Iraq – unlimited investment opportunities!

About one hundred participants attended the Hamburg Chamber of Commerce for the Hamburg Business Day Iraq on November 11, 2010. Among them were representatives of German companies and Iraq as well as scientists from the Center of Iraq Studies.

Stefan W. Dircks, member of the plenum and chairman of the Asia working group of the Hamburg Chamber of Commerce, opened the event, referring to the special situation of Iraq. He named the successful trade fair in Baghdad as a clear sign of the economic upturn in the country.

Martin Köppen from the Ministry of Economics and Labor welcomed the participants on behalf of the Free and Hanseatic City of Hamburg. He drew attention to Hamburg’s special relevance as a logistics and export center for trade with Iraq. H.E. Dr. Hussein Alkhateeb put German-Iraqi relations in their historical context and described the numerous investment opportunities for German companies. Liberal investment laws and an improved security situation offer an excellent starting point for economic engagement.

In the first block moderated by Mr. Dircks, the former German ambassador to Iraq, Paul Freiherr von Maltzahn, analyzed the political situation after the parliamentary elections. The security situation was distorted in the media, he said, because they focused too much on terrorist attacks. Prof. Dr. Hanaa Hammood again described the liberalization of the financial system and gave an insight into the Iraqi banking system. Finally, Dr. Klaus Hachmeier presented the work of the Federal Ministry of Economics and Technology in Iraq. He drew particular attention to the Ministry’s three trade offices in Erbil, Baghdad and Basra, which would provide active support to German companies in establishing economic relations in the respective regions.

The second block started with the presentations of Hayder Mustafa Saaid and Dr. Kamaran Mufti from the Board of Investment for the Province of Kurdistan. They presented the framework conditions and measures with which their authority supports foreign investors in an economic engagement in the region. Saaid referred to the homepage of the authority, on which all tenders for the province of Kurdistan can be found. Volker Knauth from Euler-Hermes Kreditversicherungs-AG informed about export credit guarantees, which companies can use to insure themselves against risks. Building on this, Gerhard Schipp from Commerzbank described the export financing options that his bank offers German companies in Iraq. He emphasized Commerzbank’s close contacts with Iraqi banks and companies.

The four presentations were very well received and many participants asked questions about the practical implementation of their projects in Iraq. The participants were now released into their well-earned lunch break, during which numerous opportunities were offered to make contacts and exchange experiences.

In the afternoon Prof. Sefik Bahadir from the Center for Iraq Studies took over the moderation. Dr. Stephan Jäger from Amereller Attorneys at Law began by giving an overview of Iraqi business and investment law. He pointed out that the theory and practice of law were often different. The two subsequent speakers then described how practical work in Iraq actually takes place. In a very vivid presentation, Dipl.-Ing. Eduard Metze from the engineering office Vössing introduced his work in Dohuk (Northern Iraq). His company is currently building a waste recycling plant there. A further insight into the work on site was provided by Dipl.-Ing. Andreas Nußbaum, who had carried out the planning of the water supply for several cities in northern Iraq.

The last block on export and logistics was moderated by former UN coordinator Taoufik Ben Amara. At the beginning, Prof. Saladin Perababi from the University of Erbil gave a basic overview of the state of the Iraqi infrastructure and the associated logistics sector. Nasyr Birkholz, who distributes German products in Iraq with his company Birkholz International, analyzed the export opportunities for German companies. German goods would have an excellent reputation and many Iraqis would be willing to pay more money for these products than for comparable goods from other countries. He described the rapid economic upswing in Iraq, which is associated with a general increase in demand and imports.

Finally, Uwe Stupperich of M.G International presented the practical challenges facing logistics companies in Iraq. In the concluding question and answer session, a number of practical problems were also addressed. The conference promised to be the starting point for a more intensive cooperation between German and Iraqi entrepreneurs.

WP-Irak: Beim Hamburger Wirtschaftstag Irak wurde nicht lange geschnackt. Zielorientiert packten die Referenten und Teilnehmer die praktischen Herausforderungen des Irak-Geschäfts an.

Key points on the Iraqi economy

After the end of the war and with the termination of the American administration, Iraq has become a sovereign state again. Iraq is the country with the third largest oil reserves and accordingly the Iraqi economy is heavily dependent on oil exports. Agriculture is the second largest economic sector after the oil industry. While the economic growth in 2008 was 9%, the financial crisis brought a downturn of almost 5%. However, the economy is expected to recover to 5.8% in 2010 and 7% by 2013.

To rebuild the country and boost the economy, the Iraqi government has drawn up an investment plan of over 70 billion US dollars, with a large part of the money to be invested in settlement construction and transportation.

In order to attract more private and foreign investors and promote reconstruction, the investment law was amended in 2009. Foreign oil companies have been allowed to produce Iraqi oil since 2007. Since 2009 they can now also acquire land, real estate and national oil fields. The Iraqi government thus wants to push the reform process forward. In the oil sector, investments of more than 14 billion US dollars are planned in order to make better use of oil resources. Europe has rediscovered Iraq as an important source of oil and now hopes above all for increased cooperation.

With the passing of new laws one hopes for a re-strengthening of the economy and for an increased readiness to invest from abroad. This is intended to bring about a change from a state-controlled economy to a free market economy, although privatization is proceeding rather slowly.

The public financial system is also to be reformed. The Iraqi banking system is making progress again after the setbacks of war, hyperinflation and blockade. Today the banks in Iraq can boast the most modern IT systems.

