Supporting Recovery And Stability Through Local Development In Iraq, Ladp Iii

In their 2017 Systematic Country Diagnostic, the World Bank argues that “The massive assistance to Iraq provided by the international community has shown that financial and technical resources are not sufficient, on their own, to achieve positive results in the absence of security and adequate governance. They may even be counter-productive or may postpone the resolution of underlying constraints by facilitating existing dysfunction. What is needed are interventions aimed at restoring the legitimacy of the state and building inclusive institutions.”[1]

The proposed Action identifies the following priority areas for support:

1.    Decentralise basic services

Given the role that geographical inequities, structural poverty and failure to deliver quality services played as a driver for the cycle of conflict in Iraq, access to basic social services is among the priorities as set by the UN Recovery and Resilience Programme (RRP). Support is needed at both central and local level to decentralise service delivery, ensuring that institutional and management gaps at the local level are plugged in and that services are informed by local needs, efficiently provided and accountable to communities. This will increase the Governorates’ capacity, as well as improve the public perceptions about them as an interface to local communities, and it will potentially help build trust among communities in the local authorities. Governorates have proven to be a key entry point for change and reform due to their close interaction with local communities.

The devolution of powers has not been adequately coupled with the necessary legislative, administrative and financial decentralisation measures. Attributing powers and responsibilities to Governorates – by transferring more than 800 processes and functions from Ministries to Governorates – has faced both the resentment of central Ministries and the lack of local capacity to assume devolved functions. So far, only 3 Ministries have fully transferred functions and budgets to the Governorates. The Ministry of Construction, Housing, Municipalities (MoMCH) is the most advanced in this process. The transfer of responsibilities (including the 5 directorates of Municipalities, Water, Sewerage, Urban Planning and Planning and Follow up) to their General Directorates at Governorate level, completed with an order issued in Jan 2018, shows the Government’s firm intention to progressively continue the decentralisation process.

In the current economic context and political climate, it has become crucial for the central government to enhance fiscal and decision-making capacity and management at the local level, yet the progress achieved in the realm of political decentralisation has not been matched with institutional and fiscal decentralisation. To this day, local authorities are dependent upon central government sectoral allocations. Formal mechanisms and structures are lacking for more localised demands for services and other concerns. Governorates are poorly motivated to collect local revenue that goes directly to the central budget and is not retained at the Governorate level for local needs. Most of the investment budget is allocated at sectoral level through line ministries and their branches in the Governorates, while less resources and capacities are devoted to those local sectoral departments in charge of local development under the Governor.

At the same time, the devolution of significant functions will increase the pressures on governorate officials to improve service delivery and eliminate the possibility of placing blame on the lack of authority over services. This will be more directly apparent where the quality and quantity of services may vary significantly by district.[2]

While legislative actions have forced the devolution of some service delivery functions, there has been limited attention to the institutional and fiscal decisions required to achieve successful devolution, as well as to the capacity of the Governorates to absorb and manage staff, resources and responsibilities many times greater than they currently possess.[3] Also, although the Governorates have experience in developing provincial strategies, investment plans and projects, devolution will require planning and investment budget planning for entire service delivery functions, not just individual projects. The experience of Governorates is still weak in current/routine budget preparation and oversight for technical services delivery, including operation and maintenance, tracking and reporting requirements.

Finally, neither discretionary controls over expenditures nor revenues is an apparent feature of the devolution process in Iraq. As the World Bank has pointed out in its in-depth assessment of sub-national service delivery conducted in 2016[4]:

·       If the discretion to make changes across and within devolved functions is not authorised, then only the authority to administer, but not to manage centrally-determined service delivery quality and quantity levels has been devolved;

·       If revenues previously associated with devolved functions transfer to the governorate level, but are still allocated at the central level, the Governorates will not be able to change or manage priorities more appropriately to meet citizen demands and needs;

·       Recurrent budgetary allocations for serving local populations are driven by ministerial priorities and population numbers and are negotiated as a component of the annual budget process. Transfers for investment spending are driven by specific project approval;

·       There are no systematically designed vertical or horizontal equalising transfers, and no service or project transfers intended to efficiently alter prices or create proper economic incentives;

·       Iraq has not yet developed a framework and process for intergovernmental transfers that will allow for the Governorates to make discretionary choices about the quality and quantity of services in keeping with citizens’ preferences, as well as to develop own-source revenues without being penalised with reductions in federal budget allocations or transfers.

