Iraq Feature p22-29

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nancial centres like London or New York. Nevertheless, foreign inves-

tors (deterred by the old paper system) are now much more willing

to take a punt on Iraqi stocks, says Salam. I have investors from the

US, Canada, Europe, as well as Arabs in the region and Iraqis living

abroad, who have told me directly that they are very interested in Iraqi

stocks now that we have this automation.

Granted, the ISX going digital may seem a pretty insignicant

development when you assess the destruction and carnage that this

country has endured after decades of bloody wars, crippling sanctions

and tyrannous rule. However, Iraq looks to be nally turning the corner

as a new dawn beckons in this land of opportunity. This is a nation

that boasts a skilled and educated workforce, gargantuan oil and gas

reserves and land ripe for agriculture. Its a young nation, too, with 40percent of its 28 million people under 15 years of age. Indeed, Iraq has

the raw ingredients to resurrect itself into a prosperous and inuential

country in the region. And there has been no shortage of companies

from all four corners of the globe eyeing up a slice of this juicy pie as

the country begins to stabilise. Americans, Chinese, Russian, French,

South Koreans, Brazilians, Australians and a whole heap more are

vying for, or have already landed, lucrative contracts to build and repair

the full gamut of sectors, such as healthcare, energy, transport, educa-

tion, construction and telecoms, as well as rejuvenate basic services

like waste management, electricity and water supplies.

An unassuming blue Arabic and English sign hangs from

the facade of a non-descript building in the now thriving

Karrada district of the Iraqi capital, Baghdad. Inside, cap-

tivated brokers and investors gaze up at one of the 46-inch

plasma TV screens ashing up buy and sell prices for

abbreviated stock codes. A couple of grey-haired gentlemen gesticu-

late at the screen while others babble into their mobile phones. The

stock exchange, a microcosm of capitalism and free enterprise the

world over, has entered a new era in Iraq with the introduction of an

electronic trading system the rst of its kind in the country and an-

other milestone towards this nations gradual recovery.

Until recently, prices at the Iraq Stock Exchange (ISX) were adjust-

ed using primitive white boards and marker pens, and a traditionalopen outcry system. With the newfangled technology, trades are ex-

ecuted in minutes instead of the two weeks and more it took for stock

certicates to be issued under the manual method. My rst baby

was establishing this stock exchange in 2004 but my second baby has

been getting the elect ronic trading system, the exchanges CEO, Taha

Ahmed Abdul Salam, reveals proudly with a broad smile.

A total of 91 Iraqi companies are registered with the bourse, but

for the time being the shares of just three banks and two hotels can

be bought and sold using the new platform. Around US$270 million

was traded last year a miniscule amount compared to colossal -

Its a ractured and ragile country scarred by bloody wars, the shackles o

sanctions and a despotic regime. But with green shoots o peace and stability

sprouting, the Iraqi government is beckoning oreign companies and investors

to resuscitate the nation and unlock its riches. Theres no doubt this is the land

o opportunity but is now the time to fnally put Iraq on the business map?

By Julian RogeRs

Iraq

ReBuilding


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to the current leasehold arrangement) in a bid to make investment in

the crumbling country a more attractive prospect.

R-rwr rtDespite its obvious opportunities for big business, Iraq isnt with-

ut its problems and any would-be investor is more than aware of this.

For starters, the regulatory and legal framework of the Investment Law

2006 appears fuzzy and vague in places to say the least, while govern-

ment agencies and ministries dont always sing from the same hymn

sheet when enforcing the laws. Also, the security situation, although

vastly improved compared to the bloodbath witnessed just a few years

go, spiked again in April and May with a spate of deadly suicide bomb-

ings. Bureaucratic red tape can prove a par-

ticularly vexing obstacle for foreign companies

unfamiliar with doing business in the Middle

East; and Iraq has sustained a signicant

brain drain with skilled professionals either

killed in the conict or choosing to ee abroadto escape the bloodshed. Then there are prac-

tical problems like unreliable telecommunica-

tions and a sporadic electricity supply, which

are hardly conducive to a quick recovery.

