In­vest­ing in Iraqi Kur­dis­tan 2013: De­tailed Over­view of In­vest­ment Op­por­tu­ni­ties in Kur­dis­tan

The Kurdish Globe - - COMMENTS & ANALYSIS - By Mar­copo­lis

For the last sev­eral years the semi-au­tonomous Kur­dis­tan re­gion of north­ern Iraq has been at­tract­ing a rel­a­tively large, con­tin­u­ously grow­ing, amount of in­vest­ment; in­clud­ing lo­cal in­vest­ment, for­eign di­rect in­vest­ment, and for­eign/ lo­cal part­ner­ships. Since 2006 around USD$ 21 bil­lion have been in­vested in Kur­dis­tan, USD$12 bil­lion of which have gone to in­vest­ments in the cap­i­tal city of Er­bil and USD$6 bil­lion of which has been in­vested in Su­lay­maniyah, the sec­ond largest city in Kur­dis­tan.

Th­ese en­cour­ag­ing fig­ures re­flect the con­tin­ued sup­port of domestic in­vest­ment from wealthy in­di­vid­u­als and com­pa­nies such as the Zar­gos Group, and the in­creas­ing sup­port of for­eign in­vest­ment from com­pa­nies like the Mar­riott, Genel, DNO and many oth­ers. Mr. Del­soz Sher­wani, CEO of the Zar­gos Group, which is a multi-faceted con­glom­er­ate with in­ter­ests span­ning from avi­a­tion, tech­nol­ogy to con­tract­ing, ex­plains the ben­e­fits of re­gion as an in­vest­ment op­tion for for­eign en­ti­ties due to lib­eral in­vest­ment laws es­tab­lished in 2006 that grant in­vestors im­mense free­doms:

"The in­vest­ment law in Kur­dis­tan is one of the most at­trac­tive in the world. Of course, we are a de­vel­op­ing coun­try and there are al­ways things to be done with the in­fra­struc­ture in a de­vel­op­ing coun­try. In Kur­dis­tan there are many op­por­tu­ni­ties in all sec­tors, not just in IT or con­struc­tion or oil. So what we feel is that there are many Gulf coun­tries coming to Kur­dis­tan - like Kuwait – they are by the way the big­gest in­vestor here. Peo­ple who come to in­vest are also from Dubai, Abu Dhabi and so. There are also some in­vestors from Europe and the States but the size of their in­vest­ment is not the size we would like to at­tract in Kur­dis­tan."

The numer­ous and var­ied eco­nomic op­por­tu­ni­ties in Kur­dis­tan, com­bined with lib­eral in­vest­ment laws, make Kur­dis­tan an ideal in­vest­ment op­tion, as re­flected by the in­creas­ing pres­ence of both domestic and for­eign in­vestors. If Kur­dis­tan con­tin­ues to at­tract in­ter­na­tional at­ten­tion and the se­cu­rity sit­u­a­tion con­tin­ues to sta­bi­lize, the fu­ture of this re­gion will un­doubt­edly be eco­nom­i­cally re­ward­ing.

In­vest­ment Sec­tors

Iraqi Kur­dis­tan's ap­peal as an in­vest­ment op­tion lies be­yond lib­eral in­vest­ment laws. There are an in­cred­i­ble amount of eco­nomic op­por­tu­ni­ties in Kur­dis­tan, across a va­ri­ety of sec­tors. In many cases, th­ese sec­tors must be built from the ground up, al­low­ing for an im­pres­sive amount of cre­ativ­ity, in­no­va­tion and profit. De­spite agri­cul­ture chal­lenges with ob­tain­ing water, com­pa­nies in Kur­dis­tan are cur­rently ex­per­i­ment­ing with water reser­voirs and damns in or­der to fully uti­lize Kur­dis­tan's fer­tile land, which prom­ises to thrive in the agri­cul­ture sec­tor. In the lu­cra­tive oil sec­tor, Kur­dis­tan is at­tract­ing in­ter­na­tional at­ten­tion, with 47 com­pa­nies ded­i­cated to the oil sec­tor in Kur­dis­tan. Most notably, Exxon Mo­bil and France's TO­TAL have ex­pressed in­ter­est in in­vest­ing in Kur­dis­tan oil re­serves.

