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NAJAF EMERGING MARKETS:OPPORTUNITIES AND CHALLENGES

A Market Assessment of Najaf Governorate

IOM Iraq – November 2019

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International Organization for Migration

IOM Disclaimer

The opinions expressed in the report are those of the authors and do not necessarily reflect the views of the International Organization for Migration (IOM). The designations employed and the presentation of material throughout the report do not imply the expression of any opinion whatsoever on the part of IOM concerning the legal status of any country, territory, city or area, or of its authorities, or concerning its frontiers or boundaries.

IOM is committed to the principle that humane and orderly migration benefits migrants and society. As an intergovernmental organization, IOM acts with its partners in the international community to: assist in meeting the operational challenges of migration; advance understanding of migration issues; encourage social and economic development through migration; and uphold the human dignity and well-being of migrants.

Contact: For more information on the Returns and Recovery Unit (RRU) programme and current activities taking place in Najaf, please contact: [email protected]

Main Office in BaghdadUNAMI Compound DIWAN 2 International Zone, Baghdad, Iraq. E-mail: [email protected]

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Table of Contents

IOM Disclaimer 2

SUMMARY 4

Methodology

Geographical Area Selection and Selection of Participants

Limitations

BACKGOUND 7

FINDINGS 7

1) The Extent of Damage Suffered by Small and Medium Enterprises

2) Market Failures That Can Be Addressed Through Matching Grants or Business Developments

2.1) Market Systems and Particular Disruptions

3) Opportunities for Employment Creation

4) Potential for Market Distortion

CONCLUSIONS 13

ANNEX 1: RECOMMENDATIONS FROM THE MARKET ASSESSMENT 14

ANNEX 2: MARKET ASSESSMENT PLAN 15

Market Assessment Plan

ANNEX 3: SURVEYING TOOLS 17

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SUMMARY

Although the fighting against ISIL did not occur in Najaf, the governorate was to some extent affected by the crisis from 2014 to 2017, which slowed down some businesses. Displacement remains high in Najaf, with almost 11 000 IDPs recorded at as of December, 2019.

The Enterprise Development Fund (EDF) rolled out by IOM in many governorates of Iraq prioritizes businesses that can potentially create job opportunities and contribute to community stabilization. The market assessments are conducted to understand the following:

• The extent of damage suffered by small and medium enterprises impacted by the conflict between 2014 and 2017;

• Market failures that can be addressed through matching grants or business development support;

• Businesses that would create additional employment opportunities if supported;

• Potentials for market distortion due to the introduction of cash.

KEY FINDINGS

Which small and medium enterprises suffered due to the conflict?

• Thirty-eight per cent of employers reported that their work was negatively affected by the events from 2014 to 2017 and these belonged to different sectors.

• Overall, most of the sectors considered the biggest employer before the crisis have recovered, based on key informant interviews.

• Fifty-four per cent of businesses belonging to different sectors reported different degrees of profitability.

What market failures can be addressed through matching grants or business development support?

• Almost 70% of employers reported good demand. Most sectors surveyed present good demand.

• In terms of the single greatest challenge employers mentioned: power cuts and limited power supply (37%) and poor services in general: competition due to similar businesses operating in the area (16%); poor ability to market service/products (5.4%); high rents (4.3%); failure to pay or lack of trust (3.2%), and other issues such as taxes, security and traffic congestion.

• When asked specifically about the ‘fixes’ required to strengthen their ability to conduct business, the measures suggested by employers include the provision of electricity and other services in general (such road paving and garbage collection), lower rents and availability of land, fixing prices, and loans/grants/capital in general. The latter was considered among the most important needs employers currently have.

What cash grants could create the need for additional labor?

• On average, 75% of employees are related to their employers in Najaf, which makes recruiting of non-relatives less likely.

• When asked what would they do if supported by a grant between USD 5,000 and 25,000, 11% of employers mentioned hiring new workers (in an open-ended question) – these more or less belonged to all the sectors.

What cash grants could create market distortions?

• Key informants mentioned the sectors that were considered oversaturated, including: agriculture, food, carpentry, general trade in computers, tourism in general, metal (blacksmith, aluminium), telecommunications and internet providers. In terms of support by private investors, key informants mentioned agriculture (including dairy production), general trade, touristic ‘places,’ swimming pools, restaurants and manufacturing (without specifying).

• Linear modeling of the relationship between self-reported good demand showed positive (but not significant) relationships between businesses related to food processing, textiles, carpentry and agriculture in Najaf city.

• The food sector was mentioned as oversaturated but also as having good demand.

• Carpentry was mentioned as saturated but also as having good demand by more than half of the employers.

• General trade was mentioned as supported by private investors, as oversaturated (in computers), and half of employers surveyed experience low demand.

• Manufacturing is supported by private investors and the government; demand is overall high as only a third of manufacturers reported low demand.

• The metal sector appears oversaturated although demand is overall good.

