Friday, January 11, 2013

Iraq Unique Investment Opportunity

Nine years after the US-led coalition toppled Saddam Hussein there are signs that companies are moving to long-term investments in Iraq.

A clear indication of the trade build up between Iraq and other Gulf countries is that some GCC members, such as Kuwait, want Iraq to join the bloc. Currently the UAE is Iraq’s primary trading partner with total 2012 trade estimated to reach up to $7 billion, up more than seven per cent on 2011.
In spite of the negatives, Iraq is one of the world’s fastest growing economies with double digit GDP growth predicted over the next three years. The federal budget is expected to reach $120 billion in 2013 and increasing steadily up to $200 billion by 2015, allowing a continuing high level of government spending to improve infrastructure and boost oil exports.
Eighteen international oil companies are already committed to multi-billion dollar investments in central and southern Iraq that are designed to treble the country’s oil production and create a new gas industry.
Kuwait Energy joined this effort in May last year after winning exploration rights in a 900 square kilometre block in Basra province. Sharjah-based Crescent Petroleum with its affiliate Dana Gas is already implementing an $850 million project in Kurdistan to process 300 million cubic feet of gas a day that will feed two power plants designed to generate 1,250 megawatts.
Growing business prospects are reflected in the increase of scheduled flights to and from Iraq and the Gulf.
Even though large parts of Iraq are still off limits, according to the advice of many foreign embassies, the security situation in Kurdistan is stable. This has led to a considerable increase in visitors to northern Iraq and new airport developments in Sulaymaniyah, Erbil and Dohuk.
Iraq as a whole though remains a difficult environment for doing business. Public services have still to be adequately restored and there
are continuing security concerns. A bureaucratic labyrinth has created structural inefficiencies that are reflected in administrative delays and corruption.

Nevertheless, shrewd investors have recognised the potential. Iraq’s mobile telephony market has proved a big draw for Gulf investors such as Qatar’s QTel. Last June the company said it intended to raise its shareholding in Asiacell, one of the top three cellular operators in Iraq, to 60 per cent for $1.47 billion.
Another leading operator is Zain Iraq, a subsidiary of Kuwait’s Zain group while Kuwait’s logistics operator Agility is also a principal shareholder in the Korek mobile telephone company.
Despite disputes with the regulator over delayed stock markets listing, the mobile investments have proved very successful and encouraging new fourth generation mobile technologies to be rolled out to serve a market that is not yet fully penetrated.


There are a growing number of significant Gulf investments in other sectors. Gulftainer is providing logistics links throughout the country from Zakho on the Turkish border in the north to Umm Qasr on the Gulf coast.
In 2010, the Sharjah-based company was awarded the concession to operate a berth at Umm Qasr port and to develop, operate and complete construction of the planned Iraq container terminal north of the port on a 750,000 square metre site designated Umm Qasr Logistics City.
“It’s a massive market. There are barriers to entry right now, but in five years the situation will get better and it will be the prime market in the region along with the UAE, Qatar and Saudi Arabia,” Al Assam believes.
Evidence of this came last October, when the ministry concluded a memorandum of understanding with Dubai’s Emaar Properties to jointly develop residential, commercial and tourism projects in Iraq.
Iraq needs millions of new homes, which will require both public and private sector involvement. According to Emaar Properties MD, Ahmad Al Matroushi, “Iraq is one of the promising emerging markets in the Middle East and our partnership complements our strategic goal to expand to key international markets.”
In addition, Abu Dhabi’s Bloom Properties and Dubai’s Damac have recently signed initial agreements for construction projects in Iraq potentially valued at $7 billion.
Bloom is looking to develop both commercial and residential projects, as well as schools and sports facilities. Damac, which is reported to have already acquired two plots of land in Baghdad, is expected to focus on commercial and residential developments as well in and around the capital.
Earlier in 2012, the Iraq government appointed Bloom as prime developer for a project in Karbala province involving building schools, a university, hospital and clinics, hotels, retail areas, and recreational facilities in addition to up to 40,000 homes.
Bloom Properties CEO Simon Azzam believes that “Iraq is clearly one of the most important destinations that we have scheduled for growth,” while Damac’s chairman Hussain Sajwani describes the group’s Iraq move as representing “a significant agreement.”
The hospitality area is also a growing investment. Abu Dhabi-based Rotana is managing a property in Erbil and has signed an agreement to manage two more 200-room five-star hotels in Erbil. The company has also opened a hotel in Baghdad’s international green zone.
Dubai’s Range Hospitality, which focuses on developments around religious sites, is building the $100 million Al Rawdatain Gardens 644-room hotel project in Karbala. Range’s chief executive Munaf Ali says, “We originally raised the seed capital early in 2010 and we were massively oversubscribed, even in this economic environment.”


More than 50 Kuwait companies are preparing to invest in a variety of Iraqi sectors including agriculture, industry and real estate, according to Ali al-Muamman the emirate’s ambassador to Iraq.
For instance, Kuwait’s Safir Hotels & Resorts is also developing a hotel project in Karbala and has plans to manage a 500-room hotel in Najaf.
This reflects a thaw in bilateral relations since the emir of Kuwait, Sheikh Sultan al-Ahmad al-Sabah, paid the first head of state visit to Iraq in 25 years during the Arab League summit at the end of March.
Reparation issues accruing to the invasion of Kuwait in 1990 and aviation disputes have prevented links developing. The haggling is not over since Kuwait is still owed some $22 billion by Iraq. The long-running and still unresolved dispute has resulted in international legal action, which has prevented Iraqi Airways flying to Europe without the risk that its aircraft will be impounded.
Kuwait Airways Corporation has been seeking $1.2 billion in compensation for 10 aircraft taken during the 1990 invasion. Iraq has offered $300 million to the carrier and an additional $200 towards establishing a joint Iraq-Kuwait airline.
Saudi Arabia has also taken the decision to re-open the gas pipeline that runs from the Gulf coast to Yanbu on the Red Sea. The pipeline is able to transport 1.6 million barrels-a-day of oil and was built with Iraqi funds to carry the latter’s crude during its war with Iran in the 1980s.
The decision taken unilaterally by Riyadh is strategic in light of tensions in the region but also reportedly in compensation for $30 billion of outstanding Iraq debts. In spite of this the two countries seem to be seeking to put relations on a better footing. Saudi Arabia named an ambassador to Iraq this year though Fahd Al Zaid, who is also envoy to Jordan, will continue to reside in Amman.
The UAE is the only Gulf state to have written off Iraqi debts. Following the cancellation of $7 billion of Iraq debts in 2008, the emirates decided earlier this year to write off a further $5.8 billion. The move seems to have opened a door to an increase in bilateral trade and investment in Iraq.
Clearly it is not a country for faint- hearted investors, but certainly not one to be ignored. “On paper it is probably the most difficult market to operate in and it does have its challenges. But it is also the most lucrative and if you know how to go about doing business there, it’s not as difficult as people think,” says Amar Al Assam, executive director for Dubai-based Dewan Architects & Engineers.
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