The Role Of Multinational Corporations In The Development Of Iraq After Iraq Invasion In 2003

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Throughout the past few decades, Iraq has seen their country devastated as they have been in the spotlight for wars and conflicts that have been occurring. Multinational corporations entered Iraq Post-Iraq invasion in 2003 at large rates as the country was opened for foreign influences to enter their country. A Multinational Corporation (MNC) is defined as corporations that have “facilities and other assets in at least one country other than its home country”. These corporations can have a very important role as they can provide direct investment to fuel the growth of the countries that they enter. The Iraqi government can also partner with multinational corporations to achieve development in the country. Furthermore, we can see how Iraq has globalized as a result of the multinational corporations influence in Iraq. It is important to see whether these multinationals corporations entrance into Iraq Post-Iraq invasion have contributed towards the development of Iraq. This paper will be focusing on looking at the development in Iraq through Amartya Sen’s capability approach and the neoliberalism theory. The central question to my paper is whether multinational corporations have contributed to the development of Iraq Post-2003 Iraq invasion.

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Chapter 11 of the textbook discusses how foreign direct investment affects developing countries. Foreign direct investment is defined as “an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy”. It is often most commonly associated with investors investing in the physical assets of another country. A substantial amount of the foreign direct investment goes towards Iraq’s oil & gas industry. From 2003 to 2012, Iraq had a positive foreign direct investment (World Bank, Page 1). From 2013 to 2018, the foreign direct investment in Iraq has been negative with 2018 being at -4.885 billion. Negative foreign direct investment means that outflows of investment in a country exceed the inflows.

There are multiple reasons why multinational corporations have been decreasing their investments in Iraq. The largest problem can be contributed to security problems. Attacks on institutions and civilians occur on a regular basis and are most often perpetrated by terrorist organizations in the region. According to the Corruption Perceptions Index (CPI) by Transparency International, Iraq is ranked the 168th out of 180 countries that are included in the survey (Transparency International, Page 1). This means that Iraq is considered more corrupt than 167 other countries. Reasons of corruption include a weak judicial system, embezzlement of funds, bribery in the government, lack of transparency in government, and no strong effective method in handling anti-corruption efforts. Furthermore, there is a lack of transparency in the country. Government contracting has a high level of illegal activity and the government has problems when they want to tender projects. This includes things such as project approvals, implementation, financing, payment, awards, and due diligence. There is also poor protection and enforcement of intellectual property rights. Arbitration law is very undeveloped as well which is used to settle commercial disputes is underdeveloped. Adding up all these variables gives a strong case as to why multinational corporations are skeptical of investing in Iraq.

Decades before the invasion in Iraq in 2003, the oil industry was in the hands of the state-owned Iraq National Oil Company. In 1972, the state-owned company was nationalized by allowing Total S.A., a French oil giant, to develop an oil field in Iraq. By 2003, the Iraqi oil industry was in desperate need of essential reparations to continue being efficient. A mix of sanctions and war disallowed Iraq’s oil industry to advance as the industry did in other areas of the world. Prior to 2003, all the profits from the oil industry went directly to the government instead of multinational corporations. This was largely due to authoritarian leaders such as Saddam Hussein maintaining their grip on the oil industry.

Chapter 7 of the textbook discusses how states partner with multinational corporations. Iraq has developed relationships with multinational corporations after the Iraq invasion. Some people argue that one of the primary reasons of the United States invading Iraq was to unlock Iraq’s oil industry to many foreign investors. One would be naive to think that this is not at least a partial reason for the invasion of Iraq after the 9/11 terrorist attack on the United States. The scope of the agreement would be that the United States would plan, finance, and implement a large expansion of the country’s oil production capacity. After the initial investment was repaid, the Iraqi government would award them a rate of no more than two dollars for every additional barrel of oil produced from the fields worked on.

While oil prices were above $70 a barrel at this time, that meant that once the initial costs were repaid, the Iraqi government would be expected to take in more than $60 per barrel. Such low-return investment opportunities resulted in a smaller than expected amount of oil & gas multinational corporations to be involved in bidding processes throughout the country. Government owned multinational corporations had the advantage as they were more interested in securing oil for their home country instead of making large profits. As a result, state owned multinational corporations from Russia, Japan, Norway, Turkey, South Korea, Angola, and China were the dominant players in Iraq’s oil industry. Shell and Exxon, both American companies, participated in the winning bids as well.

