February 12, 2021

E-Commerce Can Create Opportunities for Young People, Women, and Entrepreneurs in Iraq, Says UN Report

Even before the coronavirus pandemic, e-commerce was disrupting the brick-and-mortar retail industry. Not only did digital retail explode in industrialized markets, but developing countries are seeing signs of the industry's growth. The potential for a thriving e-commerce industry in developing countries has long existed provided that the necessary mechanisms (i.e., smartphones, mobile broadband, physical infrastructure and trade logistics) are in place. For example, while performing due diligence on Iraqi businesses that applied for business development funds provided by the United States government in the late 2000s, I had the opportunity to see role e-commerce can play in the development of the country's private sector. I witnessed how a thriving private sector powered by micro, small and medium-sized enterprises (MSMEs) is necessary for stabilization and sustainable development. Therefore, it was with great interest that I read a report by the United Nations Conference on Trade and Development (UNCTAD) assessing Iraq's e-commerce and digital trade readiness.

Highlights from the report include:

The e-commerce ecosystem in Iraq, while emerging, is still facing major challenges.
  • The country lacks a unified vision on e-commerce and the coordination required among stakeholders to accelerate the Iraqi digital development agenda.
  • Years of conflict in Iraq have caused major damage to physical infrastructure. Rebuilding ICT infrastructure and improving trade logistics – especially in terms of customs' clearance processes – are key to building the foundations for e-commerce and the digital economy in Iraq.
  • The customs' operational model in Iraq also needs an update, as time and costs to export and import goods in Iraq are among the highest globally. Some improvements have been made, by introducing new regulations on electronic processing of moving goods, but further reforms are needed.
  • Other challenges are the limited role of Iraqi Post in the digital economy and the low integration of postal services with other e-commerce stakeholders, for both national and cross-border transactions.

Despite these challenges, there are important opportunities for Iraq to tap into the potential of e-commerce for development:
  • The assessment shows that e-commerce would help stimulate domestic demand, boost trade and diversify Iraq's largely oil-based economy. Increased productivity and competition would push local industries to create new jobs, especially for the youth, who represent nearly 60% of the population.
  • With the improved security environment, Iraq has a chance today to leverage digital technologies for economic diversification and for supporting more sustainable and inclusive development.
  • The assessment can help the Government of Iraq mobilize the resources needed for the implementation of the key policy actions, thus moving the country towards its digital economic and social transformation.

On the topic of e-commerce skills development, the report asserts that Iraq's "entrepreneurial ecosystem is still nascent and shallow. Private sector institutions, companies and employees - especially MSMEs - lack the knowledge and expertise to effectively engage in e-commerce. Among MSMEs there is a general lack of awareness about the benefits of e-commerce; this is reflected in their priorities and plans that do not consider the potential benefits of online commerce, including access to new markets. Among the general population, trust in online transactions remains low."

Moreover, "The Iraqi public sector also lacks the skills and knowledge to develop an enabling environment for e-commerce and digital economy, which has been identified as a major challenge. This reality prevents public sector institutions from developing the necessary policies and programs to support the private sector, which relies on an enabling environment to drive innovation and introduce new products and services. Without an enabling environment supported and enhanced by the public sector, the potential of the private sector is constrained."

Once an enabling environment by the public sector to support private sector development is established, "the lack of access to financing for e-commerce startups and MSMEs, from the formal banking system and the non-banking financial system, is another barrier to the development of e-commerce in Iraq," the report explains. "The main reasons include the limited use of formal financial institutions by citizens and MSMEs, and the inability of financial institutions and financing initiatives to address the needs of customers such as startups, small businesses and women-run enterprises. Typically, the products and services offered by these financial institutions are geared towards large established firms in traditional sectors."

While "the Iraqi entrepreneurial system remains nascent," the report notes that "promising developments are emerging. Five innovation hubs have been established across the country and there is growing interest in digital innovations from local incubators and accelerators, the telecommunications company Zain, the donor community and other stakeholders."

The report optimistically concludes that the "emergence of e-commerce in Iraq is very promising and has the potential to create jobs, diversify the economy, stimulate domestic demand and increase exports. As the country continues to rebuild after years of conflict, e-commerce can provide a boost to many existing industries and create new opportunities for young people, women and aspiring entrepreneurs." Although it is unknown how covid-19 has impacted these innovation hubs, the drive to build a thriving e-commerce sector and digital economy in Iraq and throughout the Middle East region remains strong based on discussions with my colleagues in the region.

What are your recommendations for how Iraq can develop a thriving digital economy?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

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