Iraq’s Outlaw Militias Hinder Foreign Investment

Iraq’s Outlaw Militias Hinder Foreign Investment
Basmaya, one of the new residential compounds in Baghdad Photo Credit: Iraq’s national Investment Commission
:: PM:07:10:30/05/2019 ‌
The news of ExxonMobil’s evacuation of its foreign staff from Basra caught many people by surprise since the company, with Petro China, just won an investment deal worth $53 billion to develop two oil-fields in southern Iraq. Like any Americans in Iraq, Exxon’s employees are afraid of being targeted by Iranian backed groups in Public Mobilization Forces (P.M.F) if the US-Iran conflict escalates. However, the issue of the outlaw militias in Iraq is not limited to the US-Iran confrontations. It has started to be one of the key factors of preventing foreign investment since long time ago.

Author

Mohammed Hussein
is policy director and political-economy analyst at ICPAR. He holds a master's degree in specialized economic analysis: Economics of Public Policy, from the Barcelona Graduate School of Economics.
Iraq’s foreign direct investment, made mostly in the country’s oil and gas sector, has constantly decreased since 2013. Federal Government of Iraq (F.G.I), from one approach, has been pushing to make it easier for businesses to enter the country. The General Secretariat of the Iraq’s Council of Ministers stated that it proceeded with some directives to improve environment for foreign investment. The decision aimed to ease bureaucratic procedures that hinder investments. However, in the past four years, too many outlaw militias and armed groups emerged all over Iraq, especially in the conflict affected cities and towns that are locally called liberated areas. The armed groups, mostly operate under the umbrella of PMF (Shiite dominated groups financed by FGI), have created a risky environment for foreign and local investment. They charge them on a regular basis and force them to donate, sharing part of their profits in whatever business they do.
The tough business environment is expected to slow down reconstruction process in the war affected areas and badly impact returning more than 1.6 million IDPs. It also hinders any government policy to create jobs and reduce ethno sectarian tensions and ultimately clean up the swamp that has given birth to various extremist armed groups from Al-Qaida in Iraq to the so-called Islamic State of Iraq and Syria (ISIS). The armed groups did not emerge unexpectedly. Many of them are just an extension of the political parties and militias that have long history in robbing Iraq’s public and private sector.
Iraq’s post 2003 successive governments is mostly built on power-sharing deals (locally called Muhasasa) between these political parties. In these governments, public offices were usually used to satisfy political parties’ patronage networks. Therefore, investors had to use red-tape maneuvers to ease heavy bureaucratic procedures while doing their businesses. 
The General Secretariat of the Iraq’s Council of Ministers showed its investment-attraction plan by granting visas to the investors and the foreign labors involved in the projects and easing mechanism of companies' registration. These steps help to ease foreign investors’ lives in Iraq, but they do not address threats and problems that prevent them entering Iraq in the first place. If investors do not dare to come fearing form the armed groups, how can these directions help?

Really Tough Business Environment 

In Iraq, conventional security challenges, macroeconomic instability, low growth, weak infrastructure, poor governance, and un-attractive regulatory environment have been identified as hinders of foreign investment. However, after the ISIS, the country is facing a new, but the most critical challenge, which is outlaw-armed groups.
ISIS war exacerbated the red-tape tradition in the Iraqi state institutions and brought hundreds armed groups, militias, and criminal gangs to the market. In the liberated areas, these armed groups are taxing small and big businesses, from construction block factories to grocery stands on streets, according to a government official in Tuz-Khurmatu (spoke to ICPAR on condition of anonymity, fearing from the militias.)  
Most of the armed groups, in 2014 and later, carried weapon to fight ISIS, which occupied one-third of Iraqi territories. When the war ended, they are supposed to keep order and cooperate with Iraqi security forces. However, some of them shifted to mafias in urban areas and city centers, taxing business people and collecting forced donation, from Basra (in farther south) to Nineveh (in farther north.)
Once the war against ISIS ended, some of the armed groups started to fill up the vacuum that fragile state-institutions created in the liberated areas (Towns and cities taken back from ISIS). They use their weapons and leverages to make money. They operate under the flags and titles of PMF (locally called Hashd Al-Shabi), but they do not represent formal stance of PMF, according to Ja’far Mosawi, one of the commanders of PMF in Nineveh. The militias that take bribes and forced donations are outlaw individuals and represent no formal PMF groups or organization. Even directorate of Hashd Al-Shabi’s security arrested some of the individuals who took bribes and forced donations from people in Nineveh, according to Musawi.
According to a Nineveh provincial council member, too many militia men are involved in these criminal economic activities. He said, “The militias basically divided Mosul’s neighborhoods. Each militia has its own area and they extract great sum of resources. They ask business-owners to pay them. If anyone reject paying, they jail him based on charges related to terror; or they stage an explosion in his workplace.” 
A restaurant owner who has to pay 500,000 IQD ($420)/month to one of the armed groups in Mosul asserted, “No government institution can stop them [militias] in what they are doing.” Another small business owner in Mosul who has a Hoka café confirmed that he is forced to pay one of the armed groups 600,000 IQD (about $ 500) every month. “If I do not pay, they won’t let me work. They might stage a fake terrorist attack in my café and then blaming Da’esh [ISIS] for doing it. It is better to avoid their problem by paying,” the owner of the café commented.  
Some of the armed groups formed what they called “economic offices” in the liberated areas to manage revenues from bribes and forced donations. Even though most of them have religious banners, but in order to have access to funds, they use any methods. Some of them are involved in alcohol trade after it became a lucrative business due to Iraqi parliament’s decision for banning it, according to a Skynews report. 
The criminal economic activities are not limited to the newly liberated areas. It is widespread across Iraq; like a virus infested the complete Iraqi economy. Political parties and branches of these militias are forcing oil companies in Basrah to pay them bribe in return of letting them work in the province’s oil fields.