Essential services have not improved

much, concedes Mohamad El-Tai, CEO of Iraqi satellite TV broadcaster

Al Fayhaa. Electricity is still unstable and shut off several times a day,

which constitutes a signicant problem affecting many aspects of the

lives of Iraqis. Indeed, estimates suggest Iraq will need an additional

20,000 megawatts of electricity to repair the country and provide power

or new homes and businesses. It currently produces 6750 megawatts

f intermittent supplies but a slump in oil revenues has left a US$2 bil-

lion shortfall in the budget assigned to develop power supplies.

Hussein al-Uzri, Chairman and President of Trade Bank of Iraq (set

up in 2003 to facilitate reconstruction and international trade), says

now is the time for investors to come to the country. Iraq is open for

business because most of the country is now quite safe and the time is

right we are also seeing Iraqi investors bringing their money back to

he country. Iraq hasnt had investment in infrastructure and industry

or the past 20 years because of the sanctions so we need hundred of

billions of dollars.

UK-based Kier Construction assisted in building a port in the

south of the country back in the 1980s. Managing Director Phil Cave

ravelled to Iraq in April to assess opportunities and now feels the

ime is right for his rm to return. There is denitely a change in the

ir and, notwithstanding recent incidents, the

security situation has signicantly improved

ver the last year. They are determined to

move the country forward and have the means

o underpin their priorities. It is evident that

he government is working to overcome actualnd perceived challenges.

Iraq itself is shelling out US$15 billion

his year on modernising its civil infrastruc-

ure, but the y in the ointment is crude oil

prices tumbling around US$100 from last

summers record high. The sky-high price was seen as an oil bonanza

hat would provide an additional boost to state budgets. The subse-

quent nosedive forced overall 2009 spending plans to be slashed

rom US$80 billion to less than US$60 billion, with some ofcials

panicking about the country s future spending power. The downturn

is another reason why the Iraqi National Investment Commission is

looking to attract US$500 billion of foreign investment by 2015. It

could include overseas rms b eing allowed to own land (as opposed

Oil accounts for a mammoth

95 percent of Iraqs revenuesThe Iraq Stock Exchange is looking

to attract foreign investment with

its new automated system

40%of iraqs populaton sunder 5 years of age. itsedan age s just 20.4


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contracts, do the Ameri-

cans feel any resentment?

There is a window open

or all international com-

panies, Mills responds

iplomatically. When

you go to Iraq and speak

to ofcials they might say they want an American company to carry outUS$50-100 million project to rebuild a renery or electric power sta-

tion. But if a US company wont come and do it they will just nd another

rm from France, Russia, China or wherever, that will. The need to nd

companies to do these Iraqi government projects always persists.

As well as government projects, Mills notes that many US compa-

nies who came over in the initial reconstruction phase have branched

ut into the private sector. He says car giant General Motors (GM)

riginally set up a maintenance facility in Iraq to service the tens of

thousands of vehicles ooding in for the reconstruction effort but has

since looked elsewhere for private contracts. Its a similar situation

with construction equipment manufacturer Caterpillar. But whether

you are rebuilding an oil renery or installing software for a telecoms

contract, Mills stresses the need for businesses to do their homework

Putting the troubles to one

side, El-Tai believes investment

pportunities for overseas rms,

particularly those involved in oil

nd gas, outstrip those of Iraqs

neighbours in the region. Iraq is

promising market with numerous

investment opportunities, he as-

serts enthusiastically. The foreign

companies have a strong and com-

petitive wish to invest in Iraq and the government has put forward

acilities to encourage this. He is also upbeat about the countrys

uture when asked to gaze into his metaphorical crystal ball. I am

ptimistic, despite the difculties that Iraq and Iraqis are facing at

present. I believe the tremendous riches of Iraq be it oil, gas or other

minerals, agriculture and water resources will enable the rebuilding

f the country very quickly.

