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Investments in Iraq: Opportunities Risks VS rewards

Dr. Mostafa Al Bazergan

Monday, 15 June 2009 12:40

The Iraqi British Business& Investment Council was formed in 2004. As the founder and chairman of the council I am proud of the contribution we have made in helping to rebuild Iraq.

In November 2004 the IBBIC hosted a rebuilding Iraq conference in Amman Jordan , in which the Iraqi British Business Women Forum was formed.

Over the years the IBBIC and IBBWF have played pivotal roles at a number of rebuilding Iraq conferences, trade fairs, events and meetings in Amman, Dubai, Bahrain, Sharjah and London.

With renewed vigour and effort the IBBIC and IBBWF have set clear and challenging targets to help in the development of varying economic sectors in Iraq through foreign investment and initiatives.

The IBBIC will also provide information about the key sectors for foreign direct investment and seek to generate partnerships between UK, international and Iraqi businesses

I have the utmost confidence that events such as today will provide a stepping stone to a journey of success. It is intended that an event of this type will be held on a quarterly basis.

As an Iraqi professional it is my privilege to advise you that one of the best assets Iraq has is it’s human resource coupled with the zeal and enthusiasm to rebuild the country that has been described as the cradle of civilisation.

- 2008 was viewed amongst many as the year of improving security and imposing law in Iraq. This led to a rise in economic activity and oil production.
- 2009 promises to be a year of opportunities for foreign investors and continued prosperity for Iraq.

The economic future of Iraq looks bright due to the ingredients of success it has in its strategic position, human and material wealth.

The Banking and financial sector

The economic progress achieved recently, included strengthening the role of the Central Bank and the restructuring of two state-owned banks, as well as reducing the annual rate of inflation in Iraq.

Iraqi banks made advancements in using modern techniques and sophisticated regulations in banking services to prepare for the construction and development programmes . The banking sector is also seeking to apply international standards.

Unemployment has decreased from approximately 75 % of the work force in 2003 to an estimated 19 % in 2008 that may sound like a high level, but is a considerable improvement on what it was.

The Iraqi and British authorities stressed the need to develop economic relations between the two countries. Iraq expects progress through a number of planned initiatives and Organisations such the Iraqi Investment Promotion Agency ( IIPA) – the (IBBIC), and the (IBBWF).

The Iraqi authorities program aimed to allocate resources towards investment, including the oil sector, and to improve the provision of public services, while containing current government spending, notably on the wage and pension bill. The program, which envisages an increase in economic growth, a further reduction in inflation, and an increase in net international reserves, will also encompass priority structural reforms, including actions to strengthen administrative capacity and governance and to support efforts to fight Corruption .

Oil & Gas Sector

In Iraq the oil sector is by far the largest output sector followed by agriculture.

The oil and gas industry has played a significant role in Iraq’s economy throughout its modern history and it will continue to do so in the foreseeable future as the Iraqi economy stabilises and grows.

The Oil and Gas sector will eventually need more than 45 Billion US Dollars worth of investment over the next 6 years.

Considerable opportunities can be expected for the next few years particularly in the area of exploration.

Iraq has the world’s second largest proven oil reserves at 112.5 million barrels, but actual reserves could be more than double the amount.

A revised assessments indicated that Iraq has the worlds largest proven oil reserves, with as much as 350 Billion barrels. This figure exceeds that of Saudi Arabia’s estimated 264 Billion barrels of Oil. Whatever the estimates, it is clear the potential for reserve additions and sustained production growth is exceptional. Large areas of Iraq remain relatively under- explored.

Iraq’s proven natural gas reserves are estimated to 112 trillion cubic feet, the country’s potential could be much higher”.Here I recommend you to read Dr. Carole Nakhle important study ( Iraqs Oil future: Finding the right Framework)) .

I reiterate that the long term prospects for the Iraqi oil industry are excellent given the huge oil reserves and generally low production costs, Iraq is on track to become one of the worlds top oil producers with in the next few years.

Hydrocarbon Law

An amended copy of a draft of the Iraq hydrocarbon law sets out a new model for production sharing agreement (PSA) with western companies

The new draft law recommends the Iraqi government sign Development and Production Contracts (DPC), along with service or risk production contracts with foreign companies to upgrade the country’s war ravaged oil industry. Iraq’s hydrocarbon law is crucial as a basis for international oil companies to begin discussions on investing in the country’s under invested and run-down oil sector, and to generate much needed reconstruction revenues.