Although im­mense profit is com­monly as­so­ci­ated with the oil in­dus­try, nonoil in­vest­ment in Kur­dis­tan to­taled USD$12 bil­lion in 2011, ac­cord­ing to the Board of In­vestors of the Kur­dis­tan Re­gional government. The pri­mary source of in­vest­ment in the Kur­dis­tan Re­gion dur­ing 2012 was the lo­cal real es­tate sec­tor, which saw an in­crease of $4.7 bil­lion in 2012: the bank­ing sec­tor fol­lowed with a $2.29 bil­lion in­crease. Peshraw Ma­jid Agha, the Chair­man of the Em­pire World and Fal­con Group, de­scribes this bur­geon­ing real es­tate cli­mate and its real­tor with the lu­cra­tive oil sec­tor:

"The KRG has in­vested heav­ily in their nat­u­ral re­sources. The coun­try is ex­pected to pro­duce 2 mil­lion bar­rels of oil per day by 2019. Also gas re­serves are es­ti­mated to be be­tween three and six tril­lion cu­bic me­ters. Ad­di­tion­ally, the in­ter­na­tional oil com­pa­nies have com­mit­ted to in­vest ap­prox­i­mately 10 bil­lion USD worth of in­vest­ment in the en­ergy sec­tor. This type of in­vest­ment ne­ces­si­tates all kinds of eco­nomic growth, in­clud­ing real-es­tate growth."

Kur­dis­tan's numer­ous eco­nomic prospects in a va­ri­ety of prof­itable sec­tors, and the op­por­tu­nity to in­vest as in­dus­try fig­ure­heads dur­ing the devel­op­ment process, un­de­ni­ably make Kur­dis­tan an at­trac­tive op­tion for domestic in­vestors, for­eign in­vestors and domestic/for­eign part­ner­ships.

Kur­dis­tan: For­eign and Domestic In­vest­ment

in 2013

Of­fi­cial data from the Kur­dis­tan Re­gional Government in­di­cates that there are ap­prox­i­mately 1,600 for­eign com­pa­nies and 11,000 lo­cal com­pa­nies in Kur­dis­tan. For­eign and domestic in­vest­ment in Iraqi Kur­dis­tan has been ris­ing an­nu­ally for the last six years. With more than USD$3 bil­lion in­vested in the first six months alone, 2012 will most likely yield a record amount of in­vest­ment. Th­ese im­pres­sive in­creases could not have been pos­si­ble with­out the con­tin­ued growth of domestic in­vest­ment, the in­creased pres­ence of domestic/in­ter­na­tional part­ner­ships, and the rapidly de­vel­op­ing for­eign in­vest­ment.

The amount of lo­cal com­pa­nies in Kur­dis­tan has in­creased as the eco­nomic op­por­tu­ni­ties in the re­gion con­tinue to in­crease. The most prof­itable sec­tor in Kur­dis­tan, real es­tate, is 80 per­cent domestic in­vest­ment and domestic profit. How­ever since for­eign en­ti­ties can own 100 per­cent of a prop­erty in Kur­dis­tan, for­eign in­vest­ment in the real es­tate mar­ket is likely to in­crease. This could also con­trib­ute to the in­crease of ven­tures be­tween domestic and for­eign com­pa­nies. Ad­dress Kur­dis­tan CEO, Rashid Hoshiar, ex­plains the ben­e­fits of the in­creas­ingly pres­ence domestic and for­eign part­ner­ships:

"When we ap­proach for­eign com­pa­nies it en­cour- ages them to visit Kur­dis­tan and get a clear idea of the sit­u­a­tion, and only then they can make their fi­nal de­ci­sion on whether to stay and work in Kur­dis­tan or go else­where. We hope that big com­pa­nies will come and im­prove the area like they've done in some other Arab coun­tries. It will be a source of pride for Kur­dis­tan and its peo­ple."

The num­ber of for­eign com­pa­nies in the coun­try has risen from 1,170 in 2010 to 1,600 in 2012. Be­tween 50% and 60% of all for­eign in­vestors are Turk­ish. Kur­dis­tan ini­tially at­tracted lo­cal Mid­dle East­ern neigh­bors, but over the past few years, Amer­i­can and Euro­pean com­pa­nies have be­gun to heav­ily in­vest in Kur­dis­tan, in all sec­tors of busi­ness. Exxon Mo­bil is look­ing to ex­pand into north­ern Iraq, Aus­trian Air­lines claims that Er­bil is one of their most prof­itable air­ports, and ho­tels such as the Mar­riott are es­tab­lish­ing large-scale projects in the re­gion. The pres­ence of for­eign del­e­ga­tions over the past six months is an­other ex­cel­lent in­di­ca­tion of the fu­ture of for­eign in­vest­ment in Kur­dis­tan. Iran's Vice Pres­i­dent for In­ter­na­tional Af­fairs, Ali Saeed­lou, led a high level po­lit­i­cal and eco­nomic del­e­ga­tion rep­re­sent­ing about one hun­dred Ira­nian com­pa­nies to the Kur­dis­tan Re­gion to par­tic­i­pate in a high pro­file busi­ness con­fer­ence. The Kur­dis­tan Re­gional Government Aus­trian Rep­re­sen­ta­tion, var­i­ous Aus­trian com­pa­nies, and the Aus­trian Cham­ber of Com­merce met in Vi­enna to dis­cuss in­vest­ment and trade op­por­tu­ni­ties in the Kur­dis­tan Re­gion. Lastly, the US-Kur­dis­tan Busi­ness Coun­cil (USKBC) brought a 48-mem­ber del­e­ga­tion, rep­re­sent­ing 30 com­pa­nies, to meet with var­i­ous KRG of­fi­cials to dis­cuss po­ten­tial trade and in­vest­ment op­por­tu­ni­ties dur­ing the Er­bil In­ter­na­tional Fair. The growth of the domestic sec­tor and the bur­geon­ing for­eign in­vest­ments in­di­cate pos­i­tive devel­op­ment in the econ­omy of the Kur­dis­tan and in­crease the op­portu- ni­ties for this re­gion in the global mar­ket.