The World Bank also concurs that from a national perspective, Governorate own-source revenue is inconsequential. However, if Governorates are provided authority over the revenues derived from self-funding services (user charges, service fees and so forth based on services delivered) of the devolved functions of the ministries, this subnational revenue profile will change significantly.[5]

2.    Boost economic growth and job creation through the implementation of strategic local actions

As recognised in NDP 2018-2022, GoI has failed to equitably and sustainably exploit national resources to reduce poverty and ensure shared prosperity. Economic decision-making today is dominated by short-term needs. The government is prioritising the rapid expansion of oil production in order to finance a bloated public sector and current spending needs – mainly wages – that are detached from any long-term diversification strategy. The complexities of an oil-dominated budget have made the Iraqi economy extremely vulnerable to a sudden decline in oil prices, as has been evident since 2014. The public sector dominates the economy by being the largest formal employer in the country. This has prevented the emergence of a vibrant private sector and the associated job creation necessary for enhancing the welfare of all Iraqis. Neither the state nor the weak and stagnant private sector are capable of generating significant employment opportunities for the tens of thousands of young Iraqis who swell the ranks of the unemployed each year.

Seizing the momentum generated by the Provincial Development Plans developed under LADP II, the Action will identify and pilot local development projects that will translate the policy documents into practice. In this way, the Action will create an enabling environment for SMEs, generate job opportunities, as well as build local capacity to manage and implement sustainable projects.

3.    Enhance local revenue generation

Budgeting and revenue collection reflect the legacies of a centralist governance tradition, revealed in the management approaches to policy, planning, budgeting and execution; they are also affected by a range of systemic inefficiencies and unsustainable subsidies. Current local revenues are negligible compared to citizen needs for services and typical resources from the state budget and investment have been seriously affected by the recent conflict and the economic crisis.

The diagnostics conducted to during LADP II on local finance and revenue generation in 4 pilot towns of southern Iraq have shown that the rent of public real estates, mostly for commercial activities, along with the sales of land for housing construction, constitute a second major source of revenue (ca. 1/3rd of the total). Aside from being unsustainable, these revenues appear anyway in decline in many cases, making the preferred resource of the municipalities (i.e. the renting of municipal premises for commercial activities) very vulnerable to economic fluctuations. Otherwise, there is a major issue concerning the records of property rights, including those of municipalities; many had been lost during the war, and the recent efforts to rebuild these records are insufficient. The various fees collected by municipalities (licenses, publicity, etc.) are weak, totalling around 5% of total revenues. Here and for other items, there is an issue concerning the multiple exemptions. The remaining revenues come from waste management and pavements. They only reach around 3% of the total, while waste management constitutes the principal public service that the municipalities manage, with real costs significantly exceeding revenues. There are issues concerning the legal framework for these “local taxes”, their amounts, their indirect collection through the water authorities and the absence of proper records on cities’ residents and businesses.

The new NDP recognises that the deterioration of the investment climate has resulted in the expansion of informal economic activities that evade government control and taxation. Furthermore, issues such as the legal framework for “local taxes” and the absence of proper records on cities’ inhabitants require immediate attention in order to rebuild the country's potential for self-reliance.

4.    Support urban recovery and development of Mosul and smaller cities and towns affected by the conflict with IS

According to GoI’s Damage and Needs Assessment of Affected Governorates,[6] more than 138 000 houses have been damaged or destroyed during the recent conflict with IS. In some communities, properties have been damaged or destroyed in retaliation, after the fighters left, for their perceived support to IS. Low-income housing has experienced the bulk of the damage, at 68%, indicating that the conflict has severely impacted the low-income population of Iraq, worsening an already fragile situation.

Damage to housing is one of the main obstacles to the return of IDPs. Support to resolve the housing crisis in liberated areas is an urgent need – not only for IDPs who wish to return but also for host communities who have been bearing the heavy burden of hosting massive numbers of IDPs for more than three years. Government counterparts and community members have repeatedly expressed that while support is appreciated to people whose houses have sustained minor and major damage, the needs are critical of those whose houses have been “severely damaged” (i.e. which have sustained significant structural damage and require extensive repairs) and “destroyed” (i.e. which have suffered structural damages so major that rehabilitation is not feasible).

Satellite assessment conducted by MoP and UN-Habitat in Jan 2018 suggests that the distribution of housing damage between the governorates is approximately as follows: Nineveh – 65%, Anbar – 20%, Salah al-Din – 10%, and Diyala, Baghdad and Kirkuk – 5%. The Housing Damage and Rehabilitation Database, operated by UN-Habitat and Shelter Cluster Iraq, helps to map completed, on-going and planned housing rehabilitation projects[7] and to identify gaps in housing rehabilitation projects in governorates such as Salah al-Din.

The current situation in Mosul and post-conflict governorates in general is very dynamic. Thanks to the concerted reconstruction efforts undertaken by GoI, agencies and donors, over 3.8 million IDPs have returned to their areas of origin; still, over two million people remain displaced.[8] The main deterrents of return are: lack of sufficient services, limited livelihood opportunities, and damaged/destroyed/stolen property. The main reasons to return are perceived improvement in security, desire to return to own land/property and to work again.[9]

Local authorities are in urgent need to rebuild secondary infrastructure, housing, public facilities, amenities and livelihoods vital for the healing of communities affected by violence and physical destruction. The recovery of communities affected by the displacement crisis is one of the key strategic objective of the new NDP, along with good governance. Indeed, stronger governance systems are now crucially needed in the Governorates affected by the conflict – to make the most of scarce resources and to ensure that reconstruction efforts are implemented in a transformative manner.