As the spearhead in the invasion of Iraq in 2003, the United Stateshas beneted the most from lucrative contracts. Indeed, some US$2

billion of American contracts have been signed with over 5000 private

equity rms in the last three years alone. Timothy Mills, former Presi-

ent of the American Chamber of Commerce in Iraq and a practising

international lawyer, has seen with his own eyes compatriots working

o rebuild the country. Speaking to usiness Managementfrom Wash-

ington prior to his latest departure for Iraq (his 111th visit since July

2003), Mills says the countrys redevelopment is a bright light amid the

global economic gloom. The attractiveness of business opportunities

has increased as other areas of the world have retracted, but whether

r not to work in Iraq comes down to a r isk versus benet calculation for

many company bosses. But with thousands of companies from coun-

ries that played no part in the 2003 invasion awarded reconstruction

Iraqi Airways is soaring again

with new scheduled routes and

destinations, including Europe

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allows citizens and companies to store, transfer and

invest their earnings. Without reliable voice, postal or

internet communications it has been very hard for any

bank HQs to standardise Radain is essentially a

group of 155 individual banks all operating with unique

procedures and systems, and most banks are in a similar

situation. Being a government-controlled bank it is sit-

ting on a cash mountain of US$15 billion, which proves

extremely hard to manage and invest without electronic

clearing and a core banking system. Every government

account is held with Radain Bank so once Radain

starts working, Iraq will start working, Hargreaves

explains.

Dubai-based Roy Froud is Head of the MEA region

for Misys Banking, a global application and services

company involved in upgrading and centralising op-

erations at four Iraqi institutions. He believes Iraqs

lenders could eventually leapfrog other banks in theMiddle East with modernisation. Hes also an advocate

of companies setting up in the region and building up

a reputation and trust with customers. Clearly banks

here dont want to deal with companies ying in from

the West, dropping software on them and then ying

home again. They want partners who are committed to

the region and committed to them as customers, and

companies with Arabic skills and the right people to

implement solutions.

One of Misyss clients includes al-Uzris Trade Bank

of Iraq. He describes Iraq as being seriously underbanked when

assessing the condition of the nancial sector. Iraq has less than

600 branches countrywide, which is very low compared to regional

countries, he remarks. Iraqis would be encouraged to have bank ac-

counts if there were better services, better returns on their deposits

and good credit policies to allow the banks to lend. Al-Uzri is also a

proponent of the banks playing a much more signicant role in the

economy and in terms of Iraqs GDP.

rst or face failure. If US companies

have not been working in Iraq, either

with the government or the private

sector, then there needs to be a seri-

ous adjustment of the business model

and they need to do due diligence. It

also means nding trusted Iraqi part-

ners to do business with and navigate

the local nuances.

m ttrAlthough most industries are

creaking, one sector lagging light

years behind its peers in the region

is banking. In Iraq cash is king, with

people forced to hoard wads of

dinars because the banking system

is so antiquated. Transactions arecarried out manually, branches cant

communicate electronically with

one another and ATMs are virtually

non-existent. Paying for goods and

services with credit cards is a nascent

payment option, too. Shirko Abid, an

Iraqi Kurd and Chairman of B-Plan

Information Systems, is introducing

a much-needed electronic clearing

system across state-owned Radain

Banks 155 branches (55 in Baghdad). With the new system Abid says

companies will be able to pay salaries directly into employees bank

accounts, money can be transferred between branches and even with-

drawn from Radains seven outlets abroad.

Radain, which holds 45 percent of the countrys nancial assets,

used to stand proud as the Middle Easts largest bank before falling

into a decrepit state. Laurence Hargreaves, B-Plans Project Co-ordi-

nator on the ground, is candid in his assessment of the archaic state of

the banking industry. Radain struggles to function with-

out a banking system to manage its 4.5 million accounts,

he explains. There is no communication system to enable

any of the branches to communicate to HQ, money cant be

transferred between branches and no unied products can

be offered. The legacy of Saddam Husseins regime and

the two wars have left gaping holes in the balance sheetsthat need to be lled. Trying to repair the situation was

taxing in the years following the fall of Saddam, suggests

Hargreaves. Until recently, the security situation meant

that installations of such large new systems couldnt be

achieved and banks have had to make do with an incom-

patible range of legacy systems.

