Hawija Emerging Markets

HAWIJA EMERGING MARKETS:

OPPORTUNITIES AND CHALLENGES

A Market Assessment of Hawija, Kirkuk Governorate IOM Iraq – April 2020

Table of Contents

SUMMARY ...... 4 INTRODUCTION ...... 6 Methodology ...... 6 Geographical Area Selection and Selection of Participants ...... 6 Limitations ...... 7 BACKGOUND ...... 8 FINDINGS ...... 9 1) The Extent of Damage Suffered by Small and Medium Enterprises ...... 9 2) Market Failures That Can Be Addressed Through Matching Grants or Business Developments .... 10 2.1) Market Systems and Particular Disruptions ...... 12 3) Opportunities for Employment Creation ...... 15 4) Potential for Market Distortion ...... 16 CONCLUSIONS ...... 18 ANNEX 1: RECOMMENDATIONS FROM THE MARKET ASSESSMENT ...... 19 ANNEX 2: MARKET ASSESSMENT PLAN ...... 21 Market Assessment Plan ...... 21 ANNEX 3: SURVEYING TOOLS ...... 24

IOM DISCLAIMER

The opinions expressed in the report are those of the authors and do not necessarily reflect the views of the International Organization for Migration (IOM). The designations employed and the presentation of material throughout the report do not imply the expression of any opinion whatsoever on the part of IOM concerning the legal status of any country, territory, city or area, or of its authorities, or concerning its frontiers or boundaries.

IOM is committed to the principle that humane and orderly migration benefits migrants and society. As an intergovernmental organization, IOM acts with its partners in the international community to: assist in meeting the operational challenges of migration; advance understanding of migration issues; encourage social and economic development through migration; and uphold the human dignity and well-being of migrants.

Contact: For more information on the Returns and Recovery Unit (RRU) programme and current activities taking place in Hawija, please contact: [email protected]

Main Office in Baghdad UNAMI Compound DIWAN 2 International Zone, Baghdad, Iraq. Tel: +3908 3105 2600 ext. 5857/5928 E-mail: [email protected]

SUMMARY

Hawija was directly affected by the crisis from 2014 to 2017, which led to displacement and business closure. More than 160,000 returnees were recorded at present along IDPs. The Enterprise Development Fund (EDF) rolled out by IOM in many governorates of Iraq prioritizes businesses that can potentially create job opportunities and contribute to community stabilization. The market assessments are conducted in order to understand the following:

• The extent of damage suffered by small and medium enterprises impacted by the conflict between 2014 and 2017; • Market failures that can be addressed through matching grants or business development support; • Businesses that would create additional employment opportunities if supported; • Potentials for market distortion due to the introduction of cash.

KEY FINDINGS

Which small and medium enterprises suffered due to the conflict?

• Almost eighty percent of employers in all the sectors surveyed reported that their work mostly stopped due to the events from 2014 to 2017. • A small number mentioned that their businesses - while surviving - contracted substantially, including 5 businesses in agriculture (dairy, poultry, beekeeping, trade with seeds, and tools), an electrical appliances retailer, a mechanic, an aluminum and PVC factory, and a welding business. • Sectors reported as major employers before the crisis include especially agriculture, which, according to most informants, recovered to at least 50% of its previous capacity. • The food sector, which was mentioned as being a major employer before the crisis by 2 informants, has to some extent recovered. • Four informants thought that also trade was a major employer before the crisis where half think that the recovery was limited and the other half as at least 50% of businesses recovering. • Currently, hospitality followed by construction, trade, manufacturing, and services have among the highest share of reported profitable businesses though in some instances a small number of employers were surveyed.

What market failures can be addressed through matching grants or business development support?

• Four Employers reported having a very good demand and these included a dentist, a retailer of female clothing, a carpenter, and a blacksmith. An average demand was reported by approximately half of the employers surveyed and the latter was found in all sectors, especially in the hospitality, food, metal, and manufacturing sectors, which mostly corresponds to the findings on businesses self-reporting a certain degree of profitability. • Major challenges for operating in the area include poor access to electricity along other services (34%); financial issues, which included ‘lack of money’ and a stagnating economy (24%); and security-related challenges, including check-points, road closures, curfews, prohibition of parking vehicles inside the market, and land mine contamination (20%). • Twenty-three percent mentioned challenges with suppliers included requirements of cash payments with small numbers mentioning high prices, delayed deliveries, and poor quality of materials.

• While 47% mentioned not having any challenges with consumers, the remaining mentioned debts and poor liquidity mirroring findings from other governorates. • When asked specifically about the ‘fixes’ required to strengthen their ability to conduct business, the measures suggested by employers include availability of capital, which was the most mentioned, followed by provision of services, security-related measures, people’s access to jobs and a general improved liquidity, and facilitating people’s return to Hawija. • Only a small percentage of employers (21%) mentioned requiring training, mostly in agriculture/livestock, marketing, accounting and management, and in operating various types of machinery. • Almost all employers considered expanding their business. The main obstacle is lack of capital. In addition, 8% mentioned poor security and these mostly belonged to the agriculture and trade sectors.

What cash grants could create the need for additional labor?

