Iraq Lagging in Foreign Investment

Iraq is still struggling to attract foreign investors amid dated laws, political instability and a conservative society, writes Mustafa al-Kadhimi.

al-monitor Employees of the state-run South Oil Co. (SOC) join a new oil storage tank to the oil pipelines near the southern city of Basra, Jan. 14, 2013. Photo by REUTERS/Atef Hassan.

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intolerance, development, conflict, banking

Apr 4, 2013

The question that constantly arises in Iraq, and that is often posed perplexedly, is: “Why have the Iraqis failed to attract large-scale investments over the past ten years of political and economic change?”

Figures certainly indicate that the arrival of international oil companies is an example of successful investment. Yet the answer to the above question is evident when examining the laws of the Iraqi National Investment Commission, which doesn't include oil investment in its scope of work. Oil extraction and marketing is quite different from the investment movement, which is primarily linked to market development, higher employment and training, introduction of various industries into the country, and agricultural, touristic and urban development.

It is well-known that Iraq is a single product economy, where oil export accounts for 95% of the country's budget.

We can talk for hours about how the investment law serves as a real obstacle to bringing in foreign companies. It is clear that the investment law in force in the Kurdistan region of Iraq is more flexible than its counterpart in Iraq’s Arab regions.

We can also talk about security as another significant obstacle. Despite the relative success of Iraq in decreasing insurance rates incurred by foreign companies in exchange for bringing their staff into Iraq, instability is still a key obstacle to investment. Meanwhile, political deterioration, disputes and ongoing threats that the current political system will collapse do not provide a favorable environment for investment.

While these obstacles have impeded the arrival of well-known companies from industrialized countries, they have also provided a positive atmosphere for the arrival of companies from other countries — such as Iran, Turkey, China and some Arab states. These latter countries often have lower standards in the investment fields.

It is worth noting that the declared figures of foreign investment in Iraq are variable, and even the figures suggested by the investing countries do not seem to be accurate.

While Iraq’s official estimations indicate that Iran invests $10 billion per year in Iraq, the rate of trade exchange between Iraq and Iran amounts to $18 billion, most of which comes from imported Iranian goods. The same applies to Turkey, whose total investments in Iraq amount to $15 billion.

The southeast Asian GICA Organization announced that foreign investment in Iraq in 2012 rose 20-fold, reaching $60 billion compared to $3 billion four years ago.

The company registration department at the Ministry of Commerce announced the registration of 2,808 national and foreign companies in 2012.

Ferial Akram Abdullah, director-general of the company registration department, said in a statement that the department registered 374 representative offices of Arab companies, in addition to 83 branches of foreign companies in the same year.

Although these indicators appear positive, they are not sufficient to talk about a large-scale wave of investment.

In this regard, Suhad al-Obeidi, a member of the work committee and parliamentary services, said that "the large number of representative offices of Arab and foreign companies is a mere formality, the purpose of which is not to bring global expertise or sufficient funds to set up large investment projects, but to find a legal status for local companies to win prospective government project contracts."

In a detailed study titled Legislative and administrative obstacles that prevent the entry of foreign capital to the Iraqi markets, Dr. Akram Fadel Said Qasir, a professor of civil and commercial law, talks about a defect that not only involves the investment law, but extends to the state structure that still drives away foreign investment and involves investors in sensitive and complex details regarding the protection of investments. This is in addition to a cultural environment that is not concerned with attracting foreign investment.

The existing cultural order, which is predominantly religious and tribal, does not help to provide the necessary conditions for ensuring respect for the personal freedoms of investors. Also, investment does not merely mean business administration, but rather a temporary residence for both employees and investors.

Political Islam parties in Iraq have always wanted to impose their values ​​by force, both on Iraqi residents and foreign investors. Thus, anyone who dares to venture into the Arab part of Iraq would be well aware that they would be isolated from society, knowing that the forces in this part of the country have different conceptions of religion and values.

Throughout modern history, Iraqi society could be described as tolerant in terms of religious commitment. This impression has continued to characterize the Iraqi situation until the early 1990s, when the regime of former President Saddam Hussein decided to revive the religious order as a cover for other, civilian affairs.

It could be argued that the political class that ruled Iraq after Saddam has remained committed — both implicitly and publicly — to Saddam’s religious project, which he then considered to be "an awakening of faith." The political class applied it strictly to an extent that narrowed the personal freedoms of the people. This greatly affected foreign visitors to Iraq.

Reconsidering the status of foreign investment in Iraq no longer only means modifying laws and reforming administrative flaws in the structure of the state, which are still subjected to laws that belong to the socialist rule. First and foremost, the values ​​of civil society must be promoted in society for it to be able to once again accommodate, coexist with, and impact foreigners.

Mustafa al-Kadhimi is an Iraqi writer specializing in defense of democracy. He has extensive experience in documenting testimony and archiving documentaries associated with repressive practices. He has written many books, including Humanitarian Concerns, which was selected in 2000 by the European Union as the best book written by a refugee.

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