• In terms of services, only services in flooring and a barber mentioned poor demand, whereas two thirds reported high demand.

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INTRODUCTION

The economy of Najaf was to some extent affected by the crisis from 2014 to 2017. Some businesses slowed down, like in other areas of Iraq. In addition, other adverse events currently affect Najaf; sectors closely related to the tourism suffer due to the embargo by the United States of America (USA) on Iran, whereby fewer Iranian pilgrims are able to visit the governorate. Displacement remains high with almost 11 000 IDPs settled in Najaf. 1

As a complement to individual livelihood programming, IOM is implementing a grant mechanism to aid recovery and reconstruction and to support stabilization following the retaking of areas from ISIL. IOM is rolling out the grant mechanism in multiple locations of Iraq. The fund prioritizes businesses that can potentially create job opportunities and contribute to community stabilization. Support to the private sector through grants is an approach that is growing in scope and recognition.

Methodology

To inform programming, IOM has undertaken this market assessment, which aims to determine the demand for goods and services within various sectors, the actual comparable competitiveness of businesses, the variant impact of conflict on different sectors, and the challenges businesses are facing. The latter is based on the common assumption that the injection of cash into a market can contribute to a raise in demand and production. The main objective of the research was to capture:

Which small and medium enterprises have suffered from market failures due to the conflict, that, if addressed through matching grants and business development service, could create the need for additional labor, without market distortion?

A series of research questions were designed, segmenting the market into three different respondent groups:

Key Informants (KI) were identified in coordination with IOM and partner staff, and included representatives from industrial sectors, the Ministry of Labor and Social Affairs (MoLSA) and the Chamber of Commerce. To assist with this process, interviewers were given interview guides that included an introduction letter, an information sheet, a consent form, and a list of questions.

Employer survey respondents were identified through community mapping exercises and referrals. To assist with this process, interviewers were given interview guides that included an introduction letter, an information sheet, a consent form and a survey guide.

Focus Group Discussion (FGD) participants included individuals from the construction and food sectors. To assist with this process, interviewers were given focus group discussion guides that included an introduction letter, an information sheet, a consent form and a focus group discussion guide.

1 IOM, DTM Dataset, 31 August 2019.

Geographical Area Selection and Selection of Participants

Key Informant Interviews (KII) were conducted with participants from different sectors and different governmental departments, including the Department of Education (2), the Directorate of Irrigation (3), the Chamber of Industry, and the Najaf Chamber of Commerce (2). In total, 10 KII were conducted. FGDs were conducted with participants from the automotive (spare parts trade), construction (marble), and food processing sector from Adan and Al-Ouda.

Sampling guidelines provided targets for the number of employers to survey from each industry in Najaf. Surveys with employers were conducted in Al-Kufa (8), Al-Hurreya (35), Najaf (37), Al-Herfeen (11) and other locations (1). Five female employers were surveyed in Najaf (among these 3 are tailors, 1 is a hairdresser, and 1 works in a kindergarten and nursery). In total, 92 employers were surveyed; however, for four employers, the sector could not be determined. Since the answers of these four employers are also useful (with the exception of cross-tabulations), the unidentified sectors are also reported in the sample breakdown of the sectors surveyed:

Sector Number Percentage

AutomotiveMotorbike, programming and maintenance of cars, car tools sale, tuning

9 10%

Carpentry 7 8%

ChemicalProduction of oxygen gas

1 1%

ConstructionConstruction materials, tile factory

4 4%

FoodBakery, sweets, food, ice cream, bread, pickles, sweets

10 11%

General tradeSpices, bird seller, fishing equipment, food supply agent, food store, supermarket, house appliances, pharmacy, grass trading

19 21%

HospitalityRestaurants

2 2%

ManufacturingManufacturing, plastic, wooden pellets for air coolers, PVC, salt plant

9 10%

MetalAluminum, blacksmith

13 13%

ServicesAir conditioning, barber, car wash, engraving plant motives on iron, flooring, hairdresser, plumber, printing

11 12%

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EducationNursery and kindergarten

1 1%

TailorSewing clothes, sewing workshop

3 3%

Unidentified sector/

4 4%

Grand Total 92 100%

All surveying tools are annexed to this report. Occasionally, manual data entry was used at the time of surveys, but all data from KIIs and employer surveys were eventually entered into Online Data Kit tools.

Limitations

Only five female employers were surveyed for the present assessment. These did not report any major issues compared to the male employers except challenges with marketing, which is understandable considering the cultural restrictions that women likely experience. However, drawing any conclusions from such a small sample is indeed problematic.

