Friday, August 12, 2011

Foreign Investment In Iraq’s Basra Runs Into Problems

Basra in southern Iraq has always been the main business hub of the country. It has the only access to the Persian Gulf and contains the vast majority of the nation’s oil and gas reserves. Today, it receives just over one-third of all investments in the country, and that amount is dramatically increasing. The problem is that far too many of these deals fall through because of government red tape, lack of coordination, the country’s limited banking capacity, and corruption.
(Agence France Presse)
In February 2011 the Dunia Frontier firm released a report that found that private investment in Iraq almost doubled in 2010. Last year, 156 companies pledged $42.668 billion to Iraq, a 48.7% increase from the $28.7 billion in 2009. The leading sectors foreign businesses put their money into were real estate, transportation, electricity, industry, and oil and gas. Baghdad received 39.8% of all investments, closely followed by Basra with $14.702 billion, or 34.5% of the total. In May 2011, the Basra Investment Commission announced around $174 million in new investment in the province. These reports only covered monies promised however, not actually appropriated.

The problem with too many announcements about investments in Basra, and Iraq in general, is that they too often fail to actually materialize for a number of reasons. In June 2011 for example, the Basra Investment Commission said that it had agreed to 40 development projects since it was founded in 2008, but more than half of them were never implemented. The Commission stated that one major problem was that companies could not get land allocated to invest in. In Basra, the Oil Ministry owns most of the land because of the province’s huge oil and gas deposits. Iraqi law prohibits foreign companies from owning land in many cases. The government has tried to change the legislation, but has largely failed. In October 2006, parliament passed a law that allowed investors to lease land for 50 years. (1) That was followed by an amendment to the 2006 Investment Law that allowed foreign companies to own land for housing projects. In December 2010, a similar decree was issued to allow investors to own land for housing, and leasing for other types of investment. None of these have helped, because there are still other laws that restrict land use by investors. (2) The government also lacks adequate land dispute regulations, and trained staff to implement the new laws. Another problem with the bureaucracy is that it is too slow in issuing visas for foreign workers. The oil companies in Basra especially have complained about this. A consulting engineer working in the province told the press that an additional issue is the lack of coordination between the provincial and central governments. In April 2011, the Electricity Ministry signed a $204.4 million deal with the Chinese National Machinery and Equipment Import & Export Corporation to build a 500 megawatt power plant in Basra in 19 months. This was touted in the province, but then the head of the electricity committee on the provincial council found out that Baghdad never signed the final deal with no explanation, so the company never started its work. Like the rest of the country, corruption is a major impediment. Hundreds of building companies have sprung up in Basra since the 2003 invasion. The Basra Chamber of Commerce claims over 1,000 building contractors registered with it. The problem is that many of these are fake businesses connected to politicians. This hurts investment because these are the types of firms that foreigners would look for as subcontractors to do construction work, but too many of them are simply firms set up to steal money. Finally, Iraq’s banking sector is severely limited. In July 2011, the Electricity Ministry complained that the country’s financial institutions lacked the necessary assets for foreign companies to use them. Other issues included most transactions having to take place in cash, the lack of electronic banking, and no interbank and international payments. All of those mean that companies can’t get the financing that they need nor easily transfer their money. Together, these explain why so many deals have fallen through in Basra. The government and laws are not supportive, corruption is rampant, and the country’s banks can’t handle the demands of foreigners.

The World Bank ranked Iraq as one of the least business friendly countries in the world not long ago. Basra is a perfect example why. More and more companies are interested in investing there, but so many of them fail to accomplish their goals because there are so many barriers to completing a successful deal. Its the average Iraqi that suffers because the country is so in need of development. It has gone through thirty years of wars, sanctions, invasion, and civil war. The infrastructure is a wreck as a result, and there is high unemployment and underemployment, especially for the youth. That’s why Basra and the rest of the nation needs foreign money so bad.  Until the government changes its practices a large number of companies and Iraqis are going to be disappointed because agreements will continue to fall through, failing to bring the jobs, improved services, and new businesses to Iraq that so many are looking forward to.


