Iraqi and investment there under spotlight at IIFF

The three-day forum, under the patronage of His Highness General Sheikh Mohamed bin Rashid Al Maktoum, Crown Prince of Dubai and the United Arab Emirates Minister of Defence, is being attended by about 400 senior executives from the multi-billion dollar Islamic finance sector in 40 countries.

In a session surrounding the Baghdad bourse, the global director of Dow Jones Islamic Indexes, Mr Rushdi Siddiqui, said that Iraq is now competing with Eastern Europe, South and Central America, Asia, China and sub-Saharan Africa for foreign investment.

"I believe the fundamentals exist for the creation of institutions for capital market integration," he said, "but the story is not getting out."

He estimated investment wealth in the Middle East at US$2 trillion. "There is no real equity culture in the Middle East, although there are between six and nine million Islamic people in the US, an equity-based society."

Muslim exchanges accounted for US$156 billion in Saudi Arabia, US$61 billion in Kuwait and US$42 billion in the UAE, he said.

"The silver lining (to September 11) was the reverse capital flight from the West. But many misconceptions about Islamic investment have to be reversed. There are many new opportunities for Islamic equity funds."

Dr Zaha Rina Zahari, head of exchanges at the Kuala Lumpur Stock Exchange (now renamed Bursa Malaysia), told forum delegates that 703 of the 916 companies - 77% - listed on the exchange are Sharia-compliant.

"Companies that are Sharia-compliant from the start attract more investors." She said Islamic unit trust companies controlled US$6.5 billion in funds.

Ms Maria-Gabriella Khoury, head of research at Atlas Investment Group in Jordan, estimated Iraq's real GDP growth at 45% for 2004 and 25% for 2005. "Iraq is rich in resources, but is held back by sanctions," she said.

The former Baghdad Stock Exchange, now renamed the Iraq Stock Exchange, have 114 companies listed in just four sectors, with government ownership in most of them.

The Iraq Stock Exchange plans to start trading in the coming month, when most companies listed before will be relisted, while an interim depository will function until an Iraqi as one is established.

"Shares held by the old regime will be put on hold and then sold off by public auction," Ms Maria-Gabriella Khoury said, adding that the exchange's 11-member board have been replaced.

She said the future of the Baghdad exchange centers on "security, security, security." Directives issued by the Coalition Provisional Authority (CPA) have introduced new foreign investment laws that, among other things, allowed "up to 100 percent foreign ownership and repatriation of gains."

With the launching of a new currency for Iraq, three major banks have already been licensed in there. "A proper financial infrastructure is being created."

Emphasizing the investment potential in Iraq, Ms Maria-Gabriella Khoury said market capitalization have, until now, represented a mere 0.1% of GDP. Privatization of state owned enterprises will involve 192 companies, some classified as cash cows, but privatization have not begun in the absence of a government.

The scale of privatization is substantial, she said, citing as a sample the ID30 billion revenue in 2002 of Iraq's State Company for Electrical Industries.

Another sample was the State Company for Ready Made Wear Industries whose biggest customer was the Iraqi army and which recorded revenues of ID21 billion in 2002.

Its Najaf factory was destroyed during the war, but its Mosul factory was intact and in need of raw materials worth US$4 million. Costs of returning the operation to pre-war condition stood at a minimum of US$15 million.

Mr Muneer Khan of the legal practice of Clyde & Company in Dubai discussed the status of law in Iraq. He said Iraq have been subject to numerous constitutions but the 1990 constitution have never been formally adopted.

"Iraq's new company law, which took effect three days ago, affects private (and not public) companies", he said. "Tax rates effective in Iraq from 1 January this year were a maximum 15% income tax on individuals and the same on companies."

"The new foreign investment law introduced by the CPA have caused a lot of confusion, yet the Civil Code of 1953 and the Commercial Code of 1984 are still the main sources of Iraqi commercial law. The CPA's Order 40, now the banking law in Iraq, permitted international banks to operate in Iraq. However, laws introduced by the CPA can be reversed upon the constitution of a new Iraqi government."