Iraq is a country that is rich in history and culture. Known in ancient times as Mesopotamia, it is traversed by the Euphrates and Tigris Rivers and boasts geography of mostly desert, with mountains in the north and fertile plains in the south. It has borders with Turkey, Iran, Kuwait, Saudi Arabia, Jordan and Syria. Iraq is a federal republic with a President as Head of State and a Prime Minister as head of the executive who presides over the Council of Ministers. The Council of Representatives is the primary legislative body, with Members being elected by the Iraqi people every four years. Iraq’s third democratic elections took place on 7 March 2010 though it was not until December that a new government was formed, headed by Prime Minister Nouri al-Maliki.
As the country continues to rebuild its economy following years of war and insurgency, business opportunities for overseas businesses are increasing. And whilst not an easy market in which to do business, many British companies are looking with a growing interest at Iraqi prospects. Businesses looking to do business in Iraq should also refer to our page for Iraqi Kurdistan (also referred to as the Kurdistan Regional Government, KRG), the quasi-autonomous region in the north of the country which is governed by a separate political system and set of investment laws. Travel to Iraqi Kurdistan is relatively easy and safe.
Iraq is a resource rich country with a national budget underpinned by oil revenues.
There is a very positive perception of the quality of British goods and services. There is a history of educational attainment in Iraq and it is possible to find well educated staff. In addition, there is a strong desire on the part of most Iraqis (including key Government figures) for positive change and to improve the security situation so that economic benefits can flow
There are inevitably a number of challenges to doing business in Iraq and some of these are listed below:
- Travel: getting about is difficult and this is largely related to the security situation. But do not rely on public transport.
- Security: make sure that you are aware of the latest security advice pertaining to the place you are visiting (via www.fco.gov.uk) as well as advice from whichever private security company you employ;
- Communications: the communications infrastructure in Iraq is very fragile. There are few telephone land lines (most people rely of mobile telecommunications) and internet penetration is low.
- Getting paid: it is important to agree payment terms in good time. If you can arrange a letter of credit then so much the better. It is not unusual for payments to be delayed.
- Operating environment: given that the country has come a long way in a short time, it is not always the case that rules, regulations, or laws have caught up with common (or indeed acceptable international) practice.
Opportunities in Iraq
There are a wide range of opportunities available in Iraq to companies who are not looking for a quick return on their investment and who have the patience to overcome bureaucratic hurdles. As a consequence of years running a centrally controlled economy, many of the business opportunities exist with the Government of Iraq (GoI) which is responsible for over 200 state owned enterprises.
The fairly recent move from a centrally controlled economy to one that is market based, has meant that many of the structures in place in other markets to facilitate business are not present in Iraq. And there is often a lack of rules and regulations or, where they do exist, they are often open to differing interpretations.
Companies need to understand too the lack of capacity in many of the Iraqi Government Ministries and that due to poor communications infrastructure in particular, things often take longer here to reach a conclusion than in many other places.
There is a private sector developing in Iraq but it is currently quite small. Arguably business can be done more easily in the north of the country (KRG), not least because of the ease of getting around given the much better security situation there. But people wishing to do business in Iraq need to be mindful not only of the security situation but also of the broader operating environment in which there is often a lack of clarity in any rules and regulations that might exist, sporadic and unpredictable implementation of those rules and regulations, and a not insignificant level of corruption. But business is being done here as Iraq needs to re-build its economy on so many levels. Particular sectors of opportunity include:
- Housing & construction
- Oil and gas
- Power generation
- Financial services
- Retail (in the Kurdistan Region)
Gateways/Locations – Key areas for business
Baghdad: the capital of Iraq is the seat of power for the Government. It is also the centre for the banking, business, administration, and government.
Basra: in the south, is where more than 70% of Iraq’s oil is produced and from where 80% of the country’s crude oil is exported. The state owned enterprise responsible for the southern oil fields is the Southern Oil Company (SOC) based in Basra.
Erbil (KRG): in the north is the centre of the semi-autonomous region that is the KRG. It is relatively stable and the security situation is much better than in the rest of Iraq. The region is rich in natural resources and has a strong agricultural sector. The Region is gradually becoming the retail hub of Iraq and construction is booming.
UK companies wishing to enter this market must be prepared to devote time and energy to their endeavours and have patience! Iraq is not a market for the novice or undercapitalised exporter.
The average deal can take 3-6 months to come to a conclusion (sometimes up to 2 years or beyond) due to slow decision making process within government Ministries/entities.
The three main routes to access business opportunities in Iraq are likely to be:
- companies enter negotiation directly with state entities
- companies use a representative agent with experience in Iraq
- companies enter into a joint venture/partnership arrangements with local Iraqi businesses
Iraq’s economy is enjoying substantial growth following years of violence in the wake of the invasion of Iraq in 2003. According to the IMF, thanks to the rapid rise in oil production over recent years ‘Iraq has achieved a rise in GDP per capita from $1,300 in 2004 to $6,300 in 2012 in a very difficult security and political context’. Inflation was held to 6% in 2012 and is expected to reduce in 2013. The IMF also remain highly optimistic for Iraq’s growth prospects, with GDP growth in 2012 reaching 8.4% and predicting that it could reach 9% in 2013 as production reaches 3.3 million barrels per day (mbpd). Iraq is now the second-largest producer of crude oil and has the fifth-largest proven crude oil reserves in the world.
However, Iraq must also overcome a serious set of challenges if its economy is to sustain long-term growth. Key issues include institutional reform, addressing corruption, investing in infrastructure and consolidating political and security reforms. The IMF have said the government also need to better control state spending, improve banking oversights and liberalise the foreign exchange market.
Please contact the MEA directly for contacts in Iraq.