At the Invest Iraq conference, held last month in London, a flood of investment projects and opportunities were presented by the Iraqi government to more than 250 foreign investors from British and international companies. The high-profile delegation from Iraq included Prime Minister Nouri al-Maliki, Deputy Prime Minister Barham Salih and officials from Iraq’s various ministries and provincial investment commissions.
This was going to be an all-out team effort because Iraq, quite simply, needs foreign investment and expertise. The country needs a colossal $400 billion worth of infrastructure to meet the basic needs of its population. It needs power plants to generate electricity (electricity rationing still occurs in the country); it needs water systems, new hospitals, schools, transport networks and more than 3.5 million residential units within the next 10 years at a rate of 350,000 per year. The list continues to include agricultural and food production needs.
Falling oil prices mean Iraq is unable to independently fund its reconstruction and is looking to the private sector for funds. It exports a mere 1.8 million barrels per day (bpd), far below potential for a country that has a 119 billion barrel oil reserve (the third largest in the world) and which expects to get 86 percent of its revenue from oil in the coming year. Its desperate need for funds was highlighted by its recent reversal over Kurdish oil exports, now permitted through the country’s national pipeline and into international markets. Oil from the TaqTaq and Tawke oil fields in the Kurdish north should bring in a revenue stream of $5 million per day (at $50 per barrel) from what initially will be exports of 100,00 bpd in June, but which could rise to 250,000 bpd down the line.
At the London conference, Iraq’s oil minister Hussein al Shahristani said the oil industry needs an estimated $50 billion over the next five years to repair and upgrade the oil industry, still suffering from decades of war, sanctions and financial neglect. Still yet to be passed, however, is an oil law that provides for revenue sharing from the production and exploration of Iraq’s oil. Until heated disagreements between Baghdad and Erbil are resolved and the law is passed, foreign investment and expertise will stay away.
But it is not just the oil law that keeps foreign investors away. Corruption is rampant and, as it stands, a foreign investor can take man, machine and money to Iraq only to be prohibited from purchasing land, although the government is attempting to change this. At the London conference investors expressed concern at what they feel is an ambiguous regulatory and legal framework that fails to guarantee, in clear terms, how they will be protected. Foreign investors, for example, can transfer abroad any profit incurred during the course of business, pursuant to Article 11(1) of the Investment Law 2006; however, banks do not open accounts in the name of foreigners and the Companies House does not register shares to foreigners. Of greater concern still is that government agencies and ministries do not always act in accordance with the same law that investors are required to.
The aforementioned obstacles are arguably transitional, and expected in a nascent democratic state recovering from totalitarian rule. The Iraqi government’s 500 different investment projects across the various sectors means serious opportunities exist to stake a claim in the country’s future. More than $10 billion worth of British and international investment deals are currently on the table, and investors from the region and the Gulf states have already stepped into the market.
Moreover, Iraq’s banking sector is dramatically improving. The Trade Bank of Iraq has increased its assets to $10 billion from $2.8 billion in 2006. Iraq needs a stable banking sector if the economy is to reach maximum potential: the country now has six state-owned retail banks and more than 30 private banks, including international bank HSBC. But only 2.7 million Iraqis have bank accounts and persuading Iraqis to trust the banks and part with cash will be the hard task.
It would be premature to maintain that investors should flock to Iraq without hesitation; in addition to the aforementioned issues, security, although improved, is still a matter for consideration. Baghdad has the necessary vision, as illustrated by its decision to contract Lebanese consultants Khatib & Alami to draw up a construction masterplan for the city. The next step is to place greater emphasis on a three-pronged attack that dispels uncertainty not just over Iraq’s economic and investment needs, but also its political and security needs, all interwoven and interdependent on each other.
Ranj Alaaldin is a Ph.D. candidate at the London School of Economics focusing on post-invasion Iraq