• On average, employers reported 71% of their workforce to be related to them. Higher percentages of relatives are found in the metal, construction, and manufacturing sector. • Sixty-six percent reported hiring through word of mouth and 32% mentioned ‘other.’ Only 8 employers mentioned also hiring trough more formal channels where only 3 mentioned hiring exclusively through formal channels. Employers might be therefore less open to hiring vulnerable groups in Hawija. • When asked what would they do if supported by a grant between USD 5,000 and 25,000 18% of employers mentioned hiring new workers (in an open-ended question) and these belonged to the following sectors: services (6), agriculture (3), construction (3), food (3), automotive (2), hospitality (1), manufacturing (1), metal (1), and trade (1). • Almost half of the employers surveyed (48%) reported difficulties in finding qualified employees. Many elucidated that trainings and higher education are not available in Hawija, which makes finding qualified workers especially challenging.

What cash grants could create market distortions?

• Four Key Informants thought that no sector was encouraged by the government. Five thought agriculture is encouraged though only to a small extent. • Private investors already support trade, especially with agricultural products and construction material along the agricultural sector Key Informants noted. Less mentioned were the food and services sector. Two informants warned that there was no private investment in Hawija where 1 explained it was due to ‘fear’ likely referring to instability. • Informants thought trade, especially with clothing followed by trade with food and electrical appliances were oversaturated. Restaurants and fast food along the food sector in general (where the informants might have also referred to restaurants/fast foods) are also considered oversaturated. In agriculture, corn and wheat farming are oversaturated along agriculture in general, informants reported. • The vast majority of employers (83%) also reported that there were many businesses like theirs, which also points to an elevated number of businesses, which might not be competitive. All the employers from the metal, manufacturing, and hospitality sectors reported the presence of many similar businesses, which points to sectors that might not be competitive. However, again, data need to be read in conjunction with other variables as many have specified that despite the presence of similar businesses, variety in terms of quality and prices could be found.

INTRODUCTION

The economy of Hawija was heavily affected by the crisis from 2014 to 2017 where the vast majority of businesses halted their activities. Returns surpassed 160,000 individuals along the presence of IDPs at the time of report writing.

As a complement to individual livelihood programming, IOM is implementing a grant mechanism to aid recovery and reconstruction following the retaking of areas of the country from ISIL and support stabilization. IOM is rolling out the grant mechanism in multiple locations of Iraq. The fund prioritizes businesses that can potentially create job opportunities and contribute to community stabilization. Support to the private sector through grants is an approach that is growing in scope and recognition.

Methodology

In order to inform programming, IOM has undertaken this market assessment, which aims to determine the demand for goods and services within various sectors, the actual comparable competitiveness of businesses, the variant impact of conflict on different sectors, and the challenges businesses are facing. The latter is based on the common assumption that the injection of cash into a market can contribute to a raise in demand and production. The main objective of the research was to capture:

A series of research questions were designed, segmenting the market into three different respondent groups:

Key Informants (KI) were identified in coordination with IOM and partner staff, and included representatives from industrial sectors, the Ministry of Labor and Social Affairs (MoLSA), and the Chamber of Commerce. To assist with this process, interviewers were given interview guides that included an introduction letter, an information sheet, a consent form, and a list of questions.

Employer Survey respondents were identified through community mapping exercises and referrals. To assist with this process, interviewers were given interview guides that included an introduction letter, an information sheet, a consent form and a survey guide.

Focus Group Discussion (FGD) participants included individuals from the agriculture, manufacturing and food sectors. To assist with this process, interviewers were given FGD guides that included an introduction letter, an information sheet, a consent form and a focus group discussion guide.

Geographical Area Selection and Selection of Participants

Key Informant Interviews (KII) were conducted with participants belonging to different sectors and different governmental departments in Hawija, including the Department of Agriculture (2), the Norwegian Refugee Council (1), Al-Amal Association (2), Al-Zhiyan (1), the Municipality Office (2), and the Office for Culture (1). In total, 9 interviews were conducted. Focus groups were also conducted with employers belonging to different sectors, including the agriculture, construction, and manufacturing sectors. The exact number of participants is unknown.

Sampling guidelines provided targets for the number of employers to survey from each industry in Hawija. Surveys with employers were conducted in different locations of Hawija. See the Map below for information on the locations surveyed. In total, 114 employers were surveyed where among these only one was female. The sectors and the respective description of the businesses as provided by employers include the following:

Sector Number Percentage Agriculture Agriculture in general, beekeeping, fertilizers, 39 34% pesticides, seeds trade, farming tools trade, poultry Automotive Mechanic, modification/developments car 11 10% parts, vehicle pumps repairs, spare parts, autobody repair Construction Asphalt, blocks, construction, construction 7 6% materials retail Food 6 5% Bakery, sweets, molds and dairy products Health 3 3% Dentist, vet Hospitality 3 3% Restaurants Manufacturing 5 4% Carpentry, aluminum, PVC, lath Metal Metal doors and windows, metal in general, 11 10% smithery, turnery, welding Services Barber, mobile repair, photographer, printing, 7 6% water pump and coolers repair, watch repair Trade Fabrics, clothing, accessories, shoes, electrical appliances, groceries, cosmetics, hoses, hand- 22 18% watches, sportswear and equipment, groceries, air filters Grand Total 114 100%

Figure 1: Map of Employers Surveyed in Hawija

All surveying tools are annexed to this report. Occasionally, manual data entry was used at the time of surveys, but all data from KIIs and Employer Surveys were eventually entered into Online Data Kit tools.

