Thursday, March 22, 2012

2011 Sees Another Large Increase In Foreign Investment In Iraq


Since Iraq’s civil war ended in 2008, its economy has begun to take off. The World Bank and others have predicted that it will be one of the fastest developing nations in the next several years with double digit Gross Domestic Production (GDP) growth. That’s because the country needs so many basic forms of infrastructure, and its oil and gas industries are finally beginning to be developed after over a decade of international sanctions. Foreign investment has grown over 40% for the last two years, but there are still major problems with completing some of the larger projects that are planned by the government.

2011 saw another large increase in the amount of foreign money being invested in Iraq. There was a total of $55.67 billion in investment last year. That was up 40.3% from 2010’s $39.67 billion. 2010’s amount was a 48.7% increase from 2009. 276 companies from 45 countries did business with Iraq in 2011. The total number of contracts also grew to 294, up 80.4% from the 164 signed in 2010. It was also the reason why several experts believed that Iraq would be one of the fastest growing economies in the world over the next several years. In January 2012 for instance, the World Bank estimated that Iraq’s Gross Domestic Product (GDP) would grow 12.6% for the year, and 10.2% in 2013. The Deputy Governor of the Central Bank of Iraq predicted an average of 9.4% GDP growth from 2012-2016. The large growth rates and amount of money flowing into the country is because international sanctions have finally been removed, the Iraqi civil war ended in 2008, and the country has so many needs. This showed that despite the U.S. troop withdrawal, continued violence, and the on-going political dispute between Prime Minister Nouri al-Maliki and his opponents, business in the country is still flourishing.

Before 2008, investment in Iraq went up and down, and was at a very low level. In 2003, the first year after the fall of Saddam Hussein, only $3.87 billion was invested in the country. That almost doubled to $6.74 billion the next year, but then dropped to an anemic $1.17 billion in 2005 as the civil conflict took off. 2006 saw a large increase to $5.05 billion, before dropping to $2.70 billion in 2007. It wasn’t until 2008, that investment reached double digits to $17.93 billion. It has grown every year since then. Again, foreign money flowing into the country was directly related to the security situation within the country. With violence reduced to terrorism the amount of investment can only continue to grow.

Foreign Investment In Iraq 2003-2011
Year
Investment
2003
$3.87 bil
2004
$6.74 bil
2005
$1.17 bil
2006
$5.05 bil
2007
$2.70 bil
2008
$17.93 bil
2009
$28.70 bil
2010
$39.67 bil
2011
$55.67 bil

Another positive development was the increasingly smaller size of projects planned for the country. That might seem an oxymoron, but Iraq has faced major problems with large development plans. The smaller the project, the greater likelihood that they will be completed as planned. The average size of deals signed with Iraq went from $243 million in 2010 to $189 million in 2011. That continued the trend started in 2010 when contracts saw an even larger reduction from an average of $683 million to $260 million. Larger deals can drag on for years past their original deadlines, run into delays, and fall apart. This is due to problems with finances, logistics, bureaucracy, and the lack of trained personnel within the Iraqi government.

Investment is also being spread around the country. Before, Baghdad and Basra took the lion’s share of money. While they are still number one and two, the rest of the country is also experiencing development. In 2011, Basra received the most foreign capital, surpassing Baghdad, which was number one in 2010. Their share of total investment in the country also declined from 74.3% in 2010 to 47.0% last year. The three Kurdish provinces were third in 2011 with 14.5% of total investment, and then Ninewa, 9.4%, and Salahaddin, 6.4%. This was an important trend, because Iraq’s other provinces are in desperate need of growth with poor services, and the highest rates of poverty.

While Iraq’s economy is the most oil dependent country in the region, real estate was the largest field invested in for the second year in a row. A total of $14.524 billion was committed to housing in 2011, 26.1% of all foreign money. It’s estimated that Iraq needs to build 650,000 houses per year to meet the demand of its public, but it is no where near achieving that goal. It should be no surprise then that the largest deal last year was for $7.25 billion with South Korea’s Hanwha to construct 100,000 housing units east of Baghdad.