Figure 1: Map of employers surveyed in Najaf

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BACKGOUND

Najaf is located in the southwestern part Iraq and borders Saudi Arabia. Shia Arabs are the dominant ethnic-religious group in Najaf. The governorate is divided into the following three districts: Al-Najaf, Al-Kufa and Al-Manathera. Except for the area near the Euphrates River in northeastern Najaf, the governorate is sparsely populated. Almost 11 000 people remain displaced in Najaf as of August 2019 and these mostly originate from Ninewa.2

The city of Najaf hosts the shrine of Ali Ibn Abi Talib, making it a holy place for both Shia and Sunni Muslims. The governorate is also the location of the Wadi Al-Salam (valley of peace), an important Shia burial ground, and the city of Najaf is a prominent centre of Shia learning. These holy sites attract many pilgrims and religious tourists to the governorate, making the tourism sector one of the most important components of Najaf’s economy, contributing almost 30% to the governorate’s GDP.3 Many other sectors developed in support of tourism in Najaf. However, despite the heavy spending on the pilgrims, some argue that little return is seen by the Iraqi government as “Iraq does not benefit from income tax to either businesses or citizens and therefore only private entities profit from the massive influx of tourists during the religious festivals. Due to the free market system in Iraq, many of the private entities benefiting are foreign-based.”4 Additionally, due to the USA embargo on Iran, travel has become too expensive for Iranian pilgrims, who constituted the vast majority of pilgrims to Najaf.5

As of 2015, Najaf also hosted a number of industrial activities, including the production of cement and other building materials, mineral and hydrocarbon extraction, and agribusiness. The governorate’s economic development is hindered by poor infrastructure and a lack of private investment.6 The governorate’s farmers mainly produce wheat, rice dates and vegetables.7 As of 2009, much of Najaf’s workforce of over 570 000 still engaged in agriculture, whereas today agriculture is increasingly less important for the economy. A good example of transition can be seen in rice growing, as Najaf was known for its high-quality Anbar variety rice, which accounted for 9% of its economy in 2003. Because of violence, drought, the pinching back of credit and subsidies, and changing conditions of security, this percentage shrunk to 4% at the end of 2008.8

An assessment of the SME sector from 2009 found that companies featured a higher degree of administrative and management

2 IOM, DTM Dataset, 31 August 2019.

3 NCCI, Najaf Governorate Profile, December 2015, https://www.ncciraq.org/images/infobygov/NCCI_Najaf_Governorate_Profile.pdf

4 Ahmed Twaij, Religious tourism is failing Iraq’s economy, 30/10/2016https://thearabweekly.com/religious-tourism-failing-iraqs-economy

5 Judith Neurink, Wie Trumps Iran-Embargo den Irakern schadet, Die Welle, 17 June 2019, https://de.qantara.de/inhalt/wirtschaftskrise-im-irak-wie-trumps-iran-embargo-den-irakern-schadet

6 NCCI, Najaf Governorate Profile

7 Ibid.

8 4points Company and the Louis Berger Group, Inc, Najaf, Market Assessment, USAID, December 2009, http://www.nawroz.edu.krd/old/Business%20Constraints%20and%20Opportunities%20at%20the%20Business%20Enabling%20Environment%20and%20Firm%20Levels%20For%20the%20Province%20of%20Najaf,%20Iraq.pdf

personnel. These tended to be more established and older on average and to be run by entrepreneurs who had been around longer. These employers also employed more staff, both unskilled and especially skilled labor; tended to be registered, and had a far higher value of business assets on average, especially vested in bricks and mortar. They were also more likely to join trade, professional, and chamber organizations for mutual benefit, advice, support and advocacy.9 Nonetheless, major challenges remained for SME as of 2009. These included access to finance, weak managerial capacity, lack of training, low numbers of registration and tendency to operate in the shadow economy, poor infrastructure and corruption.10 Women penetrate SME ownership to about the same degree as the country as a whole the same report found.11 Najaf city was also home to the first woman-managed and staffed bank, one which catered specifically to Iraqi women;12 however, updates on the current status of the bank were not available.

FINDINGS

1) The Extent of Damage Suffered by Small and Medium Enterprises

Employers reported that their work was negatively affected by the events from 2014 to 2017, though only 38% mentioned it. These employers commented on the negative effect of war, as importing iron became more expensive and in general, slowed down the economy across Iraq. The majority (60%) mentioned nothing changed in particular, where some praised the period for good demand of their services or goods.

Sector Number of KIs, who reported the specified sector as being a major employer before the crisis

Many businesses recovering (50%) as mentioned by KIs

Most of the businesses recovering (75%) as mentioned by KIs

Agriculture 4 1 3

Construction 1 / 1

Carpentry 1 / 1

Chemicals 1 / 1

Food 1 / 1

General trade 2 1 1

Manufacturing 1 1 /

Table 1.1: Sectors reported by KIs as major employers before the crisis, as many recovering, and as almost completely recovered (75%)

9 Ibid.

10 Ibid.

11 Ibid.

12 Khaled Farhan, First women-only bank opens in Iraq holy city, Reuters, October 27 2009, https://uk.reuters.com/article/us-iraq-banks-women/first-women-only-bank-opens-in-iraq-holy-city-idUKTRE59Q36920091027

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Employers were asked to describe the current status of their business and these reported them as: not being profitable/losing money (6.5%), stagnant and barely enough to sustain their own needs (35%), profitable/successful but not enough to grow further (41%), and very profitable/successful and expanding (13%). The

About two third of employers (67%) reported various degrees of ‘good demand’ for their products/services (Table 2.1). The remaining third reported various degrees of dissatisfaction with the current demand (Table 4.1). Most of the sectors surveyed report good demand, with the exception of education, although only one employer was surveyed in this sector.

