Guidance

Overseas business risk: Iraq

Updated 19 June 2023

1. Political and economic

The Republic of Iraq is a democratic federal parliamentary republic. The federal government is made up of the executive, legislative and judicial branches. The country is composed of 19 governorates with elected governors and provincial councils. The Kurdistan Region is a constitutionally recognised semi-autonomous zone with executive, legislative and judicial powers, aside from those exclusive to the federal government. They are supposed to be allocated an equitable share of national revenues, and have the right to run their own internal security forces. Executive authority lies with Prime Minister Mohammed Shia Al-Sudani and the Head of State is President Abdul Lateef Rashid. They both took office in October 2022 after a prolonged, year-long government formation process following national elections in October 2021. The Speaker of Parliament is Mohammed Halbousi who has been in his role since September 2018. Sudani’s government rests on the support of the State Administration Alliance, a broad political coalition that includes the Shia Coordination Framework (itself a coalition of the main Shia political parties except supporters of Muqtada Al-Sadr), Sunni and Kurdish political parties.

The government of Iraq has set an ambitious agenda focused on economic reform, service delivery and anticorruption. It has also pursued efforts to strengthen regional economic integration, attract international investment and tackle long-standing challenges such as infrastructure and climate change. At the same time, the government also continues to tackle the legacy of conflict in Iraq. Daesh’s strength is significantly reduced. But there remain ongoing challenges related to post-conflict reconstruction (especially in northern Iraq) and to the return, rehabilitation and reintegration of Iraqis in Syria including those suspected of affiliation to Daesh. The Popular Mobilisation Forces (PMF), which were formed to fight Daesh, remain active across the country and retain considerable autonomy, along with varying levels of influence over national and local government in Iraq, including over government procurement.

Relations between the Iraqi federal government and the Kurdish Region of Iraq (KRI) have improved since the independence referendum of 2017 but significant challenges remain. Kurdish exports of oil to Turkiye were halted in 2023 after a ruling by the International Court of Arbitration of the International Chamber of Commerce. Negotiations continue between the governments of Iraq, the KRI and Turkiye to resolve the issue and resume oil exports. Other key points of friction include budget transfers and the status of territories disputed between Federal Iraq and the KRI. In addition to these challenges, there remain tr internal political tensions between the two major parties in the KRI (the Kurdistan Democratic Party, KDP, and the Patriotic Union of Kurdistan, PUK).

1.1 Economic

Iraq’s economy heavily relies on oil exports, which in 2022 constituted an estimated 55% of Iraq’s GDP, 95% of government revenue and 94% of total exports^{[footnote 1]}. Iraq faces significant structural issues such as an underdeveloped private sector, political instability and corruption; and reforms to diversify Iraq’s economy are necessary to ensure long-term stability. Oil prices have recovered since a fall in 2020, so the short-term economic picture is looking more positive. However longer-term, it is likely global demand for oil will fall. Economic instability, combined with climate vulnerability and a fast-growing population, will exacerbate youth unemployment (currently at around 35%), cost of living pressures and the perception of public sector inefficiency and corruption – all of which increase the risk of protests, political instability and conflict between groups.

Iraq’s private sector is substantially underdeveloped, reflecting the extremely challenging business environment: systemic corruption, lack of access to finance, and an overly burdensome regulatory and tax system. Iraq ranked 172 out of 190 in the World Bank’s Doing Business Index^{[footnote 2]}, putting it as one of the worst 20 countries in the world to do business. Private credit to GDP is 11.3%^{[footnote 3]} and Iraq is in the worst 5 countries globally with regards to access to credit (186 out of 190)^{[footnote 2]}; Iraq is also ranked in the top 30 most corrupt countries in the world^{[footnote 4]}. Reforms to tackle these issues and promote greater private sector development are required.

The latest IMF estimate^{[footnote 5]} is that, in 2022, the economy grew by 8.1%; this was after a contraction of 15.7% in 2020, driven by COVID-19. 1. High growth rates in 2022 were driven by a combination of higher global oil prices and COVID-19 recovery. IMF growth estimates for 2023 and beyond are between 2 and 4% per year.

The new government of Iraq under Prime Minister Sudani has shown appetite to deliver necessary economic reforms, though analysts predict the upcoming federal budget could be Iraq’s biggest ever. It is expected to increase the size of the public sector workforce, contrary to IMF and World Bank recommendations, and may lead to higher inflation.

Iraq’s economy is primarily cash-based and it can be difficult to access banking services, particularly digital banking. The Central Bank operates a fixed exchange rate between the Iraqi dinar (IQD) and the US dollar (USD). On February 8 2023, the official exchange rate was revalued so 1 USD is exchangeable for 1,300 IQD, however there is a different ‘parallel’ market (also known as a ‘grey market’) exchange rate in operation. Availability of dollars within Iraq has fallen in 2023 following implementation of tougher anti-money laundering and countering the financing of terrorism (AML/CFT) measures by US banks, amid US concerns that Iran is using Iraq to circumvent US sanctions, causing fluctuations in the parallel exchange rate. The Iraqi government is taking steps to improve their control of the exchange rate, for example with a ban in May 2023 on transactions in dollars.

Overall the political, economic and security situation remains fragile in Iraq, however the situation in Baghdad has improved in recent years. Movement is restricted and companies nearly always travel with close protection security teams. Despite this, commercial opportunities are significant as the country continues to rebuild its infrastructure and main institutions. Sizeable contracts have been and continue to be signed with UK businesses sufficiently robust and strategically placed to do business in Iraq.