Limitations

Only 1 female employer was surveyed for the present assessment. She did not report any major issues if compared to the male employers, her business was overall performing well also. Though drawing any conclusions based on one respondent is indeed problematic.

BACKGOUND

Hawija is a town and district located in Kirkuk Governorate. Hawija’s population was estimated at 215,000 with Sunni Arabs representing the majority in all of its sub-districts , including Hawija, Rashad, and Riyadh.1 According to a current report, the ISIS presence wiped ethno-religious diversity out of Hawija, which previously hosted also Kurds, and Turkmen along Christians (Chaldeans and Assyrians).2 Hawija is considered a high returnee and destroyed area due to the battles for retaking the town, which also represented one of the last enclaves of the Islamic State. According to findings from a community workshop conducted in late 2019 by IOM for a labor market assessment, Hawija requires major improvements in infrastructure such as water, health, and education. According to an assessment conducted by an NGO in 2018, the general security situation in the district was unstable, especially outside of the district center where attacks at checkpoints, kidnappings, and killings along IEDs on the main roads were reported.3 Weak public security remains a critical problem in Hawija, and more than 40% of respondents, based on findings from a conflict assessment conducted in 2019, felt they had none or limited freedom of movement with more than 60% of the interviewees considering instability and insecurity as deterrents to return.4 According to data from February 2020, 161,730 returnees and 426 IDPs were recorded in the district of Hawija.5

About a third of the population in Al-Abassy and 60% in Al-Riyadh sub-districts were living under the poverty line, and 90% of graduated youth in Al-Riyadh, 60% in Al-Abassy, and more than 70% in Hay Al- Thawra were jobless, a community workshop conducted by IOM in Hawija found. According to another assessment, which highlighted how unemployment and poverty were among the biggest problems faced by the community members, this was particularly felt by respondents from smaller or less powerful tribes, where tribal connections could not be used to find employment.6 In addition, the public sector has difficulties in retaining qualified staff, and there is a dire shortage of trained teachers, doctors, and nurses.7

Hawija is predominantly agricultural and focuses on sheep and calf breeding, dairy production, wheat, barley, and yellow corn the same community workshop conducted by IOM determined. Some obstacles were reported, which prevented agricultural improvements such as stolen equipment, lack of government support, limited access to fertilizers, poor irrigation systems, and a limited access to land in Al-Riyadh due to the security situation (the area also hosts a military base). The incidents of crop burning in the summer of 2019 have put an additional burden on people’s livelihoods in the agricultural sector.8

1 Derszi-Horvath, Iraq After ISIL: Kirkuk, 2017, GPPI, https://www.gppi.net/2017/08/30/iraq-after-isil-kirkuk 2 Building Peaceful Futures, Conflict Analysis Sinjar and Hawija, 2019, Iraq. Erbil: Building Peaceful Futures. https://static1.squarespace.com/static/5ab0691e5417fc8a1ee9a417/t/5e4b018f71f6217a28cb0ce1/1581973942237/BPF- Conflict-Analysis_Public_.pdf 3 Oxfam, Hawija District Report, 14 August 2018, https://www.humanitarianresponse.info/sites/www.humanitarianresponse.info/files/assessments/hawija_report.pdf 4 Building Peaceful Futures, Conflict Analysis Sinjar and Hawija, Iraq. 5 IOM, DTM Round 114, February 2020 6 Building Peaceful Futures, Conflict Analysis Sinjar and Hawija, Iraq. 7 Ibid. 8 Ibid. 8

FINDINGS

1) The Extent of Damage Suffered by Small and Medium Enterprises

Almost eighty percent of employers reported that their work mostly stopped due to the events from 2014 to 2017. They mostly reported fleeing where the shops were reported as being mostly looted. A small number mentioned that their businesses contracted substantially and mentioned a ‘very poor’ performance. The latter was explicitly mentioned by 9% of employers, including 5 businesses in agriculture (dairy, poultry, beekeeping, trade with seeds, tools), an electrical appliances retailer, a mechanic, an aluminum and PVC factory, and a welding business. The agriculture sector was therefore among the strongest sectors during the crisis. The remaining employers provided unclear answers or had only recently opened.

Sectors reported as major employers before the crisis include especially agriculture, which, according to KIIs recovered to at least 50% of its previous capacity (one mentioned 60%) where only 2 out of 7 KIs thought the recovery was limited. The food sector, which was mentioned as being a major employer before the crisis by 2 KIs, has to some extent recovered. Four informants thought that also trade was a major employer before the crisis where half thought that recovery was limited and the other half as at least 50% of businesses recovering. See Table 1.1 for details. Health and education were also mentioned along the army as being among the major employers before the crisis (these are not included in the table) and these were reported as barely recovering (5 to 10%) to their pre-crisis levels.

