MENA DEVELOPMENT REPORT The Reconstruction of Iraq after 2003 Learning from Its Successes and Failures Hideki Matsunaga 35 The Reconstruction of Iraq after 2003 MENA DEVELOPMENT REPORT The Reconstruction of Iraq after 2003 Learning from Its Successes and Failures Hideki Matsunaga © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 22 21 20 19 This work is a product of the staff of The World Bank with external contributions. The findings, interpre- tations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Cover design: Bill Pragluski, Critical Stages LLC Library of Congress Cataloging-in-Publication Data has been applied for MENA Development Report Series This series features major development reports from the Middle East and North Africa region of the World Bank, based on new research and thoroughly peer-reviewed analysis. Each report aims to enrich the debate on the main development challenges and opportunities the region faces as it strives to meet the evolving needs of its people. Titles in the MENA Development Report Series The Reconstruction of Iraq after 2003: Learning from Its Successes and Failures (2019) by Hideki Matsunaga Beyond Scarcity: Water Security in the Middle East and North Africa (2018) by World Bank Jobs or Privileges: Unleashing the Employment Potential of the Middle East and North Africa (2015) by Marc Schiffbauer, Abdoulaye Sy, Sahar Hussain, Hania Sahnoun, and Philip Keefer The Road Traveled: Dubai’s Journey towards Improving Private Education: A World Bank Review (2014) by Simon Thacker and Ernesto Cuadra Inclusion and Resilience: The Way Forward for Social Safety Nets in the Middle East and North Africa (2013) by Joana Silva, Victoria Levin, and Matteo Morgandi Opening Doors: Gender Equality and Development in the Middle East and North Africa (2013) by World Bank From Political to Economic Awakening in the Arab World: The Path of Economic Integration (2013) by Jean-Pierre Chauffour Adaptation to a Changing Climate in the Arab Countries: A Case for Adaptation Governance and Leadership in Building Climate Resilience (2012) by Dorte Verner Renewable Energy Desalination: An Emerging Solution to Close the Water Gap in the Middle East and North Africa (2012) by World Bank Poor Places, Thriving People: How the Middle East and North Africa Can Rise Above Spatial Disparities (2011) by World Bank Financial Access and Stability: A Road Map for the Middle East and North Africa (2011) by Roberto R. Rocha, Zsofia Arvai, and Subika Farazi From Privilege to Competition: Unlocking Private-Led Growth in the Middle East and North Africa (2009) by World Bank The Road Not Traveled: Education Reform in the Middle East and North Africa (2008) by World Bank Making the Most of Scarcity: Accountability for Better Water Management Results in the Middle East and North Africa (2007) by World Bank Gender and Development in the Middle East and North Africa: Women in the Public Sphere (2004) by World Bank Unlocking the Employment Potential in the Middle East and North Africa: Toward a New Social Contract (2004) by World Bank Better Governance for Development in the Middle East and North Africa: Enhancing Inclusiveness and Accountability (2003) by World Bank Trade, Investment, and Development in the Middle East and North Africa: Engaging with the World (2003) by World Bank All books in the MENA Development Report series are available for free at https://openknowledge​ .worldbank.org/handle/10986/2168. Contents Acknowledgments xi Abbreviations xiii Overview 1 The Context for Iraq’s Reconstruction 2 The International Response to Iraq’s Reconstruction Needs 4 Reconstruction’s Impact on Iraq’s Economy and Job Creation 5 The Reconstruction of Infrastructure, Human Capital, and Social Services 7 Governance, Institutional Reform, and Private Sector Development 9 Lessons for International Donors and Organizations 10 Recommendations for Future Reconstruction 16 Methodology 18 References 18 1 Reconstruction Challenges in Iraq 19 Introduction 19 Security 20 Institutions 21 The Economy 24 Annex 1A: Phases of Iraqi Reconstruction, March 2003 to June 2014 30 Notes 33 References 33 2 International Engagement in the Reconstruction of Iraq 35 Overview of International Actors 35 Key Actors in the International Response 38 Challenges to the International Response 48 vii viii The Reconstruction of Iraq after 2003 Notes 54 References 55 3 The Reconstruction of Iraqi Infrastructure and Human Capital 57 The Electricity Sector 57 The Oil Sector 63 The Education Sector 67 The Health Sector 71 Notes 74 References 75 4 Institution Building, Governance Reform, and Private Sector Development 77 Building Capacity Development and Institution ­ 77 Governance Reform: Decentralization and Local Governance 81 Governance Reform: Tackling Corruption 84 Private Sector Development 87 Annex 4A: Disputes over Decentralization in Iraq 90 Notes 91 References 92 5 Lessons Learned from the Reconstruction of Iraq 95 Working with National Institutions and Cultivating National Ownership 95 Effective Implementation in Insecure Environments 97 Improving the Effectiveness of Donor Funding for Reconstruction 99 Enhancing Accountability in Reconstruction 102 Improving the Assessment Process and Prioritization 104 Donor Coordination with National Institutions 106 Procurement and Contracting 107 Notes 110 References 110 6 Recommendations for Future Reconstruction Operations 113 Reconstruction in Fragile and Conflict Settings: Uncertain, Fluid, and Complex 113 Reinforcing National Success 114 Balancing Time and Scale in Operations 116 Promoting Private Sector Engagement in Fragile Settings 117 MENA Development Report Series ix Reinforcing the Security-Development Nexus 118 The Future of Reconstruction in Fragile and Conflict Settings 118 References 119 Boxes 2.1 The Oil-for-Food Programme 47 4.1 Institution Building in Iraq: The Fiscal Management Information System 80 Figures O.1 Documented Civilian Deaths from Violence in Iraq, January 2003 to February 2017 3 O.2 Funding Sources for Iraq Reconstruction, 2003–12 5 O.3 GDP per Capita and Crude Oil Prices in Iraq, 1970–2014 6 O.4 Core Public Sector Employment in Iraq, 2003–15 6 O.5 Electricity Generation Capacity in Iraq, 2002–14 7 O.6 Electricity Supply from the National Grid in Iraq, 2007, 2011, and 2012 8 O.7 Crude Oil Production in Iraq before and after International Private Sector Engagement, 2003–15 9 1.1 Civilian Deaths from Violence in the Anbar, Baghdad, Basra, and Erbil Governorates of Iraq, 2003–16 21 1.2 Oil Production and Exports in Iraq, 1980–2014 25 1.3 GDP per Capita and Crude Oil Prices in Iraq, 1970–2014 25 1.4 Government Revenue and Oil Price Fluctuations in Iraq, 2003–15 26 1.5 Investment Budget Execution in Iraq, 2005–13 27 1.6 Core Public Sector Employment in Iraq, 2003–15 29 1.7 Average Composition of Public Expenditures in Iraq, 2005–10 29 1A.1 Oil Production, Electricity Generation, and Iraqi Investment Expenditures, 2002–13 32 2.1 Pledges Made at the International Donor Conference for Iraq Reconstruction, October 2003 36 2.2 Funding Sources for Iraq Reconstruction, 2003–12 37 2.3 Allocation of the U.K. Budget for Iraq’s Reconstruction, 2003–July 2004 42 2.4 Annual European Union Commitment for Development and Humanitarian Assistance to Iraq, 2003–13 43 2.5 Allocation of Japanese Grant Assistance to Iraq, 2003–09 43 2.6 Japanese Loan Assistance to Iraq, 2006–13 44 2.7 Donor Coordination Mechanism Led by Iraqi Entities 49 3.1 Electricity Generation Capacity in Iraq, 2002–14 58 x The Reconstruction of Iraq after 2003 3.2 Electricity Generation in Iraq, Average for May 2003 to December 2005 59 3.3 Electricity Supply from the National Grid in Iraq, 2007, 2011, and 2012 62 3.4 Public Perceptions of Electricity Service Provision in Iraq, by Governorate, 2011 63 3.5 Monthly Oil Production in Iraq, 2003–05 64 3.6 Crude Oil Production in Iraq before and after International Oil Company Engagement, 2003–15 66 3.7 Student Enrollment in Iraq, 2005–13 70 3.8 Infant Mortality Rate versus Life Expectancy at Birth in the Middle East and North Africa, 1980 and 2001 72 3.9 Health Expenditures per Capita in Iraq, 2003–14 73 3.10 Public Perceptions of Health Care Services in Iraq, by Region, 2011 74 5.1 Budget Execution in Iraq, 2005–13 100 5.2 The Dual Accountability Dilemma 102 5.3 Estimated Breakdown of U.S. Reconstruction Contracts in Iraq 109 Tables 1.1 Public Perceptions of the Problems Facing Iraq, February 2004 28 2.1 Total Donor Contributions to the International Reconstruction Fund Facility for Iraq (IRFFI) 36 2.2 U.S. Budget Appropriations for Iraq Reconstruction Efforts 38 2.3 Security and the Rule of Law, Cumulative U.S. Obligations as of September 30, 2012 39 3.1 U.S. Budget Allocations for the Iraqi Oil Sector, as of September 30, 2006 65 3.2 Contracts Awarded by Federal Authorities for Hydrocarbon Exploration and Development in Iraq 67 3.3 Types of Expenditures in the Education Budget in Iraq, 2005–11 69 3.4 Structure and Organization of Education in Iraq 71 4.1 Major U.S. Agency for International Development Programs for the Economy and Governance in Iraq, 2003–12 78 4.2 U.S. Agency for International Development Programs for National and Local Governance and Capacity Development in Iraq 82 Acknowledgments This report was developed and managed by a team led by Hideki Matsunaga and comprised of Riad Houry and Natsuko Yukawa. Thamir Al Ghadhban and Joseph Saba served as external advisors to the team, and Shantayanan Devarajan provided valuable advice and guidance from the beginning of the research until the final draft. Hafez Ghanem and Saroj Kumar Jha chaired review meetings and helped us to consolidate diverse and valuable comments and to finalize the report. Neil O’Reilly provided substantial input and guidance on multiple versions of the draft. The report benefited at various stages from the guidance and com- ments of World Bank management and staff, including Asad Alam, Abdallah Al Dardari, Nazaneen Ismail Ali, Zainab A Allawi, Rabah Arezki, Raja Rehan Arshad, Lemya Izzet Ayub, Daniel Kiernan Balke, Ferid Belhaj, Franck Bousquet, Kevin Carey, Emmanuel F. Cuvillier, Ibrahim Dajani, Miguel Angel De Corral Martin, Thomas Djurhuus, Faizaa Fatima, Sepehr Fotovat, Abderrahim Fraiji, Katsumasa Hamaguchi, Ellen Hamilton, Syed Mehdi Hassan, Elena Ianchovichina, Robert Bou Jaoude, Omer Karasapan, Claire Khoury, Andrew C. Kircher, Sibel Kulaksiz, Daniel Lederman, Roland Lomme, Pilar Maisterra, Stephan Massing, Piers Merrick, Janet Lynn Minatelli, Nafie Mohammed Mofid, Richard Olowo, Zeinab Partow, Nadia Fernanda Piffaretti, Francesca Recanatini, Yara Salem, Sajjad Ali Shah Sayed, Simon Stolp, Mio Takada, and Kanae Watanabe. The team also acknowledges the valuable insights offered by experts from Iraq, academia, civil society, international organizations, and donor organizations, including Bisrat Aklilu, Huda Malik Alani, Sherazade Boualia, Derick Brinkerhoff, Arthur Brown, Carel de Rooy, Lukman Faily, Charles Freeman, Matthew Fuller, Gerard Gomez, Shigeru Handa, Naofumi Hashimoto, Fumio Iwai, Bruce Jones, Izuru Kimura, Bruno Lemarquis, Humam Misconi, Kansuke Nagaoka, Haydar Nasser, Shohei Nishimura, Tomofumi Nishinaga, Haitham Hadi Numan, xi xii The Reconstruction of Iraq after 2003 Yukio Okamoto, Robin Raphel, Ema Sky, Katsuhiko Takahashi, Jiro Tominaga, Sota Tosaka, Masamichi Toyooka, Kazuto Tsuji, Gary Vogler, Karim Waheed, Tamara Wittes, Fareed Yaseen, and Peter Young. The team also wishes to acknowledge the tireless support of the World Bank publications team: Susan Graham, Orlando T. Mota, and Jewel McFadden. Abbreviations CERP Commander’s Emergency Response Program COI Commission of Integrity CPA Coalition Provisional Authority DFI Development Fund for Iraq EU European Union FMIS fiscal management information system IMF International Monetary Fund IRFFI International Reconstruction Fund Facility for Iraq ISCI Islamic Supreme Council of Iraq ISRB Iraq Strategic Review Board JICA Japan International Cooperation Agency KRG Kurdistan Regional Government NGO nongovernmental organization OFFP Oil-for-Food Programme ORHA Office of Reconstruction and Humanitarian Assistance PMAC Prime Minister’s Advisory Commission PMO Project Management Office SIGIR Special Inspector General for Iraq Reconstruction SOE state-owned enterprise UNDG United Nations Development Group UNDGITF United Nations Development Group Iraq Trust Fund UNDP United Nations Development Programme UNESCO United Nations Educational, Scientific, and Cultural Organization UNICEF United Nations Children’s Fund UNSC United Nations Security Council USAID U.S. Agency for International Development USACE U.S. Army Corps of Engineers WBITF World Bank Iraq Trust Fund WHO World Health Organization In this study, 1 billion = 1,000 million. xiii I R AQ SELECTED CITIES AND TOWNS MAIN ROADS GOVERNORATE CAPITALS RAILROADS NATIONAL CAPITAL GOVERNORATE BOUNDARIES RIVERS INTERNATIONAL BOUNDARIES 40°E 42°E 44°E 46°E IBRD 44324 | TURKEY To Urmia APRIL 2019 - - To Urmia Zakhu Zakh To DA K DAHŪK Qamish Al Qamishli h- k Tigri ah Dahuk s 'Aqrah R. - y- Haji H Ha i Ibrahim ji aji Ib hi Rayat Ray (3,600 (3 3 3,600 600 m) 6 m - Sinjar Mosul A L ARBĪL 36°N A b- Arbil 36°N Euphrate s R. To Dayr az Zawr N Ī N AWÁ As - - Sulaymaniyah ISLAMIC SLAMIC Al Hadr SYRIAN ARAB i k - k AS SULAYMANĪYĀH Kirkuk REPUBLIC SULAYMA YĀ REPUBLIC o Dayr To K KIRKUK OF IRAN az Zawr Bay- Bayji Ja ba l k- Tikrit H - am 'Anah ȘALĀH Ș AL A Ā AD ri - Al Qa'im Q 'i - - a amarra Samarra' n - - To Kermanshah DĪN 34°N Al i - A Hadithah 34°N Tharthar h th To Hims - - Lake Lk Ba q - Ba'qubah 'Akashat 'Akasha - - Ramad Ar Ramadi ĀLÁ DIYĀ DIYĀLÁ Fall j- h F Al Fallujah A A AGHDAD BAGHDAD Habbaniyah b yh Lk Lake AGHDA AGHDAD AG BAGHDAD AL ĀNBAR Razzaza WĀ S I T JORDAN Trebil bi To S y r i a n Lake Lk Ā L BĀBIL Al Kut- Amman b - Karbala Al Hillah ill h Tigri s R. KARBALĀ' KARBALĀ - Dezfu To Dezful D e s e r t A Hayy Al 32°N - - -y h Diwani Diwaniya A Diwaniyah Ad MAYSĀN MAYSĀ Ā 32°N Nukhayb A Najaf An j -h QĀDISĪYAH AL QĀ Q YA ĀDIS YA Al 'Amar A 'Amarah Eup hrat es R. - As Samawah A h Sh Ash Shatrah Shat h - To Ahvaz Al 'Uzayr S ah AN NAJAF J D QĀR DHĪ QĀ An - i -y h Nasiri n Nasiriyah ra ' al H B h Basra Al Basrah ij - ar As Salman ah A Zubayr Az Zb Umm BAȘ Ș A AL BAȘRAH 30°N AL MUTHANNÁ Qasr Q 30°N To Ad IRAQ Damman K U WA I T S AU D I A R A B I A 0 50 100 150 Kilometers 28N 40°E 42°E 44°E 46°E 48°E Overview Pursuing effective reconstruction within contexts of conflict and fragility is a formidable challenge, subject as it is to an uncertain, fluid, and com- plex environment. Conditions on the ground are dynamic and nonlinear; political, economic, security, and social dynamics are always changing. Amid such difficulties, the international community may hesitate to engage in robust reconstruction activities, but the cost of inaction can be great. The success or failure of country-level reconstruction efforts can have a significant impact on the peace and stability of the broader global community. So how can we manage the process effectively? In order to find a more effective approach for reconstruction in con- flict and fragile settings, we need to learn from past reconstruction expe- riences. To this end, the reconstruction of Iraq after 2003 offers many lessons. Between 2003 and 2014, more than US$220 billion was spent on reconstruction efforts following the United States–led invasion and overthrow of the Saddam Hussein regime. Despite the huge amount of money spent and the implementation of extensive projects and programs, the international community and the Iraqi people largely view the recon- struction of Iraq in a negative light. Through the course of this research, many interviewees from various government agencies involved in the process said that the impact of reconstruction remains disappointingly obscure considering the resources committed. More recently, after years of fighting the Islamic State of Iraq and the Levant (ISIL), also known as Daesh, the international community and the Iraqi government need to begin planning for a new wave of reconstruction in which the same mistakes are not repeated. The Iraqi reconstruction experience after 2003 offers few successes and many failures from which the international community can learn. This study seeks to draw out those lessons and to provide recommen- dations for future reconstruction activities by examining the reconstruc- tion process from 2003 until May 2014, before the emergence of Daesh. The question of what went wrong in Iraq has been the topic of many 1 2 The Reconstruction of Iraq after 2003 books, articles, and academic papers. Most analyses address U.S. policies, military intervention, and Iraqi politics, while reviews of the reconstruc- tion process are often limited to each donor’s operation. This research reviews the reconstruction of Iraq more broadly. To draw lessons, the study assesses several dimensions of Iraq’s recon- struction. First, it considers the response of key international actors, such as the United Nations (UN), the World Bank, the United States and other bilateral donors—specifically, the European Union, Japan, and the United Kingdom—as well as nongovernmental organizations (NGOs). Second, it analyzes the process and results of the reconstruction of key sectors—electricity, oil, education, and health—in addition to interven- tions pertaining to institution building and governance reform, with a focus on decentralization, corruption, and private sector development. This study also touches on issues that merit further elaboration in future research, including the responses of international actors to humanitar- ian and security needs and broader governance and social issues, such as poverty, gender, and youth. The Context for Iraq’s Reconstruction The conduct of reconstruction in fragile settings is made so difficult because such a wide range of factors impinge on it. In postconflict or in- conflict operations, economic, political, security, and social conditions are subject to significant change and regional variance. Iraq was no different, but unlike some postconflict cases, the reconstruction of Iraq was not concerned merely with ensuring economic recovery to the preconflict levels of 2003. Damage from military operations during the invasion itself was limited; rather, the deterioration of infrastructure as well as institu- tions had been well under way long before the invasion. Stakeholders faced several other critical challenges to their operations. First, a lack of security presented the most serious challenge for reconstruction activities. During the height of violence in 2006 and 2007, there were as many as 100 civilian deaths per day. As of February 2017— almost 14 years after the invasion—it is estimated that total Iraqi civilian deaths numbered more than 180,000 (figure O.1). Many Iraqi officials who were engaged in reconstruction activities were among the dead. Violence affected foreign aid workers and contractors too. With worsen- ing security and lingering ambiguity over their status and mandate, the UN and many international organizations chose to evacuate staff from Iraq by the end of 2003. For several years, most donors conducted many of their reconstruction operations from outside the country. During that period, the United Kingdom and the United States each kept a large Overview 3 FIGURE O.1 Documented Civilian Deaths from Violence in Iraq, January 2003 to February 2017 5 4 Deaths (thousands) 3 2 1 0 Fe 013 Fe 006 Jan 016 7 Au 003 Jan 009 No 015 Jun 015 No 008 Jun 008 De 012 Jul 12 Se 014 Ap 014 Ma 003 De 005 Jul 05 Se 007 Ap 007 Ma 010 Au 010 Oc 11 Oc 04 Ma 011 Ma 004 01 0 0 0 0 .2 .2 .2 .2 .2 .2 r. 2 v. 2 r. 2 v. 2 2 2 2 y2 c. 2 2 2 2 y2 c. 2 .2 r. 2 r. 2 t. 2 t. 2 b. p. b. p. g. g. Jan Source: Iraq Body Count data (https://www.iraqbodycount.org/). presence inside Iraq and continued their reconstruction efforts, although mobility within the country was highly constrained. The need for added security increased the cost of all activities and precluded many others that would have been undertaken in a less volatile postconflict environ- ment. Iraq represents an example of in-conflict reconstruction rather than postconflict reconstruction. Second, reconstruction activities began when the capacity, roles, and functions of the state and institutions were weak and contested, often violently. In any fragile and conflict-affected situation, weak institutional capacity is a hindrance to reconstruction activities. Considered among the most capable countries in the region during the 1970s and early 1980s, Iraq’s institutional capacity was significantly degraded by 2003 following decades of war and economic sanctions. After the invasion in 2003, the occupation force assumed direct responsibility for governing the country in lieu of a national government. Even after sovereignty was returned to Iraq in June 2004, the government’s status remained interim and transitional. The weakened role and function of the state, coupled with eroded institutional capacity and practical difficulties in performing the basic tasks of governance, made enhancing government legitimacy through successful reconstruction very difficult. Third, intensifying ethnosectarian divisions commanded influence over ministries and institutions, severely hampering their effective func- tioning. Ethnosectarian divisions among Iraqis existed well before the invasion in 2003. The Kurds in the north were long marginalized and 4 The Reconstruction of Iraq after 2003 oppressed by the Saddam regime, while a Shia uprising against the rul- ing Saddam regime took place after the Gulf War in 1991. Despite these tensions, ethnosectarian divisions prior to 2003 paled in comparison with the deadly nature of the divisions that followed. Indeed, prior to the invasion, ethnosectarian differences had only limited influence on the Iraqi government and its institutions, partly because they were less consequential under the oppression of the Saddam regime. After the invasion and the regime’s collapse, however, groups began emphasizing their differences to enhance their political leverage, further intensifying divisions within the country. Fourth, external actors competing for influence intensified Iraqi divi- sions and exacerbated institutional dysfunction. International actors, particularly neighboring countries, frequently intervened in Iraqi politics by providing resources and arms to sectarian groups, further stoking sectarian and political divisions. Fifth, although Iraq has huge oil resources—some 115 billion barrels of known reserves, the world’s fifth largest—and significant gas reserves, the country’s existing and potential wealth has presented many challenges that state institutions have yet to overcome. The Iraqi economy’s reliance on oil revenues makes it highly vulnerable to oil price fluctuations. In addition, given that the oil sector is highly capital intensive, it has a limited impact on employment generation, and the high resource concentration in the sector has constrained the development of non-oil sectors. Meanwhile, the uneven geographic distribution of oil resources has fueled regional and sectarian disputes, and continuing security and political uncertainty has constrained the modernization and expansion of Iraq’s oil and natural gas potential. These challenges are typical consequences of a “resource curse.” The International Response to Iraq’s Reconstruction Needs Beginning in 2003, diverse and significant actors, both domestic and inter- national, engaged in reconstruction activities in Iraq, and the total budget committed to Iraq’s reconstruction was unprecedented among postconflict operations undertaken by the international community. At the Madrid Donor Conference in October 2003, the international community—­ represented by 38 countries, the European Commission, the International Monetary Fund, and the World Bank—announced overall and indicative pledges amounting to more than US$33 billion in grants and loans. These initial commitments expanded significantly over the course of reconstruc- tion. For example, while the United States pledged US$18.6 billion at the conference, the largest donor pledge, U.S. commitments had grown to US$60 billion by the end of 2012. As Iraqi oil production and exports Overview 5 FIGURE O.2 Funding Sources for Iraq Reconstruction, 2003–12 Bilateral, US$9.44 billion Multilateral, US$4.31 billion U.S. funding, US$60.64 billion Iraqi capital budgets, US$126.01 billion CPA spending of Iraqi funds, US$19.80 billion Source: SIGIR 2013. Note: Total = US$220 billion. CPA = Coalition Provisional Authority. began to recover, a substantial amount of capital investment was allocated to reconstruction activities. As shown in figure O.2, funding for reconstruc- tion activities came from diverse sources, the largest of which was the Iraqi capital budget, followed by U.S. assistance. The total financial commit- ment for the reconstruction of Iraq amounted to US$220.1 billion. Reconstruction’s Impact on Iraq’s Economy and Job Creation As far as reconstruction’s impact on the economy is concerned, the most critical shortcoming was that reconstruction failed to diversify the Iraqi economy away from its dependence on oil revenues and made little head- way in developing the non-oil private sector. Thus, employment in the productive sectors has lagged, while incomes and service delivery remain highly vulnerable to fluctuations in oil prices (figure O.3). While the capital-intensive oil sector employs only 1–2 percent of Iraq’s labor force, oil revenues provide the government with abundant resources to generate employment opportunities. By 2008, 40 percent of the Iraqi labor force was employed by the public sector (figure O.4). Spending on the salaries of public employees has placed a heavy burden on the fiscal sys- tem, constituting more than 30 percent of government spending. 6 The Reconstruction of Iraq after 2003 FIGURE O.3 GDP per Capita and Crude Oil Prices in Iraq, 1970–2014 7,000 120 Iran-Iraq war Economic sanctions 6,000 100 5,000 GDP per capita (US$) 80 US$ per barrel 4,000 60 3,000 40 2,000 1,000 20 0 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 GDP per capita Oil prices (right scale) Sources: Economist Intelligence Unit data; World Bank data. FIGURE O.4 Core Public Sector Employment in Iraq, 2003–15 3.5 42 45 40 41 40 40 38 39 3.1 3.0 40 3.0 34 2.8 2.9 2.7 2.5 35 2.5 2.4 2.3 28 30 Employees (millions) 2.0 % of all jobs 23 23 25 22 1.5 20 1.2 1.0 15 0.9 1.0 10 0.5 5 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Employees, core public sector Core public employment (right scale) Sources: Iraq Ministry of Finance data; World Development Indicators data from World Bank 2017. Because of an inflexible budget system, nonsalary spending—in particu- lar, the capital investment budget for reconstruction—had to be cut back when oil prices fell after 2014. Economic diversification and job creation in the non-oil private sector have remained stagnant and continue to be key challenges for the Iraqi economy. Overview 7 The Reconstruction of Infrastructure, Human Capital, and Social Services Reconstruction brought some improvements to Iraqi livelihoods, but overall progress on service delivery was gradual and limited. This study considers the development of several key sectors after 2003—including those for elec- tricity, oil, education, and health—to assess the impact of donor assistance on service delivery. Despite the billions of dollars spent on reconstruction, sec- toral recovery has been slow and limited. For example, electricity generation capacity took almost eight years to reach the original target of 6,000 mega- watts set by the Coalition Provisional Authority (CPA) and first projected for mid-2004, which resulted in chronic electricity shortages that left many Iraqis with only a few hours of electricity per day (figures O.5 and O.6). In addition, for all four sectors assessed, regional disparities in the progress of reconstruction were wide, with northern and southern Iraq following very different trajectories than the central-western part of the country. In general, improvements in the Kurdistan region have been most substantial. Considering the oil sector to be a high priority because of its capacity to generate resources for reconstruction activities, the United States assigned experienced advisers to the sector to a degree not seen in other areas of the economy, where many inexperienced officials struggled to make an impact. And although the Iraq Ministry of Oil had suffered from a significant brain drain since the early 1990s and the more recent de-Baathification order FIGURE O.5 Electricity Generation Capacity in Iraq, 2002–14 10,000 9,000 8,000 Generation capacity (megawatts) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Iraq Ministry of Electricity data. 8 The Reconstruction of Iraq after 2003 FIGURE O.6 Electricity Supply from the National Grid in Iraq, 2007, 2011, and 2012 24 20 Electricity supply (hours per day) 16 12 8 4 0 uk il a k ala r Din a d bil t la a a ar n h jaf ba ssi ku niy ew siy nn Erb da ssa sra rba i-Q ho Ba Na Diy An Wa al- Kir gh tha dis Nin ma Ba Mi Th Da Ke Ba lah Qa Mu lay Sa Su 2007 2011 2012 Kurdistan region Sources: CSO, KRSO, and United Nations 2011; CSO, KRSO, and World Bank 2007, 2011. that barred Baathists from senior government roles, it still retained capable management and staff. Nevertheless, like the electricity sector, the oil sec- tor took a long time to reach production and export target levels. Crude oil production finally began showing strong growth after the oil fields developed by international oil companies went into production in 2010, and increasing Iraqi institutional involvement in the sector’s development, along with private sector participation, laid the founda- tions for further recovery (figure O.7). During the 1970s and 1980s, Iraq had one of the best education sys- tems in the Middle East and North Africa region. However, years of war and economic sanctions in the 1990s had severely damaged the system by the start of the Iraq War. After 2003, the Iraqi government, with support from donors and international organizations, made a concerted effort to rebuild the country’s education system. While they achieved some suc- cess on indicators such as enrollment rates in primary school and number of schools built, the quality of education continued to suffer. Like other sectors, the Iraqi health sector had deteriorated signifi- cantly in the decades prior to 2003. Since then, the Iraqi government, donors, and international organizations have committed large resources and energy to restoring the health system, leading to a gradual increase in per capita expenditures in the sector. However, the recovery has been slow, and, although some health indicators have improved, changes have been modest. In particular, this sector has suffered from a large outflow of qualified workers leaving the country. Overview 9 FIGURE O.7 Crude Oil Production in Iraq before and after International Private Sector Engagement, 2003–15 4,500 4,000 3,500 Barrels per day (thousands) 3,000 2,500 2,000 1,500 1,000 500 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: U.S. Energy Information Administration data. Governance, Institutional Reform, and Private Sector Development This study focuses on three critical governance issues facing Iraq during the reconstruction period: institutional capacity, decentralization, and corruption. It also assesses donor efforts to foster private sector develop- ment. Weak institutional capacity proved to be a major hindrance to the reconstruction process. The deterioration of institutions during the 1980s and 1990s led to a massive brain drain and an erosion in education levels among the Iraqi workforce. Furthermore, actions taken by the CPA after 2003 damaged institutional capacity even further. From the outset, the CPA clearly tended to circumvent existing ministries, public agencies, and Iraqi officials who could have played a bigger role in reconstruction. In addition, the policy of de-Baathification deprived public institutions of some of their existing capacity. To fill the institutional capacity gap, the occupation force brought in many Iraqi exiles from outside of the coun- try, creating tensions with those officials who had remained in Iraq under Saddam. Donors provided numerous training and institution-building programs, but weak institutional capacity continued to hinder recon- struction activities. Decentralization has been a major preoccupation of postwar Iraqi governance agendas. Prior to 2003, the Iraqi government sat in the middle of a highly centralized system; after the Iraq War, the United States spent more than US$1 billion to promote decentralization as 10 The Reconstruction of Iraq after 2003 one means of protecting against a reversion to dictatorship. Despite these efforts, as well as the introduction of the new Iraqi Constitution stipulating a federal political system that includes national and local governments, little progress has been made. Disagreements concerning several critical issues have hampered progress, primarily oil revenue– sharing arrangements, the role of the national military and regional and sectarian security forces, and the autonomy of the Kurdistan Regional Government (KRG). Widespread and intensifying corruption has hampered the recon- struction process. Corruption was rife before the Iraq War, but Saddam’s inner circle monopolized the benefits of graft. The war and subsequent pockets of lawlessness, as well as huge inflows of money, exacerbated the degree and extent of corruption. Despite anticorruption initiatives undertaken by the Iraqi government, the United States, and interna- tional organizations, corruption remains prevalent, posing a critical chal- lenge for effective governance in Iraq. Significant efforts were made to develop the private sector, but they failed to diversify the Iraqi economy. Despite large-scale assistance from the United States, UN agencies, and the World Bank, the centrally controlled, oil-dependent economy continued to prevail, creating few job opportunities in the non-oil private sector. The biggest risk factors for foreign and local private actors seeking to invest and expand business activities included the dire security situation, political uncertainty, and the lack of effective mechanisms for lowering risk. Lessons for International Donors and Organizations Based on the analysis of international reconstruction efforts and the assess- ment of their impact on sectors, governance, and institutions, this study identifies lessons for international donors and organizations in seven areas. Working with National Institutions and Cultivating National Ownership A critical lesson that the Iraq reconstruction experience reemphasized is that national institutions matter a great deal for the impact and sustain- ability of reconstruction efforts. In addition: • International actors need to avoid weakening national institutions and social capital through their interventions. In Iraq, policies such as de- Baathification, dissolution of the Iraqi military, and establishment of the Governing Council based on ethnosectarian divisions have had a lasting negative impact on institutions and society. Overview 11 • The drive for early results does not justify bypassing national institu- tions; donors should work through them. A U.S. audit report states that physical infrastructure put in place in Iraq by United States– funded reconstruction was already breaking down by 2005 since Iraqi institutions were not fully engaged, and the roles of institutions in operating and maintaining infrastructure were not sufficiently considered. • Developing the capacity of national institutions is key for successful reconstruction, but capacity cannot be developed through the provi- sion of training opportunities alone, and donors and international organizations need to review their approaches to capacity develop- ment and make them more effective. In Iraq, donors and international organizations provided numerous capacity development programs and training opportunities, but the impact of these assistance programs is unclear. Too often, they were driven by supply and the need to spend reconstruction funds heavily and quickly. • The international community should reinforce indigenous policies and systems, not impose them. In Iraq, the United States–led occupa- tion force attempted the latter, but its efforts failed because it had given insufficient consideration to the local context. • Interventions can affect the behavior of national actors in unfore- seen ways. In Iraq, as political and sectarian tensions rose, Iraqi officials became increasingly reluctant to make decisions for fear of being accused of engaging in corruption or of favoring one side or the other. International actors need to consider how their own activities can help to cultivate forward-facing behaviors among country partners. Enhancing Implementation in an Insecure Environment In a dangerous security environment, how should donors and interna- tional organizations respond? There is no one right answer, as the cir- cumstances of organizations and conflicts differ. However, the experience in Iraq offers insights into how organizations might approach future operations under such conditions. For example: • For effective implementation, it is important for external actors to adopt a bottom-up and flexible approach to deal with the uncertain, fluid, and complex nature of reconstruction. In Iraq, there were seri- ous gaps between the reality of needs and constraints on the ground and what reconstruction projects and programs were trying to achieve. 