In the context of competing and urgent reconstruction needs and identified criticalities from the point of view of national reconciliation and peacebuilding (2nd priority “axis” of GoI’s General Framework of the National Plan for Reconstruction and Development), it appears important to ensure that reconstruction efforts do not further contribute to the polarisation of growth, impoverishment of ‘backwater’ districts and disenfranchisement of youth and minorities living in or returning to the destroyed rural areas.

Needs and assistance are being closely monitored by UN-Habitat through the Reconstruction, Recovery and Resilience (RRR) Platform established at MoP, which will provide a clear indication of the geographical gaps by the time of the inception of the Action. Local authorities require further support not only to improve building standards and upgrade infrastructure with disaster resilient construction technologies, but also in order to concretely address economic revitalisation, enhanced resilience and improved quality of life of citizens – particularly the most vulnerable. Repairs and rehabilitation of shelter contributes to the process of durable return, in which highly vulnerable families are supported to reside in minimum shelter conditions, whilst they re-establish their lives in areas affected by conflict and avoid secondary displacement.[10]

On Housing Land and Property (HLP) issues, to maximise impact and avoid community tensions, beneficiaries of emergency repairs will prove ownership of the house and not have a second house. Verification of proof of ownership is an essential action required before starting technical assessment. As many families lack such official documentation, alternative forms of verification of proof of ownership may include electricity bills, previous house acquisition contract, combined with letter from the local authorities/leaders/mukhtar. Specific assistance will be offered to female-headed households to obtain proof of ownership and securing property rights where they might be in peril. The need to address issues relating to identity documentation, HLP rights is recognised by the EU as crucial to ensure successful longer-term stabilisation.[11]

5.    Promote sustainable development and decrease consumption of non-renewable resources

Particular attention needs to be devoted on promoting sustainable development and rationalising consumption of non-renewable resources with a focus on water and electricity. Despite the fact that Iraq is facing serious deficits of water and electricity, consumption of both is one of the highest in the region. This is due to inefficiencies of outdated infrastructure and technologies, high governmental subsidies, as well as lack of a system for charging users for actual consumption. The over reliance on large private fuel generators to make up for the frequent power cuts affects both people’s health and the environment. Rationalising electricity consumption, reduction of CO2 emissions and enhancing the private sector’s role in managing energy production and distribution are among the NDP 2018-2022 Sectoral Development objectives on Energy.

More advanced and efficient technology is required especially in the provinces, where consumption is rarely measured, to reduce inefficiencies, improve the transparency of billing and enhance revenues. Seizing the momentum generated by the SEAPs and PDPs developed under LADP II, Action will identify and pilot local green projects. In this way, the Action will create an enabling environment for energy saving and efficiency, renewable energy sources, optimised used of natural and financial resources, protection of environment and climate mitigation measures.

6.    CSO participation in local development policies

Civil society in Iraq faces numerous challenges, including persistent security threats that severely impede its capacities and role. Consequently, the performance and impact of CSOs tend to be limited and marginalised. CSOs generally have poor institutional and financial capacities, lack effective networks among them and provide inadequate reporting on their own activities.

[1] World Bank (2017). Iraq Systematic Country Diagnostic.  [http://documents.worldbank.org/curated/en/542811487277729890/pdf/IRAQ-S…]

[2] World Bank (2016). Decentralisation and subnational service delivery in Iraq: Status and way forward.

[3] Ibidem; p. iii

[4] Ibid, p. iv.

[5] Wold Bank (2016). Op. cit., p. iv.

[6] WB Group and MoP (Jan 2018), Iraq Reconstruction Investment Part 2: Damage and Needs Assessment of Affected Governorates: https://bit.ly/2lhQOIr.

[7] As of April 2018, UN partners, NGOs and charities have intervened on 43,383 houses (some may double-counted), with Anbar and Ninewa governorates leading in terms of number of rehabilitations and new constructions (15,331 and 22,108 respectively). Source: RRR Platform (2018). “Housing Damage and Rehabilitation Database – April 2018”

[8] IOM DTM (as of 31 May 2018).

[9] Cf. e.g. REACH (11 June 2018), Rapid Overview of Areas of Return (ROAR) in western Nineveh – Presentation to the RWG; REACH (Apr 2018), ROAR: Ba’aj and surrounding areas.

[10] Shelter Cluster – Iraq (2018). “Guidance Note on Emergency Repairs of War Damaged Shelter.”

[11] European Commission (2018). “Joint Communication to the European Parliament and the Council - Elements for an EU strategy for Iraq”; p. 2.