For Hargreaves, a reliable and trustworthy banking

system is one of the most basic requirements for building

a secure and prosperous state. Many people nd it hard

to comprehend that a country does not have a system that

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Cr wOf course when it

comes to GDP, Iraqs most

prized and coveted asset

is its enormous energy

reserves. The ramshack-

le oil sector brings in a

mammoth 95 percent

of the earnings for a country with perhaps the largest unexploitedenergy resources in the world. Iraqs ofcial reser ves are around 115

billion barrels (the third largest in the world) but this is bas ed on ar-

chaic 2D seismic surveying. Ambitious estimates by industry insid-

ers triple the outdated reserve gure, partly because only 17 of the

80 known elds have been signicantly tapped for oil. If the ambi-

tious estimates turn out to be tr ue, Iraq would catapult to the top of

the production league table, ahead of neighbour Saudi Arabia. The

reserves are not exaggerated they are huge, and I am optimistic

that this gure will be higher than 115 billion barrels, suggests Man-

ouchehr Takin, Senior Analyst at the Centre for Global Energy Stud-

ies. Some think it could be 200 billion or higher but these amounts

are just estimates. With rock-bottom extraction costs, thought

to be as low as US$2 per barrel, and more than a third of reserves

lying just 600 metres below the earths surface, you can just

imagine the dollar signs ashing in

the eyes of the bosses of

the foreign oil majors. Its

a tantalising prospect, ac-

cording to Takin: Why go

to harsh and inhospitable

places in the world like the

Arctic? It really is entering

the unknown and despite all

the costs that are incurred,

you are not guaranteed tond oil. In Iraq the costs

are low and the elds are

already there.

Iraq currently pumps around 2.4 million barrels a day (bpd), of

which 1.8 million is exported. But although the industry overall is seri-

ously dilapidated, Oil Minister Hussein al-Shahristani is condent that

output can be ramped up to an ambitious six million bpd, although he

openly admits that US$50 billion will be needed to achieve this, along

with the help and technical know-how of the international oil com-

panies (IOCs). But there are still stumbling blocks: the long-awaited

Watchdog group Transparency International ranks

Iraq as the worlds third-most corrupt country

behind lawless Somalia and dictatorial Burma.

Since the 2003 invasion Iraq has been dogged by

accusations o dishonest business practices, includingallegations that government workers absconded with

billions o dollars planned or reconstruction, military

supplies and ood. Two years ago,

the ormer head o the countrys anti-

corruption commission, Radhi al-Radhi,

suggested that some US$8 billion had

disappeared. Iraqs anti-corruption

committee investigated 12,000 complaints

o government corruption and discovered

the worst departments are the ministries o

interior, fnance, deence, education and

health. However, the committee admits

that the investigation barely scratches thesurace o what goes on. Iraqs image

has also been tarnished by the recent

resignation o Trade Minister Abdel Falah al-Sudani amid

allegations o corruption and embezzlement linked to the

nation's ood assistance programme. Meanwhile, Prime

Minister Nouri al-Maliki admits that his country cannot

prosper until widespread corruption is snued out a

seemingly impossible task as it stands.

GrEasy palms

hydrocarbon law, a bone of contention between political factions, has

been deadlocked for two years, the industry itself is in dire need of a

skilled workforce and technology to boost production, while many fa-

cilities and pipelines have been sabotaged or damaged. I would say

the oil industry is on its feet at the moment but the question is what

needs to be done to get it to a brisk walk? says Mills. Iraq needs

to rehabilitate reneries, explore new reservoirs and then extend the

pipeline and port capabilities in order to export, so the IOCs will be

key because this needs signicant investment.Meanwhile, the autonomous Kurdistan has signed contacts with

overseas oil companies to extract hydrocarbons, much to the anger

of Al-Shahristani who has branded these deals as illegal. Tensions

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between Iraqs leaders and the Kurdistan Regional Government (KRG)

re strained to say the least. For the time being, the IOCs are busy pre-

paring and submitting their nal bids to the Iraqi oil ministry for the

echnical service contract (TSC) award ceremony at the end of June.