12 The Reconstruction of Iraq after 2003 • Improving the effectiveness of remote management needs further con- sideration within the specific contexts of affected countries. Due to deteriorating security, post-2003 Iraq became the largest-ever case of remote management of reconstruction operations for the international community, bringing with it many challenges. • Maintaining a presence within a country under volatile security condi- tions is extremely challenging and increases the risks for concerned organizations, but it also provides better opportunities to interact with counterparts and enhance the effectiveness of assistance. Retaining a presence in the less volatile parts of a country might allow for more flexible responses to challenges. In the case of Iraq, most donors and international organizations responded inflexibly to the fluctuations of and wide regional differences in the security environment. • Donors and international organizations need to seize opportunities to effect changes during critical moments—the “golden hours” that can follow immediately after the cessation of fierce fighting. In Iraq, there was some success at this in Basra after a military confrontation in 2008, which resulted in significant improvements in the city’s security. • Efforts should be made to find an effective way for development and security actors to work together to achieve peace and stability from the outset. In Iraq, due to the contentious nature of the invasion and the outsized influence and role of the United States in the first year of reconstruction, systematic communication between development and security actors was limited. Actions in development and security were undertaken independently in a fragmented manner, a problem that improved only moderately with the United States–led military surge in 2007. Improving the Effectiveness of Donor Funding for Reconstruction In Iraq, donor funds were provided through bilateral aid, international organizations, or a trust fund, namely, the International Reconstruction Fund Facility for Iraq (IRFFI). But the role of donor funding is not lim- ited to filling a financial gap, and the experience in Iraq offers several lessons concerning how donors provide resources. For example: • Donors, executing international organizations, and national institu- tions need to implement reconstruction projects beyond the trust fund framework, giving careful consideration to their impact on the budget and economy of the country in need. While the IRFFI played a role in reconstruction efforts, stakeholders often focused solely on the Overview 13 implementation of specific projects and programs funded by the IRFFI to the exclusion of—and thus limiting the fund’s impact on—the Iraqi economy. The execution rate of the Iraqi capital investment budget remained at between 40 percent and 60 percent of spending between 2005 and 2013, while donor funding was poorly coordinated with capi- tal investment projects paid for by the government. • Information on donor funding needs to be shared with national coun- terparts. In Iraq, donor funding remained mostly off-budget, so actual project financing was largely opaque to the Iraqi government, which did little to enhance project ownership among Iraqi institutions. • Donor funding mechanisms should be leveraged to mobilize private resources and to stimulate private sector activities. In Iraq, job creation and long-term growth outside of the oil sector remained limited partly due to the failure to mobilize private funding for the non-oil sector. Enhancing Accountability in Reconstruction Diverse issues related to accountability affected the impact of reconstruc- tion in various ways. For example: • Dual accountability—the tendency among donors and international organizations to be accountable first to their domestic constituencies and stakeholders and only second to those of recipient states—can make delivering results on the ground difficult. In Iraq, superiors back in capitals often overlooked or dismissed the good intentions of inter- national staff in the field. • When financing for reconstruction comes from external partners, it may not foster domestic accountability since citizens feel less obligated to monitor spending for which they have not paid. External actors should try harder to leverage reconstruction funds to strengthen accountability between national institutions and citizens. The majority of the Iraqi reconstruction budget was funded by oil revenues and donor funding, giving Iraqis little incentive to scrutinize reconstruc- tion spending consistently. • Poorly managed donor spending on reconstruction can exacerbate existing problems regarding accountability. An effective monitoring mechanism can be achieved by employing new technologies, engaging third parties, and involving multiple national parties. Insufficient monitoring of reconstruction efforts in Iraq resulted not only in the failure of numerous projects and programs, but also in widespread fraud and corruption. 14 The Reconstruction of Iraq after 2003 Improving Processes for Needs Assessment and Prioritization In conflict-affected regions, effective needs assessment faces many chal- lenges beyond safety and security. For example: • Postconflict reconstruction usually starts with a needs assessment, but the process is often far less effective than it could be. While the joint needs assessment in Iraq helped donors and the international com- munity to understand the basic situation on the ground during the initial stage of reconstruction, it made little use of resources that existed inside Iraq prior to the invasion, it failed to assess institutional capacity, and it lacked a systematic follow-up mechanism. • In a postconflict environment, assessing citizen needs is invariably dif- ficult, making it all the more important for donors and executing agen- cies to diversify their network of national counterparts and other information sources as well as their exposure to every part of the coun- try to foster an inclusive, “whole-of-country” approach. In Iraq, most donors had their operational base in the highly fortified International Zone of Baghdad, which restricted their interactions with actors out- side of it. • International actors need to take a more strategic approach to priori- tizing the areas of intervention. A lack of security and volatile political conditions constrained donor interactions with Iraqi counterparts, leading to many projects being selected opportunistically. • Donors and international organizations should not overburden national counterparts with excessive assessment and reporting require- ments. The lack of security in Iraq limited donor activities within the country; as a result, donors and international organizations engaged in a vast number of activities that did not require a field presence, such as assessments and analytical reporting and strategy work, most of which—along with the financial resources that funded them—have been of little use since the beginning. Donor Coordination with National Institutions Since multiple donors and other stakeholders are often engaged in recon- struction activities, the establishment of an effective coordination mecha- nism is critical. Some major lessons were learned in Iraq in this regard. For example: • Careful attention needs to be given to the costs of coordination among donors, and priority should be given to interaction with Overview 15 national counterparts. Since the reconstruction of Iraq took place under extraordinary circumstances, in which most donors were located outside of the country, donors tended to spend most of their time meeting each other and focusing on coordinating between and within agencies rather than interacting with their Iraqi counterparts. • Better donor coordination can lessen the burden on national institu- tions. In Iraq, various donors undertook an excessive number of proj- ects with little coordination with each other, causing significant confusion among officials and fragmentation of activities. • Effective coordination can make capacity development programs more effective. A common problem raised in interviews with former Iraqi officials for this research was the lack of coordination on the substance and approach of capacity development programs. Procurement and Contracting Having effective and transparent but flexible, simplified, and swift pro- curement and contracting processes is critical for project implementation in postconflict settings, as is the need to identify and mitigate the risk of fraud and corruption so as to build trust. In addition: • With so many active donors, there is a need to harmonize systems and requirements as much as possible to avoid overwhelming the state’s capacity. In Iraq, the use of different procurement rules among various donors created significant confusion for Iraqi institutions and officials. • A flexible application of procurement rules and procedures is critical for implementing reconstruction projects swiftly and effectively. Procurement procedures that were developed for operations in more stable environments were ill-suited to Iraq and hampered the activities of most donors. • Contract modalities need to be structured carefully to weigh both cost-effectiveness and potential cost increases in unstable environ- ments. Due to the prolonged violence in Iraq, all donors faced spiral- ing contract prices, as indirect costs, such as those relating to security, grew. • Interventions relating to repairs, rehabilitation, and new construction need to be weighed carefully. In Iraq, rehabilitation often proved more difficult than greenfield construction. 16 The Reconstruction of Iraq after 2003 Recommendations for Future Reconstruction Since contemporary reconstruction has to be undertaken in volatile situ- ations, there are some instructive analogies between the nature of war and that of reconstruction. Carl von Clausewitz described the countless fac- tors that impinge on the conduct of war as friction (von Clausewitz [1832] 1976). This idea of friction can be applied to reconstruction activities. Friction can be self-induced, caused by mismanagement of the donor process and a lack of coordination of stakeholders, for example. Friction can also be external, such as an unstable security environment threatened by terrorist organizations. Friction in reconstruction can result from uncertainty, fluidity, and complexity. Pursuing effective reconstruction within contexts of conflict and fra- gility is a process for minimizing these frictions while protecting vulner- able people and creating the conditions for peace and stability. Based on the lessons from Iraq, how can the international community enhance the effectiveness of reconstruction? This study offers four recommendations for the international community and external actors engaged in recon- struction activities in the future. Two are principles for guiding their actions, and two are agendas for finding better mechanisms to address reconstruction. First, the international community needs to prioritize reinforc- ing national success through national institutions. Imposing what the international community considered success, without giving due consideration to the local constraints and challenges or to the need for sufficient engagement from national institutions, did not work in Iraq. On the contrary, imposing external solutions can provoke counterproductive reactions, no matter how effective the solutions may appear. This study highlights several elements in undertaking this approach. In particular, donors and international organizations are advised to undertake the following: • Draw out and strengthen internal abilities within national institutions and avoid trying to replace existing capacities • Reinforce inclusiveness in national institutions and help to cultivate the representation of diverse needs • Reinforce accountability in the relationship between national institu- tions and citizens • Support national institutions, communities, and citizens in reinforcing social capital. Overview 17 Second, international domestic decision makers need to balance interventions of varying time and scale according to country needs. While seizing windows of opportunity to realize quick wins is important, an excessive focus on short-term gains can compromise longer-term success. Such was the case in Iraq’s electricity sector, where early U.S. reconstruction efforts proved unsustainable and may have exacerbated later power generation problems. Similarly, while small-scale projects can be attractive for their relatively limited scope and ease of completion, large projects done right can demonstrate far more lasting tangible gains to the local population. There is no single correct response to these trade-offs, as local contexts and conditions will vary, but the formula needs to be based on whether the approach will help to build public confidence in national institutions and whether it will encourage positive behavioral change in local partners. Third, the international community needs a better mechanism for sup- porting private sector activities in conflict and fragile settings. Without promoting private sector activities that create broader economic oppor- tunities, the success of reconstruction efforts will be limited. In Iraq, the most critical shortcoming in reconstruction was that it failed to diversify the Iraqi economy away from the dominant oil sector; as a result, few eco- nomic opportunities were created in the non-oil private sector. The biggest obstacle, of course, has been the dire security situation, which has discour- aged both foreign and local private actors from investing and expanding their business activities. The role of the private sector has remained that of contractor for government- and donor-funded projects. This role is closely associated with the relationship between profitability and risks. Although risks are high, private investment in profitable sectors still occurs, as engagement in Iraq’s oil sector has shown. The international community may be limited in what it can do to improve the profitability of each busi- ness, but it might be able to find better mechanisms for lowering risk. Fourth, the international community needs to find an effective mecha- nism for integrating the actors and efforts of the security and development spheres. In conflict-affected states, lack of security presents the most serious challenge for reconstruction activities. Security and reconstruction as well as development are inextricably linked: reconstruction and development cannot take place in a security vacuum; likewise, security cannot be assured in the absence of successful reconstruction and development. In Iraq, the failure of the two domains to coordinate effectively left in place the condi- tions for repeated cycles of violence. It is time for the international commu- nity to come up with a new mechanism for responding to both the security and development challenges of reconstruction operations. 18 The Reconstruction of Iraq after 2003 Methodology This study is based on reports and data compiled by the Iraqi govern- ment, the United Nations, U.S. government agencies, the World Bank, and other concerned parties involved in the reconstruction of Iraq. As more than 15 years have passed since the invasion, some relevant data and ­information are no longer available. However, interviews were con- ducted with former officials of the CPA, the Iraqi government, the United Nations, the U.S. Agency for International Development, the U.S. Department of Defense, the U.S. Department of State, the World Bank, bilateral donors, NGOs, and both international and Iraqi contractors and consultants. Interviews were conducted in Iraq, Jordan, and Lebanon and in Japan and the United States. The findings from the literature reviews were triangulated through these interviews. In addition, this study under- went peer review by several individuals who were deeply engaged in the reconstruction of Iraq for years. References CSO (Central Statistical Organization), KRSO (Kurdistan Region Statistics Organization), and United Nations. 2011. Iraq—Household Socio-Economic Survey for 2011. Baghdad: CSO, KRSO, and United Nations. CSO (Central Statistical Organization), KRSO (Kurdistan Region Statistics Organization), and World Bank. 2007. Iraq—Household Socio-Economic Survey for 2007. Baghdad: CSO, KRSO, and World Bank. ———. 2011. Iraq—Knowledge Network Survey for 2011. Baghdad: CSO, KRSO, and World Bank. SIGIR (Special Inspector General for Iraq Reconstruction). 2013. Learning from Iraq: A Final Report from the Special Inspector General for Iraq Reconstruction. Washington, DC: SIGIR, March. https://www.globalsecurity.org/military​ /library/report/2013/sigir-learning-from-iraq.pdf. von Clausewitz, Carl. (1832) 1976. On War, trans. Michael Howard and Peter Paret. Princeton, NJ: Princeton University Press. World Bank. 2017. Iraq Systematic Country Diagnostic. Washington, DC: World Bank. CHAPTER 1 Reconstruction Challenges in Iraq Introduction Pursuing effective reconstruction within contexts of conflict and fragility is a formidable challenge. After World War II, the Marshall Plan in Europe and the reconstruction of Japan represented monumental ­ successes in reconstruction. Apart from these experiences, however, it is difficult to find a story of unqualified reconstruction success, especially in the years since the end of the Cold War. One critical difference between these post–World War II experiences and contemporary reconstruction is that recent reconstruction has been undertaken in volatile conditions, and there is not yet a textbook approach to reconstruction activities in fragile and conflict-affected settings. Reconstruction in fragile and conflict settings is characterized by uncertainty, fluidity, and complexity. Conditions are not static, but dynamic and nonlinear; political, economic, security, and social aspects are always changing. Successful reconstruction in such contexts requires figuring out how to manage uncertain, fluid, and complex situations and how to respond and adapt to these challenges. Amid such difficulties, the international community may hesitate to engage in robust ­ reconstruction activities, but the cost of inaction can be great. The success or failure of country-level reconstruction efforts can have a significant impact on the peace and stability of the broader global community. So how can we manage the process effectively? To find a more effective approach for future efforts, we need to learn from past reconstruction experiences. The reconstruction of Iraq after 2003 offers many lessons. Between 2003 and 2014, more than 19 20 The Reconstruction of Iraq after 2003 US$220 billion was spent on reconstruction efforts following the United States–led invasion and overthrow of the Saddam Hussein regime, but the reconstruction experience has been highly criticized, both within the international community and in Iraq itself. More recently, after years of fighting the Islamic State of Iraq and the Levant (ISIL), also known as Daesh—whose emergence many observers attribute to the failures of reconstruction in the wake of the Iraq War—the international commu- nity and the Iraqi government must again begin planning for a new wave of reconstruction. This study draws lessons and provides recommendations for future reconstruction activities in fragile countries by examining reconstruction in Iraq from 2003 until May 2014, just before the emergence of Daesh. Iraq’s reconstruction between 2003 to 2014 was marked by several phases according to changing political, social, and security ­ circumstances (annex 1A). Despite the tens of billions of dollars spent since 2003, the Iraqi people continue to face many challenges: the daily threat of violence, poor public services, widespread corruption, and growing ­ political and social divisions. The question of what went wrong in Iraq has been the topic of many books, articles, and academic papers. Most analyses address U.S. policies, military intervention, and Iraqi politics, while reviews of the reconstruction process are often limited to each donor’s operation. This study reviews the reconstruction of Iraq more broadly. The case of Iraq offers few successes and many failures from which the international community can learn. Security Volatile security conditions posed the most formidable challenge to the Iraqi people, the Iraqi economy, and reconstruction efforts. Although it is difficult to assess the exact number of deaths, at least 180,000 Iraqi civil- ians are thought to have been killed through insurgent and sectarian vio- lence between March 2003 and February 2017.1 At the peak of the insurgency between mid-2006 and mid-2007, the number of deaths of Iraqi civilians stood at roughly 3,000 per month, or around 100 per day. The security situation varied widely over time and across governo- rates. As indicated in figure1.1, while the Baghdad Governorate had the highest incidence of civilian casualties, security improved significantly after 2008, only to worsen again after 2012. Security in the Basra gover- norate remained volatile for the first several years after the invasion, but improved significantly after 2008 and, to date, remains relatively stable. In the Anbar Governorate, noted for its volatility in the first several years following the invasion, after a brief respite, security again deteriorated Reconstruction Challenges in Iraq 21 FIGURE 1.1 Civilian Deaths from Violence in the Anbar, Baghdad, Basra, and Erbil Governorates of Iraq, 2003–16 18 16 14 Civilian deaths (thousands) 12 10 8 6 4 2 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Anbar Basra Erbil Baghdad Source: Iraq Body Count data (https://www.iraqbodycount.org/). beginning in 2013 due to the activities of Daesh. Although the Erbil Governorate was subject to occasional insurgent activities, the region has been largely successful in containing violent activities, which has enabled reconstruction activities to be undertaken with fewer security constraints. Institutions Institutional Capacity before 2003 Persons engaged in Iraq’s reconstruction right after the invasion in 2003 encountered many experienced Iraqi officials who, for the most part, were in their 50s or 60s. Most of these Iraqi workers had received a good education in their youth, and some had received further training through their employers after graduating from a university. This period during the 1970s and early 1980s has been referred to as “the golden age of Iraqi education,” when Iraq’s human resources and institutional capacity were among the best in the Middle East and North Africa region, with high levels of public investment and income (Yamao and Sakai 2013, 154). The combination of a strong education system and abundant job opportunities laid a firm foundation for the Iraqi workforce and institu- tional capacity, as attested to by the Iraqi recovery after the Gulf War 22 The Reconstruction of Iraq after 2003 in 1991. The damage to infrastructure was significant following 42 days of continuous air strikes and attacks by coalition forces. Close to 4,000 schools, 260 bridges, hundreds of electricity and petroleum facilities, and many other buildings and infrastructure were destroyed. Despite these difficulties—as well as limited access to spare parts and supplies due to international embargoes and an absence of the foreign expertise that had originally helped to build the country’s infrastructure—Iraq managed to restore many facilities without any external support. Yet while the damage caused by the invasion in 2003 was less severe, the Coalition Provisional Authority (CPA) and donors struggled far more in their efforts to restore infrastructure, frustrating many Iraqi officials whose own reconstruction efforts had achieved so much after the Gulf War. This golden age of Iraqi education gradually ended, with the Iran-Iraq War that raged from 1980 to 1988, the Gulf War in 1991, and ensuing economic sanctions all contributing to its demise. Compounding the decline in education, job opportunities for graduates became scarcer. Between 1991 and 2003, economic activity and government spending were highly restrained and conducted under the supervision of United Nations (UN) observers. Over time, the brain drain of academics and technical workers such as doctors and engineers grew steadily. The effect of this generation gap between older, educated, and skilled workers and younger Iraqis who have had fewer opportunities for pro- fessional growth is becoming ever more serious, as public servants retire and make way for less-experienced successors to occupy senior ministe- rial posts. Iraqi Institutions after 2003 Despite the deterioration of Iraqi institutions in the preceding years, by 2003, many experienced Iraqi officials were still in the country, but they were largely sidelined by CPA officials, who favored working with Iraqi exiles over officials who had held government posts before the war (Sky 2015, 11).2 Institutions were further weakened by the issuance of CPA Order no. 1 on May 16, 2003, which removed the top four ranks of Baath Party officials from government posts. According to Emma Sky, a former political adviser to the U.S. military, “The architect of this policy in Washington had studied the experience of Germany in 1945 and regarded de-Nazification as a model” (Sky 2015, 56, 218). This order led to the firing of around 30,000 ex-Baathists from various ministries, of which 15,000 eventually were permitted to return to work upon appeal (Otterman 2005). While the brutality of the Saddam regime cannot be questioned, many Baath Party members had belonged to the party for the sake of Reconstruction Challenges in Iraq 23 promotion in government posts and had never committed a serious crime; nevertheless, they were deprived of opportunities to play a key role in future nation-building efforts. This restriction imposed signifi- cant constraints on government capacity. Like the decision to dissolve the Iraqi army, de-Baathification likely pushed some Iraqis toward vio- lent resistance who might otherwise have been co-opted into rebuilding the country (Diamond 2004, 44). Ethnosectarian Diversity and Its Influences over Institutions The people living in the greater Tigris-Euphrates River Basin, the areas in which the current Iraq is located, hold multiple identities based on the tribes and sectarian and ethnic groups to which they belong. While Iraq has many religious and ethnic minority groups—such as Christian, Turkoman, and Yezidi—the largest and most pronounced ethnosectarian divisions are between three groups: Arab-Shia, Arab-Sunni, and Kurds. Each group is far from monolithic, however, as shown by past episodes of fighting between the two main Kurdistan groups—the Kurdistan Democratic Party and the Patriotic Union of Kurdistan—during the 1990s and by the divisions among Shia communities during the uprising against the Saddam regime after the Gulf War in 1991. The strength of ethnic identity changes frequently, depending on the relationships between the rulers (or the state after 1932) and the people. In Iraqi his- tory, the idea of tribe and tribal leaders has also shifted in response to changes in the identity and capacity of its rulers (Tripp 2002, 2–3). The state of Iraq was itself only formed in 1921 under the British mandate after the dissolution of the Ottoman Empire, achieving inde- pendence, albeit nominally, in 1932. Therefore, the idea of a national Iraqi identity was relatively new, and rulers of the state had to consider this diversity. Under the oppression of Saddam Hussein, the differences in ethnicity, religion, and tribes were less critical. Privileges mainly went to kin affiliates of the Saddam ruling family. Even though non-Sunnis thought that Arab-Sunnis enjoyed privileges under the Saddam regime, most Arab-Sunnis suffered just like the Kurds and Arab-Shia (Al Aqeedi 2017). After the invasion and collapse of the Saddam regime, however, groups began emphasizing their differences to enhance their politi- cal leverage, further intensifying divisions within the country. Each ethnosectarian and political group battled to dominate ministries and local governments, with the result that each government entity became subject to the influence of particular groups. In addition, the politiciza- tion of public institutions became closely related to corruption. After the invasion, political parties in Iraq pursued their own economic benefits 24 The Reconstruction of Iraq after 2003 from government contracts, while certain political leaders manipulated graft investigations for political advantage, eroding the credibility of anticorruption efforts. Some of the actions taken by the United States–led occupation force may have inadvertently entrenched identity divisions further. For exam- ple, the CPA’s decision to form the Iraqi Governing Council along eth- nosectarian lines may have been well intentioned as a form of affirmative action, but it only served to make distinctions between ethnic groups more pronounced. One senior CPA adviser described how the CPA promoted the most sectarian elements in society, saying “We gather together the representatives of the most antagonistic factions and think that’s good democracy. We’ve done nothing to blur the lines separating people and everything to sharpen them” (Agresto 2007, 1405). Many regional actors—the Islamic Republic of Iran, in particular—exerted significant political influence. While Iraqi institutional capacity was weakened by the political interventions of external actors, weak national institutions created room for ethnosectarian influence over ministries that hampered their effective functioning. The Economy The most prominent characteristic of the Iraqi economy is its depen- dence on oil revenues. The oil sector accounts for 60 percent of gross domestic product (GDP), and oil revenues account for 90 percent of budget revenues. Thus, the Iraqi economy is highly vulnerable to fluctuations in oil prices, production, and exports. In the late 1970s, thanks to increasing oil production and exports as well as higher oil prices, GDP per capita reached US$4,000. During that period, backed by abundant oil revenues, Iraq undertook massive infrastruc- ture development. The start of the war between Iraq and the Islamic Republic of Iran in 1980, compounded by a rapid decline in oil prices, hurt the economy and reversed some of the previous decade’s gains. The Gulf War followed in 1991, with the imposition of economic sanctions and a ban on oil exports (figure 1.2). By 1996 Iraqi GDP per capita had dropped to around US$340 (figure 1.3). During the sanc- tions period, public sector salaries declined to as low as US$3 per month, and livelihoods were sustained mainly by the food rationing system run by the government. In that sense, instead of curbing the authoritarian regime, economic sanctions expanded the role of the state and strengthened its authority over Iraqi citizens, while the country as a whole and the population at large suffered (Mazaheri 2010; Sassoon 2016). Reconstruction Challenges in Iraq 25 FIGURE 1.2 Oil Production and Exports in Iraq, 1980–2014 3,500 Iran-Iraq War Economic sanctions 3,000 Oil-for-Food Programme 2,500 Barrels per day 2,000 1,500 1,000 500 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Oil production Oil exports Source: World Bank data. FIGURE 1.3 GDP per Capita and Crude Oil Prices in Iraq, 1970–2014 7,000 120 Iran-Iraq War Economic sanctions 6,000 100 5,000 GDP per capita (US$) 80 US$ per barrel 4,000 60 3,000 40 2,000 1,000 20 0 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 GDP per capita Oil prices (right scale) Sources: Economist Intelligence Unit data; World Bank data. The Economic Challenges of Reconstruction Iraq confronted diverse economic challenges after 2003. First, unlike some postconflict cases, the reconstruction of Iraq was not concerned merely with ensuring economic recovery to preconflict levels. Damage to infrastructure from military operations during the invasion itself was lim- ited; rather, the deterioration of infrastructure had been well under way long before the invasion. Moreover, economic sanctions and the 26 The Reconstruction of Iraq after 2003 Oil-for-Food Programme (OFFP) introduced severe distortions into the economy and its institutions. Thus, a major challenge during the recon- struction of Iraq was to rebuild the economy and infrastructure simultaneously. Second, although the CPA and the Iraqi government prioritized the restoration of oil production and exports, the oil sector recovered more slowly than anticipated, and its impact on broader reconstruction efforts increased only gradually. Oil prices, in particular, had a greater effect on GDP and government revenues than fluctuations in production (figure 1.4). Third, the diversification of the economy remained high on the eco- nomic agenda of the Iraqi government, but progress even up to today has been minimal. While the economy’s dependence on oil makes it highly vulnerable to fluctuations in oil prices, the capital-intensive oil sector employs only 1–2 percent of Iraq’s labor force. Oil revenues provide abundant resources to enable the government to be a major provider of employment opportunities, but government employment heavily bur- dens the fiscal system and makes the budget system inflexible. Separately, because of the high concentration of resources, sectors unrelated to oil have developed little. Meanwhile, the uneven geographic distribution of oil resources has fueled regional and sectarian disputes. These challenges are typical consequences of a “resource curse.” Fourth, institutions created bottlenecks for reconstruction activities. In periods of rising oil prices, the Iraqi government was able to allocate FIGURE 1.4 Government Revenue and Oil Price Fluctuations in Iraq, 2003–15 140,000 120 120,000 100 Spot price (US$ per barrel) 100,000 Iraqi dinars (billions) 80 80,000 60 60,000 40 40,000 20,000 20 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Government revenue Crude oil, average (right scale) Source: International Monetary Fund data. Reconstruction Challenges in Iraq 27 substantial resources to capital investment projects and r ­econstruction activities, but the budget execution rate remained low, at around 40–60 percent (figure 1.5). This suggests that institutional capacity, rather than a lack of financial resources, hindered reconstruction activities. Fifth, high expectations for private investment in Iraq when military activities drew to a close were realized only in the oil sec- tor; in non-oil sectors, both foreign and domestic private investment remained limited. For all the efforts of the post-Saddam administra- tions, the Iraqi economy continued to operate largely under state con- trol. Although a growing number of new private companies emerged during the course of reconstruction, Iraq’s private sector remains dominated by individual, micro, and small companies owned by sole proprietors or family partnerships, and their impact on the economy and nationwide employment opportunities has been modest (PMAC 2014). Accelerating the development of the Iraqi private sector, espe- cially non-oil sectors, is indispensable for job creation and the future growth of Iraq’s economy. Foreign direct investment, outside of the oil sector, comes mostly from private companies based within the region, particularly those from the Gulf States and Turkey. A combination of constraints—such as poor security, dire infrastructure, volatile political conditions, and ­ corruption—continues to make private parties from outside the region reluctant to invest in Iraq’s non-oil sectors. FIGURE 1.5 Investment Budget Execution in Iraq, 2005–13 70,000 60,000 50,000 Iraqi dinars (billions) 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Actual Budgeted Source: Iraq Ministry of Finance, quoted in World Bank 2014. 