Mark DeWeaver, Prin­ci­pal of Quantrar­ian Fund, a US based fund that in­vests in the Iraqi Stock Ex­change, out­lines the amount of op­por­tu­ni­ties that the Iraqi mar­ket of­fers for growth. In an in­ter­view for Mar­copo­lis.net, he states:

"As a stock mar­ket in­vestor, I think the Iraq story is really a no-brainer be­cause it com­bines a num­ber of features that have been present in many of the top per­form­ing emerg­ing mar­kets since the 1970's. First of all, Iraq has enor­mous re­serves of low-cost, un­tapped oil as well as nat­u­ral gas, which makes it quite a lot like Rus­sia in the early 90's. Then there is re­cov­ery from civil war which makes it much like Sri Lanka. That mar­ket had just in­cred­i­ble per­for­mance from 2000 to about 2008. There is also the story of the tran­si­tion from a state-owned to a mar­ket econ­omy, which of course any­body would im­me­di­ately rec­og­nizes as the story of the Chi­nese econ­omy.

I think it's in­con­ceiv­able that a coun­try that has enor­mous un­tapped, low­cost oil re­serves, is re­cov­er­ing from a civil war, is in the midst of a tran­si­tion from a state-con­trolled econ­omy to a mar­ket econ­omy, and where there is ex­cess de­mand for just about ev­ery­thing, would not ex­pe­ri­ence rapid eco­nomic growth. Of course, no one really thinks Iraq's oil pro­duc­tion is go­ing to go up to the ten mil­lion bar­rel a day level that the government ini­tially claimed. Peo­ple think maybe they'll be lucky to get to six mil­lion but even if they get to four or five, that's a dou­bling from what it was be­fore.

There is also a tremen­dous in­vest­ment boom go­ing on as Iraq's in­fra­struc­ture is re­built. In ad­di­tion to that, there is bound to be a dra­matic ex­pan­sion in the bank­ing sec­tor. I be­lieve only about 20% of Iraqis have a bank ac­count. In the tele­com sec­tor, I heard from Asi­a­cell to­day that the pen­e­tra­tion rates are still very low com­pared to the re­gion and there are still all sorts of broad­band cov­er­age that isn't avail­able at all.

You've got this com­bi­na­tion of ex­treme short­ages with this amaz­ing abil­ity to pur­chase things due to the oil wealth. I don't see how even the most in­ept politi­cians could screw that one up. So that's why I think that the Iraq story is uniquely com­pelling among all of the economies of the world to­day. I sup­pose that there may be equiv­a­lent sto­ries in parts of sub-Sa­ha­ran Africa but I can't really imag­ine any­thing quite as good as this, any­thing that com­bines all of th­ese things in one place at one time, or any place that has such an enor­mous amount of un­tapped oil wealth and such a low start­ing point. It seems to me the po­ten­tial for growth in Iraq should be ob­vi­ous to any­one.

I think the Kur­dis­tan re­gion has an at­trac­tion in ad­di­tion to all of this be­cause it's safe. That makes it a nat­u­ral gate­way. For­eign­ers do­ing busi­ness in Iraq will try to do it in Kur­dis­tan if they pos­si­bly can."

Kur­dis­tan's numer­ous re­sources, im­pres­sive sta­bil­ity, and lib­eral in­vest­ment laws is truly a haven for op­por­tunist in­vestors. The re­cent in­ter­na­tional sup­port and in­ter­est in the re­gion will hopefully bring more devel­op­ment and eco­nomic pros­per­ity to the re­gion. The spread­ing of ur­ban­iza­tion and growth that oc­curs as in­vest­ment projects grow in num­bers will cre­ate numer­ous ex­tra­ne­ous eco­nomic op­por­tu­ni­ties in Kur­dis­tan that will fur­ther strengthen Kur­dis­tan's grow­ing domestic mar­kets and sup­port the re­gion's en­trance into the world mar­kets. This spread­ing of wealth does more than en­cour­age eco­nomic growth; it also in­flu­ences cul­tural trans­for­ma­tions that could fur­ther im­pact the devel­op­men­tal fu­ture of Kur­dis­tan.

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