Total trade in goods and services (i.e. exports plus imports) between the UK and Iraq was £1.2 billion in the four quarters to the end of Q4 2022, an increase of 57.3%, or £423 million, from the four quarters to the end of Q4 2021. UK exports to Iraq amounted to £705 million (an increase 46.3%, or £223 million, from the four quarters to the end of Q4 2021) while UK imports from Iraq were £456 million (an increase of 78.1%, or £200 million, from the four quarters to the end of Q4 2021).

Of all UK exports to Iraq in the four quarters to the end of Q4 2022, £445 million (63.1%) were goods and £260 million (36.9%) were services.

The top 5 goods exported from the UK to Iraq to the end of Q4 2022 were:

• 54: medicinal and pharmaceutical products (£107.2 million, or 24.1% of all UK goods exported to Iraq)
• 78M: cars (£38.5 million or 8.7%)
• 11: beverages (£37.9 million or 8.5%)
• 57: plastics in primary forms (£20.1 million or 4.5%)
• 33R: refined oil (£18.5 million or 4.2%)

Eligible UK businesses can access trade expertise and knowledge on exporting to Iraq from the Department for Business and Trade’s (DBT) global network of international market hubs.

Businesses referred to a regional hub can expect to receive:

• one-to-one advice from a regional trade adviser who can help businesses consider their next steps
• access to a wide range of sector reports, market intelligence, and guides related to things to consider on exporting to those markets
• introductions to a network of private sector service providers to help businesses with issues on a commercial basis, including local accountants, legal experts, and sector specialists

To be considered for support, businesses should have:

• a turnover of £500,000 or more
• a product or service ready to export
• experience of exporting already and be looking to enter or expand to a new market

UK businesses interested in accessing this service should first contact their nearest local DBT office.

2. Business and human rights

Iraq has acceded to nine of the ten fundamental Conventions of the International Labour Organization, including: the convention on the Freedom of Association and Collective Bargaining; the conventions on Forced or Compulsory Labour; and the conventions for the Abolition of Child Labour.

Interventions supported by the international community have improved the overall human rights and humanitarian environment. Iraq’s military campaign to drive out Daesh from previously held territory has ended the well documented and horrific abuses committed by Da’esh such as abductions, sexual violence, torture, the use of human shields and executions in the areas over which it held control. Over half of Internally Displaced Peoples have felt safe enough to return to their homes and begin rebuilding their lives, but 1.2 million people remain displaced. The Iraqi government must now stabilise liberated areas while reintegrating and rehabilitating displaced people to ensure that previous perceptions of inequality do not persist and violence resurface.

We welcome the government of Iraq and the Kurdistan Regional government’s commitment to conduct full and transparent investigations into all alleged abuses and violations, including by Iraqi Security Forces including Popular Mobilisation Forces, Federal Police and the Kurdish Peshmerga.

Courts in Federal Iraq continue to apply the death penalty and reportedly some of these sentences were carried out in 2022. No executions have taken place in the KRI since 2016. Executions were for terrorism offences or alleged roles in mass killings.

The Foreign, Commonwealth & Development Office has designated Iraq as a Country of Human Rights Concern; further information in the FCDO Annual Human Rights report.

3. Bribery and corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national nor a resident in the UK nor a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere. The government of Iraq has made efforts to tackle bribery and corruption in Iraq. The Iraqi Commission of Integrity is mandated to investigate government corruption and provides the means for anonymous reporting of corruption. Yet limited punitive action is taken to tackle allegations of government corruption. Corruption remains a significant risk to UK companies operating in the Iraqi market. Iraq ranks low on Transparency International’s Corruption Perception Index (157/180).

Read the information provided on our bribery and corruption page.

4. Protective security advice

There are significant security risks across Iraq and the fragile security situation is continually changing. For the latest travel and security advice for Iraq, please visit Foreign, Commonwealth & Development Office travel advice website.

Please also read the information provided on our protective security advice page.

5. Intellectual property

Iraq is a signatory to the Paris Convention for the Protection of Industrial Property and a member of the World Intellectual Property Organization. Iraq is also signatory to the Arab Agreement for the Protection of Copyright and Arab Intellectual Property Rights Treaty. It is currently an observer to the World Trade Organisation after having requested accession in September 2004. However, enforcement of intellectual property rights is challenging in Iraq and there are ongoing cases of IP infringement relating to the Food & Drink and pharmaceuticals sectors.

Read the information provided on our intellectual property page.

6. Organised crime

Organised crime is a driver of instability in Iraq Out of 193 countries assessed by the Global Initiative Against Transnational Organised Crime, Iraq is ranked 8th for high criminality (Criminality in Iraq – the Organised Crime Index).

7. UK export finance

UKEF works with banks to offer flexible, innovative, and competitive financing solutions. UKEF helps UK companies access export finance and win export contracts, fulfil contracts and get paid. UKEF cover for Iraq is available and is considered on a case-by-case basis. For further advice, please contact customer.service@ukexportfinance.gov.uk.

8. Contact

Contact the International Markets Hub in Dubai ExportSupport.MEaP@fcdo.gov.uk for more information and advice on doing business in Iraq, including the Iraqi Kurdistan Region.

9. Useful links

• Transparency International
• for further information about doing business in Iraq, read the Department for Business and Trade’s (DBT) exporting to Iraq guide.

1. MF 2020 Article IV report ↩

2. World Bank Doing Business Index ↩ ↩²

3. World Bank Databank ↩

4. Transparency International – Corruption Perceptions Index; Iraq is 160 out of 180 countries ↩

5. https://www.imf.org/en/Publications/CR/Issues/2023/02/03/Iraq-2022-Article-IV-Consultation-Press-Release-and-Staff-Report-529146 ↩