1. Iraq, “Investment Authority, Iraq: the lack of powers and the old law impede the work of investors,” 4/28/10

2. AK News, “Iraqi investment board says non-committed companies will be banned,” 4/24/10


AK News, “Iraqi investment board says non-committed companies will be banned,” 4/24/10
- “Planning Ministry to reconsider decision of ownership of land for investors,” 4/12/10

Daily Star, “Iraqi private banks struggle to cope with limited services, capital,” 7/22/11

Dunia Frontier Consultants, "Foreign Commercial Activity in Iraq 2010 Year in Review," 2/5/11

Ghanim, Wahid, “basra’s big business: fake building contractors defaulting on jobs,” Niqash, 7/20/11

Al-Haidari, Nabil, “Investment and a wide area of dreams marred by red tape and lack of experience,” Radio Free Iraq, 6/18/11

Iraq, “Investment Authority, Iraq: the lack of powers and the old law impede the work of investors,” 4/28/10

Karim, Ammar, “Iraq power plans short-circuit,” Agence France Presse, 8/8/11

Lando, Ben, “Joining The Global Oil Sector: Challenges And Opportunities Facing Iraq,” Middle East Institute, 4/29/11

Lukic, Marko, “Basra – Model of Reconstruction of Too Good to be True?” Iraq Business News, 7/4/11

Radio Free Iraq, “More than half of investment projects in Basra have not been implemented,” 6/16/11

Ryan, Missy and al-Ansary, Khalid, “Iraq investment still hindered by politics, bureaucracy,” Reuters, 10/7/09

Special Inspector General for Iraq Reconstruction,” Quarterly Report and Semiannual Report to the United States Congress,” 1/30/11
- “Quarterly Report to the United States Congress,” 4/30/09

Al-Wannan, Jaafar, “Iraqi bank assets not sufficient for major foreign investment projects,” AK News, 7/12/11


Anonymous said...

Security, security and security. The militias/gangs usually deal with local authorities (Local Council) and local government offices: lets say for instance Water and Sewage offices (Ministry of Municipality and Publics Works), where they learn that X local company or subcontracot got X project...So soon you receive a visit of the gangs (Mahdy army) asking you for X% to be safe implementing your project. I haved the terribly experience of local staff killed because some police in the Iraqi side of the border with Kuwait gave information of my staff travelling from Kuwait to Basra...,and local gangs hijacked and killed my staff. But today we have a Moqtada & Co. from inside the governmen!!!

Joel Wing said...

Anon, is it only the Sadrists that are doing this? Do politicians and other officials ask for their cuts as well?

Anonymous said...

For SURE politicians and other officials get their cuts too. Nowdays there is alot of talking of Maliki's son Ahmed and his hand in many bussines. Nebras Kazemi in his blog (Talisman Gate) years ago was on of teh first to mention the hands of Ahmed with some telecom Co. If yu can visit Karrada ask the taxi driver to show you the huge villas that ISCI/Badder politicians when everybody know they came from Iran just on 2003...

Anonymous said...


Don’t believe only Sadrists the mane thief in southern Iraq.

Back when Maliki went there and cracked down them it was all about who hold the theft of oil from that massive oil filed.

Also let not forgot Iran in line making problems in some southern oil fields on ground land/sharing lies.

Kuwaiti have some issue in that matter. But the gungs rolling Iraq not just purely Sadrists

Joel Wing said...

That's what I was trying to get to with my previous comment. I'm sure the Sadrists are involved in extorting money, but my impression is that everyone does that. When Fadhila ran Basra for example from 2005-2009, the governor's brother was one of the largest oil smugglers in Iraq. Everyone has got a finger in the pie. There are gangs, militias, government officials, contractors, politicians, parties, etc. all doing nefarious things.

Anonymous said...

From 2005-2009?......From 2009-2011?

Let not put the blame on Iraqi thieves only. The oil ports & oil filed were the first targets listed American and Britt’s went to and secured from day one. Thereafter they control those until 2011. If there are Iraqi thieves involved in Money/oil, smuggling defiantly should under ears& eyes of both US& UK forces.
In fact, there was a report by Iraqi journalist from south "Basra" telling each small boats or tanker, which they carry 100,000 in size, they pay $US5000 to Britt’s force to pass to the Arabian Gulf.
Let read in more about this matter who in control and secure those oil ports in southern Iraq, what they secure, you tell me?