Table 1.1: Sectors reported by KIs as major employers before the crisis and the degree of recovery

Sector Number of KIs, who Few Many businesses Over 50% of reported the businesses (5 recovering (11% to businesses specified sector as to 10%) 49%) as mentioned recovering as being a major recovering by KIs mentioned by KIs employer before the crisis Agriculture 1 (dairy, 7 (in general, dairy) 1 5 cotton) Construction 1 / / 1 Food 2 / 2 / Trade 4 (in general, / 2 (groceries, clothes) 2 groceries, clothing)

Employers were asked to describe the current status of their business, and 12% reported their activities as not being profitable/losing money, 55% reported they were stagnant and barely enough for sustaining their own needs, and 32% reported they were profitable or successful, although not enough to grow any further. Nobody reported their business as being very profitable and expanding.

Hospitality, construction, trade, manufacturing, and services have the highest share of reported profitable businesses though a very small number of employers were surveyed in some cases and

therefore data needs to be interpreted with caution. The automotive sector is among the weakest in terms of profitability and lags behind agriculture. See Table 1.2 for details.

Table 1.2: Businesses mentioned as being to some extent successful but not to grow any further based on the survey administered to employers

Profitable sector (but not Number Percentage Within enough to grow further) Sector Hospitality 3 (restaurants) 100% Construction 3 (blocks, trade with construction 43% material) Trade 9 (clothing, cosmetics, groceries, 41% cooler filters, accessories) Manufacturing 2 (carpentry, PVC) 40% Services 4 (barber, dentist, decoration, 40% photography) Metal 4 (doors/windows, smithery) 36% Food 2 (bakeries) 33% Agriculture 9 23% Automotive 1 (mechanic) 9%

2) Market Failures That Can Be Addressed Through Matching Grants or Business Developments

Four Employers reported having very good demand and these included a dentist, a retailer of female clothing, a carpenter, and a smithery. An average demand (mentioned as being ‘medium’, ‘not bad’, ‘good’, ‘average’, and similar) was reported by approximately half of the employers surveyed. About 35% explicitly reported experiencing a bad demand. Eight employers also reported that demand depends on the season and these mostly included businesses in agriculture with 1 clothing retailer. Some also provided unclear responses such as ‘it depends on people’s incomes, ‘decreasing’, and similar. Average, good, or very good demand responses are outlined in Table 2.1.

Table 2.1: Sectors considered having various degrees of good demand for services/products as reported by employers Percentage Within Sectors Number Sector Hospitality 3 100% Restaurant Food Bakery, sweets, hand beads for casting and 5 83% dairy products Metal Metal in general, metal doors and windows, 9 82% smithery, welding Manufacturing 4 80% Carpentry, aluminum and PVC, lathe Services Barber, dentist, vet, mobile repair, 7 70% photographer, water pumps and motor coolers repairs Trade 13 59%

Clothing retail, cosmetics retail, shoes, electrical appliances, hand watches, groceries, air filter coolers, accessories Construction Asphalt, blocks, materials, trade with 4 57% construction materials Agriculture Agriculture in general, beekeeping, pesticides 12 31% and other chemicals trade, seeds trade, dairy, poultry Automotive Mechanic, car modifications, vehicle pump 4 36% repair Total 61 100%

Respondents were asked to identify the single greatest challenge for operating in the area. Mentions included poor access to electricity along other services (34%); financial issues, which included ‘lack of money’ and economic stagnation (24%); and security-related challenges, including check-points, road closures, curfews, prohibition of parking vehicles inside the market, and land mine contamination (20%). Less mentioned include high rents, high prices, poor government support, government delaying payments to farmers for grains, and poor return.

Employers were asked about the challenges they experience with suppliers. Twenty-three percent mentioned suppliers requiring cash with small numbers mentioning high prices, delayed deliveries, and poor quality of materials. The vast majority did not have any challenges. Quantity and quality of raw materials were considered good by almost all employers. A small number complained about the quantity as they cannot afford the purchase due to a lack of capital. Only 2 employers raised concerns on the quality of raw materials. Challenges with consumers were also explored. While 47% mentioned not having any challenges, the remaining mentioned debts and poor liquidity mirroring findings in other governorates.

When asked specifically about the ‘fixes’ required to strengthen their ability to conduct business, the measures suggested by employers include availability of capital, provision of services, security-related measures, people’s access to jobs and a general improved liquidity, and facilitating people’s return to Hawija. Less mentioned include better support to farmers in general, improving the quality of seeds and/or pesticides, and price controls. The most mentioned are outlined in Table 2.3. When asked specifically about government support for improving the business environment, employers reported services and infrastructure improvement including electricity and roads (29%), security-related fixes (12%) followed by financial and general support. Many also thought that the government would not provide any support.

