HSBC reviews Iraq operations

25 April 2013

If the UK banking giant sells out of Iraq, it will be another bad omen for the country struggling with economic and political malaise

Gun battles erupted in late April between Iraq’s Sunnis and Shia-led government security forces across several cities after the state stormed a Sunni protest site in Kirkuk. It was just the latest sign that 10 years after the US-led invasion, political stability is a long way off in Iraq.

Coupled with that, the government has failed to attract foreign investment in developing vital infrastructure projects. The 2013 budget promised to spend $119bn, with $45.5bn for investment. But large allocations typically overwhelm the ministries who fail to spend the funds available to them.

In 2011, less than 60 per cent of the funds allocated for investment in water, education, services, health, culture and central local government was spent. Only two areas of spending managed to disperse more than 90 per cent of their funds.

It is little surprise then that the UK’s HSBC, which bought 70 per cent of the local Dar Es Salaam Investment Bank in 2005, is close to pulling out of the country. Although full of promise, Iraq has failed to deliver. Doing business in the country is fraught with difficulties, and for the banking sector, state-owned institutions control around 90 per cent of the market. Sources close to the management of HSBC’s Iraq operation say there is increasing frustration about their inability to play a more significant role in the banking sector.

As one of the largest international banks in the region, if HSBC pulls out of Iraq it will be a significant indictment of the current situation in the country. The Central Bank of Iraq is understood to want HSBC to stay, recognising the UK lender’s expertise in infrastructure and commitment to the region.

Should HSBC decide to leave, it would be another blow for Iraq, which desperately needs foreign investment and expertise.

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