Sector Number of Employers

Percentage Employers Within Good Demand

Percentage Good Demand Within Sector

AutomotiveMotorbike, programming/maintenance of cars, car tools trade, tuning

9 15% 100%

HospitalityRestaurant

2 3% 100%

ChemicalOxygen gas production

1 2% 100%

Construction 4 6% 100%

FoodBakery, sweets, ice cream, pickles, food

9 15% 90%

construction, chemical, automotive and food sectors represent the strongest sectors although many others scored well too. The data needs to be interpreted with caution, as in some cases only one or two employers were surveyed (Table 1.2).

ServicesAir conditioning, car wash, engraving of plant motives on iron, hairdresser, plumber, printing, tailor

9 15% 69%

MetalAluminum, smithery

8 13% 62%

Carpentry 4 6% 57%

ManufacturingPVC, plastic

5 8% 56%

General tradeFishing equipment, food trade, grocery, supermarket, medicine

9 15% 47%

EducationNursery

0 0 0%

Unspecified sector 2 3% /

Total Good Demand

62 100% /

Table 2.1: Sectors considered having various degrees of good demand for services/products as reported by employers

Sector

Chem

ical

Construction

Food

Autom

otive

Carpentry

Metal

Services

Hospitality

Trade

Manufacturing

Profitable/ successful, but not enough to grow further (numbers)

0 4 1 6 3 7 4 9 3

Very profitable/ successful, it is expanding (numbers)

1 6 1 1 1

Percentage currently profitable businesses 1% 13 4.3% 7.6%14 6.5%15 3.2% 7.6% 5.4%16 1% 10%18 3.2%19

Percentage within sector 100% 100% 70% 67% 57% 54% 50% 50% 47% 33%

Table 1.2: Businesses mentioned as being to some extent successful but not to grow any further and those mentioned as being successful and expanding based on the employer survey responses

2) Market Failures That Can Be Addressed Through Matching Grants or Business Developments

13 Oxygen gas production14 Pickles factory, sweets, bread, bakery15 Motorbikes, tuning 16 Air conditioning, barber, car wash, engraving plant motives on iron, printing17 Restaurant and cafe18 Fishing equipment, groceries, house appliances, grass trade, medicines 19 Plastic, PVC

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Respondents were asked to identify the single greatest challenge for operating in the area. These mentioned: power cuts and limited power supply (37%) and poor services in general, competition due to similar businesses operating in the area (16%), poor ability to market service/products (5.4%) where four out of five respondents were women; high rents (4.3%); failures to pay or lack of trust (3.2%), and other issues such as taxes, security and traffic congestion. Twenty-seven percent explicitly mentioned not facing any challenges. A recent qualitative study also established how power cuts have a gendered dimension and impede income and productivity of women’s small-sized businesses, and how these cuts discourage women from pursuing further education and or engaging in income-generating activities.20 Power outages have made it difficult for Iraqi women to complete vocational training, with some Iraqi women admitting to abandoning their home-based income-generating trades because of how significantly the power outages would diminish their earnings.21

Employers were asked about the challenges they experience with suppliers and these included: cheating, issues with quantities, delays in delivery, distance (without specifying), transportation, and some other issues, although the majority reported having no challenge (67%). Quantity and quality were considered good by the vast majority of respondents and only few exceptions were recorded. Challenges with consumers were also explored, and employers mentioned customers bargaining for lower prices, not paying, and similar issues related to indebtedness and liquidity issues (as found in other governorates). A third reported having no challenges.

When asked specifically about the ‘fixes’ required to strengthen their ability to conduct business, the measures suggested by employers include the provision of electricity and other services in general (such as paving of roads, garbage collection, etc.), lower rents and availability of land, loans/grants and capital in general, fixing prices and other less mentioned issues such as traffic regulation and lower taxes in general (Table 2.2). Many did not express any needs for strengthening their business.

Support required Mentioned by number of Employers

Percentage Employers

Electricity (supply, prices, etc.) (but also other services)

20 22%

Availability of capital 8 9%

Land and lower rents 4 4.3%

Price fixing 3 3.2%

Table 2.2 Measures for improving the business environment as mentioned by employers

Employers were asked whether they have received any formal or informal job entrepreneurship training, and the vast majority mentioned not receiving any. When asked about training requirements some mentioned the need for training in their respective trades aside driving (mentioned by four respondents). Forty-eight percent of employers also considered expanding their business and the remaining did not.