28 The Reconstruction of Iraq after 2003 Unemployment during Reconstruction Job creation was one of the highest reconstruction priorities after the invasion in 2003. Polls conducted in early 2004 showed that a majority of Iraqis considered unemployment to be a serious problem (table 1.1). An initial problem involved ascertaining the actual unemployment rate, with estimates varying wildly due to differing definitions of unemployment and a lack of reliable data, especially regarding the informal sector and the number of ghost workers. A survey by the United Nations Development Programme of living conditions in Iraq in 2004 estimated unemployment—­ calculated based on the International Labour Organization ­ methodology— at about 10.5 percent (IMF 2005); more worrying, it estimated a 37 percent unemployment rate among the educated young, including discouraged workers. Estimates from the Iraq Ministry of Planning put the overall unemployment rate much higher (28 percent), as did CPA estimates (30 percent) and those compiled by scholars at the Brookings Institution (30–45 percent) and Baghdad University (70 percent) (IMF 2005). The public sector has been the dominant formal employer in Iraq for decades. Abundant oil revenue allowed the government to provide jobs for the majority of workers—a dynamic that, before the invasion, formed a key pillar of the social contract between Saddam’s regime and the Iraqi people. The private sector was undeveloped and employed a small frac- tion of the labor force. After the invasion, many donors and international organizations engaged in job creation programs, but most efforts focused on temporary employment. Public sector employment grew larger, becoming increasingly nonmeritocratic, and the sector has come to be viewed as a de facto social safety net for Iraqis. Between 2003 and 2015, the core public sector expanded from 900,000 employees to more than 3 million, providing approximately 42 percent of all jobs (­ figure 1.6). Public employee salaries became the largest expenditure item in the government budget (figure 1.7). TABLE 1.1 Public Perceptions of the Problems Facing Iraq, February 2004 % of respondents Problem Very good Quite good Quite bad Very bad Not sure or no answer Not applicable Total The security situation 20.2 28.7 21.1 29.0 1.0 0.0 100 The availability of jobs 6.5 19.1 22.5 46.1 5.8 0.0 100 The supply of electricity 7.9 27.0 27.8 36.6 0.7 0.0 100 The availability of clean water 19.7 30.8 21.7 26.3 1.5 0.0 100 The availability of medical care 16.9 34.1 24.4 21.8 2.0 0.8 100 Local schools 36.6 34.6 15.0 11.1 2.4 0.4 100 Local government 17.8 31.7 20.4 17.7 12.4 0.0 100 Source: Oxford Research International 2004. Reconstruction Challenges in Iraq 29 FIGURE 1.6 Core Public Sector Employment in Iraq, 2003–15 3.5 42 45 40 41 40 40 38 39 3.1 3.0 40 3.0 34 2.8 2.9 2.7 2.5 35 2.5 2.4 2.3 28 30 Employees (millions) 2.0 % of all jobs 23 23 25 22 1.5 20 1.2 1.0 15 0.9 1.0 10 0.5 5 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Employees, core public sector Core public employment (right scale) Sources: Iraq Ministry of Finance data; World Development Indicators data, quoted in World Bank 2017b. FIGURE 1.7 Average Composition of Public Expenditures in Iraq, 2005–10 Other expenditures, 10% Employees’ compensation, 31% Capital expenditures, 17% Net acquisition of nancial assets, 1% Interest, 1% Subsidies, 4% Grants, 5% Goods and services, 14% Pensions, 5% Social bene ts, 12% Source: World Bank 2014. 30 The Reconstruction of Iraq after 2003 Annex 1A: Phases of Iraqi Reconstruction, March 2003 to June 2014 March 2003 to June 2004 Immediately after the invasion, Iraq was placed under the administration of a foreign power, and Iraqi institutions were marginalized in initial nation- building efforts. The United Nations Security Council (UNSC) Resolution 1483, adopted May 22, 2003, empowered the United States–led coalition, under the Coalition Provisional Authority, as the de facto government in Iraq for the first year of occupation. The CPA led most reconstruction efforts, and its senior advisers for each sector held authority equivalent to that of ministers. Compared with later years, levels of violence were mod- erate, although an attack on the UN headquarters in Baghdad on August 19, 2003, made it clear that the norms of aid worker neutrality would not be observed. Because of the attack, combined with the ambigu- ity of its roles under the occupation, the UN decided to remove its staff from Iraq, and many b ­ ilateral organizations followed suit. Although donors and international organizations physically withdrew from the country, they continued to provide assistance remotely. The United Kingdom and the United States, meanwhile, remained and continued reconstruction activities within the country. A political milestone took place in March 2004, when the Transitional Administrative Law (TAL)— the provisional Constitution—was drafted and approved by the CPA and the Iraq Governing Council, an advisory body established by the CPA and consisting of 25 Iraqi ­ political and tribal leaders. During this phase, all donors and international organizations had ­ difficulty grasping needs on the ground, partly because of the absence of a sovereign government and partly because of a lack of assessment and ­ sector strategy and planning. As a result, projects and programs were selected based on limited interaction with Iraqi counterparts and in an ­opportunistic manner. Many international actors were engaged in procurement and delivery of goods or equipment, and others in ad hoc ­ emergency repairs to existing facilities. July 2004 to Mid-2007 In accordance with UNSC Resolution 1546, the CPA transferred sover- eignty back to Iraq at the end of June 2004, handing caretaker authority over to the interim government led by Prime Minister Ayad Allawi. In line with TAL provisions, parliamentary elections for the 275-member transitional National Assembly of Iraq were held on January 30, 2005. In May 2005, the newly elected assembly selected a transitional Reconstruction Challenges in Iraq 31 government, to be led by Prime Minister Ibrahim al-Jaffari, and was given a mandate to write a permanent Constitution for Iraq. Drafted by committee, the ­ Constitution was ratified by a national referendum on October 15, 2005. The first official general election to elect a permanent National Assembly was held on December 15, 2005, although it would take another five months to select Nouri al-Maliki as prime minister. On May 20, 2006, al-Maliki’s cabinet was sworn in as the first full-fledged govern- ment of postwar Iraq. While most international organizations and bilateral donors, aside from the United Kingdom and the United States, had left Iraq by the spring of 2004, some international NGOs retained a presence in the country and were still able to move around Iraq relatively unrestricted and without the need for visible security. However, as attacks on and kidnapping of aid workers grew, international NGOs began withdraw- ing from Iraq, while coalition staff mobility became highly constrained. The situation continued to deteriorate, and at the peak of insurgent activities, from June 2006 to May 2007, the monthly toll of civilian deaths averaged 2,843. Reconstruction activities had to be managed remotely either from neighboring countries or from the International Zone of Baghdad. With security concerns at crisis levels, the United States developed a new strategy in January 2007 to increase the number of troops deployed to the country. During this phase, donors and international organizations were challenged by their ambition to pursue more substantial reconstruc- ­ tion activities while being unable to operate ground activities freely for their implementation. While training offered outside of the country increased donor interaction with Iraqis, managing operations remotely and ­providing additional security in-country caused project and program costs to skyrocket. Mid-2007 to the End of 2010 As the U.S. military surge came into effect in early 2007, military ­ operations were undertaken jointly with Sunni tribal security forces—the so-called “Sahwa” or “Sons of Iraq”—and security conditions began to improve. In 2008, the U.S. administration under President George. W. Bush and the Iraqi government signed the United States– Iraq Status of Forces Agreement, which stated that U.S. troops would withdraw after three years—by the end of 2011—and hand sovereignty over security back to the Iraqi government, a risky but nonetheless politically important measure. ­ National Assembly elections were held in March 2010, resulting in a partial victory for the Iraqi National Movement, led by former Interim 32 The Reconstruction of Iraq after 2003 FIGURE 1A.1 Oil Production, Electricity Generation, and Iraqi Investment Expenditures, 2002–13 250 45,000 Electricity output (megawatts) Barrels per day (thousands); 40,000 200 35,000 Iraqi dinars (billions) 2002 = 100 30,000 150 25,000 100 20,000 15,000 50 10,000 5,000 0 0 02 03 04 05 06 07 08 09 10 11 12 13 14 15 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Investment expenditures (right scale) Oil production (left scale) Electricity generation (left scale) Sources: Information from the Iraq Ministry of Electricity, the Iraq Ministry of Finance, and the U.S. Energy Information Administration; World Bank 2017a. Note: The exchange rate for the Iraqi dinar has been pegged to around ID 1,170 = US$1 since 2008. Prime Minister Ayad Allawi, winning a total of 91 seats and making it the largest alliance in the National Assembly. The State of Law Coalition, led by incumbent Prime Minister Nouri al-Maliki, made up the second- largest group, with 89 seats. After nine months of intensive negotiations, it was agreed that al-Maliki would continue to serve as prime minister, and in December 2010, his second administration was sworn in. With improving security and a degree of political stability, aid workers began returning to Iraq, and reconstruction activities finally ­ ­ utput, began to show results. For example, electricity generation and oil o which had been hovering around prewar levels, began to improve gradually (figure 1A.1). But by this point, momentum for the provision ­ of support for Iraq’s reconstruction had ebbed, and donors offered only limited new assistance. 2011 to June 2014 In December 2011, the United States completed its withdrawal of troops. Meanwhile, there was growing criticism of the prime minister for ­concentrating executive power in his own hands. Political tensions among different political parties and sectarian groups were growing, especially after an arrest warrant was issued for a vice president and prominent Sunni politician. At the same time, tensions were mounting between the central government and the Kurdistan Regional Government (KRG), as Reconstruction Challenges in Iraq 33 international oil companies began working directly with the KRG in the north, while the KRG complained of problems with the central government’s budget transfer process and pursued efforts to gain more ­ autonomy under the federal system. Security remained relatively stable until the middle of 2013 but started to deteriorate again when militia and insurgent groups began exploiting political and ethnosectarian divisions as well as ­deficiencies in the Iraqi security forces. Events reached a low point when the ­ terrorist group Daesh captured the city of Mosul on June 10, 2014. ­ overnment At the same time, a rapid drop in the price of oil hit Iraqi g revenues hard, and the rehabilitation of infrastructure, which had continued steadily despite the deteriorating security and political ­ ­ environment, ground to a halt. Notes 1. According to data compiled by the Iraqi Body Count database, as of March 2017 (https://iraqbodycount.org/). 2. As Sky puts it, “Bremer did not believe there were credible Iraqi leaders who could assume power, and he decided that the CPA had to directly administer the country for an undefined period. America was going to rebuild Iraq, as it had rebuilt Germany and Japan after World War II.” References Agresto, John. 2007. Mugged by Reality. New York: Encounter Books. Al Aqeedi, Rasha. 2017. “Disarray among Iraqi Sunnis Yields Opportunity for Nationalism.” The Century Foundation (Commentary), April 26. https:​//­tcf.org/content/commentary/disarray-among-iraqi-sunnis-yields​ -­opportunity​-nationalism/. Diamond, Larry. 2004. “What Went Wrong in Iraq.” Foreign Affairs 83 (5): 34–56. IMF (International Monetary Fund). 2005. Iraq: Article IV Consultation. Country Report 05/294. Washington, DC: IMF. Mazaheri, Nima. 2010. “Iraq and the Domestic Political Effects of Economic Sanctions.” Middle East Journal 64 (2): 253–68. Otterman, Sharon. 2005. “Debaathification.” Council on Foreign Relations , February 22. https://www.cfr.org/backgrounder/iraq-debaathification. Oxford Research International. 2004. National Survey of Iraq: February 2004. Oxford: Oxford Research International. http://news.bbc.co.uk/nol​ /­ /shared​ bsp​ /hi/pdfs/15_03_04_iraqsurvey.pdf. PMAC (Prime Minister’s Advisory Commission). 2014. Private Sector Development Strategy 2014–2030. Baghdad: PMAC. http://cabinet.iq/uploads/pdf/2015​ -3/2.pdf. 34 The Reconstruction of Iraq after 2003 Sassoon, Joseph. 2016. “Iraq’s Political Economy Post 2003: From Transition to Corruption.” International Journal of Contemporary Iraqi Studies 10 (1-2): 17–33. Sky, Emma. 2015. The Unraveling: High Hopes and Missed Opportunities in Iraq. New York: Public Affairs. Tripp, Charles. 2002. A History of Iraq. Cambridge: Cambridge University Press. World Bank. 2014. Republic of Iraq: Public Expenditure Review. Washington, DC: World Bank. ———. 2017a. Iraq Public Expenditure Review. Washington, DC: World Bank. ———. 2017b. Iraq Systematic Country Diagnostic. Washington, DC: World Bank. Yamao, Dai, and Keiko Sakai. 2013. 60 Chapters to Understand the Contemporary Iraq [in Japanese]. Tokyo: Akashi Shobo. CHAPTER 2 International Engagement in the Reconstruction of Iraq Overview of International Actors Beginning in 2003, diverse and significant actors, both domestic and international, engaged in reconstruction activities in Iraq. At the Madrid Donor Conference in October 2003, the international community—­ represented by 38 countries, the European Commission, the International Monetary Fund (IMF), and the World Bank—announced overall and indicative pledges amounting to more than US$33 billion in grants and loans (figure 2.1). The international community established a trust fund called the International Reconstruction Fund Facility for Iraq (IRFFI) as an inter- national financial mechanism for reconstruction activities. The fund had two windows: the World Bank Iraq Trust Fund (WBITF), and the United Nations Development Group Iraq Trust Fund (UNDGITF). This was the first time that the United Nations (UN) and the World Bank had jointly managed a trust fund. Donors committed US$1.86 billion, mak- ing it the second-largest postcrisis multidonor trust fund up to that point (table 2.1). Seventeen donors deposited a total of US$497 million into the WBITF to support 22 projects, while 25 donors deposited a total of US$1.358 billion into the UNDGITF to support 200 projects (Scanteam 2009, 1). Over the course of reconstruction, however, the size of support grew significantly—particularly the U.S. commitments, which amounted to US$18.6 billion at the Madrid conference but grew to US$60 ­ billion, including around US$27 billion for security-related expenditures, 35 36 The Reconstruction of Iraq after 2003 FIGURE 2.1 Pledges Made at the International Donor Conference for Iraq Reconstruction, October 2003 World Bank, US$3 billion International Monetary Fund, US$2.55 billion Other bilateral, US$2.346 billion United Kingdom, US$0.452 billion United States, US$18.649 billion European Union/ Japan, European Commission, US$5 billion US$1.492 billion Total pledged: US$33 billion Source: United Nations Development Programme. TABLE 2.1 Total Donor Contributions to the International Reconstruction Fund Facility for Iraq (IRFFI) US$ (thousands) Donor UNDPITF WBITF Total European Commission 594,210 179,740 773,950 Japan 360,951 130,600 491,551 Spain 93,173 20,000 113,173 Canada 63,785 26,700 90,485 United Kingdom 55,542 71,400 126,942 Italy 39,232   39,232 Australia 31,663 16,140 47,803 Korea, Rep. 21,000 9,000 30,000 Sweden 13,657 5,800 19,457 Denmark 12,410   12,410 Germany 10,000   10,000 Finland 7,700 2,600 10,300 Norway 7,009 6,700 13,709 Netherlands 6,697 6,200 12,897 India 5,000 5,000 10,000 (continued on next page) International Engagement in the Reconstruction of Iraq 37 TABLE 2.1 Total Donor Contributions to the International Reconstruction Fund Facility for Iraq (IRFFI) (continued) Donor UNDPITF WBITF Total Kuwait 5,000 5,000 10,000 Qatar 5,000 5,000 10,000 United States 5,000 5,000 10,000 Turkey 9,000 1,000 10,000 Greece 3,630 3,630 New Zealand 3,365 3,365 Luxembourg 2,319 2,319 Belgium 1,321 1,321 Ireland 1,226 1,226 Iceland 500 1,000 1,500 Total deposits 1,358,390 496,880 1,855,270 Source: Scanteam 2009. Note: UNDGITF = United Nations Development Group Iraq Trust Fund; WBITF = World Bank Iraq Trust Fund. FIGURE 2.2 Funding Sources for Iraq Reconstruction, 2003–12 Bilateral, US$9.44 billion Multilateral, US$4.31 billion U.S. funding, US$60.64 billion Iraqi capital budgets, US$126.01 billion CPA spending of Iraqi funds, US$19.80 billion Source: SIGIR 2013. Note: Total: US$220 billion. CPA = Coalition Provisional Authority. such as training and equipping Iraqi security forces. As Iraqi oil pro- duction and exports began to recover, a substantial amount of Iraq’s investment was allocated to reconstruction activities. The total capital ­ financial commitment for the reconstruction of Iraq amounted to US$220.1 ­ billion by the end of 2012 (figure 2.2). 38 The Reconstruction of Iraq after 2003 Key Actors in the International Response The U.S. Role in Reconstruction In the first few years after the invasion, the United States led all actors in the amount of resources committed to and the role per- formed in Iraq’s reconstruction. To oversee reconstruction activities, the U.S. Office of Reconstruction and Humanitarian Assistance (ORHA) was established before the invasion; after United Nations Security Council (UNSC) Resolution 1483 empowered the United States–led occupation force with executive, judicial, and legislative authority to govern Iraq, this role was taken over by the Coalition Provisional Authority (CPA) in May 2003. The CPA was the central player in Iraq’s reconstruction until sovereignty was transferred to the Iraqi interim government in June 2004. Still, even after handing over sovereignty, the United States continued to be a major actor in recon- struction activities. Initial estimates put the cost of Iraq’s reconstruction to U.S. taxpayers at US$1.7 billion (SIGIR 2009, 51). This proved to be a ­ gross ­underestimate; according to the report of the Special Inspector General for Iraq Reconstruction (SIGIR), U.S. spending amounted to US$60 ­ billion between 2003 and 2012. Table 2.2 shows the major U.S. budget ­appropriations for Iraq’s reconstruction. In addition, UNSC Resolution 1483 established the Development Fund for Iraq, which became the repository for Iraq’s oil and natural gas revenue and was estimated to total US$20.7 billion during the 14 months of CPA administration (SIGIR 2013). Resources from the Development Fund for Iraq were complemented by US$2.7 billion in seized and vested assets of the former Iraqi regime. TABLE 2.2 U.S. Budget Appropriations for Iraq Reconstruction Efforts Name of fund Amount (US$, billions) Iraq Relief and Reconstruction Fund I (April 2003 approval) 2.48 Iraq Relief and Reconstruction Fund II (November 2003 approval) 18.60 Iraq Security Forces Fund 20.19 Economic Support Fund 5.13 Commander’s Emergency Response Program 4.12 International Narcotics Control and Law Enforcement account 1.31 Other programs 8.17 Total 60.00 Source: SIGIR 2013. International Engagement in the Reconstruction of Iraq 39 Organizational Structure of U.S. Reconstruction Operations The organizational structure of U.S. reconstruction efforts was complex and involved many public and private entities. These entities included the U.S. Agency for International Development (USAID), U.S. Army Corps of Engineers (USACE), U.S. Department of Defense, U.S. Department of State, several newly established entities—for example, the CPA, ORHA, and the Project Management Office (PMO)—the Iraq Reconstruction Management Office (IRMO), the Project Contracting Office (PCO), and American private contractors. Lines of authority and command were intertwined and lacked clarity, creating tensions and confusion among the different actors. These coordination problems were complicated further by the diverse lines of funding made available to each entity.1 The U.S. Department of Defense was the de facto lead agency in most reconstruction activities in the first year of reconstruction, and its influence remained strong, albeit diminishing gradually, after dis- solution of the CPA in June 2004. U.S. security entities played key roles, both in efforts to rebuild Iraq’s security sector and institutions and in other reconstruction activities normally undertaken by devel- opment actors. Amid the worsening security situation, restoring and maintaining the rule of law quickly became the top reconstruction priority for both inter- national and domestic actors. The United States made the largest com- mitments in this area, including for training and equipping Iraqi security forces and for building capacity in the Iraq Ministry of Defense and Ministry of Interior. These efforts were paid for using different financing resources (table 2.3), with the total security sector budget amounting to more than US$27 billion. TABLE 2.3 Security and the Rule of Law, Cumulative U.S. Obligations as of September 30, 2012 Type of budget Amount US$ (billions) Iraq Security Force Fund 19.57 Iraq Relief and Reconstruction Fund 5.67 International Narcotics and Law Enforcement 1.16 Commander’s Emergency Response Program 0.68 Economic Support Fund 0.23 Total 27.31 Source: SIGIR 2013. 40 The Reconstruction of Iraq after 2003 U.S. security actors also played a role in reconstruction activities not related to security. For example, the Commander’s Emergency Response Program (CERP) provided immediate reconstruction and humanitarian assistance at the local level to support the work of U.S. military ­ commanders. Meanwhile, the Provincial Reconstruction Team ­ program, originally developed in Afghanistan, established a system in which ­ ­ military and civilian personnel sought to work as an integrated team in each governorate. Its mission encompassed not only capacity d ­evelopment efforts to aid provincial and local governments but also projects to support stability operations and the ­ counterinsurgency effort. Some of these activities have attracted criticism. For example, SIGIR and others have questioned the CERP’s lack of a mechanism for ­ measuring the outputs and outcomes of its activities ­ comparable to assessments undertaken by development actors. Separately, the high turnover of military personnel in Iraq affected the management and oversight of CERP projects, and too little provision was made for handing over projects to Iraqi counterparts responsible for ensuring their ­ sustainability (Tarnoff 2009, 18). Findings from SIGIR Despite the huge amount of money spent and the large number of ­ projects and programs carried out, U.S. reconstruction efforts in Iraq have been subject to heavy criticism. On the ground, substantial numbers of dedicated U.S. civilian and military personnel were devoted to reconstruction, many of them risking, and some losing, their lives in the ­ process. The question of what went wrong with U.S. reconstruction operations has been the topic of many books, reports, and articles, among which a series of reports produced by SIGIR provided useful information for this research. In 2012, SIGIR conducted extensive interviews with Iraqi ministers and senior officials, as well as with senior U.S. officials and lawmakers familiar with the U.S. reconstruction program in Iraq (SIGIR 2013, 10–14). According to SIGIR’s final report, interviewees identified three significant problems: • The United States failed to consult sufficiently with Iraqi authorities when planning the reconstruction program. • Corruption and poor security fundamentally impeded progress throughout the program. • The overall rebuilding effort had only a limited positive effect on conditions on the ground. ­ International Engagement in the Reconstruction of Iraq 41 SIGIR (2013, xii) identified key lessons for future U.S. reconstruction programs: • Create an integrated civilian-military office to plan, execute, and be accountable for contingency rebuilding activities during stabilization and reconstruction operations • Begin rebuilding only after establishing sufficient security and focus- ing first on small projects and programs • Ensure full host-country engagement in program and project s ­ election, securing commitments to share costs (possibly through loans) and agreements to sustain completed projects after their transfer • Establish uniform contracting, personnel, and information m anagement systems that all participants in stabilization and ­ reconstruction operations use ­ • Require robust oversight of stabilization and reconstruction activities from the operation’s inception • Preserve and refine programs developed in Iraq that produced ­successes when used judiciously, such as the CERP and the Provincial Reconstruction Team program • Plan in advance, plan comprehensively and in an integrated fashion, and have backup plans ready to go. Other Bilateral Donor Assistance for the Reconstruction of Iraq Many bilateral donors outside of the United States committed large sums of money and took part in various reconstruction activities, albeit on a smaller scale than the United States. Even the United Kingdom, a key coalition partner in the invasion in 2003, wielded only limited influence over the course of reconstruction. What set other bilateral donors apart was that they advocated for a multilateral approach. The United Kingdom was among the strongest advocates of this approach and of the importance of having the UN and international financial institutions take the lead in the reconstruc- tion process, going so far as proposing, albeit unsuccessfully, that the IMF and the World Bank manage the Development Fund for Iraq. Consistent with this approach, the United Kingdom’s initial pledge of £330 ­ million (US$574 million) was diverted to multiple interna- tional actors (­figure 2.3). By 2010, U.K. development and humanitar- assistance totaled £297 million (US$516 million) and £209 million ian ­ (US$364 ­ million), respectively.2 42 The Reconstruction of Iraq after 2003 FIGURE 2.3 Allocation of the U.K. Budget for Iraq’s Reconstruction, 2003–July 2004 UN prepardness, 4% UN agencies’ 2003 appeal, Other 22% reconstruction work, 33% DfID temporary sta ng/security, 8% IRFFI, 21% NGOs, 2% U.K. aid to Iraq up to July 2004 Red Cross, 10% totaled £330 million Source: International Development Committee, House of Commons 2005. Note: UN = United Nations; IRFFI = International Reconstruction Fund Facility for Iraq; NGOs = nongovern- mental organizations; DfID = U.K. Department for International Development. The European Union (EU) was another key donor encouraging a multilateral approach. EU support for Iraq from 2003 to the end of 2013 amounted to around €1 billion (US$1.31 billion), as shown in figure 2.4, which included both reconstruction and humanitarian assistance.3 Instead of engaging in direct assistance of the type provided by Japan, the United Kingdom, and the United States, EU support for Iraq was chan- neled through international organizations, such as the UN and other humanitarian agencies, including the International Committee of the Red Cross and international nongovernmental organizations (NGOs). The EU was also the biggest supporter of the IRFFI, with a contribution of roughly US$774 million for both the UN and World Bank windows, which constituted 42 percent of total contributions to the fund. After the United States, Japan was the largest donor to the recon- struction of Iraq (figure 2.5). At the Madrid Donor Conference in October 2003, the Government of Japan announced an assistance package worth a total of US$5 billion, consisting of US$1.5 billion in grants and US$3.5 billion in concessional loans. Japanese aid was International Engagement in the Reconstruction of Iraq 43 FIGURE 2.4 Annual European Union Commitment for Development and Humanitarian Assistance to Iraq, 2003–13 250 200 200 200 162.5 Euros (millions) 150 100 100 89.7 72.6 50 42 34 30 17.8 20 24.218 15.7 22 21 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Development cooperation total, €883.7 Humanitarian aid total, €185.8 Source: EU 2010. FIGURE 2.5 Allocation of Japanese Grant Assistance to Iraq, 2003–09 Contribution to NGO, 2% IRFFI (World Bank), 8% Contribution to IRFFI (UN), 21% Bilateral grant, 55% Bilateral Japanese grant aid up to 2009 contribution to UN totaled US$1.68 billion agencies, 14% Source: Japan Ministry of Foreign Affairs 2009. Note: IRFFI = International Reconstruction Fund Facility for Iraq; NGO = nongovernmental organization; UN = United Nations. 