There are strong expectations that the Iraqi Parliament will approve the Iraqi Oil Law this year, which has been approved by the Iraqi Government. This will increase investment opportunities to improve the Iraqi oil sector

Commercial Law

Iraq’s commercial law framework is comprehensive and sophisticated. Laws cover such issues as company formation, registration and dissolution, contracts, dispute resolution, banking and charging of interest, as well as governing the establishment of representative offices and the appointment of agents by foreign companies. The majority of these laws are still in force.

The Investment Law
Sustainable economic growth and creation of new jobs for Iraqis depends on reintegration in the global economy and the implementation of policies to win investor confidence.

Under Iraqi investment law, Iraqi and foreign investors will have the same ownership rights except in owning land.

The Iraq investment promotion Agency (IIPA)
IIPA was launched to encourage domestic and international investment in the Iraqi economy.
The IIPA will play a leading role in Job creation and economic development.

The Business Visa
Iraq has announced plans to speed up its visa process for foreign investors and tourists.
The procedure will take only one day and be straightforward.
The applicant, if he is an investor can obtain a visa for 3 months, which will be renewable.

IMF World Bank

The World Bank, the IMF and other global partners are working in partnership with the Iraqi authorities.

The International Monetary Fund praised Iraq for its success in promoting economic stability, particularly in stabilising exchange rates. The IMF expected Iraq’s GDP to grow by 7 or 8% in 2009.

Representatives of the World Bank Group’s board and senior management visited Iraq recently and discussed the country’s investment potential and undersline the group commitment to assisting in Iraq’s sustainable economic recovery.

WTO

Iraq was granted observer status in the World Trade Organisation in 2004. The Iraqi government expressed its desire to strengthen its cooperation with the WTO . Iraq has opened negotiations for accession to the WTO.

The Iraqi Budget

Almost 95 percent of Iraq's revenues come from oil exports. The Iraqi government has said that it will have to reduce its 2009 budget to $67 billion from an earlier forecast of $80 billion because of slipping crude prices.
The remaining unspent 2008 budgets will be available as supplementary expenditure for this year.

Iraq's finance minister, said spending would have to be reduced by more than 16 percent, leading to a drop in the money available for rebuilding infrastructure. The minister added that the country figured that it needed almost $400 billion to rebuild and upgrade its infrastructure.
"We must seriously activate foreign investment in Iraq," he said.
Valid Questions:
Doubts range from basic issues about payment and control, to how safe it is for companies to send staff into the country after years of violence.
With spending budgets constrained by the slump in oil prices, the risks involved in Iraq and the lack of clarity on contract terms have got executives worried.

- Now With the recent positive changes in Iraq, including improvements in security, that have opened the prospect of doing business. With a market of 28 million people, considerable wealth, abundant natural resources and decades of under-investment, Iraq provides huge potential for international trade and investment.
The message that I would like to convey to you and your companies is that you should work towards entering the Iraqi economy and utilising the Iraqi expertise in order to take part in rebuilding Iraq and share the risks and rewards.

Also I would like to draw attention to the role Iraqi Women have in rebuilding their country. To emphases this point there has been a surge of activity from
various councils and organisations that have put Iraqi Women at the forefront with their male colleagues attempting to pull the country towards success. As an Iraqi I am both proud and privileged that my Iraqi women are working equally in rebuilding the country.
Later one of my colleagues will talk about our efforts to support Iraqi women.

Thank you for your time, before I vacate this stage I would like to share with you a famous Iraqi saying “If there will be two barrels of Oil left in the World, one of them will be Iraqi”.

The end Of the Session

- The IBBIC would like to extend it’s gratitude to Bob Palmer and hussain Kuba at CMS Cameron McKenna, William Wakeham at AAIB , Graham Thomas at AEGIS , Smith Detections , for sponsoring this event. Also our thanks to Younis hammali of International guides.
- There are some information about investing in Iraq .Any one interested please fill the form in the packs so we can send it to you .
- Regarding Dr. Carole Nekhle study titled ( Iraqs Oil future: Finding the right Framework) due to a limited number of copies available you can add your request to your form and we will send a copy to you (Arabic Or English copy)

* The article is an extract from Dr. Al Bazergan’s Speech At the Iraqi British Business & Investment Council (IBBIC), Seminar On the 21st May 20.

Global Arab Network