Table 2.3 Measures for improving the business environment as mentioned by employers

Support Required Number of Percentage of Employers Employers Availability of capital (includes the ability to acquire 29 25% additional raw material and similar responses) Electricity and other services 13 11% Security-related measures (improved security, less 13 11% obstacles due to check-points, parking of clients in the market area, removal of curfew) Employment 12 10% Return 6 5%

Employers were asked whether they have received any formal or informal job entrepreneurship training and only about 20% reported receiving it. When asked about training requirements, the vast majority mentioned not needing any training. Twenty-one percent mentioned requiring training, mostly in agriculture/livestock, marketing, accounting and management, and in operating various types of machinery. Almost all employers considered expanding their business. The main problems are related to the lack of capital. In addition, 8% mentioned poor security and these mostly belonged to the agriculture and trade sectors.

2.1) Market Systems and Particular Disruptions

This section provides a closer look at 3 sectors and the bottlenecks these have experienced, including the agriculture, food, and manufacturing sectors.

Agriculture

Diagram 1: Market map agricultural sector based on FGDs with participants from Hawija

Fraud in the sale of seeds was reported though the participants mentioned having avoided such purchases. Soil contamination and ‘fake’ fertilizers provided by the government inhibit expansion FGD participants reported. Check-points and insecurity in general were also reported as causing major challenges to the sector. Delays in the silo were also reported and the government as not buying all the crops from farmers along corruption. Public services were reported as absent. Fuel and renting machinery are not available on credit, FGD participants commented.

Food Processing

Diagram 2: Food processing market map based on FGD with participants from Hawija

The main challenges for expanding production in the food processing sector include lack of capital, transportation of food items from other governorates, absence of storage facilities, and selling on credit: “In a place like Hawija most of the selling and buying is on credit, in general if you don't sell on credit no 13

one will buy your products because people have limited income. And this is really challenging for us as business owners, we lose our financial capabilities by selling on credit.”9 In addition, sometimes delivery dates are not met due to the sale on credit respondents explained. Suppliers were also chosen because these sell on credit (though this is possible only with suppliers from Hawija and not with those from other areas participants explained). Shortages of raw materials were reported during holidays and special events; the distance to other cities also causes shortages FGD respondents added. Costs of service provision have increased over time. These were reported as being poor, especially waste removal.

Manufacturing

Diagram 3: Market map manufacturing sector based on FGD with participants from the sector in Hawija

The main restriction for enhancing production is the lack of capital participants reported. Participants reported not paying taxes but also as not experiencing any extortion. The presence of some services was

9 Kirkuk, Hawija, FGD with food processing sector employers 14

reported; about half thought these have improved over time. However, when asked about meeting delivery dates, participants thought that limited electricity supply was the main reason for delays. Participants also reported that the government partially subsidized some of the services.

3) Opportunities for Employment Creation

On average, employers reported 71% of their workforce to be related to them. Twenty-four percent do not have any employees. Overall, hiring of relatives is high in Hawija and mirrors findings in other governorates surveyed for the EDF. However, data need to be read with caution, as for example while agriculture appears to hire a fairly small number of relatives on average (60%), at least compared to other businesses, the overall number of employees is also small (1.1), which does not allow to conclude that hiring of externals is more common in agriculture. The sector also likely mostly relies on unpaid family workers, which results in under-reporting of the actual number of employees. Trade has the same average number of employees as the agricultural sector but a higher percentage of related workforce, which simply points to the fact that the number of employees is overall small and these are mostly relatives. Higher percentages of relatives are found in the metal, construction, and manufacturing sector. The number of employees is also higher in this case. See Table 3.1 for details.

Sixty-six percent reported hiring through word of mouth and 32% mentioned ‘other.’ Only 8 employers mentioned also hiring trough more formal channels where only 3 mentioned hiring exclusively through formal channels. Employers might be therefore less open to hiring vulnerable groups in Hawija.

Table 3.1: Average percentage of related employees, average number of all employees, and average number of related employees in each sector

Average of Average numbers Average number percentage of of all employees in of related Sector related employees the sector employees Metal 93% 2,2 1,8 Construction 86% 3,4 3,1 Trade 84% 1,1 0,6 Manufacturing 80% 2,4 2 Food 69% 4,8 3,5 Hospitality 59% 10,3 5,3 Services 63% 1,6 0,9 Automotive 61% 2,3 1,3 Agriculture 60% 1,1 0,5 Average All 71% 2,0 1,3

When asked what would they do if supported by a grant between USD 5,000 and 25,000 18% of employers mentioned hiring new workers (in an open-ended question) and these belonged to the following sectors: services (6), agriculture (3), construction (3), food (3), automotive (2), hospitality (1), manufacturing (1), metal (1), and trade (1).

Overall, recruitment is difficult. Almost half of the employers surveyed (48%) reported difficulties in finding qualified employees. Many elucidated that trainings and higher education are not available in Hawija, which makes finding qualified workers especially challenging. A small number also complained that these will demand higher salaries if skilled or go on to open their own businesses. The remaining thought it was easy. Employers mostly do not follow labor laws and MoLSA does not enforce them in Hawija.

The sectors currently underdeveloped with potential for growth as reported by KIs are outlined in Table 3.2. Leading is agriculture along trade, especially of food items. Canning of agricultural products was also mentioned. One KI specified that agriculture has great potential but ‘not at the moment.’ A KI commented that there is not enough support from the government and another that people mostly focus on waste removal as ‘they get a salary,’ pointing to Cash for Work activities.

