Enabling Environment Assessment & Investment Case for Forcibly Displaced Person Employment in Iraq

KRI Labour Regulation No. 1145 reinforces the requirement that companies operating in the Kurdistan Region maintain a workforce composed of at least 75% local residents. This regulation prioritizes local employment and places a hard ceiling of 25% on foreign-national employment — a category that encompasses refugees. The KRI Council of Ministers issued complementary Instruction No. 7 of 2022 formalizing this quota for private companies.

Non-compliance carries material consequences: employers who violate the quota face failure to obtain government clearances required for work-permit issuance, effectively blocking all foreign hiring. Under Regulation No. 1145, foreign-worker contracts are limited to two-year terms with a maximum cumulative duration of eight years, creating additional friction for employers seeking to invest in FDP workforce development.

The 75% rule is more binding in practice than work-permit requirements because it constrains the total quantum (aggregate number) of FDP positions available across the KRI economy. Even a perfectly functioning work-permit system would hit this ceiling. For sectors with labor shortages — construction, agriculture, certain services — the quota prevents employers from scaling FDP hiring even when qualified local workers are unavailable.

Federal Iraq: Under Labour Law No. 37 of 2015 (Articles 30–31), all foreigners working in the private sector must obtain a work permit from the Ministry of Labour and Social Affairs. The employer must demonstrate that no qualified Iraqi national is available for the position. Federal legislation caps foreign employment at 50% of total staff for incorporated companies — a less restrictive threshold than the KRI's 75/25 rule, but still binding for labor-intensive operations.

KRI: Syrian refugees in the KRI with valid residency permits are permitted to work in private employment and self-employment on a de facto basis — but this right is not codified in law or formal regulation. It operates as administrative practice rather than statutory entitlement, making it vulnerable to policy reversal. Anyone wishing to work in KRI must first obtain a valid residency card; there are no special facilitated categories for refugees, foreign workers, or seasonal workers.

IDPs: As Iraqi citizens, IDPs hold the legal right to work anywhere in Iraq. However, in practice, IDPs from governorates perceived as associated with ISIL (particularly Sunni-majority areas) face informal discrimination in security clearance processes that function as de facto employment barriers. The Unified ID system rolled out in 2024 has begun to reduce documentation friction, though coverage remains incomplete.

Under Company Law No. 21 of 1997, foreigners (including refugees) face significant restrictions on business ownership in Iraq. The Law of Commerce No. 30 of 1984 governs individual traders, and sector-specific licensing — including municipal approval, vocational approval, and occupational practice certificates — creates a multi-layered permitting burden. As documented by NRC, licensing and approval processes vary by business type and jurisdiction, and there are explicit restrictions on foreigners operating businesses in both Federal Iraq and the KRI.

The practical consequence is that most FDP entrepreneurs operate informally — without business licenses, tax registration, or legal protection. This informality constrains access to finance (no formal documentation for loan applications), limits growth (cannot bid on formal contracts or hire employees legally), and exposes entrepreneurs to legal risk including fines and, for refugees, potential deportation.

Iraq ranks 172 out of 190 on the World Bank's Ease of Doing Business index. The judicial system is also weak — contract enforcement is ranked 147th globally — meaning that even when FDP entrepreneurs establish formal businesses, dispute resolution is unreliable and tends to favor local parties.

Iraq's financial inclusion rate is among the lowest in MENA. Less than 20% of Iraqi adults hold a bank account with a formal financial institution, and fewer than 5% of MSMEs use bank lending. For FDPs, the barriers are even more acute: Know-Your-Customer (KYC) requirements at most Iraqi banks do not recognize UNHCR-issued documentation as valid identification, and refugees lacking Iraqi national identity documents are effectively excluded from the formal banking system.

KYC documentation barrier: Financial institutions' reluctance to accept refugee documentation creates a cascading exclusion — without a bank account, FDPs cannot receive formal wages, save securely, build credit history, or access microloans. The Central Bank of Iraq (CBI) issued a National Strategy for Financial Inclusion (2018–2022) but it did not specifically address FDP access. Successor policies remain in development.

Iraq's microfinance sector is nascent. WFP's SheCan initiative, launched in Iraq in partnership with micro-finance institutions (MFIs), represents one of the first structured efforts to extend micro-credit to smallholder farmers and micro-entrepreneurs including vocational training graduates. The ILO's financial inclusion strategy under the PROSPECTS partnership has focused on building MFI capacity, but coverage remains limited and the sector lacks standardized lending products designed for FDP borrowers.

Collateral requirements remain the primary operational barrier: most MFIs require property or asset collateral that FDPs — having lost assets to displacement — cannot provide. Group lending models (proven in comparable contexts in East Africa) are underutilized in Iraq. The IFC's partnership with First Finance Company (FFC) to expand MSME lending offers a potential platform, but FFC's current product design does not specifically target FDP borrowers.

Iraq's mobile money ecosystem is severely underdeveloped despite high mobile phone penetration. Mobile money access for FDPs is doubly constrained: first by the general regulatory and infrastructure gaps that suppress digital financial services across Iraq (limited interoperability between payment platforms, low merchant acceptance, regulatory uncertainty around e-money licensing), and second by SIM card registration requirements that often require national identity documentation that refugees lack.

Financial inclusion stands at approximately 19% nationally (15% for women). The hawala (informal value transfer) system remains dominant for cross-border remittances and domestic transfers, particularly among displaced populations. While digital wallets exist — and WFP has piloted digital disbursement channels — no mobile money operator has achieved the scale or regulatory clarity needed to serve FDP populations at volume.

Syrian refugees entering the KRI frequently hold vocational and professional credentials from Syrian institutions that are not formally recognized by Iraqi or KRI educational authorities. This is particularly acute in healthcare, engineering, and education — sectors where credential verification is required for employment but where Iraq faces significant skills shortages. The KRI Ministry of Education has made progress with the Refugee Education Integration Policy (REIP) covering primary school grades, but no equivalent framework exists for adult vocational and professional credentials.

For IDPs, the challenge is documentation loss rather than cross-border recognition. Many IDPs from conflict-affected areas lost educational and professional certificates during displacement. Replacement processes through the Ministry of Education are slow and require in-person visits to pre-displacement institutions — often in areas that remain insecure or where records were destroyed.

IDPs perceived as affiliated with ISIL — particularly those from Sunni-majority areas of Ninewa, Anbar, and Salah al-Din — face systematic discrimination in labor markets, housing, and access to services. This discrimination is both social (community-level rejection) and institutional (security-screening processes that function as employment gatekeeping). Women and girls face compounded barriers: restrictive social norms limit mobility and labor-market participation, and GBV (gender-based violence) risk constrains access to workplaces, particularly in informal settings.

For Syrian refugees in the KRI, linguistic and cultural proximity to the Kurdish host community facilitates integration relative to other refugee contexts — but competition for scarce private-sector jobs creates tension, particularly as KRI's public-sector salary crisis has pushed more local workers into private employment.