By Ranj Alaaldin. Source: Guardian Comment is Free
Iraq is hungry for investment. That was the message from the Invest Iraq conference in London last week, which brought together more than 250 British and international firms and more than 100 Iraq-based companies, plus officials from an array of ministries and provincial investment commissions.
The event was attended by Iraq's prime minister, Nouri al-Maliki, and deputy prime minister Barham Salih as part of an official visit in which an agreement guaranteeing greater economic co-operation between the UK and Iraq was concluded.
Having been in Iraq a few days before it all kicked off, I witnessed at first hand the logistical and security nightmare it caused for the British Department for International Development. On the Iraqi side, Salar Ameen, vice-chairman of the Iraqi National Investment Commission, bore the complaints and continuous calls from Iraqi companies wanting a place on the flight to London. Sitting in his Baghdad office, I saw him meet within a few hours six foreign business delegations from Turks to Americans to the Japanese, all wanting to do business in Iraq. Ameen, who speaks English as well as all the regional languages, told me this was actually a quiet day for him. "I sometimes see more than 10 delegations a day," he said.
The frenzy of activity might suggest that pounds and dollars will effortlessly start pouring into a country where decades of authoritarian rule, UN sanctions, and countless wars have left a fragile infrastructure in need of rapid regeneration. Not quite.
Iraq is a country of painful paradox. Iraqis are now optimistic about the future but at the same time uncertain about it. At the American University of Iraq, based in Kurdish Sulaimani and founded by Dr Barham Salih, I spoke to a group of Iraqi friends from Sunni, Shia, Kurdish and Turkomen backgrounds. Yet despite integration within the country's diverse communities there is still insufficient political reconciliation.
Investment in Iraq is no different. There is huge potential but an ambiguous regulatory and legal framework. Concerns raised at the London conference include an investment law that fails to stipulate in reassuring terms how foreigners will be protected. For example, Article 11 (1) of the Investment Law 2006 states that investors can transfer abroad any profit incurred during the course of business. However, banks do not open accounts in the name of foreigners, while Companies House in Iraq does not register shares to foreigners. Government agencies and ministries do not always act in accordance with the same law, making the whole notion of investment doomed at the outset.
As it stands, foreign investors in Iraq are unable to purchase land – although land may be leased for 50 years – and face an unreliable environment where, despite recent improvements, the security factor still looms large.
In the Kurdistan region, foreigners can purchase land, enjoy tax breaks as in the rest of Iraq, and can withdraw revenue and profits in their entirety. The region is secure and can act as a gateway to the rest of the country. Both the Kurdish north and the rest of Iraq, however, are still plagued with the problems of bureaucracy and corruption. In 2008 Iraq was rated as one of the world's most corrupt countries – ahead of only Somalia and Burma – and its key ministries of oil and trade have been cited as some of the most corrupt.
Despite these obstacles, there are serious opportunities for investors. The Iraqi National Investment Commission presented more than 500 investment projects across the various sectors, while $10bn worth of British and international investment deals are currently on the table (it is unclear how many of these will be realised). Investment by British firms in Iraq so far amounts to £600m and in 2008 the UK exported £156m worth of goods to the country.
Among the sectors being assessed at the conference, from telecommunications to transport, it was the housing sector that stood out as the most attractive. Iraq needs more than 3.5m residential units within the next 10 years at a rate of 350,000 per year. The attraction for cautious investors is that newly built units can be sold, marking the end of a fruitful project. In other sectors, decades of continuous effort and commitment are required in a volatile political, economic and security environment. Housing by itself will also help to revitalise other sectors because it requires cement plants, steel mills and labour, among other things.
The call for foreign investment and strengthening of the private sector has become louder since the fall in oil prices forced the government to cut its overall budget by nearly a quarter to about $60bn (the country expects to get 86% of its revenue from oil in the coming year). In short, Iraq cannot yet fund its own reconstruction. Although the Trade Bank of Iraq has seen its assets rise to $10bn from $2.8bn in 2006, the country requires at least $400bn worth of investment to meet the basic needs of its population. The investment commission itself admits that it cannot pay for the projects directly and that it will instead guarantee payment at a later date.
The decayed oil industry, with its poor equipment and maintenance, also needs investment. Iraq has a 119bn-barrel oil reserve, making it the third largest in the world. But oil is a murky issue given that the country is yet to pass a law that shares the country's resources among its provinces. Oil minister Hussain Shahristani maintained that this impediment would be circumvented by individually ratifying any contract that depended on the law. This, however, was a weak attempt to allay concerns, given that such a manoeuvre would be subject to endless constitutional challenges.
Private foreign investment in Iraq comes predominantly from the Gulf states and the Middle East. Elsewhere, the cautious will wait and see, while the brave will enter, adapt and possibly reap the benefits – at what cost no one knows. With almost every question in the conference audience coming from Iraqis themselves rather than foreign investors, it seems that at this stage it is about dispelling unease and uncertainty; it is about giving impetus to the idea of investing in Iraq and preparing the ground for the flood of investors hesitating to penetrate a market plagued for so long, but yet still very rich.
This article was originally published on Comment is Free at http://www.guardian.co.uk/commentisfree/2009/may/09/iraq-invest-conference