Shafaq News/ Once regarded as a regional industrial hub, Iraq’s manufacturing sector now faces prolonged stagnation. Many factories remain idle, and the “Made in Iraq” label has become increasingly rare in local markets. Despite the country’s substantial natural resources and a technically capable workforce, industrial growth has remained limited.
Years of conflict, international sanctions, and inconsistent economic planning have contributed to the sector’s decline. As domestic production has slowed, imported goods have taken a dominant role in Iraqi marketplaces, reducing the presence of local products. This shift has impacted both public and private manufacturing, with efforts to restore output hindered by political uncertainty, corruption, and fragmented investment strategies.
Iraq’s current industrial challenges do not stem from a lack of resources, but rather from difficulties in translating available opportunities into long-term development. As these trends persist, the question of how to reinvigorate the industrial sector remains central to broader economic discussions.
Lagging Behind the Barrel
Iraq’s industrial sector has steadily eroded since 2003. The country’s once-diverse manufacturing base, ranging from cement plants to electronics assembly lines, has been reduced to a fragmented shadow of its former self. According to the Iraqi Industries Union, nearly 40,000 industrial projects have stalled over the past twenty years, leaving a vast network of potential untapped and rusting.
In the vacuum left by this decline, foreign goods have flooded Iraqi markets. Today, items that were once proudly made in local workshops arrive through ports and border crossings, boxed and labeled from abroad.
By 2024, more than 70% of Iraq’s imports were manufactured products, from consumer electronics and vehicles to heavy machinery. That year alone, Iraq spent over $35 billion on these imports, deepening its trade deficit and adding pressure on public finances already stretched by subsidies and state employment.
The bulk of these goods come from five key trading partners: Turkiye, China, Iran, the United Arab Emirates, and India. While consumers may benefit from the variety and lower prices, the cost to Iraq’s economic self-reliance has been steep. The country’s increasing dependence on foreign production has not only hollowed out its industrial core but also dimmed hopes of meaningful economic diversification.
Local manufacturers, meanwhile, are trapped in a losing battle. Facing outdated machinery, limited financing, and weak state backing, many can barely keep their doors open. Salim al-Bayati, an industrialist, spoke to Shafaq News, “In this climate, it’s difficult for any local manufacturer to survive. Our products are taxed, our machinery is old, and our government prefers imports over nurturing domestic production.” His frustration echoes across Iraq’s remaining industrial corridors, where producers feel squeezed out by policies that reward consumption over creation.
The imbalance is stark even at the retail level. Abbas Adnan, who runs an electrical goods store in Baghdad, explained how imported appliances routinely undercut local ones. “A locally made freezer costs us around 275,000 dinars, while an imported one, including customs, is about 200,000. Add a profit margin, and the local product becomes nearly twice as expensive.”
Yet the collapse of manufacturing isn’t just about markets and margins; it’s a symptom of deeper systemic failures. Weak infrastructure, a neglected private sector, and decades of oil-dominated policymaking have all conspired to choke industrial growth. International institutions, including the International Monetary Fund (IMF), have repeatedly urged Iraq to pivot away from oil dependency and invest in non-oil sectors. But reforms have been slow and uneven.
The numbers reflect that inertia. In 2022, manufacturing contributed just 1% to Iraq’s GDP, according to the World Bank, a figure dwarfed by regional peers like Iran and Turkiye, both of which have built more resilient and diversified economic models to buffer against global oil shocks.
Economist Safa Abdul Jabbar offered a stark warning, stating to Shafaq News, “Without meaningful investment and transparency in the industrial sector, Iraq will continue to import what it can produce domestically, draining billions from the national budget.” His words speak to a broader failure to craft a long-term vision for the industry, one that combines investment, oversight, and policy coherence.
The human cost has also been profound. In the 1980s, over 20% of Iraq’s workforce was employed in industry. By 2024, that share had fallen to just 5%, according to the Ministry of Planning. Even Iraq’s non-oil exports, often cited as a potential growth area, remain underwhelming. In 2024, they totaled just $4.5 billion, a fraction of the country’s $115 billion in total export earnings.
And what does get exported? Mostly dates, cement, fertilizers, and scrap metal, low-value goods that generate little employment and offer limited prospects for technological advancement or added value.
Industries Struggle to Keep Up
Nevertheless, Iraq’s industrial sector still holds potential in certain areas, such as cement production, petrochemicals, and traditional sectors like leather and textiles.
Driven by ongoing reconstruction efforts and infrastructure development, cement production in Iraq has increased in provinces like Karbala, Najaf, and al-Muthanna. The country currently produces around 30 million tons of cement annually, enough to meet domestic demand and even allow for limited exports to neighboring Jordan and Kuwait. However, challenges such as inconsistent electricity supplies and rising production costs have hindered further expansion, diminishing profitability.
The petrochemical industry, once a key component of Iraq’s industrial ambitions, is cautiously recovering, particularly in the southern regions, including Basra. State-run facilities like the State Company for Petrochemical Industries (SCPI) are working to revive plastic and chemical production. However, outdated infrastructure remains a significant obstacle, preventing Iraq from competing effectively in the global market and limiting its ability to take advantage of growing regional demand for petrochemical products.