hose that land the highly sought-after contacts will be weighing up

he costs versus the risks of venturing into the unknown. Business

in Iraq for oil and gas companies remains far from straightforward,

explains IHS Global Insights Senior Analyst, Samuel Ciszuk. Despite

he dramatic improvement in security over the past two years, Iraq

still remains one of the most unsafe business environments in the

It may not be the obvious destination or European and

North American sun-seekers, but a trickle o tourists

re tentatively venturing into Iraq to discover its unique

culture and stunning archaeological sites frsthand.

Bizarrely, or US$220 a night newlyweds can even spend

their honeymoon in the late Saddam Husseins bed at

his ormer palace south o Baghdad. Geo Hann, owner

and Managing Director o Hinterland Travel, recently

returned rom a 15-day tour o the country accompanying

eight American, Canadian and British

tourists. He says curiosity uels visitors

decisions to go: Iraq has been in the

news so much over the past ew years

so people want to come and see things

or themselves, as well as take in the

archaeological and Islamic history.

This was Hanns frst organised tour

since a sel-imposed hiatus in 2003.We stopped going because o the

kidnappings and killings so this trip was a learning curve

or us. For Hann and his group, ears over security and

getting bogged down in administrative matters were the

biggest headaches but he insists that these issues didnt

spoil the trip. The clients were prepared to put up with

anything, he recalls, And they needed to be because

the inrastructure is quite bad and the checkpoints can

be extreme at times, which leads to delays. Hann says

the trip was an overall success and has a second tour

earmarked or October.

NoTh NG To dEclarE

world. Security costs for IOCs and contractors with a signicant

physical footprint run in the range of US$8000 to US$10,000 a day,

ccording to Ciszuk.

A large proportion of the recent bombings in Iraq have targeted

il installations. With the IOCs on their way in, there are serious

concerns that a deadly bombing and kidnapping campaign could

surface. You have to analyse it on a case-by-case basis; structure

your business plan accordingly with respect to your security precau-

tions and security costs, is Mills advice to

foreign oil rms. In vas t reaches of Iraq the

environment is what the military would call

permissive. The military itself does not wear

military gear and has declared these areas

s safe, particularly such areas as Najaf, the

south, Kurdistan and areas of Baghdad.

T t t

Any oilman entering the country willinvariably do so by air. And one of the most

vital aspects of the recovery effort will be the expansion of routes

nd regional airports, together with improved security at Baghdad

International Airport (previously known as Saddam International Air-

port). This gateway to the country was an important travel hub in the

Middle East in its heyday before UN sanctions were imposed during

the 1991 Gulf War. The national carrier, Iraqi Airways, used to y to

estinations all over the world until the embargo forced the eet, with

their distinctive green and

white livery, to languish

n runways and in hang-

ers for 12 years, like relics

f a bygone era. Baghdad

nd other Iraqi cities were

scrubbed from destina-

tion boards in most major

verseas airports, too.

Recently however, several

f Europes major airlines

have tentatively expressed an interest to resume ights. British

carrier bmi says it is ready and willing to begin services between

London Heathrow and Baghdad by summer 2010, which would be the

rst commercial ights between the two countries since the Gulf War.

The only direct link currently between Iraq and Europe is provided by

Austrian Airlines.Iraqi Airways is soaring again too, with new planes on order and

new routes planned. It recently launched a scheduled ight to Stock-

holm, Sweden, and plans are in the pipeline for other European and

Middle East destinations. Improved technology and facilities are being

installed at the capitals airport, too. Abdul Wahab Teffaha, Secretary

General of the Arab Air Carr iers Organisation (AACO), is buoyant about

Iraqi Airways future. I believe the foundation is there for a successful

nd powerful airline that will make its mark on the air transport scene

in the Arab world. Iraq is a rich country that is also extremely rich in

culture and historical heritage, as well as having a large diaspora.

