Iraq's economy prospers amidst Middle East turmoil (page 1 of 2)

Iraq's economy suffered greatly from many years of war, sectarian violence, and crippling sanctions, but its fortunes are on the rebound at a time when much of the region is in turmoil.
Fuelled in part by a sharp drop in violence throughout most of the country, Iraq's stock market surged over 25% in the first three months of this year, whereas the S&P Pan Arab Index is down about 8% year to date.

With one of the world's largest proven oil reserves, Iraq is also benefitting from oil prices that have soared above $100. The International Monetary Fund estimates that higher oil revenues will help Iraq's economy grow 11.5% in 2011, up from 2.6% last year.

Investment is also pouring in as optimism about Iraq improves. According to a recent report by Dubai Frontier Consultants, 156 foreign firms from 34 different countries announced new investments, service contracts, and other commercial activities in the country last year. The total reported value of these deals reached $42.668bn, an estimated 48.7% increase in total deal value over the previous year.

"Iraq is now potentially one of the more stable investment destinations in the region," says Kyle Stelma, managing director at DFC. "It's still a little chaotic, but it's the same type of chaos that we've seen in recent years...so if you're a potential investor, the things you're seeing in Iraq are nothing new. But if you're a hedge fund looking at Bahrain you're seeing something totally different. So it's that point of massive discontinuity that you see in places in North Africa and the Middle East that investors really don't like."

Seating of Iraqi government adds stability

Stelma believes two things have cemented Iraq as an investment destination in recent years: the seating of the government this past December, which added an element of political stability for the country, and the successful completion of the second round of oil bids in 2009.

"Last year you had thousands and thousands of foreign oil and gas workers bringing in literally millions of dollars worth of investment," he told AMEInfo.com. "That's a leading phalanx of commercial activity that gives other international companies a warm and fuzzy about whether it is destination you could do business with.

"And with over $120bn being invested over the next five years in oil and gas infrastructure in the south of the country alone, there is a whole lifting effect that happens with other projects. It's a big psychological barrier that other multinationals have crossed."

Stelma contends that if companies really want to take advantage of the economic opportunities that are available in Iraq, they need to get in soon. "If you are a large multinational looking to get Iraq exposure, you probably have 8-12 months to do so before the real opportunities are going to be gone," he contends. "By that I mean the opportunity to get in quick, be part of the first mover advantage, cement some of the local relationships you need, and develop initial market share."

In addition to the oil industry, one of the sectors providing the greatest potential for growth in Iraq is housing. The country's National Investment Commission and the Ministry of Planning issued a call in late 2010 for some 3.5 million housing units to be built by 2020 at an estimated cost of $25bn. The commission expects that at least 85% of that construction will be carried out by the private sector.

Airlines ramp up service to Iraq

Access to Iraq via regional carriers has improved significantly in the past year, with Emirates Airlines, Etihad, and Qatar Airways all adding flights to Basra.