44 The Reconstruction of Iraq after 2003 supervised jointly by the Japan Ministry of Finance and Ministry of Foreign Affairs and was executed by the Japan International Cooperation Agency (JICA) and the Japan Bank for International Cooperation (JBIC).4 Like the EU and United Kingdom, Japan provided aid to Iraq through multiple channels, but it also maintained large bilateral oper- ations administered by JICA and the JBIC through grants initially and later through concessional loan assistance that continues today (see figures 2.5 and 2.6, respectively, for details on Japanese grant and loan assistance). Japan also forgave US$6.7 billion in credit to Iraq based on an agreement reached at the Paris Club in November 2004, at which donors agreed to reduce Iraqi public debt by 80 percent. By the end of 2016, Japan’s total commitment for the reconstruction of Iraq had topped US$7 billion. Evaluations of bilateral donor interventions are limited, so it is difficult to assess how aid affected the reconstruction of Iraq. However, ­ the Iraq Inquiry Committee in the United Kingdom, led by John Chilcot, conducted a detailed assessment of the policies and actions of the United Kingdom in Iraq, including its reconstruction activities. The report contains key findings related to reconstruction: • The committee stated that, from the available information, it was unable to assess the full impact of U.K. reconstruction efforts, noting, “One difficulty is that the [U.K.] government never defined what contribution reconstruction should make to achieving broader U.K. ­ objectives and so what would constitute success or failure.” FIGURE 2.6 Japanese Loan Assistance to Iraq, 2006–13 2,000 1,827 1,800 1,600 1,400 US$ (millions) 1,200 1,000 878 800 577 600 424 364 391 400 246 202 200 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Japan Ministry of Foreign Affairs database. Note: US$1 = ¥100. International Engagement in the Reconstruction of Iraq 45 • The United Kingdom failed to plan or prepare for the major reconstruction program that would be required in Iraq. Many of the ­ failures that affected planning and preparation before the invasion ­ persisted throughout the postconflict period. They included poor i nterdepartmental coordination, inadequate civilian-military ­ cooperation, and a failure to use resources coherently. ­ • An unstable and insecure environment made it increasingly difficult to make progress on reconstruction. Although staff and contractors developed innovative ways to deliver projects and manage risks, the ­ constraints were never overcome. • The U.K. cabinet agreed in July 2003 that the United Kingdom should make CPA South, a United Kingdom–led regional hub covering the southern governorates, a model for the reconstruction of Iraq, but the resources allocated to achieving this objective were insufficient to accomplish the task. ­ • Lessons learned through successive reviews of the U.K. approach to previous postconflict reconstruction and stabilization operations were not applied in Iraq after 2003. The report of the Iraq Inquiry Committee was critical of many aspects of U.K. engagement, but it also demonstrated that the United Kingdom had a more inclusive approach and comprehensive view of the challenges to come in Iraq than its coalition partner, the United States. This point was reaffirmed through interviews with former U.S. reconstruction staff during the course of this study’s research. While U.K. nationals temporarily assigned to the CPA were among those providing valuable advice to the United States–led occupation force, their recommendations had only a lim- ited impact on the policies and overall course of early reconstruction efforts.5 United Nations and World Bank Activities in Iraq In Iraq, both the UN and the World Bank found themselves facing ­ c hallenges unlike any encountered in their previous postconflict engagements. For one thing, the status and legitimacy of the engagement ­ of international organizations were unclear, particularly for the UN. In postwar situations, the UN performs diverse roles on multiple fronts, but it is most prominent in two areas: (1) humanitarian relief and ­ reconstruction activities and (2) promotion of political transition and rec- onciliation. UNSC Resolution 1483 set out a basic framework for the governance and reconstruction of Iraq after the invasion. It vested the United Kingdom and the United States, as occupying forces, with execu- tive, judicial, and legislative authority to be exercised through the CPA. 46 The Reconstruction of Iraq after 2003 ­ umanitarian The resolution stated that the UN “should play a vital role in h relief, the reconstruction of Iraq, and the restoration and establishment of national and local institutions for representative governance” (UNSC 2003b, 1). Immediately after the invasion, the UN humanitarian agencies played a large role in extending emergency relief to vulnerable Iraqis affected by the war. As needs shifted to medium- to long-term reconstruction, the UN’s role remained ambiguous (UNSC 2003a, 3). Moreover, some have questioned whether its mission received adequate support from the CPA on the ground.6 As for the World Bank and the International Monetary Fund, UNSC Resolution 1483 called on the international financial institu- tions “to assist the people of Iraq in the reconstruction and develop- ment of their economy and to facilitate assistance by the broader donor community” (UNSC 2003b, 4). Thus, the international finan- cial institutions were expected to play a designated role in the finan- cial and economic areas in which they hold expertise. Although the relationship was far from smooth, the CPA generally accepted some degree of advice from the international financial institutions in several economic policy areas, such as state-owned banks. Like other actors, UN operations were subject to unprecedented security threats. An attack on August 19, 2003, that killed 22 officials— including the special representative of the UN secretary-general, Sergio Vieira de Mello—was only one in a series of attacks carried out against the UN and other international donors in the summer and fall of that year. As a result, the UN gradually reduced its presence within Iraq, removing most personnel by the end of 2003. It would be several years before the UN would return to full in-country operations. Another challenge stemmed from the total lack of available data, such as fiscal information, economic statistics, and public service indicators. The IMF had not conducted a technical analysis of Iraq’s economy for 20 years, and Iraqi data collection entities had atrophied under the Saddam regime (SIGIR 2009, 30). Without reliable data, efforts by the IMF and the World Bank were hobbled from the outset. The preinvasion experiences of the UN and the World Bank in Iraq were quite different. Prior to the invasion, the UN and its agencies were present on the ground conducting the organization’s standard coun- try operations as well as administering elements of the Oil-for-Food Programme (OFFP) after 1995 (box 2.1). Unlike the UN, prior to 2003 the World Bank had not conducted any operations in Iraq for decades. From 1950 to 1973, the World Bank extended six International Bank for Reconstruction and Development (IBRD) loans to Iraq, with the last closing in 1979 (Iraq stopped making repayments in 1990) (Hadad- Zervos 2005). International Engagement in the Reconstruction of Iraq 47 BOX 2.1 The Oil-for-Food Programme Under economic sanctions imposed after responsible for overseeing the OFFP. In the the Gulf War in 1991, the OFFP was estab- north, the UN agencies were a de facto lished to allow Iraq to sell oil on the world executing body for program delivery, along market in exchange for food, medicine, with regional government institutions. As a and other humanitarian needs for ordinary result, several UN agencies retained staff Iraqi citizens without boosting its military and consultants across the Kurdistan region. capabilities. The UN’s role in administering For example, UNDP, which was responsible the OFFP differed in central and south- for the Electricity Network Rehabilitation ern Iraq, which fell under the rule of the Program, had more than 80 international Saddam regime, and in northern Iraq, which staff and engineers based in the north. was governed by the Kurdistan Regional The UN’s engagement in OFFP had Government (KRG). The UN allocated mixed consequences for the organization’s 59 percent of oil revenue to the 15 central postinvasion activities. On the one hand, it and southern governorates; 13 percent to the meant that the organization had developed three northern governorates; 25 percent to knowledge, experience, and networks a war reparations fund for victims of Iraq’s within Iraq. On the other hand, Iraqi public invasion of Kuwait in 1990; and 3 percent to servants who had worked for the Saddam cover the UN’s administrative costs, includ- regime held mixed feelings toward UN ing those of the weapons inspectors. In the intervention in their activities, illicit or center and south, the UN, through the otherwise. Furthermore, a scandal related Office of the Iraq Program and the Security to the OFFP that emerged later significantly Council’s Iraq Sanctions Committee, was damaged the image of the UN in Iraq. It is difficult to calculate the size of the UN’s financial engagement in reconstruction since its resources came from diverse sources, s ­pending occurred through multiple agencies, and much data outside of the IRFFI, which served as a multidonor trust fund for Iraq’s reconstruction, are not available.7 The Iraq Ministry of Planning developed the Iraq Development Management System (IDMS) to identify donor a ­ ctivities;8 however, the figures for UN agencies do not indicate the extent of cumu- lative UN spending in Iraq.9 The scale of the World Bank’s financial engagement in Iraq is easier to measure, since most of its activities were disclosed systematically. The World Bank had several sources of funding for its reconstruction ­activities up to 2014: donor contributions to the IRFFI (US$494.4 ­ million), con- cessional loans from its own International Development Association (US$500 million), IBRD loans (US$605 million),10 and grant technical assistance sourced mainly from its own funds. 48 The Reconstruction of Iraq after 2003 International Nongovernmental Organizations The activities of international and national NGOs were highly ­constrained during the Saddam regime in all areas outside of the semiautonomous Kurdistan region. After the invasion in 2003, many international NGOs launched humanitarian operations inside Iraq. According to a report by the NGO Coordination Committee for Iraq (NCCI), a critical issue confronting many international NGOs at the beginning of their activities ­ was their relationship with the occupation force, which was keen to draw on their support in the implementation of reconstruction activities. Given lingering questions over the legitimacy of the invasion, many interna- tional NGOs were afraid to be perceived as supporting a controversial war. They also knew that such support would enhance the risks to their staff. While some international NGOs kept their distance from the occupation force, some American international NGOs chose to work ­ directly with the CPA and even used military escorts for their operations. For many Iraqis, who were not used to dealing with international NGOs, it was often difficult to distinguish between the roles of the international NGOs and contractors working for the CPA (Génot 2010, 16). The NCCI was established in July 2003 in Baghdad to improve coordination among international NGOs and, later, with Iraqi national ­ NGOs. In the beginning, the NCCI had 14 international NGO ­members; by the end of 2012, this number had climbed to 69: 37 ­ international NGOs, 27 national NGOs, and 5 observers. The NCCI d ­ eveloped a useful ­platform for working in partnership and for e ­ xchanging informa- tion among NGOs undertaking operations in Iraq. But following the kidnapping and murder of some international NGO staff in late 2004, international NGOs eventually chose to remove staff from Iraq. As a result, many began to implement their assistance operations on a remote basis. In this context, partnerships with national NGOs in Iraq and other local groups took on added importance. The NCCI later looked back and realized that the departure of international NGOs from Iraq ­ created an ­opportunity for Iraqi structures to emerge and develop, and this happened mostly out of necessity. By leaving Iraq, international NGOs made an unintended and indirect contribution to the birth of the Iraqi NGO sector (Génot 2010, 17). Challenges to the International Response Donor Coordination Since multiple donors and other stakeholders are often engaged in recon- struction activities, the establishment of an effective coordination International Engagement in the Reconstruction of Iraq 49 ­ oordination mechanism is critical. At the same time, the transaction costs of c need to be considered carefully. Four main coordination mechanisms were established in Iraq, encompassing multilateral and ­ bilateral donors, Iraqi institutions, NGOs, and, in the early stage, the CPA: • The CPA’s donor coordination mechanism. CPA Regulation no. 7 of ­ December 2003 created a framework for donor coordination, including bilateral and multilateral aid, and established the Iraq Strategic Review Board (ISRB). The ISRB—a committee comprising the Iraq minister of planning and development cooperation, the minister of finance, a repre- sentative of the CPA, and two ISRB secretariat members—served as a hub for coordinating donor activities, including loans, grants, guarantees, and technical assistance. While reconstruction programs required prior ISRB clearance to prevent duplication, the relevant sector ministries were charged with coordinating directly with donors and international organizations in the implementation of programs. The Council for International Coordination was set up to provide advice and support on coordination issues (figure 2.7; UN and World Bank 2003). FIGURE 2.7 Donor Coordination Mechanism Led by Iraqi Entities International reconstruction fund facility for Iraq Iraqi Strategic Review Board (ISRB) Donor committee Ministry of Finance / (observers: national budget ISRB, UN, WB, IFIs) Ministry of Planning and Development Cooperation (MoPDC) Secretariat Bilateral CIC assembly UN/WB contributions (Chaired by Minister of Planning and facility committee Development Cooperation) UNDGITF WBITF $ $ Recipients / executing entities Governorates Other UN agencies NGOs Ministries Private sector IFIs and municipalities public sector Source: UN and World Bank 2003. Note: CIC = Council for International Coordination; UN = United Nations; WB = World Bank; IFI = international financial institution; UNDGITF = United Nations Development Group Iraq Trust Fund; WBITF = World Bank Iraq Trust Fund; NGO = nongovernmental organization. 50 The Reconstruction of Iraq after 2003 • Coordination for IRFFI. IRFFI was structured into the coordination mechanism under the ISRB. To ensure coordination between IRFFI’s two trust fund windows (the UN and World Bank), ­two ­committees— the Donor Committee and the UN–World Bank Facility ­Coordination Committee—were established. During the first four years, donor meetings were held regularly and frequently, but as international attention on Iraq’s reconstruction receded, donor commitment to the ­ IRFFI declined significantly and its coordination role among donors gradually weakened. ­ omprehensive • The United Nations–led cluster system. In 2004, to ensure a c thematic approach, the United Nations Development Group (UNDG) introduced a new coordination mechanism, known as the cluster ­ system. At the outset, thematic groups were established for 11 areas, but later merged into seven thematic areas. The system’s main ­objective was to enhance coordination among UN agencies, and its function later expanded to include coordination with Iraqi institutions and other donors and actors. The system facilitated the distribution of ­ resources among UN agencies from the UNDGITF. • The International Compact with Iraq. In 2007, the Iraqi government ­introduced a new initiative called the International Compact with Iraq, in partnership with the UN and supported by the World Bank. The compact established benchmarks and mutual commitments for Iraq and the international community regarding normalizing the secu- rity environment, reconciling political divisions, and revitalizing eco- nomic conditions. This initiative marked the transition from a donor-led coordination mechanism to an Iraq-led mechanism. Here, as elsewhere, Iraqi government ownership of the reconstruction pro- cess increased significantly over time. International Financing Mechanism The international community established a trust fund called the IRFFI as an international mechanism for financing reconstruction activities in Iraq, rais- ing a total of US$1.86 billion from diverse donors. According to the IRFFI’s terms of reference, the fund’s role was to ensure a coordinated, flexible, and swift donor response to finance priority expenditures, including reconstruc- tion activities, sectorwide programs, investment projects, technical assis- tance, and other development activities (UN and World Bank 2003). Evaluations of IRFFI’s effectiveness found the following: • The IRFFI showed a high level of technical flexibility and stakeholder engagement during its initial phase, but weaknesses in the governance International Engagement in the Reconstruction of Iraq 51 structure emerged early. Iraqi government engagement was limited, in particular under the UNDGITF. In addition, the frequency of Donor Committee meetings declined steadily between 2005 and 2007, when security conditions deteriorated. The Donor Committee did not pro- vide adequate strategic guidance or oversight during that period.11 • With just one exception, the completion of most IRFFI projects was delayed, on average, 130 percent over the approved duration for UNDGITF projects and 70 percent for WBITF projects. • By 2007, criticism of the IRFFI was widespread, particularly in relation to the UNDGITF portfolio.12 Several factors contributed to this per- ception: (1) weaknesses in project-level reporting created a planning and credibility problem for the UNDGITF;13 (2) the Steering Committee consisted of only participating UN agencies (an indepen- dent review has since raised questions about conflicts of interest, lack of independent oversight, and a culture that is too uncritical when assess- ing projects); and (3) interface with Iraqi institutions was limited. • The full potential of IRFFI’s two-window model could have been bet- ter realized had the World Bank and UN worked together more closely in programming jointly and in coordinating their activities (PwC 2011, 134). Interviews for this research with both former UN and World Bank staff suggest that coordination between the two insti- tutions was better than reported, but that problems lay in differences between the two institutions’ internal processing, policies on opera- tions in insecure environments, and lack of a common secretariat. The IRFFI experience showed that pooling resources through the estab- lishment of a multidonor trust fund is important for realizing effective and swift reconstruction, while reducing the costs to each donor. However, compared with all of the efforts made by donors, UN agencies, and the World Bank, the size of the trust fund was relatively small in relation to the Iraqi capital investment budget. Between 2005 and 2010, Iraqi budget investment expenditures increased from ID 7,559 billion (US$5.2 billion) to ID 24,944 billion (US$25.6 billion; World Bank 2014, 33). Compared with the size of Iraqi investment budgets, the financial impact of the IRFFI was relatively small. The Planning and Needs Assessment Process In addition to the volatile political and security situation, effective recon- struction planning was made difficult by the scarcity of reliable data and the lack of recent experience, knowledge, and network contacts among 52 The Reconstruction of Iraq after 2003 actors prior to the invasion. Prewar planning and postwar assessment efforts undertaken for the reconstruction of Iraq faced many challenges. Despite early criticism for a lack of proper preparation, information disclosed later showed that extensive U.S. planning took place ahead of the invasion. One of the most rigorous initiatives—the Future of Iraq project—was launched in early 2002 by the U.S. Department of State’s Bureau of Near Eastern Affairs and tasked with studying postinvasion needs in Iraq, featuring analysis from several hundred Iraqi exiles and U.S.-based subject matter experts. Other parts of the U.S. government undertook their own prewar planning initiatives, including the National Security Council (Steering Executive Group on Iraq and the intera- gency Humanitarian Working Group), the U.S. Department of Defense (Energy Infrastructure Planning Group), and USAID (Iraq Task Force). However, these initiatives suffered from two problems: first, they were poorly coordinated with each other, and second, many of their recom- mendations were not adopted in the reconstruction activities that took place after the invasion. According to interviews conducted for this research, some of the UN agencies did engage in planning exercises for postwar Iraq, but primar- ily for humanitarian needs. When the initial military operations of the invasion were drawing to a close, in June 2003, UN agencies and the World Bank, in consultation with the IMF, led a needs assessment pro- cess in 14 priority sectors. The needs assessment set out to define Iraq’s reconstruction requirements and identify investment needs and priorities for the short and medium terms. But in the middle of the assessment process, the UN headquarters in Baghdad was attacked, leading many team members to be evacuated from the country. Nevertheless, the needs assessment process continued remotely with assistance from Iraqi national staff, and the findings were presented to the international com- munity at the Madrid Donor Conference in October 2003. Working with Iraqi Institutions Each international actor engaged in reconstruction efforts in Iraq adopted a different approach to dealing with Iraqi counterparts and institutions, and many approaches changed over time. Initially, the U.S. reconstruction team led by the CPA administered most reconstruction activities directly, with only limited involvement of Iraqi institutions. Before establishment of the CPA, the Office of Reconstruction and Humanitarian Assistance had endeavored to include Iraqi institutions in reconstruction, as they were seen as crucial to the swift establishment of an interim Iraqi authority. But with the issu- ance of CPA Order no. 1 on May 16, 2003, which established the CPA International Engagement in the Reconstruction of Iraq 53 as the de facto government in Iraq, the efforts of ORHA and others to establish an interim Iraqi authority came to a halt.14 Over time, U.S. reconstruction efforts became more inclusive, beginning with the return of sovereignty to the Iraqi transitional government in June 2004 and later during the U.S. military “surge” under the leadership of General David Petraeus and Ambassador Ryan Crocker. For most project work, UN agencies adopted a flexible implementa- tion modality, known as the direct execution (DEX) scheme, through which they were able to implement projects and programs directly. Under the DEX modality, agencies were able either to implement projects directly or to employ an implementing entity such as a private contractor or an NGO, with little engagement from Iraqi government institutions. Such a scheme has a certain merit in postconflict situations, where aid must be delivered quickly and counterpart national institutions are often weak. However, the lack of engagement by Iraqi institutions made such projects less sustainable and did little to contribute to institu- tional capacity development. Compared with CPA and UN operations, the World Bank’s imple- mentation approach to projects fostered a significant degree of engage- ment by Iraqi government institutions. This was in large part due to the fact that the World Bank structured its operations based on its typical lending practices, which channel loans through partner countries for each project and program. In the case of Iraq’s reconstruction, although initial funding came mainly via IRFFI grants and Iraqi institutional capacity was weak, the World Bank still chose to implement projects through Iraqi institutions, setting up project management teams com- posed of Iraqi government personnel from counterpart institutions who were put in charge of day-to-day implementation activities, interacting closely with World Bank project task managers. This collaborative approach, however, resulted in significant delays in project implementation. These findings are elaborated upon in an inde- pendent review of 22 projects funded by the WBITF (GHK Consulting 2011, 9). Projects financed by the IRFFI fell into two broad groups. The first group of 11 projects focused on strengthening basic infrastructure to improve public services such as water, education, and health. Since most of these projects showed little progress two years after their initiation, in 2006 the Bank decided to change its project selection strategy. The sec- ond group was composed of smaller projects that many thought would be easier to manage, focusing primarily on institutional reforms and policy analyses. These projects supported various types of institutional strengthening in select ministries to improve budgeting, support bank- ing reform, foster a more serious approach to environmental issues, and improve the efficiency of the electricity sector. Despite their smaller size, 54 The Reconstruction of Iraq after 2003 the second group of projects encountered the same difficulties as the first group and had even less impact on meeting the urgent needs of the Iraqi population. Notes  1. This organizational complexity can be illustrated by the roles and relationships of the entities created to manage the reconstruction program. ­ The CPA and the PMO were established to manage reconstruction projects conducted using U.S. resources. Both the CPA and the PMO reported to the U.S. Department of Defense. After sovereignty was transferred to the Iraqi interim government in June 2004, the CPA was dissolved, and most of its functions were transferred to the U.S. Embassy in Baghdad. The newly created IRMO took on a supervisory role for all reconstruction activities. ­ Meanwhile, the PMO’s project management role was transferred to the newly established PCO. Although IRMO was supposed to supervise the PCO, the PCO reported to the Department of Defense, while IRMO reported to the Department of State. In December 2005, the PCO was merged with USACE.   2. Dollar equivalents are calculated at £1 = US$1.74.   3. Dollar equivalents are calculated at €1 = US$1.31.  4. The official development assistance functions of the JBIC, including ­ assistance to Iraq through concessional loans, were merged with JICA in October 2008.   5. Emma Sky, governorate coordinator for Kirkuk, and Rory Stewart, deputy governorate coordinator in several southern governorates, provided useful insights on this aspect in their publications (see Sky 2015; Stewart 2006).   6. Among others, Larry Diamond expressed this view in a 2004 Foreign Affairs article, “What Went Wrong in Iraq”: “Even before the attack, however, Washington—and Bremer, in Baghdad—proved unwilling to surrender any significant measure of control to the UN. The CPA leadership did not see a real need for the UN mission” (Diamond 2004, 46).   7. More than 10 former or incumbent UN staff members and managers engaged in the reconstruction of Iraq were interviewed for this study, but no relevant financial data were available.   8. With the support of the EU, UNDP, the UN Office for Project Services, USAID, and a few other donors, the Iraq Ministry of Planning developed the IDMS, which was designed to detail donor activities. However, the financial figures for UN agencies capture only part of their activities.   9. Information in the IDMS database was compared with information made available online by UN agencies. 10. The World Bank made new pledges totaling US$1.55 billion in 2015. 11. PwC (2011, 48) noted, “The active involvement of donors in the process of project review and approval proved important to ensuring transparency and preventing conflicts of interest.” 12. Scanteam (2009, 61) noted, “The lack of a central body responsible for over- sight and evaluation of results of all projects under the Trust Fund raised a number of issues. … Each agency was indeed responsible for monitoring and International Engagement in the Reconstruction of Iraq 55 ­valuating its own projects and the Steering Committee did not e have a ­m andate to oversee or monitor ongoing projects funded by the UNDG ITF.” 13. The UN disclosed most information concerning funded projects programs, so criticism of its reporting practices may not be justified. and ­ 14. SIGIR (2009, 71) noted, “The postwar strategy for Iraq approved by the President on March 10, 2003 assumed that the country’s governing institu- tions would survive the invasion and remain sufficiently intact to continue to administer the offices of government and provide the Iraqi people with the essential services. The new regulation signaled a developing shift in U.S. policy.” References Diamond, Larry. 2004. “What Went Wrong in Iraq.” Foreign Affairs 83 (5): 34–56. EU (European Union). 2010. Cooperation between the European Union and Iraq: Joint Strategy Paper 2011–2013. Brussels: EU. Génot, Cécile. 2010. International NGOs in Iraq: Actors or Witnesses in the Evolution of the Iraqi NGO Sector? Draft report. Baghdad: NGO Coordination Committee for Iraq. https://www.alnap.org/system/files/content/resource/files/main​ /ncci-survey-ingos-iraqi-ngos-draft-2.pdf. GHK Consulting. 2011. Independent Review of the Iraq Trust Fund World Bank: Final Report. London: GHK Consulting. Hadad-Zervos, Faris. 2005. The World Bank in Iraq: Iraqi Ownership for Sustainability. Washington, DC: World Bank. International Development Committee, House of Commons. 2005. Development Assistance in Iraq: Interim Report Seventh Report of Session 2004–05. London: Stationery Office Limited. Japan Ministry of Foreign Affairs. 2009. “Japan’s Assistance to Iraq.” Ministry of Foreign Affairs, Tokyo, August. PwC (PricewaterhouseCoopers). 2011. United Nations Development Group Iraq Trust Fund Lessons Learned Exercise. New York: PwC. https://reliefweb.int​ /sites/reliefweb.int/files/resources/UNDGITF_LL_Report_EN.pdf. Scanteam. 2009. Stocktaking Review of the International Reconstruction Fund Facility for Iraq Final Report. Oslo: Scanteam Analysts and Advisers. SIGIR (Special Inspector General for Iraq Reconstruction). 2009. Hard Lessons: The Iraq Reconstruction Experience. Washington, DC: U.S. Government Printing Office. ———. 2013. Learning from Iraq: A Final Report from the Special Inspector General for Iraq Reconstruction. Washington, DC: SIGIR. https://www.globalsecurity​ .org/military/library/report/2013/sigir-learning-from-iraq.pdf. Sky, Emma. 2015. The Unraveling: High Hopes and Missed Opportunities in Iraq. New York: Public Affairs. Stewart, Roy. 2006. The Prince of the Marshes: And Other Occupational Hazards of a Year in Iraq. New York: Harcourt. 56 The Reconstruction of Iraq after 2003 Tarnoff, Curt. 2009. Iraq Reconstruction Assistance. Washington, DC: Congressional Research Service. UN (United Nations) and World Bank. 2003. “International Reconstruction Fund Facility for Iraq, Terms of Reference.” Unpublished document, World Bank, Washington, DC, December. http://siteresources.worldbank.org​ /IRFFI/Resources/RevisedTORS.pdf. UNSC (UN Security Council). 2003a. Report of the Secretary General Pursuant to Paragraph 24 of Resolution 1483 (2003) and Paragraph 12 of Resolution 1511 (2003). New York: United Nations. https://documents-dds-ny.un.org/doc​ /UNDOC/GEN/N04/449/31/PDF/N0444931.pdf?OpenElement. —–––. 2003b. “United Nations Security Council Resolution (UNSCR) 1483.” United Nations, New York, May. http://unscr.com/en/resolutions/doc/1483. U.S. GAO (Government Accountability Office). 2004. Rebuilding Iraq: Resource, Security, Governance, Essential Services, and Oversight Issues. Washington, DC: GAO. https://www.gao.gov/products/GAO-04-902R. World Bank. 2014. Republic of Iraq Public Expenditure Review. Washington, DC: World Bank. CHAPTER 3 The Reconstruction of Iraqi Infrastructure and Human Capital When reconstruction activities began, donors and international organizations had not reached a consensus on what they were trying to ­ achieve. Many donors were concerned only with those activities aimed at restoring economic and social infrastructure and allocated the bulk of their available resources to these priorities. Through the course of this research, many Iraqi interviewees said that the impact of reconstruction remains disappointingly inconspicuous considering the amount of money spent. While repeated insurgent attacks on infrastructure were a major hindrance to the recovery, other factors were to blame as well, including the excessively supply-driven nature of donor efforts, a lack of engage- ment with and from Iraqi institutions, and insufficient or ineffective efforts to build institutional capacity. This chapter assesses recovery efforts for the electricity, oil, education, and health sectors. The Electricity Sector A chronic shortage of electricity continues to make life difficult for the Iraqi public and the Iraqi economy. Temperatures can rise to as much as 50°C during the summer months, and on several occasions since 2003, the lack of power coupled with high temperatures have led to popular protests, sometimes violent ones, to demand better service. Unstable sup- ply and frequent outages have also lowered production and damaged capital assets. The problem has been especially acute in the oil sector, where plants and refineries rely on electricity to power equipment and to transport oil, which, in turn, affects power generation plants reliant on a steady supply of fuel. 57 58 The Reconstruction of Iraq after 2003 FIGURE 3.1 Electricity Generation Capacity in Iraq, 2002–14 10,000 9,000 8,000 Generation capacity (megawatts) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Iraq Ministry of Electricity data. After the invasion in 2003, Iraq’s electricity-generating capacity dropped to 3,300 megawatts from its prewar level of 4,400 megawatts (figure 3.1).1 There was only limited damage to the country’s electric- ity infrastructure during the invasion, but subsequent looting damaged many facilities. The headquarters of the Commission of Electricity (which was later upgraded to ministry status) was sacked and set alight, destroying information and data and requiring staff to relocate to the better-protected Ministry of Oil building. United States–Led Reconstruction in the Electricity Sector, 2003–05 While the United States was not the only donor to provide assistance to the electricity sector, its financial contribution was far greater than that of other donors, and U.S. agencies played far bigger roles in the sector’s reconstruction, particularly during the first several years. The Coalition Provisional Authority (CPA) considered reconstruction of the electricity sector to be critical for reviving Iraq’s economy, improving daily well- being, and gaining local support for the coalition’s presence in Iraq, set- ting a goal of achieving 4,400 megawatts of generation capacity by October 2003 and 6,000 megawatts by June 30, 2004 (U.S. GAO 2007). This target was considered highly ambitious and unrealistic by those who knew the electricity sector and the condition of the facilities in Iraq; as it was, it took almost eight years to reach that level. The Reconstruction of Iraqi Infrastructure and Human Capital 59 Outside of reaching its prewar generating capacity, Iraq’s electricity sector saw little improvement in the first three years of reconstruction. United States–led efforts encountered several significant challenges: • With little prewar planning conducted for the electricity sector, post- war efforts had to be undertaken with incomplete information.2 • To achieve the CPA’s targets, many generating plants were forced into operation after receiving only basic emergency repairs and soon went out of service due to the strain on operations during the peak period in the summer of 2004. As a result, the subsequent year’s capacity dropped (­figure 3.2). • To increase generating capacity rapidly, gas turbines, which require less installation time, were purchased. Due to the lack of natural gas as a fuel, however, many sat idle (SIGAR 2009, 148–50). Coordination with the oil sector team was not effective, com- pounding fuel shortages that consistently caused generation bottlenecks. Just as many of the gas turbines purchased could not ­ operate due to a lack of gas, many oil facilities could not operate due to a lack of electricity, even as large amounts of gas from oil fields were flared and wasted. FIGURE 3.2 Electricity Generation in Iraq, Average for May 2003 to December 2005 5,000 4,500 4,000 3,500 3,000 Megawatts 2,500 2,000 1,500 1,000 500 0 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 2003 2004 2005 Source: O’Hanlon and Campbell 2007. 