Iraq opens its doors for business
With growth forecast to hit 11.5 per cent this year, investors are finally looking beyond the oil sector.
As populations across the Middle East demand democracy and freedom, Iraq – for so long the region's horror story – looks to be ahead of the game.
The Arab Spring that has swept Iraq's neighbours has coincided with a new-found sense of order in the country under the coalition government. That relative stability offers the prospect of greater prosperity in the region's sleeping giant.
Increased oil production and prices and deals with international oil companies prompted the International Monetary Fund to up its 2011 growth forecast to 11.5 per cent from 7.9 per cent with no let-up next year.
That rate of growth puts Iraq ahead of the famous Bric giants – Brazil, Russia, India and China – and ranks it with plenty of smaller emerging markets courted by Western companies.
What's more, Iraq has a young population of potential consumers, huge infrastructure needs and 115 billion barrels of oil to pay for them.
Roads, ports, airports, water treatment, housing – the list of planned upgrades after years of neglect is huge. Investment spending for the next three years amounts to an estimated $186bn on 2,700 projects.
And the country's relative stability and potential growth offer big opportunities to British companies that get in early to build relationships ahead of their competitors.
That was the message at yesterday's Iraq Britain Business Council summit in London, where more than 200 business people and professionals gathered at the Mansion House.
Hussein al-Uzri, chairman of the Trade Bank of Iraq (TBI), says: "Our democracy is new and is taking root in the sense that if someone is unhappy with the government, they don't say there should be a military coup – and this is very important for us."
TBI was set up soon after the 2003 invasion to finance trade and investment. The bank recorded record profits of $361m for 2010 as increased private sector investment boosted loan demand. Mr Uzri says the government now realises it needs a blossoming private sector to finance, build and operate the infrastructure and services to fulfil its potential as a regional commercial hub.
The Kurdish region is an example of how the private sector can step in. While the rest of the country struggles on with electricity operating five or six hours a day, the private Kurdish energy company has electricity flowing almost 24 hours a day.
The major British success story in Iraq is BP's deal, signed in late 2009, to develop the giant Rumaila oil field with its 16 billion-barrel capacity. Along with China's CNPC, BP will pump $15bn into the field over the next 20 years to boost production.
Other big UK companies operating in Iraq include the banks Standard Chartered and HSBC.
BP's deal capitalises on Iraq's greatest asset – energy. The country's plans to capitalise on its huge oil and gas reserves will dominate Iraq's growth story and present big opportunities for Britain's energy sector as well as the bankers, lawyers and consultants that work on such projects.
But the conference heard that oil can be a danger as well as a benefit by leaving an economy unbalanced.
Andrew Nevin, a strategy consultant at PwC, says: "The size of Iraq's economy should be between $500bn and $1 trillion in 10 to 15 years. The aspiration is there and it's attainable.
"Countries need to think carefully about their economies. If you are wholly dependent on one commodity – oil – you feel good at the moment because prices are high but it creates challenges in creating a healthy economy and society."
Mr Nevin and others at the conference argue that agriculture (wheat production almost doubled last year), mining, and services – from restaurants to the professions – should all be on Iraq's list of industries to encourage. Mr Uzri says tourism could be a major industry because Iraq has thousands of historic sites.
However, despite the country's improved prospects, it faces problems.
A key factor in the renewed stability is improved security. Compared with three or four years ago, civilian casualties are down 90 per cent. But the threat continues and last year 20 central bank staff and 26 people were killed in separate attacks.
The financial system also remains underdeveloped – only about 15 per cent of Iraqis have bank accounts and staff at big international companies are still paid in cash. Access to capital markets for funding major projects is still negligible and there is no significant mortgage lending to help finance the two million homes Iraq needs to to plug a housing gap.
Iraq is also still rife with bribery and bureaucracy. It ranks 153rd out of 183 countries in the world for ease of doing business and is near the bottom in the rankings for corruption.
Chris Frost, a consultant at PwC, says: "For foreign companies, there are still enormous challenges but the Iraqis are tackling them. They need regulation, legislation and a rule of law that works. Dealing with the bureaucracy of government requires enormous patience but I'm hearing that if you are patient the system works and you can get things done quicker than you'd think."
But if companies smaller than BP and the big banks want to tap into Iraq, they cannot afford to wait until everything is sorted out. There are plenty of German, Scandinavian and French businesses there putting down roots already.
An executive from a large UK-based multinational warned the conference: "Many of your international competitors are in Iraq doing business and Britain is in danger of being left behind if it isn't in Iraq."
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