Foreign Investment Increasing In Iraq, Led By UAE

A recent report by the Dunia Frontier Consultants company found that foreign investment in Iraq is increasing over the last year, led by the United Arab Emirates (UAE). The report said that direct foreign investment had more than doubled in the first nine-months of 2009 compared to all of 2008. Total investment is now estimated at $156 billion, a 241% increase from 2008. There are now 53 companies operating in Iraq from 24 countries. The UAE has placed $37 billion in Iraq, 25% of all investment. Their most recent deal was just announced on November 29, when a UAE company signed a contract to build a five-story, 5-star hotel in Karbala for 3,000 guests that is to be completed in the next four years. Karbala is a major destination for Shiite religious tourists. UAE businesses are also involved in a $20 billion real-estate deal in Baghdad and an $8 billion energy deal in Kurdistan.

Other countries putting money into Iraq are South Korea with $24.7 billion, the United States at $22 billion, England at $10.5 billion, Lebanon at $10.1 billion, and Kuwait with $6.8 billion. Overall, according to the Brookings Institution Iraq Index, foreign investment has increased from an average of $10 million a month from 2004-2007, to now $100 million a month in 2008 and 2009. The vast majority of these funds are going into Iraq’s energy sector, which is slowly opening up to foreign companies.

The Special Inspector General for Iraq Reconstruction however points out that foreign companies are still severely limited in Iraq. The World Bank’s “Doing Business 2010: Reforming Through Difficult Times” ranked Iraq 153 out of 183 countries for promoting private enterprise and investment. That placed it at the bottom of the region. The major reasons are Iraq’s legislation and bureaucracy. The most cited example is that Iraqi law restricts foreign ownership of land, and requires companies to pay for the cost of services wherever they do business. The Iraqi parliament has tired to fix this by passing a new law recently that allows 100% foreign ownership of property except for places with oil, gas or minerals. The Kurdistan Regional Government already has such a law, and is seen as being much more successful in attracting foreign companies because of its better security situation, and more inviting laws. An August 2009 survey of 120 Iraqi businessmen pointed out other problems that make Iraq a difficult place for investors. Those include the lack of an effective legal system and regulations, poor protection of property rights, corruption that adds 20-30% to costs, excessive red tape, and difficulty in getting licenses and credit.

World Bank Ranking “Doing Business 2010”
Saudi Arabia #13
Kuwait #61
Turkey #73
Jordan #100
Syria #143
Iraq #153

The improved security situation and the recent efforts of the Iraqi Oil Ministry are largely responsible for the increase in foreign investment in Iraq. Outside of Kurdistan however, almost all of this money is going into natural resources because Iraqi laws are still seen as creating a negative environment for companies. Baghdad has only just recently begun to promote itself as a destination for foreign companies to do business, and still retains a top heavy, state-run economy. The government needs to find a balance between its national interests and those of foreigners, and adjust its laws appropriately because the country needs as much money as it can get right now to develop as U.S. and foreign aid is declining, and oil is not bringing in enough to cover its budget.

SOURCES

Aswat al-Iraq, “Contract with UAE firm to build highest hotel in Karbala,” 11/29/09

Ibrahim, Waleed and Benham, Jason, “Iraq passes key investment law,” Reuters, 11/23/09

MENAFN, “UAE firm to build tourist hotel in Karbala,” 11/30/09

O’Hanlon, Michael Livingston, Ian, “Iraq Index,” Brookings Institution, 11/20/09

Sambidge, Andy, “UAE tops list of foreign investors in Iraq in 2009,” Arabia Business, 11/24/09

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 10/30/09