Table 3.2: Sectors with potential for expansion in Hawija based on KIIs

Sectors Number of KIs, Who Mentioned the Sector Agriculture (in general) 5 Trade (in general, food) 3 Food (canning agricultural products) 1 Construction 1

4) Potential for Market Distortion

Four Key Informants thought that no sector was encouraged by the government. Five thought agriculture is encouraged though only to a small extent, such as through buying corn and wheat from farmers, through seeds and fertilizer provision, and loans to farmers. Private investors already support trade, especially in agricultural products, construction, and agriculture KIs noted. Less mentioned were the food and services sector. Two KIs warned there was no private investment where 1 explained it was due to ‘fear’ likely referring to instability. All the information is captured in Table 4.1.

Table 4.1: Sectors considered as encouraged by the government, supported by private investors, and oversaturated based on KIIs in Hawija

Sectors Mentioned by KIs as Being: Encouraged by the Supported by private Oversaturated government investors None is 4 2 1 encouraged 5 (buying corn and wheat from farmers, seeds and fertilizer 2 (corn and wheat, in Agriculture 3 provision, loans, very general) limited support, agriculture in general) Construction / 3 1 Food / 1 1 Hospitality / / 1 (restaurants, fast food) Services / 1 1 4 (clothes, food, electrical Trade / 3 (agricultural products) appliances)

Informants mentioned the sectors that were considered oversaturated, which included trade, especially with clothing followed by trade with food and electrical appliances. Restaurants and fast food along the food sector in general (where the KI maybe also referred to restaurants/fast foods) are considered oversaturated. In agriculture, corn and wheat farming are oversaturated along agriculture in general. One Key Informant thought that no sector was oversaturated. See Table 4.1 for details.

The vast majority of employers (83%) also reported that there were many businesses like theirs, which also points to an elevated number of businesses, which might not be competitive. Table 4.2 reports the different sectors in terms of absence of similar businesses along presence of similar businesses (last column). However, the description of the actual business is provided only for those, who reported none and/or limited presence of similar businesses. Therefore, more competitive businesses could include food, trade, and construction followed by other sectors as these reported the highest percentages of absence of similar businesses. All the employers from the metal, manufacturing, and hospitality sectors reported the presence of many similar businesses, which points to sectors that might not be competitive. However, again, data need to be read in conjunction with other variables as many have specified that despite the presence of similar businesses variety in terms of quality and prices could be found among similar businesses.

Table 4.2 Employers, who thought that there were not many businesses like theirs

None/limited Percentage Number of number of similar Within Sector similar Sector businesses businesses Food Automatic bakery, sweets, 3 50% 3 hand-beds for casting and milk Trade Groceries, cosmetics, watches, sports, air filter 8 36% 14 coolers, clothing retailer, accessories Construction Asphalt, construction materials 2 28% 5 trade Services 2 20% 8 Vet, watch repair Automotive Mechanic, big vehicles pump 2 18% 9 repair Agriculture 2 37 In general, farming tools sale 5.1% Manufacturing 0 0% 5 Metal 0 0% 11 Hospitality 0 0% 3 Total 19

CONCLUSIONS

In conclusion, the vast majority of the businesses surveyed suffered at the hands of the conflict. Nonetheless, some have survived, albeit at a fraction of their past capacity. Currently, hospitality, trade, and construction have the highest share of reported profitable businesses. These are followed by manufacturing and services. About half of the employers surveyed also reported an average demand, which was found in all sectors but especially in hospitality, metal, food, and manufacturing, followed by other sectors. While electricity, insecurity, poor liquidity and other issues were reported, lack of capital was perceived as the main obstacle for expansion as it was mentioned by the vast majority of employers. Less importance was given to trainings where only 1 in 5 expressed some needs in this regard.

Hiring of relatives appears to be high in all sectors, but especially in the metal, manufacturing, and trade sectors. This might pose an obstacle for creating additional labor, especially for vulnerable groups, along very limited practices in hiring through formal channels. Nonetheless, almost 20% appeared to immediately think of hiring workers if receiving a grant (where some others might have implied it too).

Market distortions could be created by funding sectors already supported by private investment such as trade, less by food and services. In addition, supporting oversaturated sectors such as trade, especially with clothing followed by trade with food and electrical appliances might cause distortions too. Restaurants and fast food along the food sector in general (where the informants maybe also referred to restaurants/fast foods) are also considered oversaturated. All the employers from the metal, manufacturing, and hospitality sectors reported the presence of many similar businesses, which points to sectors that might not be competitive anyways. Nonetheless, each sector needs to be explored individually by taking into consideration the different variables explored in the analysis.

ANNEX 1: RECOMMENDATIONS FROM THE MARKET ASSESSMENT

1. Agriculture was and remains one of the most important sectors in Hawija, which appears to have recovered to some extent. Nonetheless, profitability is limited along demand. While the sector experiences a variety of problems, considering its importance in Hawija, should be supported and indeed was the sector mentioned by informants as having the highest potential for expansion. Some suggestions from informants should receive more attention such as canning of agricultural products for example.

