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Posted 20 December 2010 - 06:42 PM
Posted 20 December 2010 - 06:54 PM
Edited by marknet73, 20 December 2010 - 06:56 PM.
Posted 20 December 2010 - 07:09 PM
The Coming Iraqi Business Boom
Foreigners can own 100% of Iraqi companies, must pay only a 15% flat tax on profits, and may take 100% of those profits home when and how they please..
The expected announcement of Iraq's new government marks the culmination of a remarkable process. The former bully-boy of the Arab neighborhood has become its only functional democracy. What may be the world's richest resource economy, once the closed shop of a murderous clique, is today wide open for business.
Driven by what many geologists consider the world's largest oil reserves, Iraq will probably be the world's biggest crude oil producer within a decade. The country currently ranks second to Saudi Arabia in official reserves, with 143 billion barrels. With much of Iraq's exploration still to come after a three-decade hiatus, and with Saudi Arabia's reserves substantially inflated and already in decline, Iraq could take the mantle as No. 1 in fairly short order.
Iraq last year signed 12 oil contracts that promise to take output from under two million barrels per day currently—less than Algeria—to over 12 million by 2016. This timeline is probably optimistic, but the contracts will likely see Iraq surpass Saudi Arabia's 10 million to 11 million barrels per day within a decade. And these figures include no contributions from Iraqi Kurdistan, from natural gas reserves, or from new oil fields, with which the lightly-explored country is replete.
The Saudi comparison suggests that as Iraq's oil production rises, its economy could grow approximately six-fold over the coming decade—gross domestic product is currently $66 billion—and add a mind-boggling $300 billion in annual GDP. This means one of the largest economic reconstruction and development booms in history.
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.The entire Iraqi economy is being rebuilt. The government's electricity program has a $50 billion price tag. Baghdad has awarded the reconstruction of Sadr City to six Turkish companies at a cost of $11 billion. Nationwide, thousands of police stations, schools and clinics will be built. Airports, bridges, dams, railways and roads are being planned. The $20 billion Al Faw port project will create the leading port in the Persian Gulf. A modern army, air force and navy will be trained and armed. The investment programs of last year's 12 oil deals alone add up to well more than $200 billion.
The holy cities of Najaf and Karbala currently receive more annual visitors than Mecca but have almost no hotel space or modern residential facilities. Iraq's real-estate sector generally is warming up, with Abu Dhabi companies alone committing over $65 billion in the last year. New refineries, cement plants and steel mills are being financed across the country.
Iraq's greatest resource is its famously resourceful, tough, educated and enterprising people. Whereas the capitals of the Gulf oil monarchies did not have paved streets a generation or two ago, Baghdad and Basra are ancient capitals of commerce, ideas and global finance.
Oil, people and history are not Iraq's only advantages. One of the important food-exporting countries of world history, watered by the Tigris and Euphrates rivers, Iraq possesses abundant agricultural potential. Located at the head of the Persian Gulf, Iraq is poised to regain its ancient role as a trade link between East and West. A modern rail system linking the Gulf to Europe via Turkey will provide Asian exports a faster, safer and cheaper alternative to the Suez Canal and the Horn of Africa.
Perhaps most important of all, Iraq's is a free economy. There is no ruling family, party or tribe in Iraq, and there is no culture of religious imposition.
There is strong evidence that Iraq can avoid much of the "oil curse" and build a more cosmopolitan and modern economy than those of its autocratic neighbors. In the last election, senior Iraqi leaders campaigned on, among other things, establishing individual oil accounts for Iraq citizens to receive their share of the nation's wealth directly. Unique among the region's resource economies, this would put the state at the mercy of the people, not the other way around.
The quality of Iraq's economic management is visible in the soundness of its macroeconomic picture. Inflation is under control at 5% per year, the government budget will likely be balanced with increased exports in 2011, and the Iraqi dinar (soon to appreciate as exports take off) has held steady against the U.S. dollar since early 2009. GDP growth, forecast by the International Monetary Fund to be 11.5% for 2011, is already among the highest in the world, with the investment boom barely in its infancy and the export surge yet to begin.