With the liberalization of the credit system, more and more private banks are establishing themselves. They are developing well and their capital has risen to 1.6 billion US dollars. Today, Iraq offers attractive investment opportunities to foreign private banks, since up to now only state-owned banks have granted loans and these manage 75% of all money deposits. Private banks are therefore strongly expandable.

Almost 93% of Iraqi state revenues come from the oil business. However, this should be changed. There are plans to involve the Iraqi citizen more strongly in state development and since 2006 the tax system has been renewed. They are also trying to introduce a value added tax and want to regulate the sales tax anew. It is hoped that these plans will also attract foreign investors. A double taxation agreement with Germany is in preparation. This would enable German investors to export their profits tax-free in Iraq.

Iraq has large deposits of natural gas. These are mainly located in the southern part of the country and could not be tapped until now due to infrastructural problems. These resources could be of great benefit in the future. Investments are being made primarily in the area of oil refining, but also in the extraction and transport of oil. Further funds are flowing into the construction of power plants and innovative projects for the use of renewable energies. This offers foreign investors great opportunities.

In order to become more independent of the oil sector, Iraq is focusing on renewable energies. They are increasingly used in the country’s power supply. A power demand of approx. 13,000 MW in the summer of 2009 contrasted with a power capacity of approx. 6,000 MW.[1] The reasons for this are outdated technologies and inadequate transmission systems. In order to replace this weak and outdated energy and power grid, foreign investors and skilled workers are being sought.

For the population, access to clean drinking water is equally important. This is only given for about 70% of the Iraqis. Investors are also being sought for this sector. The government promotes the development of an efficient economy with the help of five-year plans. The last five-year plan provides for state investments of 100 billion US dollars. These funds will be used for settlement construction and transportation. This is to support the domestic economy. The money for this comes partly from Exporteinnahmen¸ which doubled between 2006 and 2008. The main export goods are of course oil and gas. During the financial crisis, Iraq’s export volume decreased, although not as much as feared, due to Iraq’s low international integration.

Iraq’s infrastructure was severely affected by the war. Large parts of the road and railroad

network were destroyed. Therefore Iraq is now investing several billion US dollars in this area. International cooperation is particularly needed in the development of the railroad sector, with plans for routes abroad. The Dorsch Group from Munich is responsible for the planning of four railroad lines, which are between 17 and 400 km long and are to connect Baghdad with the Jordanian border.

Progress can already be seen in air traffic. Since the end of April 2010, Lufthansa has been flying four times a week directly to the modern Erbil airport. Other, new airports are hoping for increased international air traffic. Due to political disagreements, Iraqi Airways’ plans to expand its route network abroad were abandoned. The Iraqi government now wants to sell the airline.

The waterway is one of the most important traffic routes and is also used for oil exports. Passenger and goods transport is also important. Basra is currently modernizing its port, Umm Qasr, with new cranes and additional quays. Here, too, international cooperation is increasingly important. The expansion of the port is currently being carried out by the logistics company Gulftrainer. MGL Dubai, a sister company of the German logistics company IQ Martrade Shipping + Transport is also active here. In southern Iraq, the German company Marlog LBG has been operating a quay in Khor Al-Zubair since August 2010.

Domestic transport has been stable for five months and transport to and from Turkey, Jordan and Syria is increasing. The need for investment in transportation and logistics is urgent. The development of this sector also has a significant influence on the progress of the tourism industry and is closely linked to its success. The price of oil is decisive for the development of the infrastructure sector, since projects are financed by income from oil. The security situation is taken care of by international companies. Both factors could register positive developments.

The costs of school and university education in Iraq are covered by the state. Since 1990, however, private schools have also been permitted for a fee. There is a lack of qualified teachers, however. The universities are unable to provide sufficient training due to a lack of resources. The need for adequate equipment is growing and foreign experts are lacking. Therefore the Ministry of Higher Education and Research encourages foreign private investors to open their own institutes. Germany in particular is called upon to support the development of technical capacities.

Since February 2008, skilled workers have been trained at the European Technical Training Center (ETTC) in Erbil with the help of Daimler AG and AGEF[2]. In September 2010 a first German school will open its doors in Iraq. A cooperation agreement has been in place between the University of Marburg and the University of Baghdad since 2005. In 2009, four long-term university partnerships were established with the support of the DAAD and the German Foreign Office at a cost of approximately 4.5 million euros.

Iraq’s health care system has long been a leader in the Middle East and North Africa. Today there is a lack of doctors, health centers and modern technologies. The mortality rate, especially child mortality, is high. German companies are involved in the reconstruction of the healthcare system. In February 2010, the Iraqi Ministry of Health ordered imaging systems from Siemens Healthcare for 69 million US dollars for use in hospitals. Siemens thus won the largest single order in the Middle East.

Not a single hospital has been built in Iraq in the last 23 years. Today, after the destruction of the war and due to population growth, there is an increased demand for hospital construction. At present two new hospitals are being built by German companies. German products are particularly in demand because of the quality of the products. Equipment with medical devices is very welcome in Iraq.

By the end of 2010 the volume of money for purchases from the pharmaceutical sector is expected to grow from 200 to over 250 million US dollars. Further information and current tenders can be found in the country profile, including the fact that the German Foreign Office has been warning against travel to Iraq since August 11, 2010. German citizens are advised to leave the country. For the Kurdistan region, especially the cities of Erbil, Sulaymaniya and Dohuk, this travel warning will be restricted due to a better security situation.