March 31,2010
Iraq Business Forecast Report Q2 2010
The multitude of competing political parties coupled with the lack of reliable opinion polling means
that predicting the outcome of March’s national parliamentary elections is largely futile. However,
the choices that Iraqis make when they go to the polls will have significant implications for the
country’s long-term direction. American troops are due leave Iraq by the end of 2011 (at the latest),
meaning that the next government will be increasingly free from external constraints. With clear
choices between religious and secular/nationalist parties, at least within the Shi’a and Sunni communities,
the results will demonstrate how strongly Iraqis desire the relationship between religion
and politics to be. The performance of Prime Minister Nouri al-Maliki’s State of Law coalition relative
to the National Iraqi Alliance will be particularly crucial as the stronger of these blocs is likely
to find itself at the centre of the next government.
We also take a wider look at Iraq’s long-term political trajectory. Although Iraq is at its most
peaceful since the 2003 US -led invasion, it faces numerous challenges and threats to stability,
which means that there is a risk it could descend into chaos once again. We outline a number
of potential scenarios: the return of a strongman to restore order in the wake of a resurgence in
violence; a gradual drift towards stronger relations with Iran; and Kurdish secession. However,
our core view is for gradual democratic consolidation as Iraqi politicians and citizens become used
to elections and the peaceful transfer of power. Under such a scenario, Iraq’s gradual transition
towards ‘normality’ would in turn lay the foundations for rising levels of inward investment and
long-term economic development.
I raq’s economic future depends on oil. As such, December 2009’s successful second oil licensing
round is a significant positive development and will result in considerable inward investment into
the hydrocarbon sector over the coming years. Increasing oil output will help to drive real GDP
growth, boost the government’s fiscal position, and should keep the current account balance in the
black. We strike a note of caution, however, given that our oil production projections are far more
conservative than those put forward by the government. Moreover, Iraq’s dependence on the oil
sector means that macroeconomic stability would be adversely affected by an extended period of
lower-than-expected global oil prices.
T he improvements in the security situation mean that Iraq is now an increasingly viable investment
destination, and Baghdad is keen to welcome in foreign businesses. Indeed, Iraq is luring greater
numbers of foreign companies, and not just into the oil sector. Orascom Housing Communities of
Egypt is the latest overseas company looking to moving into Iraq’s real estate sector. Currency
stability and a low inflation environment, both of which we expect to persist through the forecast
period, are further factors that should enhance the business environment. However, investors
must be prepared for a myriad of challenges, including endemic corruption, poor infrastructure,
an unsophisticated financial services sector and Iraq’s cumbersome bureaucracy.
Iraq Business Forecast Report Q2 2010
The multitude of competing political parties coupled with the lack of reliable opinion polling means
that predicting the outcome of March’s national parliamentary elections is largely futile. However,
the choices that Iraqis make when they go to the polls will have significant implications for the
country’s long-term direction. American troops are due leave Iraq by the end of 2011 (at the latest),
meaning that the next government will be increasingly free from external constraints. With clear
choices between religious and secular/nationalist parties, at least within the Shi’a and Sunni communities,
the results will demonstrate how strongly Iraqis desire the relationship between religion
and politics to be. The performance of Prime Minister Nouri al-Maliki’s State of Law coalition relative
to the National Iraqi Alliance will be particularly crucial as the stronger of these blocs is likely
to find itself at the centre of the next government.
We also take a wider look at Iraq’s long-term political trajectory. Although Iraq is at its most
peaceful since the 2003 US -led invasion, it faces numerous challenges and threats to stability,
which means that there is a risk it could descend into chaos once again. We outline a number
of potential scenarios: the return of a strongman to restore order in the wake of a resurgence in
violence; a gradual drift towards stronger relations with Iran; and Kurdish secession. However,
our core view is for gradual democratic consolidation as Iraqi politicians and citizens become used
to elections and the peaceful transfer of power. Under such a scenario, Iraq’s gradual transition
towards ‘normality’ would in turn lay the foundations for rising levels of inward investment and
long-term economic development.
I raq’s economic future depends on oil. As such, December 2009’s successful second oil licensing
round is a significant positive development and will result in considerable inward investment into
the hydrocarbon sector over the coming years. Increasing oil output will help to drive real GDP
growth, boost the government’s fiscal position, and should keep the current account balance in the
black. We strike a note of caution, however, given that our oil production projections are far more
conservative than those put forward by the government. Moreover, Iraq’s dependence on the oil
sector means that macroeconomic stability would be adversely affected by an extended period of
lower-than-expected global oil prices.
T he improvements in the security situation mean that Iraq is now an increasingly viable investment
destination, and Baghdad is keen to welcome in foreign businesses. Indeed, Iraq is luring greater
numbers of foreign companies, and not just into the oil sector. Orascom Housing Communities of
Egypt is the latest overseas company looking to moving into Iraq’s real estate sector. Currency
stability and a low inflation environment, both of which we expect to persist through the forecast
period, are further factors that should enhance the business environment. However, investors
must be prepared for a myriad of challenges, including endemic corruption, poor infrastructure,
an unsophisticated financial services sector and Iraq’s cumbersome bureaucracy.