force is in nonwage agriculture jobs and 23 percent is in non-wage non-agriculture jobs4. Figure 3: Wage and Non-wage Jobs in the Kurdistan Region Source: IHSES-2007 4.1. Current KRG Employment: By examining the number of people currently employed by the various KRG ministries one will get a sense of where the big gains from privatizing government services lie. Table 5 shows preliminary counts – before the final passage of the 2010 budget – of personnel employed in 2010 by each ministry, and the percentage of total employment they represent. Similarly, the KR has a number of characteristics that currently make it a more favourable business environment than the rest of Iraq. Security is immeasurably better than elsewhere in the country and is often one of the most-cited advantages. The Investment Law (Law No. 4 of 2006) is often named as superior to that in the rest of Iraq, particularly because it allows foreign investors to own land5. However, there are other characteristics, such as the tax incentives the KRG provides to all investors6. In addition, infrastructure, such as roads and electricity, is generally considered better in the KR than in Iraq as a whole. Electricity improvements, in particular, are noted, with electricity provision improving dramatically in autumn 20087. Although the KR has these advantages now, it is not guaranteed to always have them. Therefore, progressing along other lines will be necessary if the KRG wishes to maintain a more favourable business environment than that of the rest of Iraq. 4. 3. Direct Impacts on various sectors The emergence of economic globalization has greatly assisted the Kurdish region to transform itself into a hot place for foreign investments. Furthermore, the Kurdish government maintains an investor-friendly market environment to attract more and more investors, particularly potential foreign investors. To illustrate, the government offers public benefits such as provision of public infrastructure, provision of land plots for subsidized lease, and exemption from corporate taxes and customs duties to eligible investment projects. In addition, domestic as well as foreign investors are treated equally and full repatriation of profits is allowed (Investment factsheet). Hence, today companies based on economically developed nations are interested to make some notable investments in Kurdistan, a market place where level of future uncertainty is low. According to the Kurdistan investment factsheet; “from 2006 to mid-2012, the overall investment amounted to USD 22bn by 79% national investment, 15% FDI and 6% joint ventures” (Investment factsheet). Reports indicate that this increase in FDI has benefited the region to create more job opportunities for its citizens and improve its unemployment status. The concept of economic globalisation has significantly boosted the Kurdish agricultural as well as tourism sectors. The region came up with exciting prospects of offering assistance to the people who wish to take up ventures in tourism sector. Private companies and individuals who were capable of bringing positive changes in the nature or geographical structure of the state were encouraged and assisted with loan facilities. Understanding the relevance of the tourism industry in the region, many conferences and programs were organized at different locations so as to design strategic steps in this regard. According to the Kurdistan Region Economic Development Assessment (2008), liberalised trade policies have significantly assisted the Kurdish economy to strengthen its agriculture and tourism industries. Agriculture sector has played a predominant role in boosting the economy of the region. For several years agriculture sector had been undergoing immense pressure as result of the region’s slow growth. The dependency on imported goods gave a reverse punch due to globalization as the region ensured its exporting after a sufficient domestic use. Therefore, with the development, precisely globalization generated a good capacity of self-sufficient and competitive agriculture sector. Social ties and economical development are the two sides of the same coin. To be precise, socialization promotes increased interaction and there by more chances of trade, leisure and sports. Thus, it is clear that the region has shown a specific interest in social ties which in turn resulted in progress and economical development (Anchorena & Anjos 2009). Despite many favourable characteristics, this region is challenged by a number of potential issues. Poor infrastructural development is the potential challenge hindering the economic development of Kurdish Region. The Kurdish Region is landlocked, with no seaports and with only a few land ports of entry. However, this issue can be mitigated somewhat with good air links, well-functioning borders, and good road links to seaports in Turkey or the rest of Iraq. Another potential issue is that comparatively a small size population adversely affects the pace of economic development of the region. To illustrate, the KR is a small market of between 4 million and 5 million people. This too can be overcome through increased openness to the world economy as well as viewing all of Iraq as a potential market. Similarly, the legal environment is still unsettled, with a lack of clarity regarding the application of central Iraqi versus KR laws and procedures, and with some laws that are antiquated or detrimental for business formation. As well, Iraq is not a signatory to the New York Convention on Foreign Arbitral Awards, meaning that international companies do not have recourse to the most accepted forum for international arbitration. This is one of the major reasons preventing the region from taking complete benefits of the economic globalization. A country’s progress is determined by effective handling of finance. In order to sustain economic growth of at least six percent a year, high investment (more than 25 percent of GDP) is needed; the experience of fast-growing economies including China, South Korea, Malaysia, Thailand, and Vietnam proves this fact (Iradian 2007). Similarly, foreign investment that intends benefits like profit maximisation and cost minimisation also play a crucial role. Such foreign direct investment gives foundation to every profit oriented organization and thereby the economic growth of the entire nation. To illustrate, due to foreign direct investment, human capital formation is assisted, international trade integration is strongly supported, competitive business enterprise is created, and eventually development is ensured (OECD 2002). Evidently, globalisation in Kurdistan controlled the proper handling of monetary aspects and expenditure. Second, it appears that, with the right project, foreign investors can find entry into the KR to be fairly smooth. However, the environment for creating new, small, local businesses appears to be difficult across a number of dimensions, including finance, access to land, acquiring permits and licenses, and government assistance in solving such problems. The lack of entrepreneurial talent or incentives could be a barrier for the development of the KR because, despite the benefits of large foreign investments, local capital formation is also extremely important to long-term growth. 5. Conclusion From the above discussion, it is clear that economic globalization has profound positive impacts on Kurdish region. This concept greatly assisted the Kurdish economy to improve its unemployment status, to promote private sector, and to attract foreign direct investment. In addition, it has strengthened the region’s agriculture as well as tourism sectors. Economic globalization enriched the region with assured promises in industrial sector as well. The obstacle for the growth is detected and practical strategies are applied in areas of production and construction. The very emergence of private companies opened a new era of development in the industrial sector throughout the region. Moreover, establishing and maintaining mutual relationship with the private sector (multinational companies) has also brought about positive changes. The development of resources, especially valuable and sparsely available ones played a major role in the growth of the economy. However issues like poor infrastructure development and a small market size limit the country’s exposure to the benefits of economic globalization to certain extent. 6. Bibliography Anchorena, J., and F. Anjos. "Social Ties and Economic Development." Working Paper, University of Texas, 2009. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1123767 Astiz, M. F., Wiseman, A. W. Baker, D. P. “Slouching towards Decentralization: Consequences of Globalization for Curricular Control in National Education Systems”. Comparative Education Review, 46, (1), (February 2002), 66-88. Giddens, A. The Consequences of Modernity. Stanford University Press, 1990. Investment Factsheet Kurdistan Region – Iraq. Jung, Dietrich. Shadow Globalization, Ethnic Conflicts and New Wars: A Political Economy of Intra-state War. London: Psychology Press, 2004. Lucas, R.E, On the Mechanics of Economic Development. Journal of Monetary Economics 22, 3 42. New York, July, 1998. Naude W., “Entrepreneurship in Economic Development,” UNU-WIDER Research Paper No. 2008/20, March 2008. OECD. "Foreign Direct Investment for Development: Maximising Benefits, Minimising Costs." France: OECD Publications Service, 2002. RTI-International. “Kurdistan Region Economic Development Assessment”. USAID, 1-148. 2008. The World Bank, Korea as a Knowledge Economy: Evolutionary Process and Lessons Learned, The World Bank, Washington, D.C., 2006. Read More