Background
In the past few years, Iraq has stood out as one of the most economically promising but frequently overlooked investment opportunities in the world. In 2012, Iraq’s GDP growth stood at 9.3 percent, the sixth fastest in the world, and its economic prowess only stands to improve. The World Bank’s 2013-2015 projected compound annual growth rate of 12.23 percent would make Iraq the second fastest growing economy. Financial institutions similarly echo this optimisml: Bank of America Merrill Lynch thinks the economy can triple in 20 years and Citi Bank sees it reaching $2 trillion by 2050.
Oil dominates the Iraqi economy, accounting for 95 percent of the country’s foreign exchange, but capital flows have created space for other sectors like construction or retail services to grow as well. Public spending is also on the rise. Government spending increased last year by 18 percent to $118 billion, which has created further opportunities for investmentment and job creation. Foreign investment has increased steadily since 2003 ($1.6 billion in 2011), and in Iraq’s Kurdish region in the North, it has surged. At the beginning of this year, Kurdish government officials put FDI at an estimated $5.5 billion, almost half of which comes from the UAE alone. Furthermore, inflation in the country is at 5 percent, low for an emerging or frontier market.
Its transition from a central planned economy to a market economy has invited the both domestic and foreign investment. Since the mid 2000s, Iraq has put in place an increasingly attractive legal framework that provides greater protection and incentives for new investors. As it moves towards the privatization of state owned enterprises and expands its financial and technological capacities, further business opportunities will open up and create an ever more attractive business environment for companies.
History of Investment in Iraq
Up to the 1970s, Iraq’s private sector was making huge leaps and bounds due to the influx of revenue into the economy through oil revenue. However with the onset of the Iraq-Iran War during the 80s, things began to slow down. The 90s saw a huge decrease in basic utilities and infrastructure public needs, such as water and electricity. The daily capita share of drinking water went from 330 litres to 150 litres in Baghdad between 1990 and 2000.
The Invasion of Iraq in 2003 further decreased the supply of water, electricity and sewage systems.
Current Investment Needs
Now, in 2014, there is still a lack of infrastructure widespread throughout Iraq.
- Banking
- Energy: Electricity, Oil, Gas
- Natural Resources (Oil, Lime, Kaoline, Phosphates, Sulphur, Bentonite, Construction Raw Material (brick clay, aggregates))
- Education
- E-Government
- Healthcare
- Religious – Cultural Tourism
- Internet Shopping
- Telecommunications
- Manufacturing
- Recycling
- Transportation
- Food
- Industrial
- Water, Sanitation, Solid Waste
- Landfills
- Recycling
Government Efforts to Support Private Investment
The Government of Iraq (GOI) considers diversification of the economy a core priority for the country, and has thus taken significant measures to facilitate private investment. Currently, there are several bodies in Iraq that work towards promoting domestic and foreign investment in the country: the Trade Bank of Iraq, the Iraq Investment Promotion Agency, and the National and Provincial Investment Commissions. The Trade Bank of Iraq seeks to create a modern banking sector in the country and reinvigorate its economy to compete on a global scale and the Investment Promotion Agency encourages and advises companies on the business environment in Iraq.
The National Investment Commission (NIC) is a convenient one-stop shop for all business procedures so that companies can go to one place for information, contract approval, and registration. It also formulates national policy and establishes plans and controls and deals with investment projects at the federal level. In addition to the NIC, each of Iraq’s 15 governorates under the central government have a Provincial Investment Commission (PIC), which play the same role but for each province. Iraqi Kurdistan, accounting for the 3 other governorates, established the Kurdistan Board of Investment (KBOI) which encourages and manages investments in the region. Latest figures from 2013 report that more than 500 projects were approved. Companies that do not wish to receive additional benefits can pursue an investment license without the oversight of the KBOI and work directly with the Ministry in question.
The government has also updated its information technology systems to facilitate the various business procedures. It has initiated training programs for locals to build entrepreneurial and professional capacity. The GOI continues to build relationships with civil society actors to coordinate further business development in the country.