Foreign Investment In Iraq By Sector 2011
Sector
Value ($ mil)
% Total
Real Estate
$14,524
26.1%
Oil and Gas
$12,769
22.9%
Electricity
$11,196
20.1%
Water & Sanitation
$4,285
7.7%
Defense
$2,850
5.1%
Real Estate
$2,433
4.4%
Telecommunications
$2,063
3.7%
Industry
$1,919
3.4%
Transportation
$1,213
2.2%
Tourism
$844
1.5%

After real estate, oil and gas and electricity were the next biggest industries invested in. The second largest deal for 2011 was with Royal Dutch Shell and Mitsubishi to capture natural gas from oil fields in southern Iraq. It will include $12.8 billion in infrastructure and a $4.4 billion natural gas plant. Iraq also signed deals to build new pipelines and mooring points for Basra province, which accounts for the vast majority of the country’s oil exports. While these deals are moving ahead, and oil production is ramping up in the country, the same cannot be said for the electricity field. Last year, the Electricity Ministry signed a $1.2 billion deal with a fake Canadian company to build 10 power plants, and with a bankrupt German one for five power plants worth $650 million. Another contract with South Korea’s STX Group also ran into problems. Originally, it was supposed to build 25 mini-power plants in southern Iraq worth $2.76 billion. STX couldn’t come up with the financing however, so the deal was reconfigured to build nine regular power plants instead. Then in November 2011, the Electricity Ministry announced that it and STX had come to final terms for $1.044 billion to build power plants in three provinces. Not only that, but the Ministry’s plans to solve the country’s chronic electricity shortages are nowhere near coming to fruition. New Electricity Minister Abdul Karim Aftan said that power output would increase by the summer of 2012, and that the country’s power problems would be solved by 2014. By 2015, he claimed that the country would be producing 27,000 megawatts. An independent assessment found that this will not be possible. It predicted that Iraq would have the capacity of only 18,000 megawatts by 2015, and that none of the new power plants planned would come on line until 2013, not this summer. That means there will still be years of power outages that affects not only the public, but the economy as well. The Ministry needs to step away from such large deals, and set more achievable goals, but because the government is under such pressure to solve this problem, it doesn’t seem capable of doing that yet for political reasons.

In terms of countries investing in Iraq, South Korea surpassed Turkey as the largest source of funds. South Korea went from fourth largest investor in 2010 to number one in 2011. It committed $11.988 billion last year, 21.5% of the total. That was due to the $7.25 billion housing deal with Hanwha. Then came the U.S. with $6.878 billion. $2.3 billion of that was with Lockheed Martin for F-16 fighter jets. America was number five in 2010. Turkey was number one that year, but dropped to fifth in 2011. That’s because the majority of deals it signed last year were under $1 billion. The list of top investors shows that Iraq is attracting companies from around the world.

Foreign Investment In Iraq By Country 2011
Country
Value ($ mil)
% of total
South Korea
$11,988
21.5%
U.S.
$6,878
12.4%
England
$4,096
7.4%
Netherlands
$3,825
6.9%
Turkey
$3,694
6.6%
Germany
$3,172
5.7%
China
$3,093
5.6%
UAE
$2,959
5.3%
Italy
$2,829
5.1%
Iran
$2,184
3.9%

Iraq’s economy has grown in leaps and bounds in the last couple years. That’s largely fueled by the oil industry, which accounts for 90% of the government’s revenue, and the improvement in security. With that, Baghdad has been able to sign hundreds of deals with foreign companies to repair its infrastructure, and expand its production of petroleum and natural gas. The government is also slowly but surely weaning itself of large, unwieldy projects, many of which fail to materialize. Still, the country is years away from achieving any of its lofty goals for things such as housing and electricity. As long as oil remains at a high price, Iraq will have the funds to sign more deals to try to resolve these issues as it has to make up for a lost decade when it suffered under international sanctions, and then five years of invasion and civil war. That’s the reason why Iraq will be one of the fastest growing countries in the world for the next several years.

