Investment in Iraq: Some Expert Perspective from The Economist

Investment in Iraq has been a sticky wicket for would-be financial patrons over the last seven years. The ongoing debate considers the vast potential of a country endowed with the world’s third largest (known) oil reserve tempered by extreme caution because of the security and political risks that currently pollute the business environment.

As we know, the country still faces many hurdles to shore up investor confidence. This week’s sectarian strife and the high profile hostage taking at Baghdad’s largest Catholic Church show confessional violence and attacks against the government by militants are still rampant. While relatively stable regions, like the Kurdish north exist the security situation in the country remains worrisome. So, when it comes to emerging market investment, war-torn Iraq is usually the furthest thing from a savvy backer’s mind.

However, there is a quiet tide of good news. Interest rates have fallen from 20% to 6% annually, while exports have risen. The Iraqi dinar has largely stabilized, and thanks to American investment in new infrastructure, the country has minimal national debt. Moreover, Iraq was awarded $3.6 billion in economic aid awarded by the IMF in February 2010 and received $250 million award from the World Bank.”

Firms may now be ready to bank on Iraq’s long-term growth potential which will undoubtedly be fueled by petroleum revenue. The thinking goes that as the national economy strengthens, inflation becomes more manageable and as the economy expands, currency appreciation will result in the appreciation of all Iraqi capital investments. With only a fraction of Iraq’s known fields in development, some eighty percent of the country’s petroleum wealth remains unexplored. With any luck, as redevelopment progresses, it will further strengthen the overall economy for the Iraqi people. While the nation still suffers violence, corruption and poor infrastructure, promising sectors beyond oil, such as construction and the emerging consumer market, have some investors feeling bullish on prospects in Iraq.

In June 2010, the Economist Intelligence Unit surveyed 367 senior executives, all of who had direct input into their company’s decision-making regarding business in the Middle East, about their perceptions of investment in Iraq. All major industries are represented, with energy, manufacturing and financial services having the strongest representation.

The ensuing report, titled Iraq Through Investors’ Eyes, details the refined perspective of investors who are already operating in Iraq and the perceptions of others that are either weighing their options or have decided not to invest for the time being. It’s a fascinating glimpse into the financial future of the Iraqi nation.

Have a look at it here: http://www.eiu.com/site_info.asp?info_name=through_investors&page=noads&rf=0