In a first for the Iraq Stock Exchange (ISX), a merger was agreed between two private banks on 25 May. While Mosul Bank and Union Bank await approval from the Companies Registrar and the Central Bank of Iraq, it marks a significant step forward for the bourse.

The ISX is developing at a rapid pace. When it was first established in 2004, there were only 15 companies listed, today there are 85. Until a year ago, trading took place only three days a week.  

About $3m is traded daily on average, up over the $1m last year. The number of foreign investors is also on the rise, peaking at $22m foreign buys in April 2011.

As the central bank tries to increase the capital of lenders in Iraq, there will be more consolidation on the ISX. All eyes are on Mosul Bank, which will lead the process. If its merger is completed successfully and without too many difficulties, then more banks will be encouraged to merge, which is an easier option to raising the required ID100bn ($86m) capital alone.

More significantly, the country’s three national telecoms operators – Qatar’s Asiacell, Kuwait’s Zain Iraq and France Telecom’s Korek – will each have to float 25 per cent of their shares by the end of August this year.

“It will have a major impact, it will overwhelm the market. Everybody will exit other companies and will invest in the telecoms sector, which is counterproductive” says Emad Makiya, chief executive of Zain Iraq.

Whether it will be a smooth process remains to be seen, but it is unlikely given the usual pace of things in Iraq and the scope for political and security instability with the US troop withdrawal scheduled for December 2011.

Like any other bourse, ISX is affected by the wider macroeconomic issues in the country and with Iraq this is particularly evident.

“The stock exchange is still at a very developing stage, it was destroyed and ravaged by war, but as economic activity expands there will be more privatisation and you will find more and more companies listed. There is huge potential for growth,” says Mayank Malik, chief executive of US Citibank’s Jordan and Iraq.

As oil production increases and infrastructure improves, the economy will no doubt expand and so too will interest in the ISX. Iraqi oil exports were worth $7.5bn in May, the highest figure recorded with 2.225 million barrels pumped out of the country a day.

Trade volumes have not been very consistent since the beginning of this year. In January, $60.5m was traded in volume, falling to $57.6m in February. March was the most successful at $103.5m, but volumes have been falling since then, reaching only $31m in May as political uncertainty grows.

The index closed at 1,471 on 3 June, up 3.4 per cent since the previous week when it closed at 1,422, a drop of 0.2 per cent.