Top 30 Investment Deals In Iraq 2011
  1. $7,250 mil, Real Estate, South Korea’s Hanwha, 100,000 housing units east of Baghdad
  2. $6,980 mil, Oil & Gas, Netherlands and Japan’s Royal Dutch Shell and Mitsubishi, natural gas development in Basra
  3. $2,600 mil, Water & Sanitation, Germany’s Bauer, 6-year rehabilitation of Mosul Dam in Ninewa
  4. $2,300 mil, Defense, U.S.’s Lockheed Martin, F-16 fighter jets
  5. $2,000 mil, Real Estate, UAE’s Majid al Futtaim Holding, shopping centers, Kurdistan
  6. $1,500 mil, Real Estate, UAE, Cyprus, Greece’s FiberPro, 30,000 housing units in Tikrit, Salahaddin
  7. $1,500 mil, Real Estate, U.S.’s Hill International, construction of management services, Basra
  8. $1,400 mil, Water & Sanitation, South Korea’s Kolon, Sang Young, Hyundai, construction of water and sewage system, KRG
  9. $1,189 mil, Electricity, China’s China National Machinery and Equipment Corporation, construction of 630 megawatt power plant, Salahaddin
  10. $1,044 mil, Electricity, South Korea’s STX Heavy Industries, building 900 megawatt worth of power plants, Iraq
  11. $1,000 mil, Electricity, China’s Shanghai Electric, expansion of Zubaidiya power plant, Wasit
  12. $700 mil, Electricity, South Korea’s Kolon, San Young, Hyundai, electricity infrastructure, KRG
  13. $650 mil, Telecommunications, Sweden’s Ericsson, 5-year network infrastructure, Iraq
  14. $640 mil, Oil & Gas, U.S.’s Baker Hughes, 60 wells at Zubayr field, Basra
  15. $600 mil, Real Estate, Turkey’s Nursoy, building 1,600 housing units in International Zone, Baghdad
  16. $550 mil, Electricity, France’s Alstom, construction of water and sewage system for hydroelectric plant, Diyala
  17. $550 mil, Defense, Ukraine’s Antonov, 6 An-32 planes
  18. $518 mil, Oil & Gas, Australia’s Leighton Offshore, single point mooring and export pipeline, Basra
  19. $510 mil, Oil & Gas, Italy’s Saipem SpA, production and refurbishment at Zubayr field, Basra
  20. $472 mil, Oil & Gas, Italy’s Saipem SpA, building oil measuring and control platform, Basra
  21. $467 mil, Real Estate, Turkish company, building 5,166 housing units, Karbala
  22. $400 mil, Telecommunications, Kuwait’s Zain, expansion and upgrade of network systems
  23. $390 mil, Electricity, Japan and Italy’s Sumitomo and Siemens Italy, building 8 mobile substations and spare parts
  24. $388 mil, Electricity, Turkey’s Calik Enerji, building 6 750 megawatt power plants, Ninewa
  25. $365 mil, Oil & Gas, Iran’s National Iranian Gas Company, construction of natural gas export pipeline
  26. $360 mil, Electricity, South Korea’s Hyundai Engineering and Construction, building 1,500 megawatt Rumaila power plant, Basra
  27. $348 mil, Electricity, Greece’s Metka, building 1,250 megawatt power plant, Basra
  28. $340 mil, Electricity, Iran’s Tabdil Energy Company, building 4 125-megawatt power plants, Wasit
  29. $333 mil, Electricity, India’s Bharat Heavy Electricals Ltd., building 550-megawatt power plant, Wasit
  30. $308 mil, Real Estate, Turkey’s Tikarvan, building 4,500 housing units, Ninewa
SOURCES

AIN, “Minister of Electricity expects power improvement next summer,” 2/2/12
- “MP rules out improving electric power next Summer,” 2/4/12

Dunia Frontier Consultants, “2011 Year in Review, Foreign Commercial Activity in Iraq,” March 2012
- “Foreign Commercial Activity in Iraq 2010 Year in Review,” 2/5/11

No comments:

Musings On Iraq In The News

I was mentioned in this article by Aaron Zelin on the Islamic State's attempted comeback "Remaining, Waiting for Expansion (Again):...