2.1) Market Systems and Particular Disruptions

This section provides a closer look at three sectors and the bottlenecks these have experienced, including the automotive sector, construction, and food processing.

Automotive Sector (Spare Parts)

Diagram 1: Market map for the automotive sector based on FGD with participants from the sector

The automotive industry was affected during the crisis due to road closures, imports (without specifying), and a general low demand. When asked on the restrictions for enhancing production, FGD respondents reported the availability of machines, issues with quality control, and adequacy of spaces. Raw materials were often not enough to cover needs. Challenges include extortion, electricity fees, water and high security guards’ fees.

20 Egzi Capolat and Elizabeth Maier, Powering Women in Iraq, August 2019, World Bank Blog, https://blogs.worldbank.org/energy/powering-women-iraq19 Egzi Capolat et al., Powering Women in Iraq

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Construction Sector (Marble)

Diagram 2: Construction market map based on FGD with participants from the sector

Major issues reported by construction workers include a lack of financial support, cheaper imports and less competitive prices of local products. Quantity of materials was reported as not sufficient. No challenges were reported with the government. Respondents benefitted from electricity, water and night guards’ services, although the costs of the latter are considered high.

Food processing

Diagram 3: Food processing market map based on FGD with participants from a tomato paste factory

The major issue affecting the enhancement of production is the lack of financial support. Quantity of materials was also remarked as not being good. The business pays taxes and experiences no challenges with authorities and the effect of the crisis was minimal. Social security and night guards were mentioned as being paid and these were noted to be expensive, similar to the sectors above.

3) Opportunities for Employment Creation

The vast majority of respondents reported at least one employee related to them (Table 3.1). On average, 75% of employees are related to their employers in Najaf Lower percentages of relatives are found in the automotive and general trade. However, the data need to be interpreted with caution as some sectors have a low number of employers surveyed (such as the chemical and education sectors), only 21% of employers reported not hiring relatives, and in the vast majority of cases, these businesses had no employees at all. Despite hiring mostly relatives, at least 25% reported hiring through formal job advertisements (with the remaining hiring through word of mouth). The majority of businesses were older than six years, which points to inter-generational business models, which in turn favor family-oriented practices. Hiring of vulnerable groups might therefore prove difficult.

Sector Average percentage of relatives employed

Chemical 100%

Construction 100%

Hospitality 100%

Education 100%

Metal 97%

Manufacturing 93%

Food 75%

Services 74%

Carpentry 71%

General trade 62%

Automotive 37%

Average relatives all sectors 75%

Table 3.1: Percentage of relatives employed in each sector

When asked what would they do if supported by a grant between USD 5,000 and 25,000, only 11% of employers mentioned hiring new workers (in an open-ended question) – these more or less belonged to all the sectors. Among these, a female employer also mentioned the willingness to recruit more workers.

Overall, recruitment does not appear difficult. Only 16% of employers reported some difficulties in finding qualified employees and complained that potential employees demand high salaries when skilled and about issues with attitudes and trustworthiness. The remaining thought recruitment was easy. Key informants also commented on whether employers follow labor laws and MoLSA enforces these laws; there seem to be consensus many companies do not register to avoid paying taxes. As one informant mentioned,

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“Most business owners evade the registration of their workers in the Social Security Department for fear of taxes.”13

The sectors that are currently underdeveloped but have potential for growth as reported by KIs are outlined in Table 3.2. Agriculture is on top, followed by other examples such as advertising. One also mentioned abayas for women, which could represent an opportunity for female business owners.

13 Najaf, KII with Chamber of Commerce

4) Potential for Market Distortion

Key informants mentioned the sectors that were considered oversaturated: agriculture, food, carpentry, general trade in computers, tourism in general, metal (blacksmith, aluminum), telecommunications and internet providers. In terms of support received by private investors, informants mentioned agriculture, including dairy production, general trade, touristic ‘places,’ swimming pools, restaurants and manufacturing (without specifying).

The food sector was mentioned as oversaturated but also as having low demand, although only in relation to ice cream production. Carpentry was mentioned as saturated but also having low demand (almost half of the carpenters mentioned it). Construction was not mentioned by anyone and experiences fairly limited low demand. General trade was mentioned as supported by private investors and as oversaturated (in computers), and half employers surveyed experience low demand. Manufacturing is supported by private investors and the government; demand is overall high as only a third of manufacturers reported low demand. The metal sector appears oversaturated, although demand is overall good. In terms of services, only the barber and flooring providers mentioned poor demand; two thirds of services reported high demand (Table 4.1).

