Iraq: commercial opportunities in a changing business environment - July 2014
Published 23 July 2014
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0.1 This publication was archived on 4 July 2016
This article is no longer current. Please refer to Overseas Business Risk - Iraq
0.2 Detail
Following last month’s ISIL surge and the Government of Iraq’s (GoI’s) response to the political and security crisis, we have continued to gauge the changing business climate and perceptions of market conditions.
The old normal
Prior to the crisis, the Iraq economy was growing at some 9% a year, producing significant opportunity for UK companies. The country was increasingly being considered as one of the fastest growing Emerging Power (EP) “Frontier” economies globally, with record GoI and Kurdistan Regional Government (KRG) capital investment plans, fuelled by a burgeoning hydrocarbons industry, with oil and gas reserves that rank in the world’s top ten.
This huge wealth creation fuelled the development of Iraq and created significant commercial opportunities across sectors. The UK is considered as one of Iraq’s business partners of choice.
The new normal
It is too early to tell exactly what the new norm will mean for UK business in Iraq. The economy remains intrinsically linked to the political situation in this public sector dominated market. Business opportunities are affected by the current lack of a budget for 2014 or effective implementation of strategic economic policies. A broad based government plan is needed to develop a healthy business environment.
Surprisingly though, we have seen only limited slowdown in business overall. In fact most UK companies have remained in country throughout the crisis and their general mood is bullish. The market share for UK companies in Iraq has been largely unaffected. Companies continue to aggressively service their contracts and concessions, refuse to consider force majeure, and remain firmly in the running for new contracts. If anything the recent crisis has fast forwarded investor regression in underdeveloped market sectors and weeded out some of our traditional SME competitors.
One major contributory factor has been the continued stability of the oil and gas sector. The Iraqi economy is almost wholly (95%) dependent on oil and gas revenues, and production through to export has remained unaffected with firm reassurances by the GoI that critical oil infrastructure will remain secure.
The crisis has also created new opportunities in some sectors. The GoI and KRG have also eased business restrictions to boost investor confidence.
Enduring fundamentals
Iraq’s economic fundamentals present a compelling case for remaining strongly engaged despite the current risks. The country continues to earn $6-7 billion each month from uninterrupted oil revenues. Oil and gas supply chain opportunities remain massive. Energy resources are located overwhelmingly in the two thirds of the country (in the South and in Kurdistan Region) that remain relatively unaffected. Iraq is OPEC’s second largest producer of crude oil, and currently produces about 3.3 million barrels a day, about 4% of the world’s total supply. The IEA estimated that Iraq’s crude production capacity growth is expected to rise by 1.3 million to 4.6 million barrels a day (a rise of 40%) by 2019, swelling Iraq’s oil revenues. It is likely that Iraq’s oil production rates will continue to make significant headway given the rapid expansion of its giant southern oilfields (some of the biggest fields globally).
Also uninterrupted is Iraq’s massive requirement for investment in other sectors where UK business is competitive. These include design, consultancy, project finance/management of major infrastructure projects, housing, education, healthcare, and the development of the financial and business services sector. Iraq’s existing infrastructure and service levels in each of these sectors needs major upgrading, and the country’s young population and ability to pay from oil revenues mean demand will remain high for decades.
0.3 Disclaimer
The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.