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Startups in Kurdistan Region near a 10-year low

By Rudaw 18/4/2017
Construction was a booming industry before the financial crisis hit the Kurdistan Region. Photo: Rudaw
Construction was a booming industry before the financial crisis hit the Kurdistan Region. Photo: Rudaw

ERBIL, Kurdistan Region — New business creation in the Kurdistan Region is at nearly a 10-year low, experiencing a 64 percent decline in 2016 compared to the boom year of 2013 when 3,423 startups were recorded, official data shows. 

Only 1,233 new firms were registered in 2016, including 50 foreign businesses, according to the most recent data released in the past week by the Kurdistan Region Office of Recording Businesses. The figures of 2016 are well below the 2,000 new companies or more that were started in the country every year from 2007 to 2014, before the economic crash.  

"There's been a short-term decline in entrepreneurship due to the financial crunch and ISIS onslaught,” said Dilzar Ismail, the director of the Office of Recording Businesses.

Ismail said increased tariffs and taxes could also have had some impact on the decline of the once flourishing sector.

“The recession was a great killer for startups. People didn't start new businesses because few had the money or the guts to do it in these gloomy days,” Ismail said.  

There are currently 25,449 companies operating in the Kurdistan Region, many of them started in the heyday of economic growth encouraged by long-term, tax-free conditions.

Since the economic crisis hit the Region in 2014, around 400 companies have closed or filed for bankruptcy.  

The data shows that most new startups in 2016 were small private businesses with relatively modest capital, while the bulk of recorded businesses prior to 2014 were large investment firms involved in construction and tourism.

Some businesses have had to down-size in order to stay viable. According to the data made available by the Kurdistan Investment Union, the private sector has laid off around 330,000 full and part time employees over the past three years due to the cash crisis. 

The Kurdistan Regional Government (KRG) has said that it will help the private sector to become a more attractive employee in the region with enhanced access to the banking system and insurance services. 

According to KRG reports, only 3 percent of the private companies and businesses in the Region currently use the available services in the banks often due to business owners’ low confidence in the banking system. 

The private market in the Kurdistan Region has been notoriously unregulated with almost no taxation or protection of labor rights. 

The insecurity in the private sector has prompted the bulk of the labor force to seek government employment with considerably lower wages. This has placed an enormous financial strain on the government.

Around 1.3 million salaries are paid by the KRG to, among others, civil servants and the retired, amounting to 75 percent of the government’s annual budget. 

Authorities now hope that government reforms will reignite the two-digit economic growth that the Region experienced before the double shock of the ISIS war and falling oil prices. 

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