A new asset has come to the forefront in terms of importance for the Kurdistan Region: Human Capital. To understand the applicability of human capital within the Kurdistan Region, it first becomes necessary to understand the situation in terms of localized labor. Following the uprising in 1991, with only a few local companies operating in the Region and the lack of investment from foreign entities, there were few economic opportunities for the people of Kurdistan except employment in the public sector. For the government, employing the local population to the greatest extent possible was preferable to risking financial ruin for the people of the Region. Thus, a system was born in which public sector employment was prioritized, primarily because of the stability and long-term security it offered. The concept of 401K retirement plans was utterly foreign and the pensions offered by government positions seemed a guarantee of financial security for the future. However, statistics indicate that this system may no longer be tenable, and should instead be replaced by a stronger, more vibrant private sector economy.
Meeting the Demand
According to Ministry of Planning (MOP) statistics, “almost 560,000 people, more than half of all employed people in the Kurdistan Region, work in government. This number includes people who work directly for the government, a small number who work for state-owned enterprises, and a small number who work in mixed public private enterprises.” According to the Kurdistan Regional Statistics Office (KRSO), approximately 80% of all employed women and 45% of all employed men work for the government.
MOP reports also indicated that nearly 1.1 million people aged 15 years or older are active in the labor force. This figure constitutes roughly 38.4% of the total population aged 15 years or older, with the remainder dependent on relatives or government assistance. Labor force participation rates are significantly higher for working age men (66%) than for working age women (12%). In addition, the most recent statistics from the KRSO indicate that the population of the Kurdistan Region is young, with approximately 50% of all residents under the age of 21. It is estimated that over the next 20 years, there will be a sizeable demographic shift as between 850,000 and 1.1 million new job seekers will begin to enter the labor market. Put more directly, an average of 43,000 to 54,000 jobs per year will be needed to keep pace with changing demographics.
These figures provide a clear indication that it is no longer sustainable for the government to employ a majority of the working population. The problem of expanding bureaucracy aside, the continued expansion of public sector employment will require additional provisions for salaries and pensions, thereby placing further strain on the annual budget of the KRG. Funds that could be better used for investment and infrastructure development would instead need to be allocated to operational expenses. Perhaps most notably, for the economy of the Region to continue its strong growth requires, as stated by the MOP, “A healthy and innovative private sector… Such a private sector will need access to a pool of labor from which it can hire qualified employees.”
Promoting a Shift
The issue remains that the public sector is the preferred means of employment for the people of the Kurdistan Region. “Although for most occupations, wages in the private sector are higher, civil service employment benefits are more attractive than those offered by the private sector,” notes a report from the MOP. More than 80 percent of civil service workers receive health care, retirement, and paid vacation, whereas less than 20 percent of workers in the private sector enjoy the same level of benefits. In addition, public sector employees enjoy set working hours (usually shorter than in the private sector) and a greater sense of job security. Approximately 74% of all private sector jobs occupied by the local population are in the services sector, with 19% involved in industry and 7% involved in agriculture. Thus, at present, opportunities in the private sector are, for the most part, limited to the services industry, which may not seem as appealing or respectable to the locals as sitting at a government desk. Thus, the KRG has begun pursuing multiple programs to promote the appeal of private sector employment, including the creation of a state pension system, unemployment insurance, and promoting better educational and training opportunities.
Developing the Pool
Generally speaking, many of the current public sector employees have skills (specifically strong language abilities and desirable levels of education) that would make them attractive to private sector employment. What they tend to lack, however, are specific skills, training, or general knowhow: the fundamental elements of human capital. For the Kurdistan Region to continue to develop a strong economy fueled by a confident and capable private sector, the capacity of the labor force must increase.
In his interview with IIG, Prime Minister Nechirvan Barzani clearly stated the importance of human capacity development for the long-term economic stability of the Kurdistan Region: “The future to which we aspire requires us to have the knowledge and know-how to carry this region forward. Developing human capacity is key to achieving that goal.” This faith in the tangible value of human capital led to the creation of one of the shining achievements of the KRG: the Human Capacity Development Program (HCDP). As explained by the Minister of Higher Education, Dr. Ali Saeed, “The KRG introduced the HCDP and allotted it an annual budget of $100 million. These funds will be used to send our young graduates to pursue their higher education, specifically Masters and PhD programs, at centers of excellence abroad.” The HCDP helps equip the young minds of the Kurdistan Region with the most advanced scientific and technological knowledge, thereby creating a highly skilled generation capable of further developing the economy of the Region.