ISIS’s Nightmare Again

During their rule, ISIS’ militants used to tax people and force them to donate some portions of their income as Zakat, which is a mandatory charitable contribution. Zakat is a religious obligation for all Muslims who meet the necessary criteria of wealth, but the ISIS’ militants used to take as much as they wanted without consideration, according to Abu-Ihsan, Islamic preacher who lives in Kokjeli, eastern outskirt of Mosul. Similar to ISIS, the outlaw militias do not consider any criteria or rules in charging local businesses. 
For many of the local populations, this is a reminder of ISIS, and what changed, after liberating their areas, has been just the actors’ flags used, from ISIS’ flag to PMF’s flags; the forced donations stayed. ISIS militants took it under the title of Zakat, but the current militias take it as Khawa, an Iraqi term for forced donation. 
The current armed groups have their customs-checkpoints and fixed tariffs according some Iraqi media. For instance, they set up customs-checkpoints between Duhok and Mosul, and they charge every truck-drivers about $300. As ISIS militants did not hesitate selling state-owned lands and smuggling crude oil, the armed groups have the same practices. They sell state-properties and crude oil in various ways.
The current armed groups and ISIS have been influenced by Iraqi political atmosphere in which multiple political parties and figures also involved in these criminal economic activities. They also want their share or bribes to allow conducting any service project. Since 2006, Iraqi government has not completed a multi-billion-dollar water desalination project in Basra, where lack of drinking water sparks popular protests every summer. A recently published study shows that one of the four reasons that have prevented the government completing the project is the political parties’ bribery. “Allegedly multiple influential parties demanded upwards of 100 million USD in exchange for their support.”

There Is Always a Heavy Price for Using Militias

In many war torn countries, public-private collaboration in security sector help keeping order, especially when governments face insurgent armed groups. However, right after defeating insurgents, pro-government militias will ask the price of their victory. They would look for private gains, which are too expensive, and governments can’t afford it. 
In the Iraqi context, pro-government armed groups emerged under the umbrella of PMF. It was part of a national bet to save the country from total collapse in mid 2014. They helped to turn the conflict into Iraqi government’s victory, but now it seems there is a huge price the government is expected to pay just to get the armed groups satisfied.  
Sacrifices of thousands of PMF’s volunteers, who gave their lives in fight ISIS, are now used as an excuse for making money by these illegal economic activities. The armed groups are not fully under control of Iraq’s formal security institutions, so they undermine the Iraqi government’s authority and create long term flaws in the country’s economy and security. 
Iraq’s National Investment Commission (NIC) identified the following issues as factors that hinder investment in the country. 
1. Not applying the One Stop Shop (OSS) law as it should be applied and denying the OSS    representatives, which is required for decision making by authorities.
2. Difficulties in allocating lands and being subject to interpretation and wishes of various bodies.
3. Problems with lack of funding and the banking system.
4. Political quotas and interference in the provincial councils.
5. Widespread administrative corruption.
Indeed, these factors contributed to the challenges foreign and local investors are facing today, but as Soceitgenral’s Import-Export has identified, Iraq’s challenges come from its substantial security problems, fragile institutions, and lack of governance. The five NIC’s identified factors contributed to the challenges that are facing Iraq nowadays. Therefore, if there is a political willingness to address the investment-challenges, it has to start by addressing the outlaw armed groups. The focus should start from strengthening state security institutions in a way that does not leave any gap for the militias.

What Investors Need in Iraq?

To address the issues concerning investors, the (FGI) has to work in two directions. In one hand, it has to strength its security forces, governing institutions, and law enforcement capacity up to the level that bring back confidence to the investors. This effort should be made alongside with counter-corruption measures that are designed to limit effects of political parties’ small mafias, and militias that are embedded in federal and provincial governments. 

On the other hand, the Council of Ministers, alongside with the parliament, need to launch a comprehensive institutional and legislation reforms aiming to ease all the bureaucratic hinders that obstruct foreign investors. 
Beside the security concerns, investors’ challenges are known to be lack of fair competition in gaining public tenders, payment delay with government-projects, and lack of adequate mechanism in resolving commercial disputes. Political parties’ networks that are controlling state institutions have created most of these problems. The patronage-networks use the procedures to push investors paying bribes. It is necessary to remove procedures that serve nothing except for political parties’ bribery and mafia networks in state institutions.
If PM Adil Abdul Mahdi is serious in launching his reform plan, he has to start from his COM and then general directorates in governorates. The dysfunctional government institutors are actually the most fertile ground to outlaw armed groups and political parties’ militias. Any realistic reform plan is impossible without cracking down on the outlaw militias from Basra to Mosul.