SectorsMentioned by KIs as Being: Employers Reporting:

Encouraged by the government

Supported by private investors

Oversaturated

Low demand (percentage of total/percentage within sector)

Agriculture 5 (in general; irriga-tion; 6 (in general, dairy factories) 2 (in general) NA NA

Automotive Not mentioned Not mentioned Not mentioned Not mentioned

Food 1 Not mentioned 1 1%14% Ice cream

Carpentry 1 Not mentioned 1 3.2%43%

In general

Chemical Not mentioned Not mentioned Not mentioned Not mentioned

Construction Not mentioned Not mentioned Not mentioned 1%25% In general

General trade 1 1 1 (computers) 11%53%

Supermarket, birds, fishing equipment, spices, groceries, house appliances

Hospitality 1(tourism)1 (touristic places, swimming pools, restaurants)

1 (tourism in general) Not mentioned

Manufacturing 3 (paper, in general) 1 Not mentioned 3.2%33%Pellets, plastic, in general

Metal 1 (blacksmith, alumi-num) Not mentioned1 (blacksmith, alumi-num)

5.4%38% Aluminum, smith

Services 1 (abaya making, printing advertising) Not mentioned2 (telecommunications, internet)

4.3%31% Barber, flooring

Table 4.1: Sectors considered as encouraged by the government, supported by private investors, sectors considered oversaturated based on KIIs in Najaf and low demand as reported by employers

Sectors Number of KIs, who Mentioned the Sector

Agriculture 3

Services (printing, advertising, abayas for women)

1

Manufacturing 1

Technologies (app development) 1

Table 3.2: Sectors with potential for expansion in Ramadi based on KIIs

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Linear modeling of the relationship between self-reported good demand showed positive (but not significant) relationships between businesses related to food processing, textiles, carpentry and agriculture in Najaf. Linear models used an interaction term to control for being in a specific sector and location.

Factors Good Demand

Age of owner 2.193

(.377)

Number of employees -.005

(.017)

Salary of employees .056

(.058)

Age of business .045*

(.027)

Gender of owner .146*

(.085)

Considered expanding previously .151***

(.033)

Najaf *Food processing .216

(.226)

Najaf *Prepared food -.243

(.363)

Najaf *Textile .197

(.506)

Najaf *Carpentry .252

(.246)

Najaf *General trade -.050

(.206)

Najaf *Metal -.200

(.191)

Najaf *Services -.484*

(.262)

Najaf *Construction -.313

(.308)

Najaf *Agriculture .011

(.497)

Najaf *Manufacturing -.308

(.342)

Najaf *Plastic -.228

(.545)

Adj. R Sq .110

N 1213

F Test 2.627

Table 4.2: Good demand as a function of sector and other factors by location

Notes: Robust standard errors reported in parentheses. Levels of statistical significance indicated by asterisks: * 90 percent, ** 95 percent, *** 99 percent Controls added for location, the perceived number of similar businesses, the use of word of mouth as a recruitment mechanism, and interaction terms between sectors and other governorates

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CONCLUSIONS

In conclusion, about a third of employers reported that their work was negatively affected by the events from 2014 to 2017 and these employers, overall, belonged to all the sectors surveyed. In general, most of the sectors considered as the largest employers before the crisis have recovered, based on key informant interviews. Fifty-four percent of businesses surveyed reported different degrees of profitability in different sectors.

Demand is overall good and seems to be present in most of the sectors, which points to the fact that a variety of sectors could be considered suitable for grant matching. Linear modeling of the relationship between self-reported good demand showed positive (but not significant) relationships between food processing, textiles, carpentry and agriculture related businesses in Najaf. In terms of the single greatest challenge experienced by employers, power cuts and limited power supply and poor services in general seemed to be the common themes. Competition due to similar businesses operating in the area, poor ability to market services/products, high rents, failures to pay or lack of trust and other issues such as taxes, security and traffic congestion were also highlighted. Fixing businesses through provision of better electricity, capital and lower rents were therefore seen as best solutions.

On average, a high number of employees are related to their employers in Najaf; these recruit through words of mouth, which makes recruiting of non-relatives less likely. Key informants mentioned that the sectors considered oversaturated include agriculture, food, carpentry, general trade in computers, tourism in general, metal (blacksmith, aluminium), telecommunications and internet providers. Among those who reported low demand, support by private investors are likely to contribute to market distortion if funded, although when combined with other indicators such as sectors with potential for expansion and major employers before the crisis, other than few exceptions, no sector seems to be particularly prone to create market distortion if funded.

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ANNEX 1: RECOMMENDATIONS FROM THE MARKET ASSESSMENT

1. The automotive sector experiences good demand according to employers although not much information was retrieved from other sources. The sector is therefore suitable for funding.

2. Agriculture is reported as encouraged, supported by private investment and oversaturated. Nonetheless, considering the agrarian nature of the governorate, in addition to a positive relationship established between good demand and the sector, it remains an important sector for grant matching. However, it seems that dairy production, specifically, is supported by private investors already and should be therefore considered with caution.

3. Carpentry was a major employer in the past and recovered after the crisis. Overall demand is fairly good along a positive (but not significant) relationship established by the regression model, which makes it a suitable sector for funding.

