Friday, November 26, 2010

Oil Companies Begin Work In Iraq, But How Many Jobs Will They Provide?

When Oil Minister Hussein Shahristani signed oil contracts with foreign companies in 2009 he promised up to 100,000 new jobs for Iraqis. Now that those corporations have begun work in southern Iraq it’s yet to be seen whether that many people will find employment.

Royal Dutch Shell, British Petroleum (BP), China National Petroleum Corporation (CNPC), and Petronas have all started operating in Basra province. Shell and Malaysia’s Petronas won a contract for the Majnoon field with 12.58 billion barrels of reserves. BP-CNPC successfully bid on the Rumaila field with reserves of 7.3 billion barrels. They already have seven rigs drilling new wells, and want to drill 40 more by the end of the year. They are also building a new compound in the Rumaila field to house hundreds of their employees. As a result the state-run South Oil Company, which is in a joint venture with BP-CNPC has hired five hundred new workers. The corporation has also sent in 100 new managers, but those were all expatriate Iraqis. The contracts signed last year require the foreign businesses to invest in and train new Iraqi employees. The country is short managers, supervisors, and engineers. There are two problems however. Since BP, CNPC, and others need workers now they are likely to use their own or hire foreign ones since Iraq doesn’t have enough right now. Also, the petroleum industry is not labor intensives. That means even at its best, there would not be a lot of jobs available from these contracts.

If Iraq is looking for employment, it will have to hope for spin-off work instead. Doing business in Iraq requires a huge amount of infrastructure improvements such as new roads, power plants, reservoirs, oil storage facilities, pipelines, and rehabilitating and expanding ports. The Ministry of Labor and Social Affairs claimed that this construction work could lead to up to 1.3 million jobs, and that contracts will require 85% of the workers to be Iraqis. The government can only hope for such a development as the country suffers from high unemployment and underemployment, especially amongst the young, with 57% of 15-29 year olds having no jobs. Not only that, but 240,000 new people enter the labor force each year. The two are intimately connected. Without the increased oil production, there would not be enough money to pay for all the other development projects. Iraq is depending upon this job boom otherwise it might turn out to be a typical oil country where the largest industry provides all the nation’s funds, but few jobs, so the government creates thousands of useless ones simply to prevent social unrest.

SOURCES

Canty, Daniel, “Iraq’s skill shortage: Challenge vs. Opportunity,” Arabian Oil and Gas, 5/5/10

Cummins, Chip, “Iraq’s Oil Patch Opens the Spigot,” Wall Street Journal, 11/11/10

Daood, Mayada, “12 million barrels of oil promise to solve unemployment problem,” Niqash, 2/12/10

Department of Defense, “Measuring Stability and Security in Iraq June 2010,” 9/7/10

Reed, Stanley and Razzouk, Nayla, “Iraq’s Economy Wakes Up,” Business Week, 4/22/10

2 comments:

Don Cox said...

The best way to increase employment is to make it very easy to start a business. There should be no licenses or regulation, unless the people concerned want to start a limited liability company.

As it is, in Iraq it takes weeks to sort out the red tape before a trader can start trading.

Joel Wing said...

The few western reporters who have written about it say that there is actually a growth in small businesses in Baghdad and Basra. Better security means people are out and about and ready to spend, also one report said that wages had even gone up.

As for regulations, there's a reason why Iraq is towards the bottom of the World Banks' rankings of ease of doing business report.