Corruption, of course, is a problem. But Iraq's oil industry, which accounts for 80% of the economy, is one of the world's most transparent. Last year's auctions were subject to competitive bidding, the contract terms were announced publicly, and the bids were opened live on national television.
To followers of extractive industries, it was previously unimaginable that this could happen outside of a few highly developed countries like Norway or Australia. This year Iraq was accepted on the membership track for the international Extractive Industries Transparency Initiative. It is the only Middle Eastern oil country even to apply.
Violence in Iraq is now mostly a criminal matter. Over the past two years, the country has suffered fewer than 40% of the deaths by violence that Mexico has. Iraqi fatalities are now well below the levels seen during the quiet months immediately following the U.S invasion in 2003. A visit to Baghdad or Basra today isn't intimidating for businessmen accustomed to Lagos or Rio de Janeiro.
Bureaucracy is Iraq's biggest problem. Incorporating local entities is expensive and time-consuming. Obtaining a visitor's visa is absurdly difficult for a country requiring so much foreign investment. And numerous ministries and government agencies frequently claim authority over simple business matters. But the big picture for foreign companies is positive, as Iraq has a substantially more modern and liberal regulatory framework than almost any nearby country. Foreigners can own 100% of Iraqi companies, must pay only the 15% flat tax that the rest of the economy pays on profits, and may take 100% of those profits home when and how they please.
Nine months has been a long time to wait for a new government, but the process has happened peacefully and constitutionally. That's far more encouraging than all the country's oil reserves together.
Mr. Bull, a former journalist, is a founder of Northern Gulf Partners, an Iraq-focused investment bank.
Posted 20 December 2010 - 07:09 PM
Posted 20 December 2010 - 07:21 PM
Posted 20 December 2010 - 07:24 PM
Posted 20 December 2010 - 07:29 PM
Notice that it states because of export increases the exchange rate will go up not because of Revaluation! This shows how important a stable economy is to Iraq. If it RV's too high ahead of itself it will force imports to skyrocket and will upset that balance whereby hurting the exchange rate. It will be too cheap to import than to create new industry outside of oil. Remember, higher imports mean less jobs and higher exports mean more jobs.
Shabs and the IMF have a tough job to determine the precise exchange rate range. This should dismiss the whole RI argument altogether. The fact that Iraq needs so much infrastructure and industry development is the interesting wild card factor though. It could be what allows for a higher exchange rate then normal countries to come into play because jobs will be created no matter what. Not to mention they can try to offset imports with heavy oil exports the first few years of the redeveloping period. Great article thanks!
Posted 20 December 2010 - 07:35 PM
Posted 20 December 2010 - 07:39 PM
Posted 20 December 2010 - 07:53 PM
Posted 20 December 2010 - 08:09 PM
Posted 20 December 2010 - 09:00 PM
Great, "GREAT", Great, "GREAT" Article, this is the reason why we are invested in Iraq, The potential..... We are not crazy regaurdless of DATES & RATES IRAQ is a GOOD BET.... And all of us hear have the vision..... Win Or Loose.
Thanks for the post
Posted 20 December 2010 - 09:22 PM
I was walking through the local mall today and they have a foreign currency exchange shop and i stopped and asked outta curiosity to see what they said. She yelled from behind the glass DONT INVEST!!! i asked why? she had a couple moot points. I said have you done much research? she said no. I said do some before you give people investment advice. I told her all about it and she was like WOW! i had no idea....
Posted 20 December 2010 - 09:24 PM
The only problem with the comparison with China is the the Chinese are sending out mainly manufactured goods not an item (oil) the has its price fixed by the markets.
Thanks for the post quattro1 I agree with Drox - this is also why china does not significantly raise the value of their currency because that would hurt their exports.
Look at our own country - we make very few products any more and see where that got us.
Posted 20 December 2010 - 09:28 PM
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