Iraq’s freshly appointed government has made foreign investment a key point in its agenda to diversify the economy and turn the page on decades of troubles and instability, which cost the country much, if not all, of its business potential beyond oil and gas.
“One of the priorities of the new government is the attraction of foreign investment,” says Sami al Araji, chairman of the country’s National Investment Commission (NIC). “This government realised the limitation of our budget, which depends for 90% of its revenues from the oil sector. If we are to develop Iraq, to rebuild the country, we have to diversify the economy, and for that we need investors.”
New prime minister Adil Abdul-Mahdi was sworn in on October 24, after members of the new Iraqi parliament approved a majority of his proposed cabinet, thus ending the political stalemate that followed the general elections held in May. However, Mr Abdul-Mahdi still failed to find consensus regarding several key posts such as the interior and defence, highlighting the deep divisions that still plague the current legislature.
A former oil minister, Mr Abdul-Mahdi is now committed to rebuilding the economy by attracting foreign investment. The NIC identified 12 key sectors it aims to pitch to investors as it works with the World Bank’s International Finance Corporation to cut red tape and improve the ease of doing business. They feature, among others, the oil and gas sector, alongside telecommunications, transport, agriculture and tourism.
“Mr Abdul-Mahdi’s background in economics and stint as oil minister support our base case that the development of local skills and institutional capacity in the hydrocarbon sector will be a key policy priority of the incoming administration,” Niamh McBurney, a senior political analyst with risk consultancy Verisk Maplecroft, wrote in a note.
“However, the significant structural economic challenges facing any Iraqi government mean political rivals are unlikely to leave much time before questioning the delivery and implementation skills of an Abdul-Mahdi-led government,” she added, highlighting the country still has a high-risk profile with concerns to government stability.
Should Mr Abdul-Mahdi strike a balance between the country’s often conflicting political forces, he has a chance to build on the gradual internal security improvement the country has experienced in recent months. The previous government declared the defeat of the so-called Islamic State in December 2017, after liberating all the areas that had fallen under its control.
Today, if security challenges and the threat of resurgent extremist groups remain an impediment to investment in many parts of the country, “the security situation varies throughout the country and is generally less problematic in Iraq’s southern provinces and the Iraqi Kurdistan Region”, the US department of State wrote in July 2018. The most recent improvements are being felt also among investors.
“Investors no longer enquire about the security or political stability,” NIC’s Mr al Araji says. “They already come and do their assessments. Now they are asking about how to move things faster, how to streamline investment applications through our one-stop shop. We are still moving from a centralised economy to a market economy, and we have to improve not only our one-stop shop services, but also legal framework and baking system to improve the investment climate.”
Iraq boasts the world’s fifth largest proven oil reserves, although it is well known that there is a need to upgrade the oil industry across the country to make the most of them. If opportunities beyond the oil sector are also recognised, they have yet to be fully tested to kickstart growth away from the oil and gas sector. Mr Abdul-Mahdi must now try to succeed where so many before him have failed, preserving political stability and internal security to unlock the country’s business potential.