U.S. Forces Hand Over Basra Oil Port Security to Iraqis
U.S. forces have handed over security responsibility for Basra oil port to the Iraqis.
Most of the U.S. military personnel have left the area, except for a small unit that will be responsible for training. This step was taken ahead of the total withdrawal of the U.S. military from Iraq four months down the road. July 26, 2011

Last Iraq oil terminal patrol for Royal Navy
A Military Operations news article, 12 Apr 11
HMS Iron Duke is nearing the end of her patrols of Iraq's oil terminals, heralding the end of the Royal Navy's eight-year involvement in their protection.

HMS Iron Duke patrols the waters around the Al Basrah Oil Terminal, off Iraq's Al Faw peninsula
[Picture: Leading Airman (Photographer) James Crawford, Crown Copyright/MOD 2011]
Since the fall of Saddam Hussein's regime in 2003, Britain's frigate fleet has been committed to almost round-the-clock patrols of the waters around the Khawr Al Amaya and Al Basrah Oil Terminals - known throughout the fleet as KAAOT and ABOT.

The two platforms deliver millions of barrels of oil to waiting tankers each day - generating around 80 per cent of the country's income in the process.

The safeguarding of the invaluable terminals, off the Al Faw peninsula at the tip of the Gulf, has been performed principally by Royal Navy, US and Australian forces and, increasingly, Iraqi sailors and marines.

The latter were trained by a UK-US team at Umm Qasr, Iraq's principal port and naval base, and have already taken over responsibility for defending the older KAAOT.

Joel Wing said...

Anon, the Fadhila Party ran Basra from 2005-2009. From 2009 to the present Maliki's State of Law runs the province.

Iraqis have been smuggling oil for decades though a variety of means and it goes all over to Iran, to Turkey, to Jordan, to the Gulf States, etc. They've used tankers and small boats. I'm sure they could get through U.S. and British naval patrols in Basra. They were just not going to stop every small boat they saw. In fact, naval security in Basra was almost exclusively based upon protecting the oil terminals, so it should have been pretty easy to get around.

Anonymous said...

That is exactly what I meant with my previous comment. If Us & UK forces cannot control these issue why they been there? Under UN charters, the occupied forces have the responsibility of securing the civilians and their assets and land, isn’t Joel?
Fadhila Party well known by all Iraqis and none Iraqis bunch of thieves and terrorist group just part like Hezbollah how they got recognised and been working political party asked yourself and your heroes Bremer and thereafter who gave them all support, they are just as you said gangsters thieves.

Iraqis have been smuggling oil for decades though a variety of means and it goes all over
Give me a break here, when tyrant regime were in power yes you might accepted to a degree your claims of searching all moving ships/boats, however I am well watching the operation of banning on Iraq there are a lot of boats ships seized either to Kuwaitis shore also other gulf island like UAE when UN sanction was in place that made harder for tyrant regime to smuggle through sea he used Iran shores and you should well aware the Rafsanjani’s Sun involvement in that oil smuggling through Iran from Iraq between two regimes relations.

Joel Wing said...

In the 1990s gangs, tribes, and the regime were smuggling oil to avoid the U.N. sanctions. Since 2003 all kinds of other groups joined the fray. And of course don't forget the Kurds that have been smuggling oil to Iran since the 1990s as well. Here's an article I wrote about it:

Anonymous said...

Joel Wing
Bla.... Bla... Bla
You just repeat yourself repeatedly>
Your comment well known event you don’t need to revisited again and again unless this something with your mind-set, that whey you invaded Iraq to put things in order not the continuing corrupt, gangster power is not, isn’t our” 15+ year History/ a BA and MA in International Relations” guru?
Btw, North Iraq (Kurds) those you were carrying for them were not under tyrant regime control whatsoever from 1991 till 2003, do not mix words and be manipulative here, remember your historian dude.
Go do and do your homework well before put your comments here, they well none they are thieves and gangster put were protected by your No-Fly-Zone fake names.

Joel Wing said...

I think we're having some miscommunication problems. I'm not always sure what your point is, and that obviously is throwing off my responses. Now we can try to work on that and continue this conversation or you can keep up with the name calling. Your choice.

Anonymous said...

I think we're having some miscommunication problems.

Very simple excuses....looks well you run of words

Anonymous said...

I was responding to your point nothing more nothing less.