A notable characteristic of the present Iraqi economy is the disparate images that it presents. On the one hand, unemployment continues to be high at 23 percent according to recent estimates, corruption is rampant, and major human welfare indices remain poor. While violence has declined since 2007, it is still widespread, and Iraqis continue to emigrate or remain abroad in large numbers. This represents a major loss of human capital of all sorts, including the highly skilled and professional labor needed in reconstruction. On the other hand, the economy has been experiencing consistent, if unspectacular, growth since 2008. Foreign businesses, notably oil companies, are anxious to work in Iraq once again.
Understanding the structure of Iraq’s economy helps shed light on this paradoxical picture. Iraq’s oil sector accounts for most of GDP. Any increase in price or exported volume of oil is reflected in elevated nominal GDP, regardless of whether domestic consumption or investment increases-—that is, without reference to whether Iraqis are actually better off. Oil revenues provide funds that can potentially be invested or consumed, but may also accumulate as financial assets. The oil sector itself is highly capital-intensive and employs a minute fraction of the labor force. Receipts from the sale of oil accrue to the government directly. This, in turn, enables the state to use those revenues to finance spending and investment, which can stimulate demand and employment in non-oil sectors.
This has been the hope of many focused on the promise of oil revenue to improve Iraqis’ economic wellbeing. However, global oil price increases rather than increased production in Iraqi oilfields have produced the observed GDP rise. Higher oil revenues, while they provide the opportunity to invest, have not automatically translated into investments in productive assets and in people, particularly given Iraq’s depletion of professional labor and the US and Iraqi inability to provide adequate security. Agriculture and manufacturing, at the same time, have stagnated since the US-directed liberalization of imports following the 2003 invasion. Iraqi agriculture has found it difficult to compete with subsidized cereals produced in the West, while manufacturing has been especially hard hit by the loss of electrical capacity resulting from sanctions and the US invasion.
The future economy of Iraq may be one which is oil-revenue rich but which Iraqis continue to flee and which remains under-developed. As a result, it is difficult to discern substantially improved trajectories in human development: enrollment at the primary and secondary levels of education increased between 2000 and 2008, but under-5 mortality rates declined only slightly and life expectancy actually declined.  Given Iraq’s political economy, contrasting images of businesses clamoring to return and of Iraqis anxious to leave are neither illogical nor necessarily disharmonious.
(Page updated as of August 2012)