There is potential to increase Iraq’s oil production up to 8 million barrels of oil per day which would increase the governments revenues. The oil industry continues to be functioning in a complex framework with a variety of interpretations. Production of oil has increased as multinational corporations have entered their way into Iraq. However, few Iraqis are employed by these multinational corporations. The multinational corporations use their own foreign workers in the fields and security companies to be able to maintain their production.

Chapter 12 of the textbook discusses how globalization affects developing countries. As information regarding foreign direct investment in Iraq as well as the Iraqi government partnering with multinational corporations has been discussed above, it is now important to look at the Globalization of Iraq’s economy as a result. Globalization is defined as “the spread of products, technology, information, and jobs across national borders and cultures. In economic terms, it describes an interdependence of nations around the globe fostered through free trade”. Since the majority of Iraq’s country and government is dependent upon oil, we will be focusing on the oil industry.

In 2003, Iraq was exporting roughly 450,000 barrels of oil per day. This number has increased sharply all the way to 3.8 million barrels of oil per day in 2018. This represents an astonishing 744% increase in oil exports over the past 15 years. Iraq is the fifth largest producer of oil producing roughly 4.6 million barrels of oil a day. They were originally producing roughly 1.4 million barrels of oil a day in 2003, representing a 229% increase the past 15 years. The country also has 149 billion barrels of proven untouched barrels of oil. If you divide the country’s proven reserves of 149 billion barrels by 3.8 million barrels, their oil supply would last them an astonishing 107 years. From this data, we can see that there is a correlation between multinational corporations influence in Iraq and the country’s increased globalization.

The tech sector is defined as “the area of the economy comprised of companies that harness technology to create a competitive advantage” (Iraq Mission, Page 4). Physical damage in Iraq’s telecommunications infrastructure post-2003 has created a growth in the cell phone space. It is currently estimated that 95% of families in Iraq own cell phones. The number of tech businesses is increasing In Iraq, which has helped create trust among the people and tech companies. Increased access to social media has allowed people to use online shopping. Companies in Iraq have been starting to seek IT services, which shows the demand for tech services has increased. The government has still been prioritizing big tech companies in comparison to small tech businesses and startup companies. These examples show that the technology sector has been growing recently and can be contributed to the globalization of Iraq.

Unemployment is defined as “the share of the labor force that is without work but available for and seeking employment”. A high employment rate means that a country may have a bad economy as there are many people looking for jobs, but are not able to obtain one. A low unemployment rate may constitute that a country has a strong economy as it is considered easy for people who are seeking jobs to obtain one. The number will never be below 4% as there are always people who are moving between different jobs and between different cities. Iraq had a unemployment rate of 9.68% in 2003. This number hit its peak in 2004 at 9.72%, but then has been declining and is at 7.93% in 2018 (TheGlobalEconomy, Page 1). It kept on declining up until 2012, which was when foreign direct investment turned negative. It has remained fairly constant from being at 7.97% in 2012 and being at 7.93% in 2018. From this information, we can conclude that there seems to be a correlation between foreign direct investment and the unemployment rate. The unemployment rate may not be the most accurate indicator of economic health because it does not include those who are not in the labor force looking for jobs.

The Labor Force Participation rate is defined as “the proportion of the population ages 15 and older that is economically active”. A higher number is a positive signal as it means that there are more people in the labor force who are ready to work. A lower number is a negative signal as it means there are lesser amounts of people who are looking for employment. This may be considered a more accurate measure of a country’s economic productivity as it includes the actual population of a country. The labor force participation rate was 42.35% in 2003 and it has remained fairly constant at 42.55% in 2018 (TheGlobalEconomy, Page 1). There seems to be no correlation between foreign direct investment and the labor force participation rate. From this data we can see that there as hardly been a change in the amount of people in Iraq’s population that are ready to enter the work force.

Gross Domestic Product (GDP) is defined as “the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period”. It is a good measure to use to measure the growth of a country’s economic within a given period. GDP Per Capita is a more accurate measure and is calculated by dividing a country’s GDP by its population. Iraq had a GDP per capita of 2523 in 2003 and it increased to 5510 in 2018. This represents over a 100% increase over the 15 years of time passed. The number was 5322 in 2012, which was when FDI turned negative. This explains why the number as increased very little ever since 2012. From this data, we can see that globalization has had an impact of the GDP growth in Iraq.