2. The automotive sector has rather poor demand, was not discussed by informants and it appears that many similar businesses exist in the area, which all point to the fact that it might be less suitable for grant matching.

3. Construction reported good profitability, however, less businesses reported good demand in comparison. It appears to employ relatives. One informant mentioned it was a major employer before the crisis and has recovered to some extent. While having potential for expansion, 3 informants also mentioned that it is already supported by private investment. While suitable, should not be a priority.

4. The food sector was important before the crisis and to some extent recovered. Overall, businesses experience good demand though a smaller number reported running profitable businesses. Employment of relatives is average, one informant mentioned it has potential for expansion, it appears less supported by private investors (it was mentioned by only 1 informant) and the number of similar businesses appears to be limited too. Food is therefore suitable for funding.

5. Hospitality, more specifically restaurants, experience overall good demand. One informant mentioned that restaurants and fast foods are oversaturated in Hawija. While a small number of employers were surveyed, all reported the presence of many similar businesses. Hospitality, in specific restaurants and fast foods, are therefore less suitable for funding.

6. The manufacturing (inclusive of carpentry) and metal sectors experience good demand with lower percentages reporting running profitable businesses. Hiring of relatives is high in both sectors. All employers from both sectors also reported the presence of many similar businesses. Overall, the two sectors were not discussed by informants. Combined, these suggest that the sectors are to some extent suitable for funding.

7. Services are to some extent profitable, and the majority of businesses reported good demand. One informant mentioned services were already supported by private investment and 1 though it was oversaturated. The presence of similar businesses is fairly high too. Services, while suitable for funding, do not represent a priority.

8. Trade was a major employer before the crisis and has recovered well, at least compared to other sectors in Hawija. Demand and profitability are fairly good too. It scored high among sectors with potential for expansion, especially trade with food; though trade with clothing, electrical appliances but also food were reported as oversaturated. Private investment is already flowing into agricultural products trade 3 Key Informants suggested. Similar businesses are fairly limited, at least comparatively, as 36% reported there were none/limited similar businesses. Therefore, trade is suitable for funding, though with attention to the type of trade as for example clothing, electrical appliances, and groceries might be less suitable.

9. Considering the electricity issues, allow for higher than average budgets for electricity and/or investments in generators in business plans.

ANNEX 2: MARKET ASSESSMENT PLAN

Market Assessment Plan

IOM aims to restore essential economic infrastructure and contribute to job creation in primary and secondary economic sectors that were successful prior to the conflict but suffered loss and damage and need assistance to resume activities. The IOM Business Development Fund will aim to encourage the return and reintegration of Iraqis through, directly, matching grants and business development support to businesses, and indirectly, sustainable job creation.

To provide support to SMEs, it is necessary to understand underlying factors that limit the growth potential and competitiveness of SMEs, and as a result their ability to stimulate job creation and other positive social and economic returns. This involves assessing the current market situation by identifying the constraints, obstacles, or bottlenecks that inhibit growth, and by understanding the outlook and potential of the market (challenges and opportunities). This information will then allow IOM to develop targeted interventions. The general themes are: competitors (local/international), market place (demand, supply, quality information), context (security, cultural, corruption), labor supply (skills), infrastructure (IT, physical), regulatory (laws), financial (taxes, interest rates, access to credit, access to markets).

The question therefore best answered by a market assessment would be:

Which small and medium enterprises have suffered from market failures due to the conflict, that, if addressed through matching grants and business development service, could create the need for additional labor, without market distortion? This is a multipart question that can be broken into several sub-questions: Which small and medium enterprises suffered due to the conflict? What market failures can be addressed through matching grants or business development support? What cash grants could create the need for additional labor? What could cause market distortion?

The sub-questions, in turn, can be addressed through a combination of surveying tools:

Research Sub- question Information Needed Source of data

Which small and medium Direct consequences How have political events affected your business? enterprises suffered due of conflict for SME Describe the current status of your business (FGD, to the conflict? owners and workers Q4) Did you manage your business differently during 2014–2017, and how did it affect your revenue? (ES, Q3) How would you describe your business performance from before ISIL, during ISIL, and since the end of ISIL’s occupation? (ES, Q4) How will recovery continue to impact your business over the next 12-months? (ES, Q5) Do businesses selling your product or providing your services in this area generally make a small or sizeable profit? (ES, Q8) Prior to the crisis, what sectors were the biggest employers in the city? What happened to these sectors? (KII, Q4)

What cash grants could Evidence of scalability, How many of your employees are related to you? create the need for networking beyond (ES, Q13) additional labor? internal networks How many of your employees are considered skilled/unskilled? How hard or easy is it to find qualified workers? Why? (ES, Q11) In your experience, are labor laws strictly followed by employers and enforced by MoLSA? Could most businesses show proof of registration, company social security numbers, and personal income taxes for employers? (FGD, Q5) What sectors are currently underdeveloped and/or have significant potential for growth? (KII, Q7)

What could cause market Which SME’s would Are there a lot of businesses like yours? (ES, Q8) distortion? not have been What sectors are oversaturated / face too much competitive anyway competition? (KII, Q2)

