Iraq is currently imports 80 percent of food consumed. Despite being situated in what was once the Fertile Crescent of the world, climate conditions, poor resource management, economic sanctions, and political volatility has led to low production yields in recent times. However, Iraq’s agricultural sector is taking steps to modernize. If utilized strategically, Iraq has the potential to become a major agricultural exporter in the region.
Agriculture is Iraq’s largest employer and second largest contributor to GDP (9 to 11 percent) after oil. The total surface area in Iraq is approximately 44 million hectares in size, 9.5 million hectares of which is considered to have agricultural potential. While the northern part of Iraq receives adequate rainfall, the southern half of the country requires irrigation in order for agricultural development to be feasible. The Iraqi National Investment Commission estimates that there is more than 500,000 hectares of land with access to abundant groundwater that is currently unutilized, and larger tracts with the potential to be brought under cultivation with modest expansion of existing irrigation systems. Approximately a third of land fit for agricultural production is owned privately; the rest is managed by the Ministry of Agriculture and leased or granted to farmers. The average size of a farm is small at 12 hectares, and presents opportunities for the introduction of larger-scale commercial farming.
The primary opportunities for investment in Iraq’s agricultural sector are irrigation, seed varieties, fertilizer, agricultural equipment, storage and transport, commercial farming, and agribusiness. Demand is high in these areas, and further investment will greatly contribute to a revitalization of the sector. The development of Iraq’s irrigation systems is perhaps the most crucial factor for the growth of the country’s agricultural sector. The widespread use of climate, soil-specific, and disease resistant seed varieties for crops like wheat and rice can also yield higher quantities and feed a greater portion of Iraqis.
Oil and Gas
Although Iraq has received international attention for its abundant hydrocarbon reserves, oil and natural gas exploitation is still largely underdeveloped. By the end of 2012, Iraq was the second largest oil producer in OPEC, and hosts the fifth largest proven crude oil reserves at 150 billion barrels as well as 126.7 trillion cubic feet of natural gas. Yet, sanctions and wars has meant that the oil industry is still in great need of modernization and investment. An estimated $500 billion from both public and private sources is still needed in this sector for it to be functioning at maximum capacity.
Hydrocarbon industries made up over 70 percent of Iraq’s economy and 95 percent of government revenue in 2007. With the lifting of sanctions in 2003, Iraq has the potential to be completely energy independent, but is lacking the refineries, storage, connectivity, and port capacity to become a full operating system. To achieve the government’s 2016 target production of seven million barrels per day, it will also need to rebalance oil reservoir pressure by reinjecting water, a rare commodity in the country, into the ground at a cost of over $10 billion. Private foreign investment is greatly needed in this area.
Iraq has a huge competitive advantage in oil and gas production compared to other parts of the world rich in hydrocarbon reserves. Iraq’s oil and gas are easy to tap due to their proximity to the earth’s surface, only requiring the drilling of relatively shallow wells. Over a third of Iraq’s oil is only 600 meters below its surface, allowing producers to fill a barrel of oil for under $1.50.
The lack of adequate refining and exporting infrastructure is one of the primary challenges the oil industry in Iraq faces. While the southern oil pipelines have been functioning at full capacity, those in the north have faced numerous barriers related to dilapitation. Pipelines in northern Iraq require massive repair, and metering and pumping facilities at border stations are in need of overhaul.
Iraq’s Kirkuk-Ceyhan is the main export pipeline moving oil from the north of Iraq to Turkey’s port of Ceyahn. Although its capacity is 1.65 million bbl per day, damaged parts of the pipeline has forced oil to be rerouted through functioning parts of the line, limiting flow to the port. Iraq has two other pipelines that have been closed since 2003, the Kirkuk-Banias Pipeline and the Iraq Pipeline to Saudi Arabia, and the government thus far has no plans to return the lines to operation.
In the 1990s, large government investments in housing projects and elaborate public structures created a flourishing industry that was eventually disrupted due to ongoing wars. Besides hydrocarbon development, cement was the only other major industrial product from Iraq. Today, with Iraq’s post-war reconstruction and rising population growth rates, the country is similarly experiencing a massive demand for construction that will need to be fulfilled in the coming decades. Iraq’s population is expected to reach 40 million people by 2025, which provides a great opportunity for the construction sector’s growth.
Real estate has been successful in attracting foreign investment, being the second largest sector for foreign participation after hydrocarbon development. The Ministry of Housing and Construction has developed a ten year housing plan that will build millions of units, estimated at tens of billions of dollars in investment. It expects that 2 million housing units will be needed by 2015, almost all of which will be needed to be completed by the private sector due to lacking government capacity.
The Government of Iraq in 2011 awarded a $8 billion contract to Korean firm Hanwha who was tasked with building a 100,000 housing unit complex in Besmayah. Other major contracts were awarded to UAE, Turkish, Italian, US, and British firms ranging from $45 million to $250 million to create homes, offices, restaurants, and parks throughout the country. The government’s full plan can be seen here [link to: http://www.mofa.gov.iq/documentfiles/InvestmentOverview.pdf].
The economic sanctions imposed on Iraq prior to 2003 meant that the advancement of a telecommunications sector in the country was relatively limited. During that time, a nationwide telecommunications market was absent and the use of fixed-lined phone systems was minimal throughout the country. The telecommunications sector has since turned around, becoming one of the fastest growing markets in the Middle East, with mobile subscription reaching nearly 20 million.
The government in 2003 issued three temporary regional cellular phone licenses that were repackaged and sold as 15 year liscences in 2007. The three liscensed GSM operations are Zain, Asia Cell (Southern, Central, and Northern Iraq) and Korek (Iraqi Kurdistan). Santel and Mobitel also operate in the region. Areas for investment include mobile telephones, (retail service, infrastructure, equipment), fixed line telephone and fiber (repairing and expanding Iraq’s legacy network, and increasing fiber optic connection with its neighbors), and fixed wireless local loop technology. If Iraq’s communications infrastructure was improved upon, more of the country would have easy access to internet services.
Banking and Finance
For a full overview of Iraq’s banking sector, please click here.
Iraq’s banking sector is increasingly becoming attractive to foreign financial institutions. Only an estimated 10-15 percent of Iraqis have banking accounts, exposing great room for growth. ATMs, bank branches, and other basic infrastructure is also severely lacking. Foreign financial institutions have recognized this gap in the country’s market and have begun to take measures to fill this void.
As of July 2013, there were 15 international banks, seven state banks, 23 private lenders, and nine others that operated in Iraq under Islamic guidelines. Recently, Citigroup, JP Morgan, and Stardard Chartered Bank have developed strategies to open branches in Iraq; in fact, a top Citigroup representative reported that the reasoning behind opening offices in Baghdad, Basra, and Erbil was to tap into the $1 trillion of infrastructure spending in Iraq. Citigroup will also finance the construction of an oil and gas pipeline through Jordan. JP Morgan also assisted the GOI with establishing the Trade Bank of Iraq, the country’s largest trade finance institution. In 2011, Morgan Stanley, Goldman Sachs, HSBC, Citigroup, and BNP Paribas were also sending financial specialists to Iraq for advisory work, underwriting, and project finance opportunities.
Today, Iraq’s prime lending rate is only six percent compared to 17 percent in 2008. The Financial Times reports that Iraq’s five largest banks experienced a 207 percent increase in combined net income between 2010 and 2012, and a doubling of earnings per share.