Encouraging Local Education
While the HCDP represents a strong step in the right direction, education closer to home is also in need of attention. Local public universities are certainly producing capable, well-educated young minds. However, only one of those facilities, the University of Kurdistan – Hewler, conducts classes in English. Given that English is the standard language of most international companies, this limitation further prevents private sector involvement. Moreover, the current placement system for high school graduates is rigid, with top students being automatically enrolled in engineering, medical, or legal courses. This more practical approach has, in turn, impacted private sector hiring practices. Hal Miran, CEO of MSelect, the premier recruitment agency in the Kurdistan Region, has seen this first hand: “I think employers here have learned that, unlike elsewhere in the world, the way you pick a graduate (based on what they’ve studied) is not necessarily the case here in Kurdistan. Just because a student has done well or earned good marks in a certain field does not necessarily mean that he/she is eager to begin a career in that sector or industry. I think this is something that graduates in particular would like to change, especially now that private universities are becoming more prominent here in Kurdistan.” The most notable private university operating in the Region, the American University of Iraq – Sulaimani (AUIS), has embraced this more diversified model of education, and has seen positive results. Indeed, the well-rounded academic backgrounds of the graduates of AUIS are proving increasingly attractive to the giants of the private sector.
Higher education alone can’t improve human capital; localized training and individual capacity development are vital to the process as well. However, as noted by Miran, “The Kurdistan Region lacks the necessary industry certifications, which are essential for satisfying the health and safety requirements of international companies. We recently polled our clients to determine the skills that were most in-demand. The majority of the responses were related to vocational certifications for employees. For example, certified forklift drivers, welders, and rig drivers were among the most in demand positions.” The KRG has already begun investigating solutions to these more specific areas of need by developing policies that would enable students to work at trainee jobs and internships, companies to pay for training for their workers more easily, and residents to find life-long learning and skill-building opportunities.
Capacity Building Payments
Early in the process of drafting its energy policy, the KRG sought to ensure that the positive effects of the expected oil and gas wealth would be felt across the Region, specifically in regards to developing local expertise. To do so, it implemented a new system. Upon signing a production-sharing contract with the KRG, oil companies would be obligated to pay a “capacity building bonus”. This payment would then be allocated to the funding of large social programs and infrastructural developments. As clarified by the Ministry of Natural Resources (MNR), “The bonus goes towards funding projects such as hospitals, housing, schools and universities, water treatment plants, humanitarian aid, security, as well as towards vocational, technical and higher education programs to help develop Kurdistan’s workforce.” In addition, these companies are further obligated to make additional capacity-building payments once they generate oil profit, with payments ranging in size from 2.4% to 4.8% of profit.
In order to ensure the development of the Kurdistan Region’s workforce, the MNR has prioritized localization, which it defines as “the transfer of scarce skills from experienced expatriate staff to nationals living within the Kurdistan Region.” From an industry perspective, localization represents the only concrete solution to the issue of rising demands for a skilled workforce that minimizes the cost of training. To promote this concept in the oil and gas sector, the MNR has begun conducting training programs, enforcing immigration control, and ensuring a reduction in the hiring of expatriate workers with low skill levels. Indeed, the current oil and gas industry workforce is approximately 70% local (which constitutes a 15% increase since April 2011). The Ministry has targeted a 90% localized workforce by 2016. Many of the oil and gas companies that are active in the Region have taken this to heart, and have begun funding university programs, providing internships, and offering scholarships abroad for Kurdish students.
Balancing Foreign Expertise
The oil and gas industry aside, foreign companies operating in a number of different economic sectors have also elected to bring in expertise from outside the Kurdistan Region in order to promote localization. This can be approached in a variety of ways, including on a small scale (only a few foreign workers educating a much larger body of employees) and a larger scale (the vast majority of employees being foreign, with minor positions occupied by locals). However, the process of importing foreign workers can become problematic for two reasons. Firstly, many foreign workers do not speak Kurdish, thereby making it difficult for local workers to effectively learn a new skill or trade. Secondly, at present, restrictions on foreign workers are not strenuously enforced. As a result, foreign companies are sometimes able to hire foreign personnel without making any attempt to transfer knowledge or expertise. In addition, expatriate workers can also be brought in to occupy positions that could be held by local workers. Proposed legal reforms are expected to go a long way towards modernizing the current labor law, and additional restrictions on foreign worker quotas could alter the landscape as well.