Volume 1 Cedric - revised luca Final - RUIG-GIAN

7. Addressing obstacles and opportunities forentrepreneurship in IraqSMEs can play an important role in the transitional phase towards a market economy,marked by security problems and related difficulties for the business environment. Theycan also alleviate the unemployment crisis, considering the flexibility and responsivenessof the sector to crisis trends. The full potential of the sector lies, in the medium to longerterm, in the creation of a wide and efficient Iraqi private sector grounded on a rich networkof SMEs.In order for SMEs to play such a vital role in the economic reconstruction of Iraq,particularly during the transition to a market economy, policies and public programmesshould focus on addressing the major obstacles that the sector is currently facing, and onsupporting Iraqis as they harness new opportunities in the new context.This section provides an analysis of obstacles and opportunities for smallentrepreneurs in Iraq in the short-to-medium turn, building on the surveys and interviewsconducted for this study and further available literature.7.1. Addressing obstacles to SME creation anddevelopment7.1.1. General economic recession and deprived internaldemandIraqi SMEs are currently experiencing a crisis situation; a high percentage of them areeither at a standstill or operating at minimum capacity levels. Important investment shiftsfrom the industrial sector to those such as trade and services have occurred, leading to adownturn in the PSEP.The sensitive nature and flexibility of the private sector must be taken intoconsideration, features that make it responsive to changes in the demand and businesslevels. As the expansion of small projects is more difficult in a situation of decreasingdemand, this expansion should be accompanied by fiscal and monetary policies thatincrease expenditure. These developments can lead to a certain increase in employment inthe existing projects and more promising opportunities for new projects, as well asallowing positive transformation within the current private sector.There are indications of a business recession in Iraq in a context of rising prices since2003; this situation may be termed stagflation. This situation is mainly linked to increasingproduction costs and to direct or indirect effects of the prevailing state of insecurity.75