4. Food is not supported by private investment and one informant reported oversaturation. Demand is overall good - with a positive (but no significant) relationship with the sector established through the regression model. The sector was also a major employer before the crisis and therefore represents a suitable one for funding.

5. General trade experiences medium demand, is supported by the government and private investors, and is oversaturated, especially trading with electronics and computers. The sector is therefore less suitable for funding.

6. Construction was a major employer before the crisis and recovered. Demand is good, which makes it suitable for funding.

7. Hospitality receives significant attention and appears saturated, considering the importance of tourism in the governorate. Funding such sector is therefore not recommended.

8. Manufacturing is supported by the government and to some extent receives private investment. Demand is good except for pellets and plastic, reported by two employers surveyed. However, others working in PVC and plastic reported good demand. It is therefore a suitable sector for funding.

9. Services experience good demand. Employers in air conditioning services, car wash, iron engravers, a hairdresser, a plumber, one involved in printing, and a tailor mentioned having good demand. Textile, as it often falls under services, showed a positive (but not significant) relationship with good demand, according to regression analysis. The latter might be an important opportunity for women due to needs in women’s abayas – this area seems to have potential of expansion according to key informant interviews.

10. Considering the electricity issues, business plans should allow for higher than average budgets for electricity and/or investments in generators.

11. Considering the high rents request lease information and confirm amounts owed, if any, for rent by businesses to their locations.

12. Considering the damaging impact of cheaper imported goods, consider conducting joint advocacy with other organizations in terms of price control regulations.

13. When (and if ) supporting female businesses, consider also supporting approaches to improve marketing, which seems to be an issue among the small number of surveyed employers, although this is understandable in light of the cultural restrictions women experience, especially in conservative areas such as Najaf.

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ANNEX 2: MARKET ASSESSMENT PLAN

Market Assessment Plan

IOM aims to restore essential economic infrastructure and contribute to job creation in primary and secondary economic sectors that were successful prior to the conflict but suffered loss and damage and need assistance to resume activities. The IOM Business Development Fund will aim to encourage the return and reintegration of Iraqis through, directly, matching grants and business development support to businesses, and indirectly, sustainable job creation.

To provide support to SMEs, it is necessary to understand underlying factors that limit the growth potential and competitiveness of SMEs, and as a result their ability to stimulate job creation and other positive social and economic returns. This understanding involves assessing the current market situation by identifying the constraints, obstacles, or bottlenecks that inhibit growth, and by analysing the outlook and potential of the market (challenges and opportunities). This information will then allow IOM to develop targeted interventions. The general themes are: competitors (local/international), market place (demand, supply, quality information), context (security, cultural, corruption), labor supply (skills), infrastructure (IT, physical), regulatory (laws), financial (taxes, interest rates, access to credit, access to markets).

The question therefore best answered by a market assessment would be:

• Which small and medium enterprises have suffered from market failures due to the conflict, that, if addressed through matching grants and business development service, could create the need for additional labor, without market distortion?

• This is a multipart question that can be broken into several sub-questions:

• Which small and medium enterprises suffered due to the conflict?

• What market failures can be addressed through matching grants or business development support? What cash grants could create the need for additional labor?

• What could cause market distortion?

The sub-questions, in turn, can be addressed through a combination of surveying tools:

Research Sub- question Information Needed Source of data

Which small and medium enterprises suffered due to the conflict?

Direct consequences of conflict for SME owners and workers

How have political events affected your business? Describe the current status of your business (FGD, Q4)Did you manage your business differently during 2014–2017, and how did it affect your revenue? (ES, Q3)How would you describe your business performance from before ISIL, during ISIL, and since the end of ISIL’s occupation? (ES, Q4)How will recovery continue to impact your business over the next 12-months? (ES, Q5)Do businesses selling your product or providing your services in this area generally make a small or sizeable profit? (ES, Q8)Prior to the crisis, what sectors were the biggest employers in the city? What happened to these sectors? (KII, Q4)

What cash grants could create the need for additional labor?

Evidence of scalability, networking beyond internal networks

How many of your employees are related to you? (ES, Q13)How many of your employees are considered skilled/unskilled? How hard or easy is it to find qualified workers? Why? (ES, Q11)In your experience, are labor laws strictly followed by employers and enforced by MoLSA? Could most businesses show proof of registration, company social security numbers, and personal income taxes for employers? (FGD, Q5)What sectors are currently underdeveloped and/or have significant potential for growth? (KII, Q7)

What could cause market distortion?

