Iraq has potential, but hurdles remain

06 December 2011

Iraq’s nominal GDP set to double in the next four years

Iraq has a rapidly growing economy and solid financial position but continues to be held back by a lack of experience in dealing with the private sector and foreign direct investment (FDI).

Speaking at MEED’s Iraq Infrastructure Conference 2011 in Istanbul, IFC investment manager Erik Becker outlined Iraq’s great potential for development and the challenges that stand in the way of growth.

According to the IMF, Iraq’s nominal gross domestic product (GDP) is set to double by 2015/16 indicating a rapidly growing economy.

Iraq also has a solid and improving sovereign credit rating. Its current credit default swap levels are below Italy, Spain, Bahrain, Egypt and Lebanon. The country’s debt/GDP ratio is dropping rapidly, from 183 per cent in 2009 to 35 per cent in 2011. By 2014, this is expected to drop to 12 per cent.

Iraq also has comprehensive investment needs, according to Becker. Rising FDI flows, which have been driven by the oil and gas sector coupled with strong demand for infrastructure and essential services are positive.

Becker also adds that Iraq has a democratically elected government that “makes Iraq look stronger in absolute and relative terms compared to other Mena countries”.

Iraq economy still has challenges. The country is still suffering from a difficult economic transition from a command to a market economy. Its legal and regulatory frameworks are under developed and, importantly, individuals and companies cannot demonstrate a track record of credit worthiness.

Iraq’s experience dealing with FDI is also limited. Projects can face long delays and bureaucratic setbacks. Also, companies looking to do business in Iraq face high costs due to lack of transparency, insurance costs and limited availability of debt, according to Becker.

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