Tourist Tina Townsend snaps away during a visit to the Cross-Sabers

Monument in Baghdads Green Zone

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oping a hotel in the Kurdish area of Erbil but has announced its inten-

tions to open a ve-star development opposite the American Embassy

inside Baghdads Green Zone. The move left people in the industry

astonished, says President and CEO Selim El Zyr. We always go to

places where nobody else goes and that is why we are pioneers in this

eld. We dont mind taking risks, not at all. . Rotana, which manages

a portfolio of 67 properties across Middle East, says its 250-room

Baghdad hotel, due to open in early 2012, will cater to diplomats and

visiting businessmen. As well as the British and Australian embas-sies, the new US embassy is located inside the zone and is the largest

(the size of Vatican City) and most expensive in the world. Up to 5500

Americans and Iraqis work and live there, although more than half are

security professionals.

Apart from hotels and accommodation for foreign workers and visi-

tors, there is a chronic shortage of housing. Its thought that Iraq needs

between two and three million new housing units. This could lead to a

whopping US$35 billion of foreign investment in real estate for 2009,

according to US-based Dunia Frontier Consultants. Likewise, Mills sug-

gests this shortage will fuel a sharp upswing in construction projects:

You will eventually see a building boom because there is a need for

several million housing units and there is the development of a nascent

mortgage industry to support this. He even foresees Dubai-esque

development. Over the next ve to 15

years the capital will be redeveloped

and you will see a core of ofce towers in

downtown Baghdad similar to Sheikh

Zayed Road in Dubai. Quite whether

Baghdad will ever be lined with shiny

skyscrapers piercing the clouds remains

uncertain. But there is no getting away

from the fact that 10 years f rom now the

capital and country could be unrecognis-

able. With coalition troops withdrawing

and investment pouring in, Iraq is comingoff its life support machine, but the crux

of Iraqs recovery will depend on long-

term peace and the government being

able to squeeze every drop of prot out

of its abundant natural resources. And,

of course, drumming up the right levels

of foreign investment. Iraq has poten-

tial to become either the second or even

the most vibrant economy in the Middle

East, suggest Mills. Watch this space.n

Teffaha goes on to

say: You cannot deny

that there are busi-

ness opportunities

and attractions so

there will be trafc. It

will not be like the Big

Bang but gradually,

however long it takes, Iraqi Airways will get out of this situation.Apart from improving security, Teffaha is perturbed by the dearth

of trained aviation personnel in the country and says it could very well

bring the industry down to earth with a bump. They need to plug the

gap after being isolated for 35 years because of wars, embargoes and

working in a very precarious situation, he notes, but before this

Iraqi Airways had an excellent engineering base and a modern eet.

Its the same for the airport, says Teffaha. Baghdad International

Airport was a state-of-the-art airport when it was built and although

new equipment can be easily purchased it is more about the people

who will be needed.

Those business chiefs brave enough to venture into Iraq through

Baghdad International Airport after the coalition forces toppled

Saddam were all too aware of the problems awaiting them. Even

before passengers touched down on Iraqi soil

the aircraft would land using a steep corkscrew

manoeuvre in a bid to avoid rocket attacks from

surface-to-air heat seeking missiles. Then once

through customs they had to negotiate the 12km

stretch of road into the city that gained the noto-

rious tag of the most dangerous stretch of high-

way in the world a white-knuckle ride avoiding

roadside bombs, insurgents blowing themselves

up and the common-or-garden drive-by shoot-

ing. Many high-ranking ofcials and VIPs sought

the sanctuary of the heavily fortied Green Zoneby means of helicopter. Others stumped up as

much as US$3000 for a ride in an armoured car

to their hotel.

Today, the situation is much safer but with

increasing numbers of executives, contractors

and government ofcials ooding in, the dilemma

of where to stay is proving rather a headache.

Iraq needs tens of thousands of additional hotel

rooms to cope with the inux but this will take

time. Luxury hotel group Rotana is already devel-

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Documents

Iraq Feature p22-29