60 The Reconstruction of Iraq after 2003 • The electricity sector was subject to budget reductions and frequent changes in priorities. Some US$5.5 billion was initially allocated to the sector, but as a result of reallocations to cover urgently needed spend- ing on security, its budget was cut by US$1 billion. • The organizational complexities of the electricity sector were made still more difficult after the CPA was dissolved and its func- tions were transferred to multiple agencies. The presence of two separate reporting lines—one to the U.S. Department of State and the other to the U.S. Department of Defense—complicated mat- ters further. • The U.S. advisers assigned to the electricity sector lacked experi- ence in postwar reconstruction and work overseas. The U.K. Report of the Iraq Inquiry points out that the CPA’s electricity team was small—just eight people, only three of whom were ­ s pecialists—and was poorly managed (Williams Lea Group 2016, 111). In addition, turnover was very high, with senior advis- ers being replaced every three to four months during the first year (SIGIR 2009, 82–83). • U.S. companies were awarded most of the available reconstruction contracts. For bilateral grant aid, many donors award contracts to their own national companies, but since this practice was also applied to the Development Fund for Iraq (DFI), which comprised Iraqi assets and oil revenues, the public perception grew in Iraq that the United States–led coalition was using Iraqi resources to enrich U.S. companies. • U.S. officials installed their own choice of minister for the electricity sector, opting for an Iraqi exile previously engaged in anti–Saddam regime activities from the United States. This move created much ten- sion with senior ministry officials in Iraq. The minister in question was later detained on charges of corruption and ultimately fled Iraq to return to the United States. Other Donor Efforts in the Electricity Sector In addition to the United States, donors such as Japan, the United Nations Development Programme (UNDP), and the World Bank engaged in several reconstruction projects in the electricity sector. Immediately following the invasion in 2003, UNDP and the World Bank took the lead in assessing the state of the sector. Under the Oil-for-Food Programme (OFFP), UNDP was responsible for the Electricity Network Rehabilitation Program in the north, The Reconstruction of Iraqi Infrastructure and Human Capital 61 retaining more than 80 international staff and engineers to execute and supervise electricity projects funded by OFFP. In addition, as a UN observer, several engineers were stationed in Baghdad to monitor the regime’s activities in the electricity sector. UNDP implemented several electricity projects amounting to US$135 million, mainly from International Reconstruction Fund Facility for Iraq (IRFFI) funds and most of which involved the provision of spare parts and equipment, along with emergency repairs to gas turbine and thermal plants. Despite its experience during the years prior to 2003, UNDP engagement in the electricity sector was limited, and its interventions were fragmented. The World Bank implemented one project to rehabilitate two gen- eration units of a thermal power plant, funded by US$124 million from its concessional window and US$6 million from IRFFI. An evaluation compiled later rated this project’s outcome as unsatisfactory because it failed to rehabilitate the plant fully. Japan was another major donor active in the electricity sector, providing assistance to several electricity projects aimed at reha- bilitating generation units and power grids as well as constructing new power units through bilateral grant aid amounting to US$380 million and concessional loans of US$1.5 billion. For other power generation units in the same power plant—the Hartha plant in Basra, which the World Bank failed to complete—Japan brought in a Japanese contractor and completed the rehabilitation work success- fully. Today, Japan continues to provide assistance through conces- sional loans, so while some projects have been completed, others are still being implemented. Improvements in Electricity Service Despite some recovery in generating capacity and infrastructure, demand continued to outstrip supply, and the Integrated National Energy Strategy in 2012 estimated that approximately 42 percent of dispatched energy disappeared through technical losses, theft, or service for which payment was never collected (PMAC 2012). Many frustrated households and com- munities ended up installing individual diesel generators, which were loud, dirty, and generally expensive to operate. One of the significant initiatives undertaken by Iraq’s Ministry of Electricity was an agreement with private companies—Siemens of Germany and General Electric of the United States—to purchase more than US$7 billion worth of generators. Due to the lack of budget resources, not all of the planned projects involving the use of these generators were implemented. However, the provision of substantial 62 The Reconstruction of Iraq after 2003 numbers of generation units did, to some extent, improve Iraq’s chronic power shortage. The reconstruction of the electricity sector saw significant regional variance, particularly between the central and southern parts of Iraq and the Kurdistan region. During the Saddam regime, after the Gulf War in 1991 and subsequent Kurdish uprisings, the Kurdistan region was cut off from all national grid transmission lines, except for one near Mosul. Available generation for the region was limited mostly to supply from a few hydroelectric power stations. Other regions suffered too, with supply to the Baghdad region prioritized over supply to the rest of the country. After the invasion, the situation changed drastically. The Kurdistan Regional Government (KRG) established its own Ministry of Electricity, and reconstruction work was undertaken by the KRG and central government ministries largely independent of each other. Despite the Kurdistan region’s poor electricity infrastructure, its relatively greater stability meant that northern Iraq was soon enjoy- ing a more reliable electricity supply than the center and south of the ­ country (figure 3.3). The stark difference in customer satisfaction between regions demonstrates just how pronounced the differences in supply levels were (figure 3.4). FIGURE 3.3 Electricity Supply from the National Grid in Iraq, 2007, 2011, and 2012 24 20 Electricity supply (hours per day) 16 12 8 4 0 k il a k la Sa bar Din a d bil t la a a ar n h jaf ssi ou ku niy ew siy nn Erb da ssa sra a rba i-Q Ba Na Diy An Wa al- Kir h gh tha dis Nin ma Ba Mi Th Da Ke Ba lah Qa Mu lay Su 2007 2011 2012 Kurdistan region Sources: CSO, KRSO, and United Nations 2011; CSO, KRSO, and World Bank 2007, 2011. The Reconstruction of Iraqi Infrastructure and Human Capital 63 FIGURE 3.4 Public Perceptions of Electricity Service Provision in Iraq, by Governorate, 2011 80 70 60 Share of respondents (%) 50 40 30 20 10 0 uk il a k ala r Din a d bil t la a a ar n h jaf ba ssi ku niy ew siy nn Erb da ssa sra rba i-Q ho Ba Na Diy An Wa al- Kir gh tha dis Nin ma Ba Mi Th Da Ke Ba lah Qa Mu lay Sa Su Very bad Bad Neither bad nor good Good Very good Kurdistan region Source: CSO, KRSO, and World Bank 2011. The Oil Sector The presence of huge oil reserves in Iraq—some 115 billion barrels of known reserves, the world’s fifth largest—motivated many donors as well as foreign private companies to engage in the reconstruction process. United States–Led Reconstruction in the Oil Sector, 2003–05 Like the electricity sector, the United States played a leading role in reconstruction activities in Iraq’s oil sector, and, unlike other sectors, donor engagement from elsewhere was limited.3 Identified as a priority sector in prewar planning, the U.S. Department of Defense and the U.S. Department of State each set up task forces to study Iraq’s existing capac- ity, as well as likely future needs and challenges. The Energy Infrastructure Planning Group (EIPG) was established under the Department of Defense in November 2002. A major prewar planning concern for EIPG and the U.S. Army Corps of Engineers (USACE) Task Force Restore Iraqi Oil centered on how to stop oil well fires in the event the Saddam regime set wells alight, as they had set fire to 700 wells during the first Gulf War. As it happened, no serious sabotage of the northern or s ­ outhern oil fields occurred during the invasion, with only seven fires recorded (Vogler 2015). 4 However, considerable damage was inflicted by 64 The Reconstruction of Iraq after 2003 widespread looting as the occupation got under way. According to a sub- sequent USACE survey of Iraq’s oil infrastructure, combat operations and the looting that followed caused US$1.4 billion in damage: US$457 million from military action and US$943 million from postwar looting. The report estimated reconstruction funding requirements to be US$1.7 billion (SIGIR 2009, 60).5 Crude oil production dropped from its prewar level of 2.5 million barrels per day to almost zero immediately after the invasion. In July 2003, Iraq’s Ministry of Oil and the CPA initiated a plan that anticipated executing 226 projects costing US$1.14 billion. U.S. efforts in the oil sector focused largely on (1) restoring Iraq’s oil infrastructure to prewar production and export capacity; (2) delivering refined fuels for domestic consumption; (3) developing oil security and pipeline repair teams; and (4) providing technical assistance to sustain Iraq’s oil industry (U.S. GAO 2005). U.S. officials set a production goal of 3 million barrels of oil per day and an export goal of 2.2 million barrels of crude oil per day by the end of 2004. Crude oil production recovered relatively quickly, but production levels again dropped in mid-2004 as insurgent attacks on oil facilities intensified (figure 3.5; U.S. GAO 2007). The oil sector’s institutional environment in the wake of the inva- sion differed from that of other sectors in Iraq. First, the U.S. Office of Reconstruction and Humanitarian Assistance (ORHA) and, later, the CPA assigned experienced U.S. experts as sector advisers, many of whom had engaged in prewar planning exercises and continued to FIGURE 3.5 Monthly Oil Production in Iraq, 2003–05 3,000 2,500 Barrels per day (millions) 2,000 1,500 1,000 500 0 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 2003 2004 2005 Source: O’Hanlon and Campbell 2008. The Reconstruction of Iraqi Infrastructure and Human Capital 65 serve in Iraq after the invasion, ensuring continuity among advisers. Second, despite having suffered under economic sanctions during the 1990s and as a result of post-2003 de-Baathification, Iraq’s Ministry of Oil had historically attracted the best and brightest Iraqi employ- ees, and it retained greater capacity than other ministries. Together, the presence of experienced and committed U.S. experts and Iraqi ministry officials created an atmosphere of collaboration not seen in other sectors. The United States allocated substantial budget resources to the sec- tor, as indicated in table 3.1. In addition to the U.S. budget, by the end of 2005, a further US$2.8 billion had been spent out of the DFI. Nevertheless, after its initial recovery, crude oil production showed little improvement in the first several years following the invasion (­ figure 3.5), with the sector encountering some significant difficulties: • Continuous and intensifying insurgent attacks on oil facilities, in par- ticular, on oil pipelines. Between 2003 and 2007, more than 400 attacks hit Iraq’s pipelines, refineries, and workers (SIGIR 2013). The United States–led occupation force did not have enough troops to guard long oil pipelines and numerous oil facilities. As a result, the Ministry of Oil formed its own security force to protect these facilities. • The need to mitigate the shortage of oil products, especially gasoline, became a significant preoccupation for officials and limited their abil- ity to address other urgent needs. • Key institutional reforms introduced by the CPA failed. In particular, despite resistance from ministry employees, the CPA insisted on per- severing with the dysfunctional payroll system it had introduced after the invasion (Vogler 2015). • The governing council’s decision to appoint an inexperienced Iraqi exile without leadership skills as oil minister in September 2003 hurt ministry operations (Vogler 2015). TABLE 3.1 U.S. Budget Allocations for the Iraqi Oil Sector, as of September 30, 2006 Funding (US$, millions) Source of funds Agency Budgeted Spent 2003 Iraq Relief and Reconstruction Fund (IRRF I) U.S. Department of Defense 166.0 166.0 Natural Resource Risk Remediation Fund U.S. Department of Defense 802.0 797.7 2004 Iraq Relief and Reconstruction Fund (IRRF II) U.S. Department of Defense 1,724.7 1,163.0 Total 2,692.7 2,126.7 Source: SIGIR 2009. 66 The Reconstruction of Iraq after 2003 Private Sector Involvement in Restoring Oil Production The United States completed the majority of its planned oil sector projects by mid-2007, at which point the government of Iraq began to take on still greater ownership of oil and natural gas sector recon- struction, introducing several policy initiatives that included the drafting of federal hydrocarbon laws and the completion of a round of oil field auctions started in 2008. To date, the hydrocarbon laws have yet to be approved officially due to disagreement on control and decision-making authority in the hydrocarbon sector, most notably ­ the question of revenue sharing between the center and the regions (IEA 2012). After a long period of limited growth, crude oil production finally started to rise steadily after the oil fields developed by interna- tional oil companies went into production in 2010 (figure 3.6). The government of Iraq led several rounds of oil field auctions, with assistance from the consulting firm Gaffney, Cline & Associates; to date, the federal government has awarded 19 technical ser- vice contracts (table 3.2). Greater Iraqi institutional ownership and private sector participation laid the foundations for further sec- tor recovery. FIGURE 3.6 Crude Oil Production in Iraq before and after International Oil Company Engagement, 2003–15 4,500 4,000 3,500 Barrels per day (thousands) 3,000 2,500 2,000 1,500 1,000 500 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: U.S. Energy Information Administration 2016. The Reconstruction of Iraqi Infrastructure and Human Capital 67 TABLE 3.2 Contracts Awarded by Federal Authorities for Hydrocarbon Exploration and Development in Iraq Production (barrels per day for oil; cubic meters, billions, for gas) Maximum fee per Year and bid round Project or block Operator Type Initial targeta Plateau targetb barrel (US$)c 2008 Ahdab Petrochina Oil 25,000 129,000 6.00 2009 First Rumaila BP Oil 1,173,000 2,850,000 2.00 West Qurna I ExxonMobil Oil 268,000 2,825,000 1.90 Zubair Eni Oil 201,000 1,200,000 2.00 Missan Group CNOOC Oil 97,000 450,000 2.30 2009 Second West Qurna II Lukoil Oil 120,000 1,800,000 1.15 Majnoon Shell Oil 175,000 1,800,000 1.39 Halfaya Petrochina Oil 70,000 535,000 1.40 Gharraf Petronas Oil 35,000 230,000 1.49 Badra GazpromNeft Oil 15,000 170,000 5.50 Qairayah Sonangol Heavy oil 30,000 120,000 5.00 Najmah Sonangol Heavy oil 20,000 110,000 6.00 2010 Akkas KOGAS Gas 1.03 4.1 5.50 Mansuriyah TPAO Gas 0.78 3.1 7.00 Siba Kuwait Energy Gas 0.26 1.0 7.50 2012 Block 8 Pakistan Petroleum Gas n.a. n.a. 5.38 Block 9 Kuwait Energy Oil n.a. n.a. 6.24 Block 10 Lukoil Oil n.a. n.a. 5.99 Block 12 Bashneft Oil n.a. n.a. 5.00 Source: IEA 2012. Note: n.a. = not applicable (no targets set). a. Level of production at which contractors can start receiving cost reimbursements and the payment of fees. b. Maximum level of production that contractors agreed to deliver. c. Maximum remuneration per barrel that contractors can receive. The Education Sector Between the 1970s and the mid-1980s, Iraq was considered to have the best education system in the region. The government at the time had a clear policy priority—to enhance the quality of education in Iraq—and pursued many reforms during the 1970s. These reforms included the establishment of mandatory education at the primary level and free edu- cation at all levels; an increase in the number of universities; the introduc- tion of free school meals in preschool and elementary school; increases in the number of scholarships to study abroad; and increases in teacher sala- ries. It was the golden age of the Iraqi education system (Yamao and Sakai 2013, 154). This golden age did not last long. The war between the Islamic Republic of Iran and Iraq that raged from 1980 to 1988, the Gulf War 68 The Reconstruction of Iraq after 2003 in 1991, and ensuing economic sanctions all severely damaged the once- excellent education system. By the time the Iraq War started in 2003, the quality of the education system had dropped significantly. The system’s deterioration coincided with shrinking budget allocations to the education sector. In fiscal year 1988/89, the education budget was US$2.5 ­ billion (about 6 percent of gross domestic product [GDP]), and the expenditure per student was approximately US$620. Over the 1993–2002 period, the annual average expenditure per student dropped to approximately US$47, funded largely from the OFFP (Waite 2003, 14). As a result, school infrastructure broke down, as maintenance and new construction were deferred year after year. Teacher training, curricular modernization, monitoring and assessment, and the introduction of new teaching tech- niques became increasingly rare (World Bank 2011, 52). According to the UN–World Bank joint needs assessment in 2003, while overall damage to school facilities from the invasion in 2003 was limited—only 79 schools were destroyed—the damage caused by subsequent looting was more serious (UN and World Bank 2003). Approximately 922 schools were looted in Anbar, Baghdad, Ninewah, Sala Heldin, and Tamim governorates. Donor Support for the Education Sector After 2003, the Iraqi government, with the support of donors and inter- national organizations, committed to restoring the country’s education system. Unlike other areas of infrastructure, the United States asserted far less control over reconstruction of the education sector in spite of its large financial contribution. As of September 2012, the U.S. government had spent US$379.4 million on rebuilding Iraq’s school infrastructure and curriculum, three-fourths of which were used under the Commander’s Emergency Response Program (SIGIR 2013, 113). The U.S. Agency for International Development (USAID) also played a major role in U.S. efforts in the education sector, providing more than 500,000 school kits and supporting school rehabilitation. By early 2006, USAID had sup- ported the construction or improvement of 2,943 schools across the country (SIGIR 2013). According to the United Nations Development Group Iraq Trust Fund (UNDGITF) database, UN agencies—mainly the United Nations Children’s Fund (UNICEF); United Nations Educational, Scientific, and Cultural Organization (UNESCO); and UN-Habitat—spent approximately US$206 million across more than 30 projects. UNICEF and UNESCO also mobilized additional resources bilaterally from several donors—including the European Union, Japan, and the United States—and implemented several education projects. The World Bank The Reconstruction of Iraqi Infrastructure and Human Capital 69 implemented various education projects, including emergency textbook provision (US$38.8 million from IRFFI), emergency school construc- tion and rehabilitation (US$55.2 million from IRFFI), and a separate emergency school reconstruction effort (US$100 million from the International Development Agency). Overall, donor assistance in the education sectors was limited in scale and simple in scope: the provision of school supplies, the rehabilitation or construction of schools, revisions to the curriculum, and capacity development for teachers. While data are outdated and scarce, public spending on education stood at 3.5 percent of GDP in 2008, which is relatively low when compared with the spending of neighboring coun- tries such as the Arab Republic of Egypt, Jordan, and Morocco, where spending amounted to approximately 6.3 percent of GDP (Supervisory Committee for National Strategy for Education and Higher Education 2012). Iraqi spending in the sector appears to have increased significantly in recent years, although the bulk of expenditures has gone to staff remu- neration, leaving little for quality-related inputs such as teacher training and curriculum modernization. Between 2007 and 2009, the average cost of an education worker almost tripled. Between 2005 and 2008, the Ministry of Education experienced a 64 percent increase in staff and a 156 percent increase in the cost of compensating its employees; employee compensation doubled again a year later (World Bank 2017b, 78). Thus, the majority of the education budget went to recurrent budget expenses as opposed to capital expenditures (table 3.3). Changes in Education Service Provision after 2003 The education sector has improved in recent years, but the available data are inconsistent, and the full picture remains unclear. The Ministry of Education’s statistics show significant advances: the number of students enrolled in all stages of education in the academic year 2012–13 reached TABLE 3.3 Types of Expenditures in the Education Budget in Iraq, 2005–11 Percent of total budget Types of Expenditures 2005 2006 2007 2008 2009 2010 2011 Recurrent Original budget 4.2 4.2 5.4 5.4 9.5 8.8 8.6 Estimated actual — — 0.1 8.1 13.7 — — Capital Original budget 0.5 0.2 1.3 0.6 0.7 1.0 1.1 Estimated actual 0.1 0.0 — 1.0 0.7 — — Source: World Bank 2017a. Note: — = not available. 70 The Reconstruction of Iraq after 2003 FIGURE 3.7 Student Enrollment in Iraq, 2005–13 10 1,649,156 8 Students enrolled (millions) 6 1,090,058 4 7,886,046 5,456,165 2 0 2005 2013 Iraq center Kurdistan Source: Iraq Ministry of Education, quoted in UNICEF 2014. 9.5 million, up from 6.5 million in 2004–05; the number of schools increased to 28,730 in 2012–13, up from 20,508 in 2004; and over the same period, the number of instructors increased from 343,614 to 550,000 figure 3.7; UNICEF 2014, 14–15). (­ According to data collected by UNICEF and the Iraqi government, the rate of enrollment in primary school increased from 76.3 percent in 2000 to 85.8 percent in 2006 and to 90 percent in 2011. While primary school enrollment improved significantly, secondary school enroll- ment struggled, increasing only modestly from 40.1 percent in 2006 to 48.6 percent in 2011. In general, the Kurdistan region fared better: pri- mary school enrollment rose from 94.5 percent in 2006 to 95.9 percent in 2011, while secondary school enrollment jumped from 52.5 percent in 2006 to 71.9 percent in 2011. The stronger growth in secondary school enrollment in northern Iraq has been due in part to the KRG policy that makes grades 7–9 part of each student’s compulsory basic education. Under the system run by the central government, education is compulsory only in grades 1–6 (table 3.4). The government has begun to increase the education budget, raising it from 5.3 percent of govern- ment spending in 2006 to 15 percent in 2009, much of which has gone to increasing teacher salaries (World Bank 2017b, 79). But the share of nonsalary expenditures remains low, and inadequate teacher training, poor instructional materials, and outdated curriculum continue to affect the quality of education in Iraq. The Reconstruction of Iraqi Infrastructure and Human Capital 71 TABLE 3.4 Structure and Organization of Education in Iraq Level of education Organization Iraq (excluding KRG) Preprimary education Official entry age 4, 2 years, noncompulsory Primary education (grades 1–6) Official entry age 6, grades 1–6, compulsory, free of charge Secondary education (grades 7–12) Official entry age 12 Upper secondary or vocational Theoretical entry age 15, 3 years University and higher 4–5 years KRG Preprimary education Official entry age 4, 2 years, noncompulsory Basic education Official entry age 6, grades 1–9, compulsory, free of charge Upper secondary education Theoretical entry age 15, 3 years, noncompulsory University and higher education 4–5 years Source: UNESCO 2011, 24. Note: KRG = Kurdistan Regional Government. The Health Sector In the early 1980s, Iraq had a reasonably well-performing health system able to provide basic and some high-level services to the vast majority of the population. However, years of war and economic sanctions in the ensuing decades hit the health system hard. Physical infrastructure such as hospitals and medical equipment suffered from a lack of proper main- tenance, the unavailability of spare parts and equipment, and continuous underinvestment. The system’s decline can be seen in the rising infant mortality rate between 1980 to 2001 and stagnant life expectancy num- bers compared with the rest of the Middle East and North Africa region (figure 3.8; World Bank, various years). Donor Support for the Health Sector Since the fall of the Saddam regime, the Iraqi government, donors, and international organizations have expended a great deal of resources and energy on restoring the health system; however, the process has been slow and, although some health indicators have improved, change has been mod- est. For example, infant mortality improved some, dropping from 34.3 per 1,000 in 2003 to 28.2 per 1,000 in 2013, respectively (World Bank, various years). But the average life expectancy for Iraqis deteriorated slightly from 68.94 in 2002, right before the invasion, to 68.22 in 2008, while life expec- tancy in most Middle East and North African countries improved steadily. The United States was a major actor in the reconstruction of Iraq’s health sector, primarily through the work of USACE and USAID. 72 The Reconstruction of Iraq after 2003 FIGURE 3.8 Infant Mortality Rate versus Life Expectancy at Birth in the Middle East and North Africa, 1980 and 2001 140 Egypt, Arab Rep. (deaths per 1,000 live births) 120 100 Iran, Islamic Rep Infant mortality rate 80 Saudi Arabia Iraq 60 Syrian Arab Republic 40 Jordan 20 0 50 55 60 65 70 75 Life expectancy at birth (years) 1980 2001 Source: World Development Indicators database (World Bank, various years). From May 2003 to September 2012, the U.S. government spent around US$934 million on Iraqi health projects, both in construction and nonconstruction expenditures (SIGIR 2013). The Primary Healthcare Center project—its largest, at a cost of US$362 million—aimed to build 150 health clinics, but a review conducted by SIGIR found the pro- gram gravely deficient in its execution. The construction of the Basra Children’s Hospital project was another flagship effort, but due to deteri- orating security, poor site conditions, and poor contractor performance, basic construction took more than six years to complete. Other U.S. aid went to providing medical supplies and equipment for newly constructed or rehabilitated hospitals and clinics. Many UN agencies also participated in health sector reconstruction, with UNICEF and the World Health Organization (WHO) the most active among them. UNICEF had retained a presence in Iraq since 1983 and began engaging in humanitarian assistance immediately following the invasion in 2003. WHO worked with the Ministry of Health to identify and address the most pressing short-term health needs of the population, while also strengthening health sector policy and systems by providing policy makers with valuable data on which to base decisions (Jones and others 2006). Many nongovernmental organizations (NGOs) also played important roles in supporting health or health-related The Reconstruction of Iraqi Infrastructure and Human Capital 73 sectors, such as water and sanitation. Although the activities of NGOs were undertaken based on grassroots needs, they were often fragmented and poorly coordinated. By March 2004, more than 85 NGOs were considered active within Iraq, but most of them had to give up a field presence due to the deteriorating security conditions. Changes in Health Service Provision after 2003 The role played by the Ministry of Health was, as in other sectors, handi- capped by capacity constraints. Per capita spending on health increased in the years after the invasion (figure 3.9). However, progress across many indicators has been modest. A major challenge to sector improvement has been the exodus of qualified health workers since 2003. According to some estimates, around 18,000 physicians—about half the national total before the invasion—have since fled Iraq. Of those who remained, the Iraqi government estimates that 628 physicians were murdered through 2011, although the Iraqi Medical Association puts the number closer to 2,000 (Webster 2011, 864). The death or departure of capable health workers and physicians has been exacerbated by the increasing influence of sectarian groups over the Ministry of Health. After years of conflict, the number of people suffering from various types of mental health problems has grown significantly. A mental health survey undertaken jointly by the Iraq Ministry of Health, the Ministry of Health in the Kurdistan region, and WHO revealed high levels of FIGURE 3.9 Health Expenditures per Capita in Iraq, 2003–14 400 350 Health expenditure per capita (US$) 300 250 200 150 100 50 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: World Development Indicators database (World Bank, various years). 74 The Reconstruction of Iraq after 2003 FIGURE 3.10 Public Perceptions of Health Care Services in Iraq, by Region, 2011 70 60 50 Share of respondents (%) 40 30 20 10 0 uk il a k ala r Din a d bil t la a a ar n h jaf ba ssi ku niy ew siy nn Erb da ssa sra rba i-Q ho Ba Na Diy An Wa al- Kir gh tha dis Nin ma Ba Mi Th Da Ke Ba lah Qa Mu lay Sa Su Very bad Bad Neither bad nor good Good Very good Kurdistan region Source: CSO, KRSO, and World Bank 2011. psychological distress in the population—finding, for example, that one in five women and one in seven men were likely to suffer a mental dis- order in their lifetime. As shown on figure 3.10, which captures polling data from 2011 on the perceived quality of health services across regions, the population in the Kurdistan region (Dahouk, Erbil, and Sulaymaniya) viewed the services they received more positively than the rest of the country. The Sunni-dominated governorates, as well as Baghdad, meanwhile, had a dim view of services in their area. Notes 1. The electricity sector comprises several subsectors: generation, transmission, substations, and distribution. Although generating capacity was just one part of reconstruction activities undertaken in the sector, it is indicative of the sec- tor’s wider progress during this period. 2. The U.S. Department of State’s Future of Iraq project conducted one of the few planning exercises for the electricity sector. And yet, even here, electricity was only tasked to one of the subcommittees of the Economy and Infrastructure Working Group, which, in turn, was one of 14 working groups under the project. Moreover, its recommendations were not incorporated into U.S. Department of Defense–led activities. The Reconstruction of Iraqi Infrastructure and Human Capital 75 3. The United Kingdom offered to send oil experts, but U.S. officials declined the offer. Japan, for its part, provided concessional loans for efforts to rehabilitate major oil facilities, including the Basra Oil Export Terminal (US$500 ­ million), the Basra Oil Refinery (US$445 million), and the Beiji Refinery (US$25 ­million). Norway also conducted capacity development programs. 4. SIGIR (2009) reports that there were nine fires. 5. USACE indicated that this figure could vary by as much as 40 percent. References CSO (Central Statistical Organization), KRSO (Kurdistan Region Statistics Organization), and United Nations. 2011. Iraq—Household Socio-Economic Survey for 2011. Baghdad: CSO, KRSO, and United Nations. CSO (Central Statistical Organization), KRSO (Kurdistan Region Statistics Organization), and World Bank. 2007. Iraq—Household Socio-Economic Survey for 2007. Baghdad: CSO, KRSO, and World Bank. ———. 2011. Iraq—Knowledge Network Survey for 2011. Baghdad: CSO, KRSO, and World Bank. IEA (International Energy Agency). 2012. Iraq Energy Outlook. Paris: OECD/IEA. Jones, Seth G., Lee H. Hilborne, C. Ross Anthony, Lois M. Davis, Federico Girosi, Cheryl Benard, Rachel M. Swanger, Anita Datar Garten, and Anga R. Timilsina. 2006. Securing Health: Lessons from Nation-Building Mission. Santa Monica, CA: RAND Center for Domestic and International Health Security. https://www​ .rand.org/content/dam/rand/pubs/monographs/2006/RAND​_MG321.pdf. O’Hanlon, Michael E., and Joseph H. Campbell. 2007. Iraq Index (September 2007) Tracking Variables of Reconstruction and Security in Post-Saddam Iraq. Washington, DC: Brookings Institution. https://www.brookings.edu/wp​ -content/uploads/2016/07/index20070927.pdf. ———. 2008. Iraq Index (March 2008): Tracking Variables of Reconstruction and Security in Post-Saddam Iraq. Washington, DC: Brookings Institution. https:// www.brookings.edu/wp-content/uploads/2016/07/index20080331.pdf. PMAC (Prime Minister Advisory Commission). 2012. Integrated National Energy Strategy: Final Report. Private report. Baghdad: PMAC. http://documents​ .worldbank.org/curated/en/406941467995791680/Integrated-National​ -Energy-Strategy-INES-final-report. SIGIR (Special Inspector General for Iraq Reconstruction). 2009. Hard Lessons: The Iraq Reconstruction Experience. Washington, DC: U.S. Government Printing Office. ———. 2013. Learning from Iraq: A Final Report from the Special Inspector General for Iraq Reconstruction. Washington, DC: SIGIR. https://www.globalsecurity​ .org/military/library/report/2013/sigir-learning-from-iraq.pdf. Supervisory Committee for National Strategy for Education and Higher Education. 2012. National Strategy for Education and Higher Education in Iraq. Baghdad: Supervisory Committee for National Strategy for Education and Higher Education. 76 The Reconstruction of Iraq after 2003 UN (United Nations) and World Bank. 2003. “International Reconstruction Fund Facility for Iraq, Terms of Reference.” Unpublished document, World Bank, Washington, DC, December. http://siteresources.worldbank​ .org/IRFFI/Resources/RevisedTORS.pdf. UNESCO (United Nations Educational, Scientific, and Cultural Organization). 2011. UNESCO National Education Support Strategy Republic of Iraq 2010–2014. Baghdad: UNESCO Iraq Office. UNICEF (United Nations Children’s Fund). 2014. Country Report on Out of School Children. Amman: UNICEF MENA Regional Office. U.S. Energy Information Administration. 2016. “Country Analysis Brief: Iraq.” http://www.iberglobal.com/files/2016/iraK_eia.pdf. U.S. GAO (Government Accountability Office). 2005. Rebuilding Iraq: Status of Funding and Reconstruction Efforts. Report GAO-05-876. Washington, DC: GAO. ———. 2007. Rebuilding Iraq: Integrated Strategic Plan Needed to Help Restore Iraq’s Oil and Electricity Sectors. Washington, DC: GAO. Vogler, Gary. 2015. Lessons Learned for the Energy Sector. Kindle e-book. Fishers, IN: Howitzer Consulting LLC. Waite, Jeffrey. 2003. United Nations/World Bank Joint Needs Assessment: Education Sector. Washington, DC: World Bank. http://documents.worldbank.org​ /curated/en/898741468262742934/United-Nations-World-Bank-joint-Iraq​ -needs-assessment-education-sector. Webster, Paul C. 2011. “Iraq’s Health System Yet to Heal from Ravages of War.” The Lancet 378 (9794): 963–66. Williams Lea Group. 2016. “The Report of the Iraq Inquiry—Section 10.01.” Williams Lea Group on behalf of the Controller of Her Majesty’s Stationery Office, London. http://webarchive.nationalarchives.gov.uk/20171123122743​ /http://www.iraqinquiry.org.uk/the-report/. World Bank. 2011. Confronting Poverty in Iraq. Washington, DC: World Bank. ———. 2017a. Iraq Public Expenditure Review. Washington, DC: World Bank. ———. 2017b. Iraq Systematic Country Diagnostic. Washington, DC: World Bank. ———. Various years. World Bank Indicators database. Washington, DC: World Bank. https://data.worldbank.org/indicator/. Yamao, Dai, and Keiko Sakai. 2013. 