Twenty years after the start of the Iraq war, the country is on the path to finding its place on the global investment map. Iraq’s economic and social infrastructure was battered by the US-led invasion and occupation, and then four years of terror waged by Islamic State. Since 2018, the country of 45 million people has endured short-lived governments and political stalemates, before the pragmatic Mohammed Shia’ al-Sudani was sworn in as prime minister in October 2022. 

His government took office at a time when investors were starting to look past the country’s conflict-ridden history. Data from fDi Markets shows that inbound FDI over the first nine months of this year hit a record $24bn, more than double the previous full-year record in 2008. “The country is definitely making a U-turn in terms of its longer-term trajectory,” says Auke Lootsma, Iraq’s resident representative of the United Nations Development Program. “Less and less it’s considered a crisis country, and more as a country that is moving forward.”

Pragmatic progress

Undoubtedly, Iraq remains a difficult operating environment. Oil revenues account for 99% of exports and 85% of its budget over the past decade, according to the World Bank, making it vulnerable to volatile energy prices. Yet it is energy-poor, with blackouts lasting up to 12 hours a day and 40% of its electricity imported from Iran. Investors must also contend with a bloated public sector, a legacy of Saddam Hussein’s socialist-leaning Ba’ath party, weak financial institutions, opaque bureaucracy and widespread corruption. 

But in his first year, Mr al Sudani has pursued a robust development agenda that aims to improve energy security, diversify the economy, increase the private sector’s role in key areas such as natural gas and manufacturing, and tackle corruption. Speaking at the UN in September 2023, he described the latter as a national “pandemic” which he is focused on eradicating. 

In January, after observing the government’s decisive stance over its first months, Siemens Energy pushed through an agreement to continue its work on Iraq’s power infrastructure. “If you are looking to invest in the country, there’s really been a change. The government is much more willing to progress things,” says Dietmar Siersdorfer, the company’s managing director for the Middle East. 

Other investors share similar stories. Amet Selman, CEO of UK-headquartered fertiliser group AAA, says a rule change this September which allows it to sell directly to farmers rather than via the government has cut payment timeframes from up to 14 months to five days. In February, UAE-based Crescent Petroleum signed 20-year contracts to develop three oil and gas fields, under which the group’s initial investment will reach $1bn. 

CEO Majid Jafar says operators in Iraq used to receive a fixed fee per barrel, but this latest round of contracts is based on a revenue-sharing agreement. “There’s now a much better alignment between the investor and government,” he says, adding that the government has recognised the need to sustain private investment in key sectors.

International integration

Iraq is also reintegrating itself back into the international arena. Unctad is helping reactivate its stalled accession to the World Trade Organization, while in November it became a member of the European Bank of Reconstruction and Development. 

It is strengthening ties within the Middle East, too. “There has been an interest among the Gulf Cooperation Council [GCC] to re-invite Iraq into the regional economy,” says Mr Lootsma, noting that being “sandwiched between Syria and Iran” means it is viewed as a stabilising factor. 

An interconnection project launched in June will make Iraq the first non-GCC country connected to the group’s electricity grid, while Qatari consortium Power International Holding and affiliates this year announced $9.5bn-worth of diverse projects including two power plants, a tourist complex in Baghdad and several hospitals. All the while, the UAE continues to be the country’s biggest source of FDI.

Further afield, Mr al-Sudani and Turkey’s government are pursuing ambitious plans to link their countries via a $17bn road and rail project called Development Road, which would connect the Al-Faw Port under construction in Basra to Europe. Meanwhile, a recently signed public-private partnership between the International Finance Corporation (IFC) and the government plans to modernise Baghdad’s airport. Of great symbolic value is April’s long-delayed agreement between the government and France’s TotalEnergies on the $27bn Gas Growth Integrated Project, which aims to improve and decarbonise Iraq’s electricity supply. In a statement, the US government said the deal “signals a fast-improving business climate that will help attract [FDI]”.

Transformational period

At the time of writing, the Israel-Hamas war had sparked attacks on US targets in Iraq by Iran-backed militants. But Mr Jafar, who has been active in Iraq for 15 years, says “the security situation is better than at any time since 2003”. In Baghdad he observes “a real sense of vibrancy”, adding: “In many ways life has returned.” Meanwhile in January, Basra hosted the eight-nation Arabian Gulf Cup football tournament, a situation unimaginable just a few years earlier. 

It is this fragile stability that has laid the foundations for the government’s development agenda. 

“It is much less focused on rebuilding after the destruction by Islamic State, but more about building a future for the country,” says Mr Lootsma, adding that the investment backdrop has “completely changed” compared with that of a few years ago. 

fDi Markets shows that oil and gas still account for more than half of announced FDI into the country. But Layali Abdeen, head of Middle East and north Africa at the World Bank’s Multilateral Investment Guarantee Agency, which has been in the country since 2010, says: “We are getting more requests from investors interested in investing in the [broader] energy, finance and manufacturing sectors.”

The IFC predicts that the country requires $233bn by 2040 to meet its major development needs. Its resident representative in Iraq, Bilal Rabah Sugheyer, says the private sector has a big role to play in bridging this gap. Though a challenge, it is aided by his belief the country is entering a “transformational” period. “Iraq is going into what we see as the right direction,” he says.

This article first appeared in the December 2023/January 2024 print edition of fDi Intelligence

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