Iraq’s online retail marketplace is one of the fastest growing non-oil sectors. E‑commerce volumes have risen significantly over the past five years, ride‑hailing and delivery apps handle millions of transactions each month, and the Central Bank has issued the country’s first digital‑bank licence.
For young Iraqis, the digital economy is a platform for creativity, entrepreneurship and a pathway to employment. Yet public policy still frames growth as a binary choice between agriculture or industry.
Treating the digital economy as a standalone pillar of national development is essential: without it, foreign platforms and necessity-driven start-ups will continue to capture value without creating enough meaningful employment. A coherent digital economy strategy – one grounded in improved governance, targeted investment and international partnerships – can channel youth-led digital activity into a resilient, green, and inclusive engine of diversification.
Youth, SMEs and the jobs mandate
Iraq’s demographics are both a challenge and an opportunity. More than 60 per cent of Iraqis are under 25, yet youth unemployment officially exceeds 35 per cent. As government jobs declined, young entrepreneurs carved their own path through the digital economy. Local platforms such as Miswag and Digital Zone – both acquired by the Qi Group – show that youth-led start-ups can achieve exits. Ventures like Lezzoo, IQ Cars, Jaamila.com, Orderii, Wayl, Dofied, 1001, Saleem, and Corrsy are scaling across e-commerce, logistics, fintech and the creative industries.
Despite startups’ and SMEs’ appetite for digital technologies, three barriers persist: poor infrastructure; regulatory instability with abrupt changes; and ineffective consumer protection and laws application. These undermine trust. Limited financing compounds these constraints, with banks requiring collateral that SMEs rarely hold. Unless these hurdles are overcome, the digital surge will create value without creating enough jobs, exacerbating social frustration.
Momentum without a map
Consumer demand and entrepreneurship activity are driving bottom-up momentum in the digital economy. Venture‑capital funds in fintech, ed‑tech and logistics are emerging, signalling confidence in Iraqi talent. Yet capital formation lags: an analysis by Wamda Capital, an investment firm, estimates that Iraqi start-ups raised just $2.6 million across 10 deals in 2024, versus $15 million in Jordan, $334 million in Egypt, and $700 million in Saudi Arabia. If these figures are accurate, this is $0.06 per capita for Iraq, compared with $1.3 in Jordan, $3.1 in Egypt and $18 in Saudi Arabia, respectively.
Who gains from this imbalance? International or regional ‘super‑apps’, large domestic conglomerates that can navigate ad‑hoc fees and the ministries collecting them. Who loses? The early‑stage Iraqi founders and local venture capitalists (VCs) forced to incorporate abroad. And also Iraq’s tax authority, which forfeits equity‑driven wealth and job creation. These challenges point to a deeper governance gap.
Fragmented governance, lack of incentives
Oversight of Iraq’s ‘digital transformation’ is split. The Ministry of Communications leads infrastructure and automation projects; the Commission of Media and Communications regulates telecoms and data services; the Ministry of Trade promotes e-commerce platforms; the Central Bank oversees digital payments; and parliamentary committees and the General Secretariat of the Council of Ministers intervene in laws, creating overlapping jurisdictions. No single entity defines objectives, sequences reforms or measures progress. As a result, firms face conflicting directives, sudden fee increases and a patchwork of exemptions. A retailer can set up an Instagram store in a day, but still needs to submit paper signatures to register.
Government policy still frames growth as agriculture or industry, treating ‘digital transformation’ mainly as service modernization. This framing sidelines the digital economy as a source of growth and jobs creation. Without an explicit digital pillar, Iraq’s policy framework overlooks four core enablers of innovation.
The first is a legal foundation for venture capital. Funds must register as generic LLCs, which restricts external fundraising, prohibits limited‑partner models, and excludes profit exemptions or structured exits. As a result, many VCs register in the Abu Dhabi Global Market (ADGM).
The second is incentives. The Investment Law framework was designed for industrial zones and factories. Existing laws exclude digital exporters and ignore IP or software for tax incentives.
Third are tools for founder equity. Without stock‑option regulation or safe‑harbour clauses, Iraqi start‑ups cannot offer meaningful equity packages to attract or retain top talent, especially in competition with regional tech hubs.
Finally, the framework maintains an ambiguous government role: State-owned actors are increasingly entering the consumer tech space (sometimes as regulators, sometimes as competitors), blurring the lines between enabler and incumbent. This deters private players and chills competition.
Without deliberate legal and regulatory change, promising digital firms will remain in legal grey zones – too risky for investors and too fragmented to scale.
A window of opportunity – if policy moves fast
Paradoxically, Iraq’s late start can be an advantage. With minimal legacy IT systems, the government can adopt – without costly transitions. – mobile-first public services, use cloud-based back-ends, and deploy renewable micro-grids to sustain digital infrastructure such as data centres. This would reduce dependence on Iraq’s unstable national grid.
Regional peers such as Saudi Arabia, the UAE and Jordan demonstrate that when policy and infrastructure align, digital governance, fintech innovation and e-services can transform state capacity and attract investment.
Saudi Arabia targets about 19 per cent of GDP from the digital economy by 2025, and both Jordan and Saudi run fintech sandboxes. Iraq, by contrast, has no official ICT‑GDP target and the Central Bank’s sandbox is still under development. Every month of policy drift cedes market share to foreign incumbents, and widens the investment gap. But if policy aligns quickly, Iraq can leap‑frog to modern, low‑carbon infrastructure while diversifying away from oil.
Governing for digital growth
To transform Iraq’s bottom-up, youth-led, digital momentum into inclusive economic growth, Baghdad should establish a Digital Economy Council to set strategy, approve budgets and publish key performance indicators.
The council should be chaired by the prime minister and include representatives from relevant ministries, the private sector, entrepreneurial support hubs, and SME and youth-led business networks to ensure that policy design reflects both institutional priorities and market realities. Its mandate should focus on economic outcomes of digital transformation, not just technical modernization.
In parallel, the government should legislate the rules of the game by enacting and enforcing data-protection, e-signature, and cybersecurity laws. It should accelerate the launch of the Central Bank’s fintech sandbox to encourage safe experimentation and innovation.
Addressing the human capital gap and lack of incentives for innovation is equally vital. A national Digital Literacy initiative should be embedded in schools and universities, with academia playing a central role in designing curricula, updating teaching methods and aligning research with emerging digital economy needs. Time-bound tax holidays and matching grants for start-ups that export digital services should be introduced.
International partners can also play a pivotal role in accelerating Iraq’s digital transformation. Blended finance guarantees from multilateral development banks can help de-risk infrastructure investments and attract private capital to critical ICT projects. Regulatory ‘twinning’ programmes can fast-track best practices, and mentor Iraqi officials.
The Iraqi diaspora also represents a valuable resource: diaspora-backed venture funds can channel both capital and expertise into early-stage start-ups, strengthening connections between local innovators and international markets. Donor programmes should align their support with performance indicators, rewarding measurable progress on connectivity, cybersecurity and SME formalization, rather than funding isolated pilot projects.
Together, these steps would convert today’s ad‑hoc approach to digitization into a rules-based, inclusive and job-creating digital pillar of national development.
Image – Orange Corner Program, Baghdad (Photo by KAPITA Business Hub)