60 Chapters to Understand the Contemporary Iraq [in Japanese]. Tokyo: Akashi Shobo. CHAPTER 4 Institution Building, Governance Reform, and Private Sector Development While most donors recognize the importance of institutional capacity and governance for implementing reconstruction and rebuilding the state, there is no consensus on how external actors can or should inter- vene to strengthen c ­ apacity. In Iraq, many donors placed higher priority on the recovery of economic and social infrastructure than on institution building and governance ­ reform. This chapter assesses donor engage- ment in Iraq on capacity development, institution building, two key gov- ernance reform efforts—decentralization and anticorruption—and private sector ­development. Building Capacity Development and Institution ­ U.S. Efforts to Strengthen Iraqi Capacity Development Most donors focused on infrastructure recovery, but some also engaged with capacity development efforts to various degrees, with the United States playing the biggest part, at least ­financially. Early on, the capacity development activities of the Coalition Provisional Authority (CPA) were aimed mainly at rebuilding Iraqi security forces, with the rest of its focus placed squarely on infrastructure d ­ evelopment. For example, when a US$18.4 billion supplementary budget appropriation was presented to U.S. Congress, it consisted almost entirely of large infrastructure the ­ projects (Stephenson 2007­ U.S. capacity development efforts—led ). Still, ­ ­ .S. Agency for International Development (USAID)— primarily by the U stand out financially among all ­ donors. A significant number of USAID 77 78 The Reconstruction of Iraq after 2003 projects and programs included capacity development elements, with such efforts totaling US$4 ­billion. Unlike most of the newly created ­U.S. entities tasked with supervising and managing reconstruction activities, USAID was one of the few agencies with experience in postwar ­ reconstruction. From the outset, it placed importance on institution building and governance ­ reform. Aside from a US$2 billion contract with Bechtel to rebuild infrastructure, most of USAID’s other activities related to capacity development and governance reforms (table 4.1­ ). TABLE 4.1 Major U.S. Agency for International Development Programs for the Economy and Governance in Iraq, 2003–12 Program and share of total Amount (US$, millions) Infrastructure (33%) Bechtel I 1,004.10 Bechtel II 1,180.00 Economy (16%) Economic Governance I 75.60 Economic Governance II 209.00 Agriculture Reconstruction and Development Program for Iraq (ARDI) 100.40 Agribusiness (Inma) 179.80 Harmonized Support for Agriculture Development 80.00 Private Sector Development (Izdihar) 140.20 Provincial Economic Growth (Tijara) 192.50 Financial Sector Development 51.20 Governance (51%) Health and Education 80.90 Primary Health Care Project 72.90 Revitalization of Iraqi Schools and Stabilization of Education I 55.30 Revitalization of Iraqi Schools and Stabilization of Education II 51.80 Local Governance Program I 224.40 Local Governance Program II 367.00 Local Governance Program III 207.60 Governance Strengthening 57.20 Community Action Program I 269.60 Community Action Program II 147.10 Community Action Program III 323.00 Electoral Technical Assistance 102.70 Elections Support Project 25.00 Voter Education 114.60 Community Stabilization Program 649.00 National Capacity Development (Tatweer) 339.40 Iraq Rapid Assistance Project 161.80 Administrative Support Project (Tarabot) 82.30 Total 6,544.40 Source: SIGIR 2013. Institution Building, Governance Reform, and Private Sector Development 79 U.S. officials gave USAID’s governance In interviews, Iraqi and former ­ and capacity-building programs a mixed ­ assessment. A common criticism was that, considering the amount of money spent on the programs, their outputs and outcomes were ­ unclear. In particular, some interviewees felt that too much money, at least initially, was spent on consultant fees and not enough on expenditures that would have directly benefited the Iraqi people. But persons who attended USAID-sponsored training saw the ­ programs more ­ favorably. Since USAID’s capacity development pro- grams were ongoing, their methodology and content could be ­ refined. Also, unlike other donors, USAID had program teams stationed in Iraq and was able to undertake many training activities within the country, which may have increased their i ­mpact. Contractors and consultants played large roles in undertaking most ­ U.S. capacity development activities, with U ­ .S. reconstruction agencies such as the CPA and USAID awarding large-scale contracts sometimes exceeding US$100 million, most of which were conducted i ­n-country. However, these contracts often lacked a predetermined goal and scope, close supervision, and effective coordination with other stakeholders ­ (U.S. GAO 2007, 1–5­ ). Challenges in Evaluating Donor Engagement in Capacity Development Efforts In addition to the United States, many other donors and international organizations were engaged in capacity development efforts: most United Nations (UN) projects funded by the International Reconstruction Fund Facility for Iraq (IRFFI) contained capacity development activities; the World Bank provided extensive training to familiarize Iraqi officials with World Bank procedures to enhance fiscal management capacity; the Japan International Cooperation Agency (JICA) offered various training opportunities to more than 6,000 Iraqis in neighboring countries, in the Kurdistan region, and in Iraq itself; and the ­ U.K. Department for International Development and the European Union (EU) stressed capacity development while funding programs through the ­ IRFFI. These capacity development efforts have been subject to little evalu- ­ ffectiveness. This situation may ation, making it difficult to judge their e not be unique to Iraq, h ­ owever. The World Bank Institute points out that there is a lack of consensus among donors regarding what results should be expected from capacity development activities, and conven- tional monitoring and evaluation systems regularly fail to capture their impact (World Bank Institute 2012­ ). One consequence of this ambigu- ity regarding impact was that international development actors pro- vided a vast number of capacity development programs based on budget 80 The Reconstruction of Iraq after 2003 availability rather than the priorities of Iraqi ­ institutions. Box 4.1, which details ­U.S. efforts to introduce a fiscal management information system (FMIS), provides a snapshot of some of the problems that this approach ­created. BOX 4.1 Institution Building in Iraq: The Fiscal Management Information System U.S. and World Bank efforts to introduce considering their applicability to the local an FMIS in Iraq illustrate some of the ­ context. Third, the prevailing security challenges involved in delivering capacity situation prevented the consulting firm from development ­ programs. USAID awarded undertaking many activities and accessing contracts to a consulting firm under its the Ministry of Finance, which was located Economic Governance I (US$79.6 million) in one of the most dangerous areas of and Economic Governance II (US$223.3 ­ Baghdad. A contractor for the consulting million) programs to improve public finan- firm was kidnapped by a militia in 2007, management. The centerpiece of these cial ­ which halted most of the firm’s activities in programs was the introduction of an FMIS, ­ Iraq. Fourth, the program failed to obtain which aimed to connect public entities by a support and buy-in from Iraq Ministry of modern, automated computer system that Finance leadership and other officials, who would transfer fiscal and financial data and were comfortable with the existing system enable the Ministry of Finance to direct, and resisted the introduction of the more monitor, and predict spending b ­ etter. sophisticated FMIS (Savage 2013­ ). Despite the considerable resources spent After the Economic Governance II on this effort, the system was never fully contract came to an end in 2009 without ­deployed. a completed FMIS, the task of introducing According to research conducted by the FMIS was taken over by the World Bank James Savage, four factors exacerbated under its technical assistance Public Finance program. First, conflicts the failure of the ­ Management Program (US$18 ­ million). over management of the FMIS contract This component was added in the middle between USAID, the CPA, and the ­ U.S. of project implementation, however, and Department of Treasury’s Office of internal reporting concluded that the World Technical Assistance influenced the scope Bank program ultimately failed to introduce and administration of the p ­rogram. For the ­FMIS. example, the Economic Governance We can learn several lessons from this contract called for the consulting firm to ­case. First, a supply-driven approach without work closely with the finance and planning due consideration of the local context does ministries, but the CPA restricted the access not ­work. Second, donor mismanagement of USAID and the consulting firm to t ­ hem. affects the outcome of p ­rograms. Third, Second, the consulting firm chose overly avoiding past mistakes and transferring sophisticated software programs without lessons between donors are difficult t ­ asks. Institution Building, Governance Reform, and Private Sector Development 81 Governance Reform: Decentralization and Local Governance Since the fall of the Saddam Hussein regime, the devolution of central- ized power—decentralization—has been a key and consistent governance priority for the postwar Iraqi government and the international commu- nity, just as it had been in the wake of collapsed authoritarian regimes elsewhere, such as in Indonesia after Suharto and in the Philippines fol- lowing Ferdinando ­ Marcos. The international community devoted sub- stantial resources to decentralization efforts in postwar Iraq, particularly to developing the capacity of local institutions and establishing a new ­ramework. A key milestone in this endeavor came when the new legal f Constitution, which established federalism and decentralization as the guiding paradigms for the new Iraq, was ratified by a national referendum in October 2005. Nevertheless, as of 2019, progress toward full decentral- ization has been gradual and marked by little change of any s ­ ignificance.­ U.S. Engagement on Decentralization and Local Governance In post-Saddam Iraq, the United States was a strong proponent of a decentralized system, continuously supporting the policy agenda through programs. Even prior to the invasion in a series of technical assistance ­ 2003, the promotion of decentralization featured prominently in U ­ .S. prewar planning for what might follow the Saddam regime, with planners believing decentralization to be the best guarantor against the emergence of a dictatorship in the future (Kane, Hiltermann, and Alkadiri 2012­ ). The expectation among planners was that by improving public services such as education, health, water, and roads through empowered, newly selected local councils, Iraq could be governed more e ­ ffectively. Indeed, one plan called for channeling ­ U.S. reconstruction funds through new local governments in order to break Iraq from the pattern of centralized authoritarianism that had gripped the country for decades, and local governance teams were sent into the country soon after the invasion ­ (SIGIR 2009, 116­ ). USAID drove ­ U.S. policy efforts to encourage decentralization in Iraq and provided assistance through a series of local governance p ­ rograms. Table 4.2 shows USAID programs that contained elements of decentral- ization and national and local government capacity d ­ evelopment. The United States originally intended to promote decentralization through both top-down efforts aimed at strengthening national and local gov- ernments and a bottom-up approach focused on enhancing civil society organizations. However, these efforts were, for the most part, ­ ­ ineffective. 82 The Reconstruction of Iraq after 2003 TABLE 4.2 U.S. Agency for International Development Programs for National and Local Governance and Capacity Development in Iraq Program cost Name of program (US$, millions) Operating period Contractor Program description To establish local councils and develop their Local Governance Program I 224 2003–05 RTI International capacity Iraq Strengthening Local and Provincial Governance 367 2005–09 RTI International To support Provincial Reconstruction Teams Program Iraq Local Governance 208 2009–10 RTI International To support implementation of Law 21, 2008 Program III Mercy Corps and four To develop civil society and political Community Action Program 35 2003–05 other nongovernmental participation organizations Management System To develop capacity in central government Tatweer 340 2006–10 International and governorates Management System To improve public administrative capacity at Tarabot 157 2011–14 International the central and governorate levels Taqadum — 2011–14 Chemonics To develop capacity in local government Sources: Based on information from SIGIR 2013 and the USAID Office of Inspector General 2006, 2007, 2009. Note: — = not ­ available. In addition, ­U.S. Ambassador Zalmay Khalilzad, who was posted to Baghdad in June 2005, shifted the focus of reconstruction efforts to smaller, local projects designed to provide jobs and improve service delivery (SIGIR 2013, 41­ ). To promote this new policy, the Provincial Reconstruction Teams program brought together civilian and military personnel drawn from the United States–led coalition force and had them work as an integrated ­ team. The initiative was tasked with building local government capacity and supporting projects for counterinsur- operations. gency and stability ­ Initiatives by UN Agencies Other donors, including UN agencies, also looked to support local ­ governance. One such effort, the Local Area Development Program, was funded by the United Nations Development Group Iraq Trust Fund (UNDGITF) and involved the International Labour Organization; the United Nations Development Programme (UNDP); the United Nations Educational, Scientific, and Cultural Organization; the UN-Habitat; the United Nations Development Fund for Women; the United Nations Office for Project Services; and the World Health ­ Organization. The program had three main objectives: (1) to strengthen the capabilities of local authorities in the north, center, and south of Iraq; (2) to stimulate Institution Building, Governance Reform, and Private Sector Development 83 local economic development; and (3) to improve social and physical infra- approach. structure using a labor-intensive ­ The Legal Framework for Decentralization Soon after the invasion, efforts began to set up a legal framework for ­decentralization. The most notable achievement was the new Constitution, ratified in October 2005 by a national referendum, which defined a fed- eral political system that included national and local ­ governments. The drafting process started in May 2005, with the National Assembly’s appointment of a 55-member drafting ­ committee. Many political and sectarian groups held different views on many issues, but the question of how to define federalism and decentralization was among the most contentious. Proponents of federalism included the Kurdistan Regional ­ Government (KRG) and the Islamic Supreme Council of Iraq (ISCI),1 which managed to secure the inclusion of articles that limited the role of the central government and increased the role of regional g ­ overnments. For example, article 115 specifies that all powers not stipulated as being within the exclusive purview of the federal government shall belong to the authorities of the regions and of governorates that are not organized in a region; with regard to other powers shared between the federal and regional governments, it stipulates that priority shall be given to the laws of the regions and ­ governorates. In 2008, a so-called “governorate powers law” transferred further powers to governorate councils (the Kurdish north is exempt under this legislation since the KRG is constitutionally recognized as a federal region). The law was amended in 2010 and 2013 to provide yet more ­ authority to the ­ governorates. Along with the 2005 Constitution, the law and its amendments provided a legal foundation for decentralization, addressing the overlap between the authority of local governments and the central government and granting broad legislative and regulatory powers to the subnational ­ level. Despite this, attempts to devolve regu- latory powers to regional governments were largely stymied by central government resistance to the m ­ ove.2 Decentralization Stalled Despite the wealth of donor-provided technical assistance and the steps taken to develop a legal framework, overall progress toward decentraliza- modest. The domestic political environ- tion in Iraq after 2003 has been ­ ment has been a key factor hampering progress, mainly the lack of commitment by political leaders and central government ­ officials. Struggles over power, territory, and resources prevent political, religious, 84 The Reconstruction of Iraq after 2003 and sectarian groups from building a consensus on ­ decentralization. Other challenges have arisen from disagreements over oil revenue–­ sharing arrangements; the role of the national, regional, and sectarian security forces; and disputes over the autonomy of the KRG (annex 4­ A). Experience in low- and middle-income countries suggests that successful decentralization always requires the right ingredients, appropriate tim- ing, and some degree of ­experimentation. Donor support in Iraq failed to consider and address these elements ­ sufficiently. Governance Reform: Tackling Corruption Widespread and intensifying corruption after the Iraq War hampered the reconstruction process and limited Iraqi public confidence and trust in government. Although corruption was an issue in Iraq before the war, the ­ its nature and magnitude became far greater after the ­ invasion. It is ­ ­ ature. difficult to grasp the full dynamism of corruption, given its illicit n Still, the scale of corruption in Iraq remains among the worst in the w­ orld. In 2014, the Worldwide Governance Indicators ranked Iraq in the b ­ ottom 6 percent of countries for control of corruption (World Bank, various years). In 2015, Transparency International ranked Iraq 161 out of 167 ­ countries in its global corruption perception index (Transparency International 2015­ ). The nature and extent of corruption in Iraq have gone through several changes over the past two decades and can be loosely divided into three phases: monopolized corruption before the Gulf War in 1991, systematic and administrative corruption under economic sanc- War. tions, and an explosive rise in corruption after the Iraq ­ Corruption before and after 1991 Under the Saddam regime before the Gulf War in 1991, corruption was confined mainly to a small group of people in Saddam’s inner ­ circle. The Baath Party had a very stringent policy against corruption by public servants; corruption by civil servants—including ministers—was uncom- ­ mon, in part because stealing from the state was considered stealing from Saddam Hussein and was punished ­ accordingly. Harsh penalties were imposed on anyone who was even suspected of being involved in corrup- tion, waste, or mismanagement (Al-Ali 2014, 192­ ). The Gulf War and ensuing economic sanctions changed the nature entirely. Under economic sanctions and the Oil- and extent of corruption ­ for-Food Programme (OFFP), the practice of corruption became more institutionalized, with government officials demanding a percentage of Institution Building, Governance Reform, and Private Sector Development 85 kickbacks from contractors and ­ suppliers. The Independent Inquiry Committee, otherwise known as the Volcker Committee, investigated corruption and fraud related to the OFFP and found that the Saddam regime earned US$1.8 billion in illicit income through surcharges on oil sales and kickbacks (Independent Inquiry Committee 2005­ ). According to estimates by the ­ U.S. Government Accountability Office, US$4.4 ­ billion was effectively stolen through the OFFP, and an addi- tional US$5.7 billion was lost as a result of oil ­ smuggling. This was a systematic, illicit revenue scheme for the country, with the majority of benefits monopolized by a small group of high-ranking officials, the president, and his ­ family. Petty and administrative corruption within the civil service also became prevalent under the sanctions regime as public sector salaries declined (Le Billon 2005, 693­ ). Iraqis had to pay for access to admin- istrative, health, education, and judicial s ­ervices. These practices had an impact on the collapse of state capacity and essential functions, and a large portion of the population lost access to key public services (Le Billon 2005, 693­ ). In the wake of the invasion in 2003 and subsequent turmoil, an even wider pool of the Iraqi workforce started to engage in c ­ orruption.3 Many factors affected its spread: huge capital inflows, first from aid money and later from oil revenue; a breakdown in security and in the criminal justice system; and a weak legal and institutional framework that prevented an effective checks-and-balances s ­ystem. Corruption took place in many areas and institutions and in different forms: oil smuggling, kickbacks from foreign and domestic contracts for public projects, administrative bribery, nepotism and clientelism, and political c ­ orruption. The impact of widespread corruption was enormous in postwar Iraqi society. First, the Iraqi public’s trust in public institutions, political par- ­ ties, and the security and justice system p ­ lummeted. As a result, many people retreated into ethnosectarian groups or other institutions for service and security provision, which further degraded the authority of the ­state. Second, it impeded the progress of reconstruction activities in every ­ aspect. This effect was most pronounced in the procurement process, as many parties tried to intervene in the selection of contrac- tors by distorting the results of bid ­ evaluations. This practice hobbled the functioning of public institutions, and although some public servants avoided these practices, their work was hindered by those engaged in misconduct and ­ corruption. Third, corruption discouraged private sec- tor engagement in Iraq, including foreign direct investment, since both domestic and international companies were subject to shakedowns in the course of doing ­ business. 86 The Reconstruction of Iraq after 2003 Foreign actors also played a role in exacerbating the state of cor- ruption in ­Iraq. The International Advisory and Monitoring Board for Iraq and the U ­ .S. Special Inspector General for Iraq Reconstruction (SIGIR) found a wide range of irregularities in spending out of the United States–managed Development Fund for Iraq ( ­DFI).4 These irregularities included a lack of competitive bidding for large contracts, missing contract information, payments for contracts that had not been supervised, and, in some cases, outright ­ theft. An audit by the SIGIR, carried out in July 2010, discovered that US$8.7 billion of DFI funds was unaccounted ­ for. Anticorruption and Donor Assistance After the invasion in 2003, the CPA established a basic institutional framework for anticorruption efforts in postwar I ­ raq. The CPA trans- ferred supervisory authority from the Iraq Board of Supreme Audit to two newly created anticorruption e ­ ntities. The Commission of Integrity (COI) was established by the CPA in early 2004 as an umbrella anticor- ruption entity in ­ Iraq. Its functions ranged from investigating cases of corruption to developing a culture of integrity, transparency, and account- ability in the public and private ­sectors. Offices of inspectors general, also established in 2004, were placed within each of the Iraqi ministries to provide independent internal o ­ versight. Later, in 2007, the Joint Anti- Corruption Council was set up within the Prime Minister’s Office to enhance executive coordination of anticorruption ­ efforts. The government of Iraq recognized the growing cost and impact of corruption on the country’s economic development and reconstruction activities and, in March 2008, adopted the United Nations Convention against ­ Corruption. In parallel, Iraq launched a national anticorrup- tion campaign and in that same year rolled out a new anticorruption policy, the Baghdad Declaration on Combating ­ ­ Corruption. Based on these efforts, the first comprehensive National Anti-Corruption Strategy was developed in 2010 with support from UNDP and the United Nations Office on Drugs and Crime ­ (UNODC). Based on an assessment of the country’s concerns and vulnerability to corruption, the strategy included 200 action items to combat w ­ rongdoing. The U ­ .S. Embassy Anti-Corruption Coordination Office, UNDP, and UNODC engaged in several technical assistance programs to ensure implementa- tion of the ­strategy. Further efforts and reforms were made to strengthen the legal framework and capacity of the institutions c ­ oncerned. Despite all this, corruption remains prevalent and continues to rep- resent a critical challenge to effective governance in ­ Iraq. The country’s Institution Building, Governance Reform, and Private Sector Development 87 ­ easons. First, some politi- anticorruption initiatives faltered for several r cians manipulated investigations for political advantage, eroding the credibility of government anticorruption efforts (ICG 2011, 23–26). Second, oversight institutions suffered from institutional weaknesses from the outset; the mandates and job remits of both the COI and the inspectors general were unclear from the ­ start. The COI lacked its own workforce to undertake investigations and so relied on the inspectors general for information, thus limiting its work to desk ­ reviews. In addi- tion, there was no clear process for hiring and dismissing inspectors, and they were subject to intervention by ministers, leading to the appoint- ment of unqualified personnel selected on the basis of their relationship with the minister in question (ICG 2011, 10­ ). A weak legal framework governing these oversight agencies continues to hinder their c ­ apacity. Given the politicization of anticorruption efforts and the country’s weak institutional and legal framework, the future of anticorruption reforms in Iraq remains ­ uncertain. The required reforms identified through technical assistance programs and the country’s current strategy are clear; the issue is whether sufficient political commitment can be mustered for the reforms to be implemented e ­ ffectively. Without achiev- ing tangible results, the Iraqi public’s trust and confidence in the state suffer. will continue to ­ Private Sector Development As far as the impact on the economy is concerned, the most critical shortcoming was that reconstruction made little progress in developing Iraq’s non-oil private sector, failing to diversify the Iraqi economy away from its dependence on oil r ­ evenues. The high expectations for private investment in Iraq when military activities drew to a close in 2003 were realized only in the oil sector; in non-oil sectors, both foreign and domestic investment remained l ­imited. This failure occurred even though many international donors prioritized development of the non- sector. As a result, job creation in the non-oil private sector oil private ­ was nominal, and the public sector continued to be the primary source of employment in ­ Iraq. Donor engagement in private sector development focused mainly on the financial sector and the provision of microcredit, reform of state-owned enterprises (SOEs), and the promotion of private busi- ness, including through institutional and regulatory ­ reforms. In this endeavor, the major actors were UN agencies, the United States, and World Bank. the ­ 88 The Reconstruction of Iraq after 2003 At the outset of the reconstruction process in 2003, the CPA led these efforts, setting three initial tasks to put free-market foundations in place: building financial market structures, promoting business, and determining the future of SOEs (SIGIR 2013, 114­ ). However, the CPA’s short-term mandate meant that it could make only a limited impact on the long-standing structures of the existing command economy driven by the state-run oil and natural gas s­ ectors. After the CPA passed from being, its initiatives were taken over by several ­U.S. ­agencies. Among them, USAID made several large- scale contributions, including the private sector development program known as “Izdihar” (translated as “prosperity” in Arabic) costing US$140 ­ million and implemented between 2004 and 2008. Izdihar aimed to support the growth of micro, small, and medium enterprises by providing small grants and technical a ­ssistance. This program was followed by a provincial economic growth program called “Tijara” (meaning “trade” in Arabic), which cost US$192.5 ­ million. Both pro- grams included job creation provisions (SIGIR 2013, 116­ ). Meanwhile, the Task Force for Business and Stability Operations, a division of the U.S. Department of Defense, was established in 2006 to promote for- ­ eign direct investment and reform of the ­ SOEs. ­U.S. spending on Iraq’s non-oil economy between 2003 and September 2012 was an estimated minimum of US$1.82 ­ billion. For its part, the World Bank undertook its own initiatives to stimulate private sector development in Iraq, albeit smaller in scope and financial ­scale. These efforts included conducting a business and investment climate survey, developing measures to encourage reform of SOEs and the banking and financial sectors, as well as providing support for public and private ­ partnerships. Separately, agencies such as the International Labour Organization, UNDP, and the United Nations Industrial Development Organization also engaged in private sector development, including UNDP’s formulation of the Private Sector Development Strategy (2014–30) on request by Iraq’s Prime Minister’s Advisory ­ Commission. The strategy, produced in 2014, presented a road map for the Iraqi government and the private sector to promote private sector activities, but whether it will be fully imple- mented remains to be s ­ een. In the financial sector, a consensus priority targeted the reform and restructuring of the two large state-owned banks, Rasheed and ­Rafidain. Efforts to do so by the United States and the World Bank, however, ran into strong ­ resistance. A more successful reform effort saw the establishment of the Trade Bank of Iraq in July 2003. Institution Building, Governance Reform, and Private Sector Development 89 Supported by several foreign investment and commercial banks, the Trade Bank of Iraq was created specifically to facilitate exports and imports after the ­ invasion. While it has experienced problems with management and corruption, its ability to facilitate exports and imports through the issuance of letters of credit was essential for many reconstruction ­activities. Throughout the reconstruction of Iraq, the dire security situation represented the biggest hurdle preventing both foreign and local pri- vate sector actors from investing and expanding their business a ­ ctivities. The World Bank investment climate assessment in 2012, meanwhile, found that the leading constraints on private firms operating in Iraq were unreliable electricity supply, political instability, and corruption as well as public sector dominance and lagging e ­ ducation. The assess- ment also highlighted the need to reform market governance, invest in infrastructure and trade, strengthen factor markets, and reform the weak but pervasive SOEs as key priorities to enable private sector–led growth in ­ Iraq. Non-oil private companies are usually much more sensitive to risk factors than resource-related ­ companies. An analysis shows that non- oil-related foreign direct investment, for which investors can choose areas that are subject to fewer risks, is negatively associated with con- flict, while resource-related foreign direct investment is less affected by it (Witte and others 2016, 39–42­ ). This tendency occurs mainly because the resource sector is more profitable, and resource companies are constrained by the geographic location of natural resources so that they are still likely to invest in areas experiencing ­ conflict. And so it was in Iraq: even in 2009, when security was still very much in question, international oil companies were active participants in bidding for oil field ­access. To promote non-oil sector development in Iraq, the international community needs to devise a better mechanism for reducing risk and a better financing ­ facility. In February 2018, another international confer- ence for the reconstruction of Iraq was held in Kuwait following the end of major fighting against ­ Daesh. Hundreds of private companies participated in the ­ conference. In its Reconstruction and Investment Framework, the Iraqi government and the international community emphasized the importance of the private sector in strengthening the country’s ­economy.5 As observed elsewhere in this study, the most criti- cal shortcoming of the reconstruction of Iraq after 2003 was that it failed to develop the country’s non-oil private s ­ector. Stakeholders in recon- struction need to do b ­ etter. 