IRAQ COUNTRY PROFILE
Key Facts
Location: Middle East, bordering the Persian Gulf, between Iran and Kuwait
Capital city: Baghdad
Total Area: 438,317 sq km
Population: 28,945,657 (July 2009 est.)
Currency: Iraqi dinar
GDP: $103.9bn (2008 est.)
GDP Growth rate: 7.8 per cent (2008 est.)
Languages: Arabic (official), English widely understood
Ethnic make-up: Arab 75 per cent -80 per cent, Kurdish 15 per cent - 20 per cent, Turkoman, Assyrian, or other 5 per cent
Religions: Muslim 97 per cent, Christian or other 3 per cent
Introduction
A decrease in the number of insurgent attacks coupled with an improving security picture in many parts of the country are helping to raise economic activity levels. Iraq's economy is dominated by oil, which has historically provided over 90 per cent of foreign exchange earnings. Government revenues have benefited from high oil prices in recent years but revenues have declined since the oil price drop 2008.
Iraq is making some significant progress in building the institutions needed to implement economic policy. In March 2009 it finished a Stand-By Arrangement (SBA) with the IMF that details key economic reforms. This allows an 80 per cent reduction of the debt owed to Paris Club creditor nations. The International Compact with Iraq was established in May 2007 to integrate Iraq into the regional and global economy, and the Iraqi government is seeking to pass laws to strengthen its economy. This includes a hydrocarbon law to establish a modern legal framework to allow Iraq to develop its resources and a revenue sharing law to equitably divide oil revenues.
Some foreign entities have expressed interest in regenerating Iraq's industrial sector. The government of Iraq is following a strategy to gain foreign participation in joint ventures with State-owned enterprises. Provincial councils are also using budgets to promote investment at the local level. Iraq's challenge will be to use macroeconomic gains to improve the lives of Iraqis. Reducing corruption and bringing about structural reforms, such as bank restructuring and developing the private sector, will be vital to economic success. Moreover, oil exports will continue to drive government spending and finance nearly all infrastructure development. Although the private sector is quite small, there are, it would seem, sufficient resources in private hands to fuel demand for all types of consumer products. In addition, there are communities of expatriate Iraqis in neighbouring countries and Europe who are looking for business and investment opportunities in thr country.
Investment climate and opportunities
Iraq is a market with strong long-term economic potential and could quite foreseeable represent a huge export potential for UK businesses. Recent security gains have enabled the Government to move its focus towards economic development but further efforts will be required to produce a business climate conducive for foreign firms. Trade between the UK and Iraq increased in 2008, with the UK exporting £156m worth of goods, up from £133m in 2007
Despite security improvements, security is still a serious concern for domestic and international businesses. Corruption and the shortcomings of regulatory structures and legal protections will continue to be major issues. But there has been a sharp decline in sectarian violence and acts of terrorism throughout Iraq in 2008 and this has coincided with an increased interest in business opportunities. This could be a signal for seasoned exporters and investors to pursue the business opportunities in Iraq that undoubtedly exist in almost every sector. Indeed, after decades of mismanagement, sanctions, and war, Iraq’s reconstruction and regeneration needs are huge. Considering Iraq’s wealth and oil revenues, this is likely to be among the fastest growing mid-sized markets in the world.
Key sectors for exporters
Power
Water
Health
Telecommunications
Oil and gas
Construction
Education
Sectors up-close
Construction
The Iraqi housing sector is in need of huge capital investment, after more than a decade of UN-imposed sanctions, which resulted in population displacement, internal and external migration, and inadequate maintenance and renovation. Right now there is a shortage of 1 to 1.5 million housing units. The housing sector has a need and opportunity to liberalise, and the private sector should become the main provider of housing after the Government of Iraq has led reform and early investments. Historically, 80-90 per cent of housing in Iraq was provided by the private sector but the effects of war and sanctions required the Government of Iraq to oversee housing. Stimulation of the housing sector will improve social conditions, economic growth, and employment.
Electricity
The effects of war, insurgency, neglect, and 30 years of mismanagement left Iraq with an electric power infrastructure that meets just over half of the total electricity demand. The Ministry of Electricity, which operates the national power grid, has begun a massive construction and rehabilitation program, which included the purchase of nearly $3bn of gas turbine generators and related services from General Electric, and over $2bn in further capacity from other suppliers; this will be delivered and installed over the next five years in a move that will double the country’s electrical capacity.
With these machines in the delivery queue, the Ministry will need to engage service providers to help design, construct and install the power stations to host these generators. It will also need to upgrade the transmission network. Ultimately, the Ministry will need the services of the utility support industry to employ the latest technologies. Iraq’s power sector is set to be a growth industry for years to come.
Building materials
Reconstruction, repair, and construction have created a massive demand for cement and construction equipment. Estimates for the amount of new materials needed to rebuild Iraq after two wars and years of mismanagement range up to $400bn. Materials are required in reconstructing the country’s power and water facilities, bridges, roads, housing, schools, ports, airports and other infrastructure. Demand for cement outpaces the current capacity of the seventeen state-owned cement factories in Iraq. In response to this huge demand the government plans to build new and refurbish existing factories. The Ministry of Industry and Minerals has granted nineteen licenses for new private sector cement factories. This is one of the largest private sector initiatives since 2003, valued at $3bn. Current annual cement production is currently only meeting twenty per cent of demand, with imports of construction equipment and materials filling the gap. Demand is estimated to be thirty million tons annually over the next ten years.