Vidya Diwakar examines the role of conflict and how it influences education accumulation and enrollment rates in schools in Iraq. The study focused on individuals aged from 6 to 25 years old. Conflict is measured as the number of deaths as a percentage of the population and number of conflict incidents. Conflict causes the destruction of schools and displacement and deaths of students and teachers. Civilian deaths increased from 2003 to 2006, reaching 28,047. Government budget cuts, a reduction in the number of schools and teachers, shortage of books and electricity, and a reduction in the hours of schooling for students have all impacted the education. All these factors are declining from this time period while at the same time foreign direct investment and government revenues from oil were increasing during the period. These factors during this time period show that the comprehensive approach towards development is not being met.

Scott Harding examines the man-made disaster in Iraq and how it has affected their economic and social development. Human-made disasters are defined as “conditions that result from a range of policies and deliberate state actions. Negative impacts on the infrastructure and economy of a country and help facilitate the degradation of the community. Post-Iraq invasion has seen higher child deaths, a broken health-care system, untenable economic reconstruction, and high levels of violence and political instability. Harding states that these problems started before 2003, but were sharpened post-2003 from imperialism. It is clear from this evidence that the comprehensive approach towards development has not been met during the time period post-2003 Iraq invasion.

Daniel Egan examines globalization and neoliberalism after the invasion of Iraq. He starts off by stating that many believe that globalization occurs when state officials, capitalists, and intellectuals decide that it is the right time for a country to become globalized. He argues that globalization is forced on countries as can be seen by the invasion of Iraq. Iraq was seen as an important country because of their vast oil reserves. The United States saw entering Iraq as extremely important to securing their national interests. Having a strong foundation in Iraq meant that they would be able control distribution, conditions, and pricing of oil in the region. This would give them a superior advantage against countries like China and Russia. Globalization of Iraq is discussed later in this paper when I speak about the amount of barrels of oil being exported per day from Iraq. As I have discussed earlier in the paper, we see the increased amount of countries and their corporations in Iraq after the 2003 invasion. It was also mentioned how they worked with the Iraqi government in producing oil.

Amartya Sen’s capability approach is defined as “first, the claim that the freedom to achieve well-being is of primary moral important, and second, that freedom to achieve well-being is to be understood in terms of people’s capabilities, that is, their real opportunities to do and be what they have reason to value”. There is a variety of data that can be used to analyze this definition of development in Iraq. The World Bank has a Human Capital Index (HCI) that measures the potential of human capital a child can obtain and expect by the age of 18. Iraq current has HCI of 0.4. Since multinational FDI was positive between 2003 to 2012 and has been negative ever since, we can compare these statistics to other variables.

At the beginning of 2003, the life expectancy at birth in Iraq is at 68.64 and it decreases to 68.13 in 2007. It then increases all the way to 70.29 average age in 2017 (World Bank, Page 1). Comparing this to multinational foreign direct investment, the average life expectancy at birth starts to slowly increased when foreign direct investment starts decreasing. According to UNESCO, the literacy rate among people aged 15 years or older was at roughly 70% in 2003. It kept on decreasing all the way to 44% in 2013 and then increased to 50% in 2018. Overall, the number has decreased ever since 2003. Comparing this to foreign direct investment, there is a negative relationship between the two.

Overall, multinational corporation’s investments in Iraq have not met and improved Sen’s definition of capability approach. There were reductions in the number of schools and teachers, the healthcare system became more broken, government budget cuts. None of this helps improve the actual people that live in Iraq and allow them to have opportunity and achieve what they want in life. The overwhelming majority of the multinational corporations involvement was related to the oil industry. These corporations brought their own workers to the areas meaning that they did not hire Iraqi citizens. The Iraqi government did see their revenues increase as a result, but it was not translated towards going to the people of the country. This is contrary to my central question.

One could also make the argument of why would multinational corporations want to focus on a more comprehensive approach towards development for Iraq instead of focusing just on oil. As I stated earlier, the main reason multinational corporations go into Iraq is for the oil for their home countries and sometimes to make a profit as well. Many of these multinational corporations may feel that there is no moral obligation for them to help the citizens of a foreign country. This is contrary to the United States view that they have a moral obligation to help other countries and citizens. Multinational corporations may also feel that it is the United States and the World Bank’s role to help the citizens of foreign countries, not theirs.

10 Jun 2021

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