Which SME’s would not have been competitive anyway

Are there a lot of businesses like yours? (ES, Q8)What sectors are oversaturated / face too much competition? (KII, Q2)

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Which areas are other private sector funders targeting, including public actors such as government programs, that could crowd out investment

Into what sectors is private investment flowing (either from local or international investors)? Are these sectors affected by external factors, for e.g. seasonality? (KII, Q5)What have been the biggest changes in the business environment have you observed over the past six months? (KII, Q10)What are the priority sectors where the government is encouraging development? (KII, Q8)What major economic development initiatives are important for business? (KII, Q12)

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ANNEX 3: SURVEYING TOOLS

Focus Group Questionnaire for Small Business Owners

The Market Chain

1. (If applicable) Where do you get your raw product from?2. Why did you choose the suppliers you use? (i.e. punctuality, price, honesty)3. (If applicable) How can raw materials affect your final product quality?4. (If applicable) What is your main restriction on enhancing production?5. (If applicable) Are your raw materials sufficient in quantity? Have you ever had a shortage of raw materials and why?6. Do you certify your suppliers for quality?7. Have your suppliers changed in the last 5 years and how? Is it easy to change your supplier?8. Where do your suppliers get their raw product from? Where is it from originally?9. Who do you sell your product or service to? What challenges do you face dealing with clients?10. Are you able to respond to and accommodate demand variations, such as seasonality?11. Do you consumers sell your product onwards? How? The Market Environment12. What challenges, if any, do you face from regulatory bodies or agencies?13. Do you pay taxes?14. Have you experienced extortion or corruption in the last 5 years? From who?15. How did the political crisis affect your business?16. Have you benefited from any public services in the last 5 years?17. Are you a member of any association? Infrastructure Services18. Do you have to use credit in your business? Do you have any issues with this?19. What percentage of your budget goes to transportation?20. What other services do you pay for to run your business? What challenges do you have with these?21. How did these services change in the last 5 years?22. How are the cost of these services?23. Can your firm/company usually meet delivery due dates on time, and if not why no

Key Informant Interview Questions

1. Respondent:2. Occupation:3. Organization:4. Prior to the crisis, what trading and industrial sectors were the biggest employers in the city?5. What happened to these sectors (that have been listed)?6. What sectors currently employ the most people in the city?7. What sectors are oversaturated or face too much competition8. What sectors are currently underdeveloped and/or have significant potential for growth?9. What are the priority sectors that the government is encouraging development i10. Into what sectors is private investment flowing (either from local or international investors)? Are these sectors affected by external

factors, for instance seasonality?11. What about United Nations or International Programmes that you are aware of?12. What have been the biggest changes in the business environment have you observed over the past six months?13. In your experience, are labor laws strictly followed by employers and enforced by MoLSA? Could most businesses in this city show

proof of registration, company social security numbers, and personal income taxes for employers? If not, what percentage do you think could?

14. Was there anything else you would like to tell us?

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Employer QuestionnaireRespondentPhone number: Gender: Age:Type of business:Number of Employees:Length of time business has been operational:1. How did you acquire the skills to start your business?

□ Decided to try an idea as an entrepreneur□ Learned from a family member□ Attended vocational training□ Apprenticeship□ Formal certification or course□ Other (specify)

2. Are there a lot of businesses like yours?3. Has this changed in the last 6 months?

□The number of similar businesses increased□ The number of similar businesses stayed the same□ The number of similar businesses decreased□ Not applicable□ I don’t know

4. Did you manage your business differently during 2014–2017, and how did it affect your revenue?5. How would you describe your business status now? Single Answer

□ Not profitable, I’m losing money. (business contraction)□ Stagnant, barely enough to sustain my own needs□ Profitable/ successful, but not enough to grow further□ Very profitable/ successful, it is expanding□ Other: (specify: ------------------------------------------------------------------------)

6. How do you expect your business to recover or expand over the next 12-months?7. Where do you get your product or raw materials from? Is it sufficient in quantity and quality? What challenges do you face dealing with suppliers?8. Who do you sell to? How is the demand for your product these days? What challenges do you face dealing with clients?9. What products or services are in demand by consumers but difficult to find in the local market?10. For those you have listed, why are they difficult to find?11. What are the main recruitment mechanisms in your city? Word of mouth, formal job advertisements?12. Do you sign a written contract with your full-time employees?13. What is the average monthly salary that you pay full time workers in Iraqi dinars?14. How many of your employees are related to you?15. How many of your employees are considered skilled/unskilled? How hard or easy is it to find qualified workers? Why?16. What is the single greatest operating challenge that you face, and what are the other challenges? For the challenges you have identified, please indicate what kind of changes would improve your ability to do business.17. What kind of government policies or programmes, or infrastructural improvements, could strengthen your business?18. What sort of training or skills do you need to run this business? Have you received any sort of formal or informal job or entrepreneurship training?19. Have you ever considered expanding your business (e.g. opening another location, adding additional products, hiring more employees, etc.)? If you have already, what key factors helped you to do so (e.g. bank, VSLA, or personal loan; government investment fund; family to staff 2nd location, etc.). If you have considered this but found it difficult, what were your primary barriers to expansion?20. If you were to receive unrestricted funding of US $ 5,000 to US $ 25,000 for business expansion purposes, what would you likely spend this on?

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IOM-IRAQ MISSIONNAJAF EMERGING MARKETS:OPPORTUNITIES AND CHALLENGES

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