Which areas are other Into what sectors is private investment flowing (either private sector funders from local or international investors)? Are these targeting, including sectors affected by external factors, for e.g. public actors such as seasonality? (KII, Q5) government programs, What have been the biggest changes in the business that could crowd out environment have you observed over the past six investment months? (KII, Q10) What are the priority sectors where the government is encouraging development? (KII, Q8) What major economic development initiatives are important for business? (KII, Q12)

ANNEX 3: SURVEYING TOOLS

Focus Group Questionnaire for Small Business Owners

The Market Chain 1. (If applicable) Where do you get your raw product from? 2. Why did you choose the suppliers you use? (i.e. punctuality, price, honesty) 3. (If applicable) How can raw materials affect your final product quality? 4. (If applicable) What is your main restriction on enhancing production? 5. (If applicable) Are your raw materials sufficient in quantity? Have you ever had a shortage of raw materials and why? 6. Do you certify your suppliers for quality? 7. Have your suppliers changed in the last 5 years and how? Is it easy to change your supplier? 8. Where do your suppliers get their raw product from? Where is it from originally? 9. Who do you sell your product or service to? What challenges do you face dealing with clients? 10. Are you able to respond to and accommodate demand variations, such as seasonality? 11. Do you consumers sell your product onwards? How? The Market Environment 12. What challenges, if any, do you face from regulatory bodies or agencies? 13. Do you pay taxes? 14. Have you experienced extortion or corruption in the last 5 years? From who? 15. How did the political crisis affect your business? 16. Have you benefited from any public services in the last 5 years? 17. Are you a member of any association? Infrastructure Services 18. Do you have to use credit in your business? Do you have any issues with this? 19. What percentage of your budget goes to transportation? 20. What other services do you pay for to run your business? What challenges do you have with these? 21. How did these services change in the last 5 years? 22. How are the cost of these services? 23. Can your firm/company usually meet delivery due dates on time, and if not why no

Key Informant Interview Questions

1. Respondent: 2. Occupation: 3. Organization: 4. Prior to the crisis, what trading and industrial sectors were the biggest employers in the city? 5. What happened to these sectors (that have been listed)? 6. What sectors currently employ the most people in the city? 7. What sectors are oversaturated or face too much competition 8. What sectors are currently underdeveloped and/or have significant potential for growth? 9. What are the priority sectors that the government is encouraging development i 10. Into what sectors is private investment flowing (either from local or international investors)? Are these sectors affected by external factors, for instance seasonality? 11. What about United Nations or International Programmes that you are aware of? 12. What have been the biggest changes in the business environment have you observed over the past six months?

13. In your experience, are labor laws strictly followed by employers and enforced by MoLSA? Could most businesses in this city show proof of registration, company social security numbers, and personal income taxes for employers? If not, what percentage do you think could? 14. Was there anything else you would like to tell us? Employer Questionnaire Respondent Phone number: Gender: Age: Type of business: Number of Employees: Length of time business has been operational: 1. How did you acquire the skills to start your business? □Decided to try an idea as an entrepreneur □ Learned from a family member □ Attended vocational training □ Apprenticeship □ Formal certification or course □ Other (specify) 2. Are there a lot of businesses like yours? 3. Has this changed in the last 6 months? □The number of similar businesses increased □ The number of similar businesses stayed the same □ The number of similar businesses decreased □ Not applicable □ I don’t know 4. Did you manage your business differently during 2014–2017, and how did it affect your revenue? 5. How would you describe your business status now? Single Answer □ Not profitable, I’m losing money. (business contraction) □ Stagnant, barely enough to sustain my own needs □ Profitable/ successful, but not enough to grow further □ Very profitable/ successful, it is expanding □ Other: (specify: ------) 6. How do you expect your business to recover or expand over the next 12-months? 7. Where do you get your product or raw materials from? Is it sufficient in quantity and quality? What challenges do you face dealing with suppliers? 8. Who do you sell to? How is the demand for your product these days? What challenges do you face dealing with clients? 9. What products or services are in demand by consumers but difficult to find in the local market? 10. For those you have listed, why are they difficult to find? 11. What are the main recruitment mechanisms in your city? Word of mouth, formal job advertisements? 12. Do you sign a written contract with your full-time employees? 13. What is the average monthly salary that you pay full time workers in Iraqi dinars? 14. How many of your employees are related to you? 15. How many of your employees are considered skilled/unskilled? How hard or easy is it to find qualified workers? Why? 16. What is the single greatest operating challenge that you face, and what are the other challenges? For the challenges you have identified, please indicate what kind of changes would improve your ability to do business. 17. What kind of government policies or programmes, or infrastructural improvements, could strengthen your business? 18. What sort of training or skills do you need to run this business? Have you received any sort of formal or informal job or entrepreneurship training? 19. Have you ever considered expanding your business (e.g. opening another location, adding additional products, hiring more employees, etc.)? If you have already, what key factors helped

you to do so (e.g. bank, VSLA, or personal loan; government investment fund; family to staff 2nd location, etc.). If you have considered this but found it difficult, what were your primary barriers to expansion? 20. If you were to receive unrestricted funding of US $ 5,000 to US $ 25,000 for business expansion purposes, what would you likely spend this on?