Investor-friendly legislation
Several laws have been passed to attract foreign investors to Iraq. In 2006, Investment Law No.13 was approved by parliament, and came into effect in 2007. It offers the following benefits towards new investors:
- Investors can exchange bonds and shares listed in the Iraqi Stock Exchange Market and create investment portfolios.
- Investments receive a ten-year exemption from Iraqi fees and taxes, that can be renewed upon expiration.
- Accounts in banks both in Iraq and outside of the country can be opened in Iraqi Dinar or a different currency.
- Profit and capital entering Iraq can be repatriated in hard currency.
- Investors can enter and leave the country with ease, as well as obtain assistance with obtaining residency.
- Investments cannot be nationalized or confiscated.
- Foreigners’ salaries and indemnities may be moved outside of the country.
- Tourist, health, and scientific investments are granted added exemptions from import duties and taxes.
- Non-Iraqis may own land for housing projects
- Investment Commissions may form in governorates to address certain projects and perform duties effectively
- The government may specify and restrict lands that are owned by the government to the national Investment Commission so that they are used for investment purposes
- Foreign investors may repatriate capital brought into Iraq, and any profits earned
- Investors may employ foreign labor
- Investors may insure projects with any foreign or Iraqi insurance company
- Investors may reside in Iraq
- Investors are allowed unimpeded entry and exit from Iraq
- Investors are allowed to trade shares and bonds listed on the Iraqi Stock Exchange, and form investment portfolios.
- Investors are allowed to lease land up to 50 years, subject to renewal
- Investment Projects are protected from nationalization of any part of the project unless there is a legal sentence brought against the project
In 2010, the law was expanded to allow foreigners the rights to land ownership in the country, as long as the land was used towards developing residential real estate projects. Further departments were established within the NIC to assist with the clarification of land use problems. By joining the International Investment Guarantee Agreements, the government has also guaranteed investors additional protection.
Laws in Iraqi Kurdistan differ. The region is regulated by Law 4 of 2006, whose Article 5 also exempts new investors from customs-related duties and fees for an initial period of ten years. It also allows for lax import taxes on various investment parts for a shorter time frame. Foreign investors are allowed to own land in Kurdistan if the economic and environmental aspects of the project are deemed to be of “strategic status.” Full repatriation of profits from the project are also allowed.
Iraq is also signatory to the League of Arab States Convention on Commercial Arbitration (1987) and the Riyadh Convention on Judicial Cooperation (1983). The First Commercial Court of Iraq was formed in 2010 to assist with dispute resolution related to business matters.
Bilateral Investment Agreements
Iraq has 35 bilateral and nine multilateral agreements with countries around the world, the most recent of which was signed with France, Germany and Italy. Most of its agreements are with the Arab League, but in addition to this, the country has pacts with India, Iran, Japan, Jordan, Kuwait, Mauritania, Republic of Korea, Sri Lanka, Syria, Tunisia, Turkey, the United Kingdom, Vietnam and Yemen. Iraq has Free Trade Agreements with Algeria, UAE, Oman, Qatar, Algeria, Egypt, Jordan, Lebanon, Syria, Tunisia, Yemen, and Sudan. It also took steps to sign a Trade and Investment Framework Agreement (TIFA) with the United States in 2005 as a first step towards encouraging greater economic activity between the two countries.
Free Trade Zones
Iraq currently has three trade zones in the areas of Basra/Khor al-Zubair, Ninewa/Falfel, and Sulaymaniyah. In these free trade zones, capital and profits are exempt from all taxes and fees for the length of the project duration. The following activities are allowed in these free zones: industrial, storage and trading, service and transport, banking, insurance, and auxiliary professional activities.
The Basra/Khor al-Zubair zone is 40 miles southwest of Basrah on the Arab Gulf at the Khor al-Zubair seaport. The Ninewa/Falafel zone is located in the northern part of the country, near the Turkey, Syria, Jordan and the Basrah ports. The Sulaymaniyah zone is located in Iraqi Kurdistan in the north. The al-Qa‘im zone is on the Syrian border.
Contact IRFAD today to learn more about investment opportunities in Iraq.