90 The Reconstruction of Iraq after 2003 Annex 4A: Disputes over Decentralization in Iraq detractors. The push for decentralization in Iraq has both supporters and ­ The KRG and the ISCI support decentralization, seeing extensive devo- lution of power and the promotion of federalism as the best means to protect the interests and security of the communities they ­ represent. Opposition to decentralization comes mainly from nationalists, Islamist Sunnis, and some Shia parties, including ­ Dawa. Disputes between each faction—those for decentralization and those against—center on three specific issues: oil revenue sharing; national, regional, and sectarian security forces; and the K ­ RG. Oil Revenue Sharing The most contentious question raised by decentralization is how to deal with the ownership, management, and distribution of oil ­ wealth. Iraq’s oil resources are unequally spread geographically: about percent of the country’s oil reserves are concentrated in the south; 75 ­ about 17 percent in the north, including Kirkuk; and the rest in central western ­Iraq. Because of the disparity of oil reserves, oil wealth has become a major source of dispute across different regions, governor- groups. The 2005 Constitution defines a modality of oil rev- ates, and ­ enue sharing in articles 111 and 112.6 However, the articles provide room for differing interpretations, resulting in enduring disagreements between the KRG and the central government in B ­ aghdad. The KRG has signed contracts with more than 25 oil companies and is now exporting oil and bypassing the State Organization for Marketing of Oil, an Iraqi national oil marketing c ­ ompany. This practice has met with strong opposition from the central government and eventually led the government to suspend fiscal transfers to the K ­ RG. The ongoing dispute is closely related to a hydrocarbon law, which was drafted in 2007 and approved by the Council of Ministers, but which the National Assembly has yet to ­approve. The National Military and Regional and Sectarian Security Forces Another important issue that needs careful consideration in moving toward decentralization is how to streamline the roles of the national military, regional security forces such as Peshmerga, as well as religious and local ­militias. Ordinarily, national defense is considered a public ­orce. In the case of Iraq, good, typically provided by a national military f Institution Building, Governance Reform, and Private Sector Development 91 however, after the CPA’s decision to disband the Iraqi military, security became a private or local good supplied to individuals by the group or groups—whether religious, regional, ethnic, or tribal—to which they belonged. For example, Sunni tribal security forces—the so-called ­ “Sahwa” or “Sons of Iraq”—played a large role in fighting Al-Qaeda and bringing about a substantial improvement in the security situation after U.S. military surge in 2007. Yet, after security improved, Sunni tribal the ­ forces were alienated by the Shia-led government, creating a security vacuum in the western central part of Iraq that was later filled by ­ Daesh. As the fighting against Daesh in Mosul in 2016 shows, military forces in Iraq are composed of a mixture of a national military and Peshmerga and Shia ­militias. Incentivizing tribal and local security forces to contribute to the peace and stability of Iraq is a sensitive issue in designing the country’s decentralization ­efforts. The Kurdistan Regional Government The KRG has been functioning as a de facto, autonomous regional gov- ernment since 1991 and is a long-standing proponent of decentralization and federalism in ­ Iraq. The KRG was first recognized officially in the Constitution of 1970 and was later given its own article in the 2005 Constitution, which entitled it to possess its own executive, legislative, and judicial branches and to govern its affairs autonomously within its regional ­borders.7 Because of the suspension of fiscal transfers from the central government budget as a result of disputes over oil revenue sharing in the last two years, the KRG’s autonomy has increased—but at the cost of a serious budget ­deficit. Resolving the KRG issue represents a central agenda. In the past, the ISCI had task in advancing Iraq’s decentralization ­ supported the formation of a large regional government encompassing southern governorates, an issue that has drawn much ­ debate. The ques- tion of whether Iraq should allow an asymmetric form of decentralization or not, which would allow the KRG to hold a different status from the rest of Iraq, or whether Iraq should be split into three regional govern- ments, needs careful ­ handling. Notes 1. The ISCI was forced to soften its stance on decentralization after its loss in consecutive elections in 2005 and 2010. 2. This tendency is noted throughout the ­ literature. For example, see Katzman (2014­). 92 The Reconstruction of Iraq after 2003 3. In the final report of the ­U.S. Special Inspector General for Iraq Reconstruction, both Iraqi and U ­ .S. officials expressed concern regarding this issue (SIGIR 2013­). 4. United Nations Security Council Resolution 1483 called for the creation of an auditing body, the International Advisory and Monitoring Board for Iraq, to monitor DFI spending (UNSC 2013­ ). 5. See ­h ttp://www.cabinet.iq/uploads/Iraq%20Reconstruction/Iraq%20 Recons%20&%20­Inves.pdf. 6. Article 111 stipulates, “Oil and gas are owned by all the people of Iraq in all the regions and ­ governorates.” Article 112 stipulates the roles of the federal government, regional governments, and the producing governorates in man- aging and distributing oil and natural gas ­ revenues. 7. Article 117 stipulates, “This Constitution, upon coming into force, shall rec- ognize the region of Kurdistan, along with its existing authorities, as a federal ­region.” References Al-Ali, ­Zaid. 2014. The Struggle for Iraq’s ­Future. New Haven, CT: Yale University ­Press. ICG (International Crisis ­Group). 2011. Failing Oversight: Iraq’s Unchecked ICG. ­Government. Brussels: ­ Independent Inquiry ­Committee. 2005. Manipulation of the Oil-for-Food Programme Regime. Independent Inquiry Committee into the UN Oil-for​ by the Iraqi ­ -Food Programme, October 27. ­ http://www.foxnews.com/projects/pdf/final​ _­off_report.pdf. Iraq Ministry of ­ Investment. Baghdad: Planning. 2018. Iraq Reconstruction and ­ Planning. Ministry of ­ Kane, Sean, Joost R ­ lkadiri. 2012. “Iraq’s Federalism ­ . Hiltermann, and Raad A ­Quandary.” The National Interest, February 28. h ­ ttps://nationalinterest.org​ /­article/iraqs-federalism-quandary-6512. K enneth. 2014. Iraq: Politics, Governance, and Human ­ Katzman, ­ R ights. U.S. Congressional Research ­ Washington, DC: ­ Service. Le Billon, ­Philippe. 2005. “Corruption, Reconstruction, and Oil Governance in ­Iraq.” Third World Quarterly 26 (4–5): 685–703. D. 2013. Reconstructing Iraq’s Budgetary ­ Savage, James ­ Institutions. Sterling, VA: Potomac ­Books. Reconstruction). 2009. Hard Lessons: SIGIR (Special Inspector General for Iraq ­ ­ xperience. Washington, DC: U The Iraq Reconstruction E ­ .S. Government Printing ­Office. ———. 2013. Learning from Iraq: A Final Report from the Special Inspector General ­ econstruction. Washington, DC: S for Iraq R ­ ttps://www.globalsecurity​ ­ IGIR. h .org/military/library/report/2013­/sigir-learning-from-iraq.pdf. Stephenson, J ­ames. 2007. Losing the Golden Hour: An Inside View of Iraq’s ­Reconstruction. Washington, DC: Potomac ­Books. Institution Building, Governance Reform, and Private Sector Development 93 Transparency ­ International. 2015. Corruption Perception Index 2015. Berlin: Transparency ­I nternational. ­h ttps://www.transparency.org/cpi2015​ ­#results-table. UNSC (United Nations Security ­ Council). 2003. “United Nations Security Council Resolution (UNSCR) 1483.” United Nations, New York, ­ May. ­http://unscr.com/en/resolutions/doc/1483. USAID ( ­U.S. Agency for International Development) Office of Inspector ­General. 2006. Audit of USAID/Iraq’s Local Governance Program I & II ­Activities. Baghdad: U­ SAID. ­ Activities. ———. 2007. Audit of USAID/Iraq’s Local Governance Program I & II ­ Baghdad: ­USAID. ­ Activities. ———. 2009. Audit of USAID/Iraq’s Local Governance Program I & II ­ ­ SAID. ­ Baghdad: U U.S. GAO (Government Accountability O ­ ffice). 2007. Stabilizing and Rebuilding Iraq: U ­ .S. Ministry Capacity Development Efforts Need an Overall Integrated Risk. Washington, DC: ­ Strategy to Guide Efforts and Manage ­ GAO. Witte, Caroline ­T., Martijn ­J. Burger, Elena Ianchovichina, and Enrico ­Pennings. 2016. “Dodging Bullets: The Heterogeneous Effect of Political Violence on Greenfield F­ DI.” Policy Research Working Paper WPS 7914, World Bank Group, Washington, D ­ C. Bank. 2012. Iraq Investment Climate Assessment 2012. Washington, DC: World ­ World ­B ank. ­h ttp://documents.worldbank.org/curated/en/224621​ 468261277147/pdf/770960ICA020120IRAC0Box377289B00PUBLIC0­.pdf. ­ database. Washington, ———. Various ­years. Worldwide Governance Indicators ­ DC: World ­ h ttp://info.worldbank.org/governance/wgi/index​ B ank. ­ .aspx#reports. Institute. 2012. Guide to Evaluating Capacity Development ­ World Bank ­ Results. Washington, DC: World B ­ ank. CHAPTER 5 Lessons Learned from the Reconstruction of Iraq Based on the analysis of international reconstruction efforts and the assessment of their impact on sectors, governance, and institutions, this chapter identifies lessons for international donors and organizations in the following seven areas: (1) working with institutions and cultivating national ownership; (2) effective implementation in insecure environ- ments; (3) improving the effectiveness of donor funding for reconstruc- tion; (4) enhancing accountability in reconstruction; (5) improving the assessment process and prioritization; (6) donor coordination with contracting. national institutions; and (7) procurement and ­ Working with National Institutions and Cultivating National Ownership Interventions can weaken national institutions and social c­ apital. While war often destroys institutions and social capital, poorly planned inter- ventions by international actors can do more harm than g ­ ood. The development industry often speaks of “doing no harm,” but this analysis ­ shows that the international community did significant harm to Iraqi institutions and s­ociety. The most devastating policy decisions—­ ­ de-Baathification and dissolution of the Iraqi military—imposed sig- nificant constraints on government ­ capacity. Similarly, the decision of the Coalition Provisional Authority (CPA) to form the Iraqi Governing Council along ethnosectarian lines only served to entrench distinctions between ethnic ­ groups. Even seemingly minor actions can result in unintended consequences for national institutions, such as when 95 96 The Reconstruction of Iraq after 2003 better-paying international organizations draw qualified local staff away from public ­ institutions. It is inevitable that external interventions will have a degree of influence over national institutions and society, for better or worse; however, international actors need to minimize the negative consequences as much as possible by considering factors such as history, ethnic and social background, the capacity of institutions, and the possible unintended consequences of their ­ actions. The drive for early results does not justify bypassing national institutions; donors should work through t ­hem. In a postconflict ­ international development actors often face pressure to deliver setting, ­ results quickly, making it tempting to bypass cumbersome systems and institutions. In the case of humanitarian assistance, the need to bypass ­­ national institutions can be compelling, but for medium- to long-term needs, cutting national institutions out of the process can cause lasting ­ damage. Bypassing Iraqi institutions made initial gains less sustain- able, as the reconstruction of Iraq’s electricity sector shows, with power generation output declining in just the third year of operations due to a lack of Iraqi institutional capacity to operate and maintain facilities and ­equipment. The Special Inspector General for Iraq Reconstruction (SIGIR) concluded that physical infrastructure put in place by United States–funded reconstruction was already breaking down by 2005 (SIGIR 2013­ ). This chain of failure was the product of a policy that emphasized rebuilding Iraq’s physical infrastructure, but not the insti- tutions to maintain it (SIGIR 2009, 258­ ). Moreover, progress secured by external actors alone does little to build public confidence in the national institutions that are necessary for long-term ­ stability. By failing to involve Iraqi institutions, international actors not only inadvertently weakened the institutions but likely also contributed to a loss of public confidence in them, creating room for divisive political ­ interventions. In this sense, the international community missed opportunities to build an inclusive governance structure based on technical e ­ xpertise. Institution-building programs need to address local n ­ eeds. Several factors specific to fragile and conflict-affected countries, over which donors had little influence, posed challenges for institution-building efforts in Iraq, including growing sectarian influence over ministry leadership and staff, pervasive corruption in Iraq ministries, and a dis- tinct lack of security that limited in-country training ­ initiatives. Still, donors created additional problems by failing to coordinate on what local needs were and how best to meet them, limiting the effectiveness of interventions to strengthen Iraqi institutional ­ capacity. Solutions for more effective institution-building programs need to be based on a com- prehensive review of the effectiveness of institution-building programs pursued in Iraq and other conflict-affected c ­ountries. One effective Lessons Learned from the Reconstruction of Iraq 97 approach involves learning-by-doing through project i ­mplementation. Since international organizations can assess the needs and gaps within national institutions more accurately through the process of implemen- tation, they can undertake more effective capacity development pro- grams based on actual n ­ eeds. Systemic reforms need national political b ­ uy-in. During the occupa- U.S. officials attempted to impose drastic reforms with too little tion, ­ consideration of the local context, taking the successful interventions in postwar Germany and Japan as potential models for I ­ raq. For exam- ple, supporters of this approach equated de-Baathification with de-­ Nazification in postwar Germany, and believed that dissolving the Iraqi military would replicate the policy of demilitarization in postwar J ­ apan. This perspective ignored the fact that Iraq’s historical, social, and politi- cal background as well as its religious and ethnic heterogeneity differed markedly from those in Germany and Japan; as a result, the application of policies that sought to replicate these experiences had devastating consequences for Iraqi ­ institutions. Similarly, steps toward decentraliza- tion could have proven more effective had ­ U.S. officials not attempted to impose the policy from the beginning in a way that was perceived to be in concert with certain ethnosectarian groups to the exclusion of o ­ thers. In fragile and conflict-affected states, as in any development engage- ment, donors and international organizations need to enhance national ownership of policies and gain local support before attempting to pro- mote specific governance r ­ eforms. Interventions can affect the behavior of national actors in unforeseen ­ways. Many interviewees for this research pointed out that the reluctance of Iraqi officials to make decisions became a major obstacle to effective implementation. Factors such as intensifying political and sec- project ­ tarian divisions and fears of being subject to accusations of corruption often paralyzed decision-making ­ processes. It is important to establish a functioning system to deter corruption; but if poorly implemented, such interventions can provoke unanticipated responses from national counterparts. This kind of unintended consequence is difficult to foresee, ­­ and measures that encourage positive behavioral change among national partners need to be i ­dentified. Effective Implementation in Insecure Environments Flexible implementation matters for effective ­ reconstruction. While effective planning and preparation are important for understanding the local context and for shortening the lead-in time for reconstruction activities, without effective implementation, reconstruction efforts will ­ 98 The Reconstruction of Iraq after 2003 bring few benefits to the recovering p ­ opulation. Effective implementa- tion depends in large part on the ability to adapt and react to constantly changing ­ conditions. In fluid conditions, implementation requires flexi- bility of thought and ­ response. There are always gaps between the reality of needs and constraints on the ground and what reconstruction projects and programs are trying to ­ achieve. Having insufficient and inaccurate information creates gaps, but implementation allows external actors to interact with diverse stakeholders and to understand the constraints and opportunities on the g ­ round. Such knowledge is useful for reducing the gaps that existed at the beginning of projects and ­ programs. In Iraq, the severity of the security situation was one of the key elements that recon- struction planners failed to ­ anticipate. Donors and international organi- zations could have responded more flexibly by keeping a presence in the less volatile parts of the country, such as in the Kurdistan region and in some governorates in the ­ south. More needs to be done to improve remotely managed development operations. While remote management is always preferable to the out- ­ right suspension or cessation of aid and reconstruction operations, its effectiveness is nevertheless c ­ onstrained. The delivery of aid is of lower quality and is less efficient, maintaining strategic programs is more dif- ficult, and operations are more susceptible to corruption and often lack accountability. At the same time, while security risks are removed for ­ outside personnel, they remain for in-country staff (Stoddard, Harmer, and Renouf 2010­ ). In Iraq, international development actors had to devise creative approaches to manage project and program implementa- tion ­remotely. To maintain interaction with Iraqi government institu- tions, many invited Iraqi officials to meet in neighboring countries or to connect via video conference ­ facilities. They also used local staff and consultants, along with remote cameras and mobile ­ phones. Still, an effective blueprint for remote development operations has remained elusive, and the full potential of new technology for remote operations has yet to be fully r­ ealized. The importance of maintaining in-country operations cannot be overstated. While the Iraq experience demonstrated some of the ways in ­ which development actors can continue to operate remotely, it cannot wholly replace in-country opportunities, which offer opportunities to interact with counterparts and enhance the effectiveness of ­ assistance. The challenge for donors and international organizations is how to get the balance right between having a presence on the ground and avoid- ing unnecessary risks for e ­ mployees. In Iraq, donors and international organizations could have responded more flexibly by keeping a presence in the less volatile parts of the country, such as in the Kurdistan region and in some governorates in the south where security was more stable, Lessons Learned from the Reconstruction of Iraq 99 rather than opting for a near-wholesale withdrawal from the country when risk factors ­ spiked. Windows of opportunity can be crucial and f ­leeting. James Stephenson, a former ­ U.S. Agency for International Development (USAID) country director, argues that the first year after the end of hostilities represents a “golden hour” in postconflict operations, when it is still possible to gain support from the public, something that occupa- tion forces ultimately failed to do in Iraq during this period (Stephenson 2007, 36­ ). The year 2003 was a dangerous one for international actors, as evidenced by the attack on the United Nations (UN) mission in Iraq; but in hindsight, it proved to be a great deal more stable than the years that followed ­ it. In interviews for this research, several former staff members of international organizations questioned the wisdom of the decision to evacuate personnel from Iraq in 2003. Without staff on the ground, most donors were ill-equipped to react nimbly and, as a result, lost opportunities for effective d ­ elivery. If quick and flexible responses had been possible during this period, donor assistance might have con- tributed more effectively to achieving and consolidating s ­ tability. Security and development go h ­ and-in-hand. Development and secu- rity actors can succeed better by working together more closely early in the reconstruction ­ process. In Iraq, development and security measures were undertaken independently and in a fragmented manner, a problem that endured for several y ­ ears. Development actors were wary of being associated too closely with the occupation force, while the CPA and ­ U.S. security actors had little interest in working with actors outside of the coalition. Only after the surge in 2007—by which time the U ­ ­ .S. devel- opment budget was being scaled back—did the ­ U.S. military begin to reach out meaningfully to international reconstruction and development ­ actors. This shift represented a growing understanding among security actors that without effective development results that provide economic opportunities and improve livelihoods, security cannot be a ­ chieved. At the same time, development actors recognize that without security, they cannot deliver on their p ­ riorities. Improving the Effectiveness of Donor Funding for Reconstruction Trust funds are more effective when operating in concert with national ­economies. Although the International Reconstruction Fund Facility for Iraq (IRFFI) played a role in reconstruction efforts, its impact on the Iraqi economy and reconstruction as a whole was ­ limited. Donors, executing international organizations, and Iraqi institutions focused 100 The Reconstruction of Iraq after 2003 too much on the implementation of specific projects and programs funded by the IRFFI and not enough on their potential impact on the Iraqi economy and b ­ udget. With comparatively fewer available resources, operating in isolation limited IRFFI’s impact when the trust fund mechanism could have encouraged beneficial multiplier effects for the Iraqi economy if it had been directed to seed broader invest- ments from, and improvements in the effectiveness of, better-­ capitalized funding ­sources. As it was, the link between interventions funded by the IRFFI and those financed by other sources, including the Iraqi budget, remained weak, even though donor funding could have had a role in reinforc- ing national budget e­ xecution. With regard to Iraq’s capital investment budget, the availability of funds was less of a problem than how the money was spent, with a budget execution rate of just 40–60 percent of allocations (figure 5.1­). If a donor funding mechanism had aligned resources with the Iraqi budget, the impact of assistance could have been ­greater. Instead, donors missed opportunities to enhance the effi- ciency of Iraq’s budget e ­ xecution. For example, working more closely with Iraqi institutions on management of the Development Fund for Iraq (DFI) could have introduced effective ways of spending the coun- try’s own resources, but the engagement of Iraqi officials was l ­imited. Meanwhile, ­ U.S. supervision of the DFI presented a poor example of FIGURE 5.1 Budget Execution in Iraq, 2005–13 70,000 60,000 50,000 Iraqi dinars (billions) 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Actual Budgeted Source: Iraq Ministry of Finance, quoted in World Bank 2017. Lessons Learned from the Reconstruction of Iraq 101 budget ­ management, subject as it was to fraud, waste, and abuse by the fund’s managers (SIGIR 2013, 42­ ). Loan assistance provided by the World Bank and the Japan International Cooperation Agency (JICA), which funded projects using a national execution modality that adhered to Iraqi rules and procedures, provided such opportunities to strengthen Iraqi budget practices, albeit involving relatively smaller s ­ums. If an effective co-financing mechanism to pair loans with Iraqi budget expen- ditures had been implemented, both the impact of loan financing and Iraqi budget execution would have been e ­ nhanced. Developing a sustainable, effective, and accountable budget execu- tion system is essential to any reconstruction ­ agenda. This was particu- larly true in the context of Iraq, which produced significant amounts of oil but paid insufficient attention to the importance of building an effective budget s ­ystem. The availability of domestic revenues will differ from country to country; and for low-income, conflict-affected countries, external resources typically play a significant role in filling gaps. Still, even in these cases, donor funding should be used financial ­ with a comprehensive view of the total resources available for recon- struction ­efforts. Transparency in donor funding can improve national ­ budgeting. Donor funding remained mostly off-budget, reflecting donor concerns that the Iraqi government lacked the necessary political and adminis- trative capacity to allocate and use funds effectively and transparently (Savage 2013, 7­ ). This meant, however, that actual project financing was largely opaque to Iraqi ­ officials. The Iraq Ministry of Planning and Development Cooperation raised this issue in a report produced in 2007, pointing out that the off-budget financing of official development assis- tance prevented the adoption of a comprehensive national budget and that this made it impossible to achieve accurate and aligned financing processes that would complement capital expenditures (Iraq Ministry of Planning and Development Cooperation 2007­ ). At a minimum, donors and partner countries should register reconstruction projects and pro- grams with national budget t ­ eams. Donor funding mechanisms can mobilize private r ­ esources. A donor funding mechanism, such as a trust fund, could have been used to mobilize resources from the private s ­ector. Expectations for private investment in Iraq when military activities drew to a close in 2003 were realized only in the oil sector; in non-oil sectors, both foreign and domestic private investment remained ­ limited. In fragile and conflict- affected settings, promoting private investment is difficult due to higher risks and the absence of legal frameworks, but without developing the private sector, particularly the non-oil sector, job creation and long-term 102 The Reconstruction of Iraq after 2003 limited. The international com- economic growth in Iraq will likely be ­ munity needs to find a more strategic way to leverage donor funding and use trust fund mechanisms to mobilize private investment, such as devis- ing more effective mechanisms for lowering r ­ isk. Enhancing Accountability in Reconstruction Dual accountability can make delivering results on the ground more ­­difficult. World Development Report 2011: Conflict, Security, and Development argues that donors and international organizations are accountable first to their domestic constituencies and shareholders and only second to the people of recipient states (figure 5.2; World Bank 2011, 26­). This dilemma has consequences for reconstruction programs and can result in gaps between perceived needs and realities on the ground because interna- tional actors in-county are subject to strong influence from constituencies and policy makers at home, who may be less sensitive to the difficult, fast-changing dynamics of postconflict s ­ ettings. In Iraq, the good inten- tions of international staff in the field often went unheeded by officials back in ­ capitals. Domestic pressures in donor countries also compel executing agen- cies to spend too much too s ­ oon. It is true that spending offers one way to measure progress; but in fragile and conflict settings, many projects invariably face delays relative to their original t ­imelines. Similarly, a disbursement measure provides no indication of whether projects and programs are contributing to institutional development and achieving FIGURE 5.2 The Dual Accountability Dilemma Accountability National actors International actors Accountability Accountability Accountability Domestic constituencies Domestic constituencies Source: World Bank 2011. Lessons Learned from the Reconstruction of Iraq 103 development ­ objectives. In Iraq, faced with pressures to meet spending deadlines, many executing agencies opted to engage in simpler projects, the scope of which was limited to procurement and the delivery of materials and g ­ oods. In some cases, executing agencies were obliged to change the scope of projects in order to spend allocated funds within a certain time frame, regardless of needs on the ­ ground. As a result, pro- jects managed this way often provided limited benefit to their intended ­beneficiaries.1 Every agency has its budget requirements, but meeting them without considering local needs can be counterproductive and wasteful and leave projects open to c ­ orruption. The sources of reconstruction funding can affect domestic accountability. When financial resources for reconstruction come from ­ external partners, they may not foster domestic accountability among citizens under less obligation to monitor s ­ pending. Since information on donor spending for Iraq’s reconstruction was not disclosed to national institutions, citizens had no way to understand it f ­ully. Domestically, meanwhile, citizens tend to scrutinize natural resource revenues less than tax revenues (Devarajan, Raballand, and Le 2011, 1–4­ ). Thus, the use of donor financing and resource revenues for reconstruction activities has a limited impact on reinforcing domestic accountability between national institutions and ­citizens. In the case of Iraq’s reconstruction, the fact that funding came primarily from external resources and oil revenues reduced the incentives for citizens to scrutinize spending, which might have affected the overall effectiveness of reconstruction ­ efforts. Compounding matters, external resources as well as natural resource revenues became subject to interference from domestic actors seeking rents and private ­benefit. Donors can exacerbate accountability ­ challenges. Significant fraud, waste, and abuse were observed in reconstruction spending in ­ Iraq. According to SIGIR, this situation was most commonly observed with the money disbursed from the DFI, and there were eventually several convictions related to f ­ raud.2 Still, waste was perhaps an even more seri- ous ­ problem. SIGIR estimates that US$8 billion of the US$18 ­ billion DFI budget was wasted as a result of m ­ ismanagement. The fact that a donor had fueled accountability problems set a bad precedent for national ­institutions. In interviews for this research, many Iraqis pointed out that money distributed by military forces to tribal and ethnosectarian leaders in each governorate also fermented an environment that exacer- bated ­corruption. Effective monitoring mechanisms are ­ needed. Monitoring the pro- gress of projects and programs in fragile and conflict settings is another challenge to ensuring accountability in implementation, but an effective monitoring mechanism can be achieved by employing new technologies, 104 The Reconstruction of Iraq after 2003 ­ ctors. There are engaging third parties, and involving multiple national a two interlinked approaches to monitoring: monitoring to ensure proce- dural and physical progress, and fiduciary monitoring to ensure trans- parency and a ­ccountability. For procedural and physical monitoring, many methods were tried in Iraq, but there remains room to improve the methodology by using technologies such as the Global Positioning System, mobile telephones, remote cameras, drones, and satellite imagery combined with a more effective use of local ­resources. For fidu- ciary monitoring, JICA and the World Bank each outsourced the task ­ arties. While the World Bank employed a private company, to third p JICA turned to the United Nations Development Programme (UNDP), exerting a constructive peer-pressure e ­ffect. UNDP assessed each executing agency’s capacity and then provided capacity development programs based on the f ­indings. This mechanism was strengthened by a quarterly monitoring meeting organized by the Japanese government and Iraq’s Prime Minister’s Advisory Commission (PMAC), in which the donor, executing agencies, and UNDP staff gathered to discuss imple- mentation ­issues. Improving the Assessment Process and Prioritization The donor needs assessment process needs ­ refinement. While the needs assessment proved useful for donors and the international community to understand the basic situation on the ground, the process could have been made more ­ effective. For one thing, the UN’s existing network in Iraq was not used in a systematic manner, and many teams began the assess- ment process from s ­ cratch. As a result, it took about four months to pres- ent the assessment results to the international c ­ ommunity. While four months represented a reasonable time span for completion given the difficulties facing the assessment teams, drawing on the UN’s existing ­ networks and knowledge in Iraq could have shortened the process and allowed it to begin earlier, when security conditions were more ­ stable. The assessment placed more focus on physical damage than it did on institutional needs, with consideration of the latter limited to 14 ­ sectors. This was perhaps inevitable, given the difficulty that teams faced in find- ing the right counterparts in Iraqi m ­ inistries. At the same time, however, there was a reluctance to rely on Iraq’s national resources and networks since they had been part of the Saddam ­ regime. While a country’s needs and their relative urgency can change rapidly in conflict-affected regions, needs assessments tend to be carried out over only a limited period of time, typically very early in the postconflict ­ period. In the case of Iraq, no systematic follow-up assessment was carried out, and the Lessons Learned from the Reconstruction of Iraq 105 joint needs assessment became a one-off e ­ xercise. After that, identifying needs on the ground was left to each donor, with little c ­ oordination. The international community could have made the assessment ongoing and made the data available to a broad range of ­ actors. Deteriorating security conditions would have made any follow-up assessment difficult, but employing remotely managed local networks could have sustained the ­process. To assess needs effectively, an inclusive, whole-of-country approach is needed. In a postconflict environment, assessing the diverse needs of citi- ­ zens is invariably difficult, but it is important for donors and executing agencies to diversify their network of national counterparts and infor- mation sources as well as their exposure to other parts of the country to foster an inclusive, “whole-of-country” a ­ pproach. Even if an in-country presence is maintained, donors and executing agencies need to be mind- ful that being present does not necessarily lead to a better understanding of the country if their mobility is constrained and their interactions with national counterparts are ­ limited. In Iraq, most donors based their oper- ations in the highly fortified International Zone of Baghdad, and some rarely left it, restricting their interactions to those with colleagues and other international ­ actors. At best, their contact with national authorities was limited to senior officials in the central ­ government. But in a volatile political climate, a central government may not necessarily represent or fully understand the needs of the country as a whole, and perceptions developed through these limited interactions might be m ­ isleading. Prioritization needs to be ­ strategic. A lack of security and volatile political conditions constrained donor interactions with Iraqi counter- parts and limited their ability to comprehend needs on the ­ ground. As a result, projects and programs were selected for implementation oppor- tunistically and based on incomplete ­ information. In most cases, only limited reliable data were available to inform implementation decisions, and sector prioritization of infrastructure, human capital, and public services was rarely ­ discussed. A supply-driven approach among donors also impinges on p ­ rioritization. From the outset of U ­ .S. reconstruction activities in Iraq, there was a clear preference for “bricks and mortar” projects over those aimed at building human c ­ apital. The priorities of UN agencies tended to be driven by their respective mandates and areas expertise. Of course, all sectors are necessary for the future develop- of ­ ment of Iraq; however, given the limitation of resources and absorptive capacity of national institutions, a more strategic approach could have been taken to identifying critical areas that required early e ­ ngagement. Assessments without follow-up limit ­ impact. The lack of security in Iraq restricted what donors could do within the ­ country. Thus, donors and international organizations have tended to engage in activities that 106 The Reconstruction of Iraq after 2003 can be undertaken without much of a field presence, such as analytical work, assessment of sectors and governance issues, and formulation of strategy. In the initial years after the invasion, ­ ­ U.S.