In the first week of December, Baghdad finally released details of its $186bn National Development Plan (NDP), outlining a five-year programme for Iraq’s economic growth and social development. The plan, which will be rolled out with more than 2,800 projects, has been in the pipeline for over two years and was first unveiled live on Iraqi state television on 12 July by Prime Minister Nouri al-Maliki.

The Planning Ministry has set an ambitious target of increasing gross domestic product by an average of 9.83 per cent each year

The plan comes on the back of expected growth of 7.3 per cent in 2010. The Planning Ministry has set an ambitious target of increasing gross domestic product by an average of 9.83 per cent each year up to 2015 and envisions the creation of more than 3 million new jobs through the projects adopted in its development plan.

According to the NDP, the government expects to contribute 53 per cent of the investment over five years, picking up a tab of about $100bn. This is roughly 30 per cent of the total federal budget for each year over the period. The remaining $86bn is to be funded by the private sector, both local and foreign.

Distribution of government investments
Agriculture 9.5
Industry (including oil, gas and power) 30
Transporation and communications 9
Construction, buildings  and services 17
Education 5
Provincial development 12.5
Kurdistan Region 17
Source: Planning Ministry

Top priorities for Iraq

Unsurprisingly, the hydrocarbons and power sectors, the primary source for Iraq’s financial resources and development, are given the highest priority when it comes to spending. The oil sector will receive 15 per cent of the expected government investments, with 10 per cent going to the power sector.

The potential for investment is huge, but it is hindered by an ambiguous regulatory and legal framework. In Iraq, oil is a murky issue, particularly given that the country is yet to pass a hydrocarbons law dictating how resources are to be shared among provinces.

Hydrocarbons is not the only sector to undergo a revamp. Infrastructure projects currently being developed in the country include the $6bn Grand Fau port, a major new metro project in Baghdad and the government’s plan to build one million new housing units by 2015, according to the National Investment Commission. These projects are just the first wave of a series of major developments planned by the government.

For social infrastructure, the NDP also identifies new housing construction as a ‘critical need’, adding that one million new housing units will be needed over the four years of its term, due to high population growth rates, increasing urbanisation, and returning refugees and internally displaced persons. The US’ Special Inspector General for Iraq Reconstruction (Sigir) estimates that an additional two million housing units could be constructed by 2015.

Boosting agriculture in Iraq

Agricultural development is a top priority for Baghdad. The Agriculture Ministry has earmarked an estimated $18bn for 48 projects throughout the country, including the construction of dairy factories, silos, slaughterhouses, aquaculture and date production facilities. The sector is in desperate need of development, with 500,000 hectares of arable land available and the country’s population forecast to hit 40 million people by 2025.

The semi-autonomous Kurdistan region in the north will also benefit from the plan, receiving 17 per cent from the planned investments, equivalent to $17bn. This will be confirmed by Iraq’s next population census.

But securing investment alone is not sufficient to achieve the plan’s objectives. The plan must be supported in the areas of financial and monetary policy and institutional development, as well as administrative and legal reform.

Agricultural development
Crop production (tonnes) 2010 2014 % change
Wheat  2,332,000 3,617,000 55.1
Barley 780,000 953,000 22.2
Rice 240,000 300,000 25.0
Yellow corn 463,000 936,000 102.2
Potatoes 636,000 1,300,000 104.4
Source: Planning Ministry

In September, the Ministry of Finance announced a draft budget for 2011 of $86.4bn, based on an average oil price of $70 a barrel next year. The draft also assumes an increase in crude oil exports to an average of 2.4 million barrels a day (b/d), from current levels of about 1.85 million b/d. The proposed budget is yet to be approved by the Council of Representatives and President Jalal Talabani.

Iraq’s reliance on oil as its main resource has been a challenge for planners. Volatility in prices meant continually shifting calculations. The Planning Ministry adopted a price ranging from $60-68 a barrel for the period. Given that the current outlook for prices is about $90 a barrel, this is already looking dated.

From January to October 2010, Iraq’s oil prices have averaged $73 a barrel, earning the government more than $42bn in revenues, according to Oil Ministry data. Total exports in October, from Basra, Kirkuk and by tanker to Jordan, were 58.7 million barrels – about 1.89 million barrels a day.

As crude oil production increases in the coming years, more oil will be available for export. Iraq’s NDP estimates that crude oil exports could reach 3.1 million b/d in 2014. If oil prices remain high, it should not be difficult for the Iraqi government to allocate its share of the $186bn needed over the next five years.

Overcoming obstacles

A bigger challenge, however, will be attracting the remaining $86bn from the private sector. “If we don’t see three things: political stability, improved security and less corruption, then even the international oil companies who have signed up will slow down their investments,” says Mustafa Alani, research programme director at the Dubai-based Gulf Research Centre.

Anticipated financial revenues ($bn)
Year Oil Revenues ($bn) Non-oil revenues ($bn) Total revenues ($bn)
2010d 47.09 0.279 47.369
2011f 52.89 0.481 53.371
2012f 62.05 0.543 62.593
2013f 69.5 0.554 70.054
2014f 76.94 0.633 77.573
Source: Planning Ministry

Speaking at MEED’s Iraq Utilities conference in Istanbul, Jeff Larkin, Iraq country manager for Parsons Brinckerhoff, which is advising the Electricity Ministry, is positive but reports an average of 35 attacks across Iraq daily in December. With the ever-present threat of danger, optimism is commonly mixed with uncertainty.

Corruption remains another massive obstacle. “A good part of that $100bn might be eaten by the government. There is not enough deterrence in the system to deal with it properly,” says Alani.

Iraq is establishing an anti-corruption facility, the first of its kind in the country, and partnering with the UN to train members of its anti-corruption agencies, including the Commission of Integrity and Board of Supreme Audit.

Due to open by the end of the year, the facility will be a modest step in Iraq’s struggle against the public corruption that pervades every level of government, undermining any confidence in the country. The US’ Government Accountability Office (GAO) says Iraqi budgets are unreliable indicators of the country’s fiscal balance at the end of each year. From 2005 to 2009, Iraq began each year with budgets projecting that government spending would exceed revenue. If spending matched the budget and revenue expectations, Iraq could have expected to see cumulative deficits of more than $35bn.

“Actual expenditures for the past five years have consistently fallen short of budget projections, while actual revenues, in general, have met or exceeded projections,” said the GAO in a September report (MEED 19:9:10).

Budget management in Iraq

Ali Ghalib Baban, Iraq’s current Minister of Planning, was particularly scathing about the way Iraq has handled its budgets. “Over the past few years, Iraq has demonstrated the inability to manage the annual budget [and] allocate investments, and has struggled to create an economy that allows for progress and development. This is due to budgets being approved late in the year and the release of the money thereafter.”

Political stability is still elusive. More than 10 months have passed since Iraq held its national parliamentary elections, and Iraqis still know very little about what their new government will look like. The incumbent prime minister, Nouri al-Maliki, looks set to remain in power, but will lead a heavily weakened government, formed by a patch-work quilt of coalition parties. Who will take the most sought-after cabinet seats is anyone’s guess. “I don’t see a strong government coming that can take on corruption,” says Alani.

In the meantime, public frustration grows as budgets lie unspent and the paper work for key decisions is left to pile up in parliament. The delay in forming the government has certainly darkened the mood of investors. But, overall, foreign firms and investors continue to enter the Iraqi market. The prize of a foothold in one of the largest emerging markets in the world, despite its problems, remains alluring.