Does the ISX spur Iraqi Economy on Privatization?

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Please cite the paper as:
&lquo;Dr. Emad Abdullatif, (2012), Does the ISX spur Iraqi Economy on Privatization?, World Economics Association (WEA) Conferences, No. 3 2012, Rethinking Financial Markets, 1st November to 31st December, 2012&rquo;

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Abstract

This paper addresses this question to investigate the incentive of the Iraq Stock Exchange (ISX) in the privatization and economic reformation process. This study considers that the ISX represents one of the most important mechanisms that spur the Iraqi economy on Privatization, and it can support these Privatization processes whenever it works efficiently.

This study finds that the ISX market size is too small, has low liquidity and little depth. Beside, the ISX is dominated by one-sector which is the banking sector that controls around 70% of ISX’s total market capitalization in 2010. Despite that, it has done well especially when; (i) The ISX has opened itself to foreign investors in 2007 for both investments in stock exchange market and for establishing stock companies and the issuing and sale of stocks; and (ii) The ISX switched to electronic trading on 19th of April 2009.

Although, it still needs a big push to prosper in its activities to meet its aim to establish a powerful financial system which provides a good infrastructure for Privatization in Iraq.


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1 response

  • Dear Dr Abdullatif,

    I congratulate you on your paper, which I found clear and very interesting.

    I would however note the rather narrow application of the argument for privatization in your piece.

    Based on the Irish experience of privatisation, and some of the UK experience, I think your paper does not fully consider the “winning of hearts and minds” necessary for privatization programmes to succeed. If it is merely looked at from the point of view of fund-raising for government, then it is limited from the beginning. As a supporter of privatisation, it is possible to learn much from the successes and failures of other privatisation exercises worldwide.

    For example in Ireland the privatisation of Air Lingus, the state airline, would be deemed a success, possibly because it was carefully planned to bring more competition and new services to the market, while the all-important safety issues were maintained in what was a highly regulated market. Success was dependent upon a realistic plan not just to raise funds but to create significant competition and extend the market, all the time within the framework of appropriate regulation and, in the broader sense, an appropriate plan or structure being in place for infrastructure development. A significant failure in the Irish privatisation experience was the telecoms privatisation, where, while significant funds were raised for the government, in the absence of a detailed plan for the future market and the development of the relevant infrastructure (particularly broadband), those gaining were the various equity owners, while the citizens of the country have borne significant costs subsequently because of the absence of appropriate regulation and infrastructure development. Similar lessons are available in the UK from , for example, the railway privatisation.

    A tentative conclusion must be that if emerging economies don’t aim high, and explain clearly how their people will benefit, through improved infrastructure etc., and with the existence of appropriate regulation, their elites will be accused of “selling the family silver” to multinationals or extractive elites and the process will lose support and potentially get mired in sterile arguments about national sovereignty.

    In support of your analysis, may I add that the short-term financial gain from privatisation must be balanced against the long term economic costs with respect to any possible failures with respect to appropriate infrastructure and other development and regulation.

    Kind regards,

    Richard Whelan.