As the last US soldiers rolled out of Iraq a week before Christmas, 2012 marks the beginning of a new chapter in Iraq’s socio-economic history. With the fifth largest population in the Middle East and the second or third largest oil reserves in the world, Iraq is undeniably under the spotlight and will be watched by international investors who may be exploring opportunities in new and lucrative markets.
Following over a decade of sanctions and conflicts, Iraq is now experiencing economic growth and, as a key emerging market, is in a strong position to attract international investment across a variety of sectors. On a macro level, the changing demographic and increasing population necessitates the development of hospitals, schools, social housing and infrastructure. Large-scale and long-term projects, likely to involve foreign investment, are essential for changes of this nature. As well as creating jobs, these projects are likely to stimulate the economy which will in turn provide further investment opportunities in Iraq.
Iraq is also investing heavily in an effort to build its oil and gas industry. That investment has been particularly apparent in Kurdistan, a semi-autonomous region in northern Iraq which Tony Hayward (CEO of Vallares, and former CEO of BP) recently described as one of the last great oil and gas frontiers. Similar investment is now happening in the oil and gas fields near the southern city of Basrah. For example, at the end of last month, the Iraq Oil Ministry, Royal Dutch Shell and Mitsubishi signed a $17 billion dollar deal to help re-build existing and develop new infrastructure in order to process natural gas. The deal involves the formation of a joint venture company, to be called the Basrah Gas Company, which will process gas for domestic consumption as well as gas export projects.
There are clear signs from Iraq that it is a nation inviting economic progress. In 2006, Iraq’s parliament passed a foreign investment law designed to streamline regulations and make it easier for foreign investments and foreigners to own land. As part of that process, the National Investment Commission was formed which it is intended will offer a one stop shop for foreign investors looking to make substantial investments in Iraq.
Despite the allure of Iraq as an emerging market, there are still risks, stemming mainly from years of unrest. There are continuing political risks as evidenced by the ructions in the Iraqi government shortly after the US withdrawal, as well as the Arab Spring which has had repercussions for most countries in the region. Security remains an issue which significantly adds to the cost of doing business in Iraq. Other problematic issues include bureaucracy and an uncertain regulatory and legal framework. A particular concern for many Western businesses is the fact that Iraq is not yet a full signatory to the New York Convention, which is an international convention which provides for the enforcement of foreign arbitral awards. This means that foreign investors, who may wish to avoid the vagaries of the local Courts by providing for disputes to be referred to foreign arbitration, are likely to encounter difficulties in enforcing ant subsequent arbitral awards in Iraq.
Whilst these issues demonstrate the risks of doing business in Iraq, the country is moving in the right direction and there are huge opportunities for international investors prepared to take the plunge.