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Doing Business in Iraq

Market Overview

The Iraqi economy grew by an estimated 10% in 2012 and is expected to grow at a similar rate in 2013, driven primarily by rising oil production and higher oil prices over the forecast period. Economic growth will be buttressed by robust increases in government expenditures. Iraq’s 2012 capital budget was up nearly 35% over the previous year, and with mounting pressure to provide basic services the government is expected to expend a larger proportion than this allocation.

• Iraq’s transition from a centrally-run economy to a more market-oriented one has been slow and uneven.

• The World Bank’s 2013 Ease of Doing Business survey ranks Iraq 165th of 185 economies evaluated, although companies appear to find that doing business in the Iraqi Kurdistan Region, a federated region within Iraq, is significantly easier than in the rest of Iraq.

• Under the 2013-2017 National Development Plan adopted by the Council of Ministers in May 2013, Iraq hopes to mobilize approximately $400 billion in investment over the next five years. Priority sectors include oil, electricity, agriculture, transportation, telecom, education, health care, construction, and the industrial sector. Non-oil sector growth will be dependent on the reconstruction and development of decrepit infrastructure throughout the country. Improving electricity generation capacity, which currently stands at around two-thirds of estimated demand, is critical to non-oil sector growth.

• The Kurdistan Regional Government (KRG)’s investment and trade regime is considered significantly more favorable to the conduct of business than that managed under the laws of the Government of Iraq.

Market Challenges

• Corruption: Iraq is perceived as the eighth most corrupt country in the world, according to Transparency International’s 2012 report. Problems in Iraq include bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and the effectiveness of public sector anti-corruption efforts. However, according to some business people corruption seems to be less of, though still significant, problem within the Iraqi Kurdistan Region.

• Security: While the 2013 security environment is markedly better than at the height of tensions in Iraq, violent acts against Iraqi people and institutions occur regularly, and the recent trend is negative. This continued violence slows economic development in many areas of Iraq and discourages U.S. corporate security offices from approving travel to Iraq.

• Arab League Boycott (ALB): In 2009, the Council of Ministers instructed ministries not to apply Saddam-era ALB laws, but a small number of Ministries, including the Ministry of Health, have often ignored the Council of Ministers’ instruction and have inserted ALB-reflective language into patent registration and procurement documents; under U.S. law, this language prevents American companies from bidding on these tenders or registering their patents. The primary boycott against Israeli companies and products still applies.

• Government Procurement: The central government’s ability to tender projects is fundamentally weak. Across the board, there are institutional capacity issues with regard to due diligence, project award, approvals, implementation, financing and payment. For tenders solely done at the provincial level or in the Iraqi Kurdistan Region, the tender process may differ and is reportedly easier to navigate in many instances.

• Intellectual Property Protection: IPR functions are spread across several ministries: the patent registry and industrial design registry is under the Ministry of Planning’s Central Organization on Standards and Quality Control (COSQC); copyrights are controlled by the Ministry of Culture; and trademarks are administered by the Ministry of Industry and Minerals.

• Iraq is a member of the Paris Convention for the Protection of Industrial Property, the World Intellectual Property Organizations Convention, the Arab Agreement for the Protection of Copyrights and the Arab Intellectual Property Rights Treaty. Enforcement of intellectual property rights is difficult to achieve, however. Counterfeit consumer goods and electronics are widely availability. The Iraqi Government has said it is committed to stopping counterfeit products for consumer safety reasons. In July 2011, the government implemented a new precertification requirement for most imported product categories. Products arriving at Iraqi ports are required to have a certificate of conformity issued by Bureau Veritas at countries of origin.

• Inflation was not a major concern in Iraq in 2012, though the trend (drifting slightly up to 6.4% from 5.5% in 2011) is not positive. The rate of inflation is not expected to change significantly in 2013. However, the Iraqi Dinar has been depreciating since the beginning of 2013 and can be considered a risk factor.

• Commercial Disputes Settlements: The enforcement of foreign arbitration awards for private sector disputes does not meet international standards. The Iraqi government is currently drafting an arbitration law based on UN International Commission on International Trade law relating to international commercial arbitration.

• Banking: Iraq is developing the basic infrastructure needed for modern banking and financial markets. The Central Bank of Iraq (CBI) is the main financial regulatory agency for Iraq. There are 23 private sector banks, nine Islamic banks, and 15 international banks operating in Iraq. Additionally, seven state banks dominate the banking system (in particular, Rafidain Bank, Rasheed Bank and the Trade Bank of Iraq), accounting for 86 percent of Iraq’s banking sector assets and 69 percent of credits.

• Standards and Labeling: The Ministry of Planning’s Central Organization for Standards and Quality Control (COSQC) is charged with enforcing standards for imported products and acts as a consultant on quality control and standardization issues for government ministries and state-owned companies.

Market Opportunities

• Iraq has vast infrastructure development needs. A Ministry of Planning study calls for nearly $200 billion on infrastructure, energy, education, health care, and agri-business projects for the five-year period from through 2014.

• A third of the country’s budget expenditure is earmarked for capital projects.

• The government has announced a national housing program to build one million new housing units. Agricultural development, education, and healthcare are also government priorities.

• The Ministry of Higher Education and Scientific Research is funding 10,000 graduate scholarships. As of 2012, approximately 850 Iraqi students registered at U.S. educational institutions, about double from just two years earlier.

• Over the next five to ten years, the total export value for the Iraqi defense market is estimated to be $10 billion. With the departure of the U.S. military, Iraq urgently needs to close its gaps in Intelligence, Surveillance, and Reconnaissance (ISR) capabilities.

• The government’s 2012 budget increased funding for the Ministry of Electricity (MOE) by over 30%. Of the $5.6 billion provided to the MOE, more than 70 percent is for capital investments. Even greater sums are expected to be spent in 2013. In the transport sector, the government has announced plans to develop several new railway lines including cross-border links to Syria, Jordan, Turkey, Kuwait and Iran. The government also plans to double Baghdad’s airport capacity and build a number of new facilities, such as the Middle-Euphrates airport, to serve Karbala and Najaf. The government is planning to upgrade existing roads.

• The KRG targets a wide range of economic sectors for favorable investment and commercial treatment, including manufacturing, agriculture, hotels and tourism, transportation, banking and infrastructure. Under the 2006 Kurdistan Region Investment Law, http://www.kurdistaninvestment.org/docs/Investment%20Law.pdf, foreign investors receive identical treatment as domestic investors. Foreign investors may own their entire project and profits are freely transferable. Foreign companies may be given free land in the IKR. Foreign staff can enter the IKR without restriction. Moreover, with an import license from the appropriate IKR authorities, the Law allows favorable long-term tax and custom duties exemptions for many items.

Source: US International Trade Administration