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Iraq fails to attract domestic capital

Due to the deteriorating security situation as well as underdeveloped financial and banking apparatuses, Iraqi capital has been migrating outside the country.
An employee of the Standard Chartered bank enters the bank in Baghdad, December 1, 2013. British lender Standard Chartered  launched banking operations in Iraq on Wednesday, saying it hoped to benefit from large infrastructure projects in a country trying to rebuild after years of conflict.  REUTERS/Ahmed Saad    (IRAQ - Tags - Tags: BUSINESS) - RTX15ZHF

BAGHDAD — Iraq is not attracting domestic capital belonging to its citizens. Inadequate economic and investment policies in addition to widespread corruption have contributed to a new migration of Iraqi capital. This time, capital is going to Georgia, which provides much assistance for those who want to invest in the country.

The head of the Federation of Iraqi Chambers of Commerce, Jaafar al-Hamdani, a businessman and investor, told Al-Monitor that Iraqi capital — valued at billions of dollars — has began moving toward other countries such as states of the [former] Soviet Union, including Georgia, which is now attracting a lot of capital from Iraq.

This shift of capital, according to Hamdani, can be attributed to investment and banking facilities that owners of Iraqi capital find in Georgia; such facilities are not available in Iraq

For its part, the government admits that the capital found inside Iraq is "weak" compared to the capital that has left the country, in light of the security situation, the decline in the labor market and decreased investment opportunities.

In a telephone conversation with Al-Monitor, Abdul Hussein al-Anbaki, adviser to the prime minister for economic affairs, explained, "The migration of Iraqi capital did not start after US troops entered the country in 2003. Rather, it began in the 1980s, when the former regime split profits with the private sector."

Anbaki pointed out, "The migration of Iraqi capital that occurred after 2003 was due to the deteriorating security situation in the country and the lack of employment opportunities as well as the absence of a legislative or physical environment, or even infrastructure." 

Sami al-Araji, chairman of the National Investment Commission, told Al-Monitor that the commission is seeking not only to attract Iraqi capital that has migrated out of the country but also Arab and foreign capital for investment. According to Araji, it is doing this through presenting investment offers in the housing, roads, bridges and tourism sectors, as well as in the electricity and oil sectors.

Araji confirmed, "The commission will enact a plan that had been developed previously in coordination with the Ministry of Migration and Displacement, and that is aimed at ensuring the return of Iraq capital from abroad so that it can be used in reconstructing Iraq. This is done through providing bank guarantees, customs facilities and other assistance pertaining to investment work."

For her part, Nora al-Bajari, a member of the parliamentary Economy and Investment Committee, told Al-Monitor, "The tedious routine in reviewing state departments, bureaucracy and financial and administrative corruption all have discouraged investors from investing Iraqi capital in the country." She added, "[The government] must provide financial and security guarantees as well as incentives that bring specialized companies to invest in the country. The country needs investment projects to revive and develop its infrastructure."

Economic expert Abdul Majid al-Khalidi told Al-Monitor that there a number of consequences resulting from the migration of capital. These include poor economic growth, high unemployment, disruptions affecting the investment of economic resources within the state, depletion of state cash reserves and the instability of the local currency.

Khalidi noted that there are ways to reduce the migration of capital outside of Iraq. This includes issuing laws governing investment and development, developing existing financial and banking apparatuses, refraining from putting restrictions on investment, enhancing privatization programs, doing away with bureaucracy for investment procedures and maintaining clarity and transparency to provide a true image of the investment reality in the country, alongside development of economic information technology. 

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