-based consultants produced numerous reports on other countries’ reconstruction experi- ences, since technical assistance contracts had been signed and they needed to produce deliverables to show that the money had been well spent. Yet, such analytical work was of limited value to Iraqi officials, who ­ spent most of their time “firefighting” diverse problems on the ground and implementing projects and therefore had little time to review, let alone implement, the recommendations presented in consultant r ­ eports. As a result, many, if not most, of these publications—along with the financial resources that funded their production—have been underuti- lized since 2003. Donors and international organizations should avoid undertaking analytical work without first consulting domestic counter- parts and actively engaging them in the p ­ rocess. Donor Coordination with National Institutions An effective coordination mechanism is a prerequisite for success in ­ osts. With most donors located outside reconstruction, but it comes with c of Iraq or confined to the International Zone of Baghdad, they spent a great deal of time meeting each other and focusing on interagency or interdonor coordination rather than visiting project sites or interacting implementation. with their Iraqi counterparts, who are so essential to ­ Coordination needs to have a clear ­ objective. At the beginning, the mere exchange of information may be useful and encourage participa- tion; but without substance and clear direction, it will lose momentum quickly and become ­ unsustainable. To that end, there is evidence that the IRFFI served as a useful point of engagement between the international community and the Iraqi government, at least at the outset (Scanteam 2009­ ). The cluster system established by the UN was less s ­uccessful. While the cluster group played a large role in project and program selection for the United Nations Development Group Iraq Trust Fund (UNDGITF), it had little influence over implementation and ­ results. At the same time, it increased the frequency of interagency meetings to an excessive level; cluster managers were sometimes selected without meeting any clear qualification criteria; and the participation of Iraqi representatives was only partially e­ ncouraged. Better donor coordination can lessen the burden on national institutions. Too many projects in Iraq were undertaken with little ­­ coordination among donors and international organizations, causing significant confusion for the Iraqi ­ authorities. The Donor Assistance Lessons Learned from the Reconstruction of Iraq 107 Database (DAD), which contains data covering 45 percent of total donor pledges, recorded that, in May 2007, 43 donors had pledged their sup- port through some 16,931 grant projects with a total commitment of US$15 billion (some estimates suggest that these figures represented only 60 percent of total grant projects; Kanaya 2007­ U.S. ). It is true that ­ projects constituted the vast majority—16,435 out of 16,931 were ­ U.S. funded—but excluding U ­ .S. projects still leaves 496 projects, averaging US$6.4 million e ­ ach. Since this figure captures less than half of total donor pledges, the actual number of projects was l ­arger. Practically, it was difficult for Iraqi institutions to deal with so many projects in light of their institutional constraints and lack of recent expe- rience in dealing with donors; many donors chose simply to bypass Iraqi institutions rather than to help them better coordinate their ­ activities. While IRFFI aimed to lessen transaction and operational costs and to enhance coordination among donors, its relatively small size limited its ultimate impact on ­ coordination. Aid effectiveness and harmonization have been critical development issues since the 1990s, and several related policies were adopted by members of the international community in the Rome Declaration on Harmonization (2003) and the Paris Declaration on Aid Effectiveness (2005­ ). These policies encourage donors to enhance harmonization and coordination to improve aid e ­ ffectiveness. The recommendations made in these declarations are of particular importance for operations in fragile and conflict settings, as the experience in Iraq d ­ emonstrates. Better coordination can make capacity development programs more ­ effective. In interviews conducted for this research, former Iraqi offi- cials indicated the lack of coordination among donors and international organizations on the substance and approach of capacity development programs as a common ­ problem. Efforts to support capacity develop- ment and institution building were diffuse and highly fragmented in both substance and ­ approach. Iraqi officials claimed that this fragmentation led to serious confusion among Iraqi officials, who depended heavily on donors and ­ contractors. Coordination was even lacking among ­ U.S. reconstruction agencies such as the Department of Defense’s Task Force on Business and Stability Operations, the Provincial Reconstruction Team, and ­ USAID. Procurement and Contracting Procurement processes need to be flexible and ­ harmonized. A flexible application of procurement rules and procedures is critical for imple- ­ ffectively. For most donors, menting reconstruction projects swiftly and e 108 The Reconstruction of Iraq after 2003 procurement procedures were developed to operate in more stable envi- ronments; when applied in the absence of security, their stringent applica- tion will lead to emergency interventions being treated the same as those undertaken under normal circumstances, risking costly implementation ­ delays. This mismatch in approach affected most of the donors engaged in the reconstruction of ­Iraq. For example, the CPA prioritized spending from the DFI and Iraqi oil revenues over its own appropriated recon- struction budget, because the DFI was not subject to U ­ .S. procurement rules. This decision was understandable given the urgent needs on the ­ ground, but it also raised the risk of financial misconduct in the use of funds. The procurement rules and guidelines of most donors should be ­ revisited and adjusted to working in fragile ­ settings. Harmonization is another important effort for the donor community to ­consider. In Iraq, two approaches were taken to procurement: direct execution, whereby donors such as UN agencies and the United States directly procured contractors, goods, and equipment; and national execution, whereby Iraqi institutions were responsible for procurement, while donors such as JICA and the World Bank monitored the p ­ rocesses. In each approach, donors operated under rules and guidelines structured to secure the key procurement principles of economy, equity, transpar- ency, and ­accountability. National execution projects tended to take longer to complete than projects undertaken through the donor-led procurement p ­ rocess. In a weak institutional environment, procurement rules and procedures manage. As a result, those international organizations can be difficult to ­ that adopted the national execution modality, such as JICA and the World Bank, found themselves in a situation where no disbursements were made on committed projects for the first several y ­ ears. Considering the benefits and drawbacks of both direct and national execution mecha- nisms, one way to undertake procurement in conflict-affected countries is to employ a third party or procurement agent until a country has in place a better legal framework and more robust institutional c ­apacity. In Afghanistan, the World Bank and the government adopted such an approach by employing a procurement a ­gent. Under a hybrid model such as this, instead of starting a national procurement process from the beginning, for the first few years a third party, such as a UN agency or private firm, would be responsible for all procurement, operating with the participation of officials from counterpart ­ institutions. Capacity development programs on procurement should be provided in ­ parallel. Procurement responsibility can then be transferred to national institu- tions as capacity strengthens and legal frameworks are put in p ­ lace. This mechanism would have positive effects on speed and also deter ­corruption. Lessons Learned from the Reconstruction of Iraq 109 Better contracting can reduce ­ costs. Due to the prolonged violence in Iraq, all donors faced spiraling contract prices due as indirect costs, particularly those related to ­security. With ­ U.S. contracts, in particular, such indirect costs often were incorporated into contracts, and direct expenditures on actual projects were disappointingly ­ small. It is difficult to assess the precise percentage of direct and indirect expenditures since access to contractual information is limited, but research conducted by the Center for Strategic and International Studies estimated that direct costs might have been as low as 27 percent, with security consuming the lion’s share of expenses (figure 5.3; CSIS 2004, 1­ ). But the cost-plus, design-build contract modality adopted by U ­ .S. planners also meant that contractors charged the ­ U.S. government for all of their expenses, plus an additional amount for p ­ rofit. In addition, limited contractual over- sight led to several instances of overcharging, inappropriate sole-source contracting, inadequate reporting, and abuse (SIGIR 2013, ­ x). Later, runaway costs associated with these contracts led to the introduction of fixed-cost ­contracts. Another aspect to be considered is the relative size of ­ contracts. In Iraq, contract management failures were experienced for large-value contracts in the electricity and oil ­ sectors. When contracts were large, they were subject to more outside intervention and left many project FIGURE 5.3 Estimated Breakdown of U.S. Reconstruction Contracts in Iraq Direct services/investments, and remaining contract funds, 27% Security, 30% Pro ts, 6% Corruption, fraud, and Overhead,10% mismanagement, 15% Insurance, international salaries, and other costs, 12% Source: CSIS 2004. 110 The Reconstruction of Iraq after 2003 managers reluctant to make decisions for fear of accusations of fraud and corruption. This does not mean that smaller contracts are necessarily ­ better, since bigger contracts can have a far bigger impact if implemented effectively; but donors should be mindful of the pitfalls of big contracts and manage the bidding and contracting process with extra c ­ are. Rehabilitation projects do not always provide quick ­victories. Believing that rehabilitation, as opposed to new construction, was a quicker route to showing output, many donors opted for repair projects to avoid cum- bersome safeguard processes, such as the preparation of environmental and social impact assessments, and the heightened scrutiny of new con- struction ­ efforts. However, in practice, rehabilitation often proved more difficult than greenfield ­construction. Security challenges often made damage assessment and project implementation extremely difficult at existing ­sites. Meanwhile, many projects relied on contractors who were not involved in the original construction and who were less prepared for the challenges these facilities would ­pose. These factors made infrastruc- ture rehabilitation projects in Iraq a bitter experience for key partners like Japan, the United States, and the World B ­ ank. Notes 1. For example, in an interview for this research, a former UN official described how Iraqi schoolchildren in some areas received multiple school bags from multiple donors, since the provision of school kits was easy to implement, even though the children were unable to attend school due to the prevailing security ­situation. 2. According to SIGIR (2013), among personnel engaged in ­ U.S. reconstruction activities, 41 were arrested, 104 were indicted, and 82 were ­convicted. References Studies). 2004. Estimated Breakdown CSIS (Center for Strategic and International ­ of Funding Flows for Iraq’s Reconstruction: How Are the Funds Being Spent? Washington, DC: ­CSIS. ­https://csis-prod.s3­.amazonaws.com/s3fs-public​ /legacy_files/files/attachments/041201­_iraqfunds.pdf. Devarajan, Shanta, Gaël Raballand, and Tuan Minh L ­ e. 2011. Increasing Public Expenditure Direct Redistribution, Taxation, and Accountability in Oil-Rich Development. Proposal. Washington, DC: Center for Global ­ Economies: A ­ Cooperation. 2007. “Challenges and Iraq Ministry of Planning and Development ­ Iraq.” Presentation, Ministry Lessons of Donors’ Aid Management Process in ­ of Planning and Development Cooperation, ­Baghdad. Stepan. 2007. “Proliferation and Fragmentation of Donor Aid to ­ Kanaya, ­ Iraq.” Baghdad. Report submitted to the Iraq Ministry of Planning, ­ Lessons Learned from the Reconstruction of Iraq 111 ­ . 2013. Reconstructing Iraq’s Budgetary I Savage, James D ­ nstitutions. Sterling, VA: Potomac ­Books. ­ Scanteam. 2009. Stocktaking Review of the International Reconstruction Fund Facility Advisers. for ­Iraq. Oslo: Scanteam Analysts and ­ ­ econstruction). 2009. Hard Lessons: SIGIR (Special Inspector General for Iraq R ­ xperience. Washington, DC: U The Iraq Reconstruction E ­ .S. Government Printing ­Office. ———. 2013. Learning from Iraq: A Final Report from the Special Inspector General Reconstruction. Washington, DC: ­ for Iraq ­ SIGIR. ­https://www.globalsecurity. org/military/library/report/2013­/sigir-learning-from-iraq.pdf. Stephenson, J ­ames. 2007. Losing the Golden Hour: An Inside View of Iraq’s ­Reconstruction. Washington, DC: Potomac ­Books. Stoddard, Abby, Adele Harmer, and Jean ­S. ­Renouf. 2010. Once Removed: Lessons and Challenges in Remote Management of Humanitarian Operations for Insecure ­Areas. London: Humanitarian ­Outcomes. file:///C:/Users/O’Reilly/Downloads​ /remote_management_apr2010­.pdf. World ­Bank. 2011. World Development Report 2011: Conflict, Security, and ­Development. Washington, DC: World ­ Bank. Review. Washington, DC: World ­ ———. 2017. Iraq Public Expenditure ­ Bank. CHAPTER 6 Recommendations for Future Reconstruction Operations Reconstruction in Fragile and Conflict Settings: Uncertain, Fluid, and Complex Unlike the early post–World War II era, contemporary reconstruction operations are increasingly undertaken in volatile and insecure environments. Much of this has to do with the nature of conflicts today, ­­ which involve less interstate fighting and are more intrastate in nature, whether between states and nonstate actors or among nonstate ­ actors. As a result, conflicts become ­ protracted. Because reconstruction must be made to work in such volatile settings, we can find some analogies between the nature of war and that of ­ reconstruction. Carl von Clausewitz described the countless factors that impinge on the conduct of war as fric- (U.S. Marine Corps 1997, 5; von Clausewitz [1832] 1976­ tion ­ ). This idea of friction can be applied to reconstruction activities: friction can be external, such as the threats posed by terrorist organizations; friction can also be self-induced, caused by mismanagement of the donor process and a lack of coordination among s ­ takeholders. Friction in reconstruction can result from uncertainty, fluidity, and c ­ omplexity. While we try to mini- mize uncertainties by gathering information, we cannot eliminate them ­ altogether. All actions in reconstruction will be based on incomplete, inaccurate, or even contradictory ­ information. Meanwhile, policies that look good on paper may prove difficult to implement as a result of com- plex historical, cultural, societal, and organizational factors that are hard for external actors to ­comprehend. Pursuing effective reconstruction within contexts of conflict and fragility is an exercise in minimizing these frictions while protecting 113 114 The Reconstruction of Iraq after 2003 vulnerable people and creating the conditions for lasting peace and stability. This study proposes four recommendations for the interna- ­­ tional community and external actors engaged in future reconstruction ­ ontexts. activities in conflict and fragile c Reinforcing National Success Actions taken by the international community need to reinforce national success through national i ­nstitutions. Imposing what the interna- tional community considered success, without due consideration of the local constraints and challenges or sufficient engagement from national Iraq. Imposing external solutions invites counter- institutions, failed in ­ productive reactions from counterparts, no matter how effective such solutions may ­ appear. In Iraq and elsewhere, successful reconstruction can only be achieved by rebuilding the national institutions and gover- nance structures that provide citizens with justice, security, public ser- vices, and economic ­ opportunities. This approach is ­ challenging. One of the biggest difficulties in work- ing with national institutions in any future conflict-affected setting will be finding legitimate partners with which to deliver success, as we are witnessing in parts of the Middle East and North Africa—such as the Syrian Arab Republic and the Republic of Yemen today—as well as iden- tifying national needs in an intensely divided political e ­nvironment. In such a situation, a single entity—even a central government, if there is any—will not adequately represent the full range of needs of the coun- try’s diverse groups, and the government may well be constrained in what it can deliver in different ­ regions. Since the political, social, security, and economic contexts of each country differ, there are no one-size-fits-all solutions. However, there are three key elements to engaging in recon- ­ struction activities and rebuilding institutions within contexts of conflict ­ ccountability. and fragility: internal abilities, inclusiveness, and a First, donors and international organizations need to reinforce inter- nal abilities within national institutions and avoid trying to replace exist- ing ­capacity. The United States–led occupation authority, the Coalition Provisional Authority (CPA), initially tried to establish a parallel system for reconstruction by using its own experts and bringing in Iraqi exiles, which undermined the country’s existing institutions and available human ­ resources. Meanwhile, some international organizations, includ- ing United Nations (UN) agencies, adopted a direct execution modality that provided Iraqi institutions with only minimal roles in r ­ econstruction. Bypassing national institutions may be justifiable in situations where the rapid provision of emergency humanitarian assistance is required to Recommendations for Future Reconstruction Operations 115 save ­lives. However, when it comes to medium- and longer-term recov- ery and reconstruction efforts, outcomes delivered by external actors alone will do little to reinforce confidence and trust among the people of a country and their national i ­nstitutions. Weak national institutional capacity can certainly impede the progress of projects and programs in conflict-affected countries, but donors and international organizations need to remember that rebuilding a society’s confidence and trust in ­ econstruction. Capable national institutions is, in itself, an objective of r national human capital is likely still present in any postconflict ­ situation. Undertaking reconstruction activities through national institutions can also provide an incentive for donors to focus on institution building instead of solely on individual projects and p ­ rograms. Second, the international community needs to reinforce inclusive- ness in national institutions and help to cultivate the representation of diverse ­ needs. There will always be constraints on communication in volatile states; and in a situation like Syria’s today, reconstruction actors will also be faced with the conundrum of whether to engage with institutions that may have been complicit in committing a ­ trocities. Working with diverse national stakeholders in an inclusive manner is not ­ easy. However, adopting an exclusive approach risks alienating groups that—regardless of what they might have done or allowed to happen in the past—might be essential to successful reconstruction efforts. To foster an inclusive, whole-of-country approach, donors ­ and international organizations would be well served by diversifying their network of national counterparts and information sources, as well as increasing their exposure to different parts of the ­ country. The role of the international community is to facilitate the creation of an inclusive mechanism that reflects diverse needs and engages diverse stakeholders. In this regard, decentralization can be one approach, but ­ as post-2003 efforts in Iraq show, promoting decentralization is far from ­ easy. Whether decentralization contributes to achieving peace and stability depends on the design and sequence of actions embedded in its ­introduction. The key is to find a governance mechanism that ensures ­inclusiveness. Third, external actors in international reconstruction should rein- force accountability in the relationship between national institutions and ­­citizens. World Development Report 2004: Making Services Work for Poor People argues that foreign donors should reinforce account- ability in the relationships among key stakeholders in service delivery (World Bank 2004, 10­ ). Fostering accountability is also a key challenge for international reconstruction efforts in fragile ­ contexts. When finan- cial resources for reconstruction come from external partners, however, they may not foster domestic accountability, because citizens feel less 116 The Reconstruction of Iraq after 2003 of an obligation to monitor spending for which they have not p ­ aid. Similarly, citizens tend to scrutinize natural resource revenues less than revenues derived from public sources, such as t ­axes. For these reasons, using donor financing and resource revenues for reconstruction activi- ­nstitutions. ties often does little to reinforce accountability in national i One proposal to enhance accountability as well as the effectiveness of reconstruction funding is to revisit the mechanism for distributing ­ resources. Devarajan and colleagues argue that, by transferring a por- tion of natural resource–related government revenues uniformly and universally as direct payments to the population, some countries could increase both private consumption and the provision of public goods and thereby reduce poverty and enhance social welfare (Devarajan and oth- ers 2013, 7­). The total financial commitment for the reconstruction of Iraq amounted to US$220.1 billion—somewhere between US$7,000 and US$9,000 per capita—much of which is thought to have been ineffective in improving the lives of Iraqis, making this proposal worth considering in the context of reconstruction f ­unding. Balancing Time and Scale in Operations International and domestic actors need to strike the right balance between seeking smaller, short-term victories and pursuing interven- tions that result in larger, longer-term ­ g ains. The magnitude of ineffectiveness and waste in spending during reconstruction in Iraq, ­ coupled with tightening resources, can lead international actors to con- clude that smaller-scale interventions are the best way to engage in ­ reconstruction. While true that smaller-scale approaches minimize risks, the impact of intervention will be invariably smaller even while the management and administrative costs for each intervention may stay the same, rendering such interventions proportionately more expensive. Seizing windows of opportunity through quick engagement ­­ is important for engaging in effective reconstruction and restoring confidence among the public, but an excessive focus on short-term wins can compromise long-term, sustainable gains—as early efforts in Iraq’s electricity sector ­demonstrate. Large-scale, flagship-type projects, if implemented successfully, can help to build public support for reconstruction ­ efforts. In interviews for this research, some Iraqi officials pointed out that few of Iraq’s recon- struction funds went toward symbolic, legacy projects, which made it dif- ficult for Iraqis to see tangible signs of what reconstruction efforts were achieving. Despite their importance as a means of galvanizing popular ­ support for reconstruction, however, larger-scale projects tend to take Recommendations for Future Reconstruction Operations 117 longer to complete and can be subject to interference from rent seekers, among ­others. One effective approach is to begin with small-scale, short-term inter- ventions that can be scaled up later if the initial engagement is s ­ uccessful. Reconstruction actors and policy makers need to prepare well-structured project portfolios that balance time and scale in o ­ perations. Finding the right balance between short- and long-term projects depends on two elements: first, whether the approach will help to build public confidence ­ in national institutions; and, second, whether it will drive positive behavio- ral change among the public and government ­ officials. World Development Report 2011: Conflict, Security, and Development argues that quick victories might help to restore confidence in the government’s ability to deal with violent threats, whereas the implementation of institutional and social changes takes ­ time. Early results might enhance the morale of national institutions, driving positive behavioral change and setting the right incentives for long-term institution building (World Bank 2011, 13­ ). Intangible elements—such as confidence, incentives, and morale—­ matter when striving for the right balance between time and s ­ cale. Promoting Private Sector Engagement in Fragile Settings The international community needs to find a better mechanism to sup- settings. Without strong private port private sector activities in fragile ­ sector engagement, a lasting recovery cannot be a ­ chieved. In Iraq, the most critical shortcoming was that reconstruction failed to diversify the Iraqi economy away from the dominant oil sector; as a result, few economic opportunities were created in the non-oil private ­ sector. The biggest hurdle to private sector development in Iraq was the dire security situation, which discouraged both foreign and local private actors from investing and expanding their business ­ activities. A separate analysis has shown that non-resource-related foreign direct investment is negatively associated with conflict, while resource-related foreign direct investment is less affected (Witte and others 2016, 39–42­ ). This finding is consistent with the experience in Iraq, where international oil companies were active in bidding for access even when security was lacking, while investment in non-oil sectors was limited in all areas but the relatively safer Kurdistan ­ region. Elsewhere in the country, the role of the private sector was confined mostly to that of contractor for donor- and government-funded ­ projects. The international community can play a part in finding a better mechanism for lowering the risks for private ­actors. 118 The Reconstruction of Iraq after 2003 Reinforcing the Security-Development Nexus The international community needs to integrate the work of the security and development ­ spheres. Security and reconstruction actors failed to effectively coordinate their efforts in Iraq for several r ­ easons. First, there have been historical difficulties in connecting security and development actors in reconstruction, and Iraq was no ­ exception. Coalition forces played a significant role in reconstruction, but the lines of authority and command between development and security actors in early U ­ .S. recon- struction efforts lacked clarity, creating tensions and confusion among the different p ­ arties. To address the divide between development and security actors, the United States created integrated civil-military coor- dination units in the Provincial Reconstruction ­ Teams. Meanwhile, unlike those programs conducted by development organizations, secu- rity forces–led reconstruction activities had no established evaluation ­process. Second, security risks can only be fully neutralized by addressing the root causes of violence and extremism through a development approach that contributes to providing economic opportunities, especially among young ­ people. The 2017 Arab Youth Survey raised possible links between unemployment and the potential for radicalization, with young Arabs perceiving unemployment and extremism as the biggest problems holding back the Middle East and North Africa region (ASDA’A Burson- Marsteller 2017, 20–23­ ). Approximately a quarter of those surveyed said that they consider education reform and employment generation as key to defeating ­terrorism. In Iraq, because of the high concentration of resources in the oil sector, other sectors have developed little and cre- ated few job o ­ pportunities. Economic diversification and job creation can address the root causes of violence and e ­ xtremism. Successful recon- struction depends on whether the members of society who feel excluded today are given opportunities and reasons for h ­ ope. Developing and strengthening inclusive partnerships between the security and development spheres is of paramount importance for suc- cess in r­econstruction. It is time for the international community to devise a new mechanism for coordinating the responses to security and development ­challenges. The Future of Reconstruction in Fragile and Conflict Settings Pursuing effective reconstruction within contexts of conflict and fragility is extremely difficult; it requires a deep understanding of the challenges touch. The international community is still learning how and a delicate ­ Recommendations for Future Reconstruction Operations 119 to support effective and durable postconflict reconstruction; its failure to do so in Iraq has had severe consequences for the region and the ­ world. Successful reconstruction efforts require external actors to understand national and local contexts, to build effective relationships with diverse national and local actors, and to manage these relationships and expecta- tions in contexts of extreme danger and v ­ olatility. External actors also need to respond to and navigate their own priorities and objectives, even if these priorities contradict local needs and ­contexts. Amid such intense and complex difficulties, the international community may hesitate to engage in robust reconstruction activities, but the cost of inaction is also significant. The success or failure of country-level reconstruction efforts ­ can have a significant impact on the peace and stability of the broader global ­­ community. To improve outcomes in the future, international actors need to understand the weight of their responsibility and take the actions necessary to learn from past ­ mistakes. References ASDA’A B ­ urson-Marsteller. 2017. Arab Youth Survey 2017: The Middle East– Paper. Dubai Media City: ASDA’A Burson ­ Region ­Divided. White ­ Marsteller. ­https://www.arabyouthsurvey.com/pdf/whitepaper/en/2017­- AYS-White​ -Paper.pdf. Devarajan, Shantayanan, Marcelo M ­ . Giugale, Helene Ehrhart, Tuan Minh Le, and Huong ­ Nguyen. 2013. The Case for Direct Transfers of Resource Revenues in ­Africa. Washington, DC: Center for Global ­Development. U.S. Marine C­ orps. 1997. W ­ .S. Government ­ arfighting. Washington, DC: U Printing ­Office. ­https://www.marines.mil/Portals/59/Publications​ /­MCDP​ %201%20­Warfighting.pdf. von Clausewitz, ­Carl. (1832) 1976. On War, ­trans. Michael Howard and Peter Paret. Princeton, NJ: Princeton University ­ ­ Press. T., Martijn J Witte, Caroline ­ ­ ennings. ­ . Burger, Elena Ianchovichina, and Enrico P 2016. “Dodging Bullets: The Heterogeneous Effect of Political Violence on Greenfield ­FDI.” Policy Research Working Paper WPS 7914, World Bank Group, Washington, ­ DC. World ­Bank. 2004. World Development Report 2004: Making Services Work for Poor ­People. Washington, DC: World ­Bank. ­ ———. 2011. World Development Report 2011: Conflict, Security, and D ­ evelopment. Washington, DC: World ­Bank. Environmental Benefits Statement The World Bank Group is committed to reducing its environmental ­ footprint. In sup- port of this commitment, we leverage electronic publishing options and print-on- demand technology, which is located in regional hubs ­ worldwide. Together, these initiatives enable print runs to be lowered and shipping distances decreased, resulting in reduced paper consumption, chemical use, greenhouse gas emissions, and ­ waste. We follow the recommended standards for paper use set by the Green Press ­ Initiative. The majority of our books are printed on Forest Stewardship Council (FSC)–certified paper, with nearly all containing 50–100 percent recycled c ­ ontent. The recycled fiber in our book paper is either unbleached or bleached using totally chlorine-free (TCF), processed chlorine–free (PCF), or enhanced elemental chlorine– free (EECF) ­ processes. More information about the Bank’s environmental philosophy can be found at ­http://www​.worldbank.org/corporateresponsibility. B eginning in 2003, diverse and significant actors, both domestic and international, engaged in reconstruction activities in Iraq. The total budget committed to Iraq’s reconstruction was unprecedented among postconflict operations mobilized by the international community. Despite the vast sums of money spent, and the implementation of its many projects and programs, the donors and the Iraqi people view the reconstruction efforts in Iraq in a negative light. The Reconstruction of Iraq after 2003: Learning from Its Successes and Failures focuses on the period between 2003 and 2014—that is, after the United States–led invasion and overthrow of the Saddam Hussein regime, and before the sudden rise of the Islamic State of Iraq and the Levant (ISIL), also known as Daesh. This book assesses several dimensions of Iraq’s reconstruction. First, it considers the response of key international actors, such as the United Nations, the World Bank, the United States, and other bilateral donors—specifically, the European Union, Japan, and the United Kingdom—as well as nongovernmental organizations. Second, it analyzes the process and results of the reconstruction of key sectors (electricity, oil, education, and health), and the interventions geared to institution building and governance reform. Pursuing effective reconstruction within the context of conflict and fragility is a formidable challenge because of the uncertain, fluid, and complex environment. Based on the experience in Iraq, how can the international community support the effectiveness and durability of reconstruction? This book identifies lessons in seven areas and offers four recommendations for international and domestic actors and citizens engaged in reconstruction activities. The Reconstruction of Iraq after 2003 is important reading for development practitioners and policy makers who are or will be engaged in reconstruction efforts in fragile and conflict- affected environments. ISBN 978-1-4648-1390-0 90000 35 9 781464 813900 SKU 211390