In Dhi Qar province, Iraq’s leather and textile industries, are struggling to survive. These sectors have been overwhelmed by a flood of cheap imports, particularly from China and Turkiye. The General Company for Leather Industries, which once supplied military uniforms and shoes, now operates at a fraction of its previous capacity. “Local production is not supported,” remarked Ahmad Karim, a former engineer at the al-Dourah Refinery. “Even the simplest tools are imported now. Our factories are either closed or on the verge of collapse.”
Nonetheless, some state-owned enterprises continue to operate on a smaller scale. The General Company for Electrical and Electronic Industries, for instance, remains active and collaborates with the private sector to produce items like air conditioners, water coolers, fans, and electrical protection devices. These goods are distributed across several provinces, including Baghdad, Diyala, Babil, Wasit, and Kirkuk. The “Ishtar” and “Al-Qeethara” brands remain recognized in both the electrical and textile sectors, while state-run companies also produce food products, such as dairy items, under these established labels.
Despite their limited scale, Iraq’s industrial exports have found some success in regional markets. Countries such as Jordan, Kuwait, and the United Arab Emirates import Iraqi construction materials, processed food products, and cement. Fertilizers, particularly urea and phosphate-based products, are also exported to South Asia, with India and Pakistan serving as key destinations.
A Call for Change
Despite renewed government pledges to revive this vital pillar of the economy, Iraq’s industrial base is still struggling to regain momentum amid rising production costs and outdated equipment.
At a minerals investment conference in Baghdad on May 2, 2023, Prime Minister Mohammed Shia al-Sudani stood before investors and officials, reiterating his vision for economic diversification. He spoke of Iraq’s industrial promise and its potential to anchor national growth. But experts have grown wary of such declarations. They caution that without a deliberate, system-wide strategy, the sector will continue to tread water.
Manar al-Obeidi, an economic analyst, has long argued that reviving Iraq’s industries begins with reviving their reputation. “The ‘Made in Iraq’ brand must stand for quality and durability,” he emphasized, pointing especially to the needs of average-income families.
Yet Iraq faces a stark reality: its production costs remain well above those in countries like Turkiye, Iran, or China. Al-Obeidi proposed overhauling customs tariffs to better protect domestic manufacturing. While he acknowledged this might push prices higher in the short term, he argued it would ultimately strengthen Iraq’s economic independence.
But tariffs alone won’t bridge the gap. Energy costs, for instance, are a major hurdle. Industry Minister Khalid Battal al-Najm revealed that roughly 30% of industrial production expenses stem from energy alone. That figure stands in sharp contrast to producers in neighboring countries, where lower overhead and favorable exchange rates give their industries a clear edge. These advantages enable foreign goods to sweep Iraqi markets, often at the expense of local producers who simply can’t compete.
Al-Najm also reflected on a paradox: while sanctions are typically seen as economic burdens, they have, in some cases, become catalysts. Citing Iraq’s own experience during the 1990s embargoes, he explained how similar constraints in Iran have inadvertently led to reduced production costs and increased local manufacturing. He pointed to the potential re-emergence of Syria, once stabilized, as another looming competitor in the regional industrial scene.
However, perhaps the most persistent problem isn’t within Iraq’s factories, it’s at the borders. Years of lenient trade policies, informal trade routes, and weak enforcement have opened the floodgates to imported goods. Domestic markets have tilted so heavily toward foreign products that many traders no longer see value in supporting local industries. “It’s all about short-term profits now,” said economic analyst Ali Daadoush. “Importing is easier, quicker, and more lucrative than building something from the ground up.”
To change that mindset, Daadoush outlined a comprehensive approach: revise customs laws, phase out non-essential imports, provide soft loans for local producers, and offer temporary tax breaks to new ventures. Without these measures, he argued, Iraq’s dream of rebuilding its industrial base risks fading into another unrealized promise.
The impact of these dynamics isn’t theoretical, it’s deeply personal for business owners trying to survive in a saturated market. Abbas Adnan, who owns an electrical goods company, is one of them. He believes the focus shouldn’t just be on manufacturers but also on the retailers who serve as gatekeepers to the market.
Adnan suggested financial incentives for shops willing to stock Iraqi-made products. But in his view, incentives alone won’t solve the problem. “People still don’t trust local products,” he said. “And that’s the biggest barrier of all.”
That skepticism runs deep. In Baghdad’s al-Zafaraniyah district, 39-year-old Sanaa Hamzawi shared with Shafaq News a memory from her childhood. She recalled fondly that her grandfather’s “Ishtar” freezer lasted nearly four decades. “It’s incomparable,” she said. “Today’s local products rarely last more than a year.”
Just a few kilometers away, in the al-Dora district, Ali al-Khafaji echoed the same frustration. Despite his instinct to support domestic industries, he often ends up buying imported items. “Strangely, locally made devices are expensive despite their basic production quality,” he explained. “Imported goods are more durable and cheaper. This mismatch is why many people choose imports, even if it conflicts with their sense of national loyalty.”
These aren’t isolated stories; they’re part of a broader crisis of confidence. And without restoring that trust, no amount of policy reform will be enough.