Asia Frontier Capital - Iraq Travel Report
Aug. 21, 2019 2:41 PM ET
Asia Frontier Capital Ltd.
Long only, value, growth at reasonable price, long-term horizon
Asia Frontier Capital Limited
Iraq is going through a social and economic transformation.
The improving security environment is leading to greater consumer spending.
Higher oil prices have also helped improve government finances.
As part of our continuing on the ground research, AFC Iraq Fund CIO Ahmed Tabaqchali reports on his year of living in Iraq. All photos are by Asia Frontier Capital, unless otherwise noted.
I wrote the last Iraq travel reports in January and February 2018 on the advice of a client who suggested writing for those who know Iraq only from what they see and hear in the media, which, until recently, was mostly focused on the violence that engulfed the country. The same client suggested that I follow up with another report reflecting my experience of living in Iraq to complement these reports.
Following the travel reports' visit last year, I was offered the opportunity to teach a few hours a week at the American University of Iraq-Sulaimani [AUIS] as part of my research on Iraq's economy post ISIS at the Institute of Regional and International Studies [IRIS], at which I am a Senior Fellow. I gladly took up the opportunity and am currently an Adjunct Assistant Professor within the Business Department. The few hours of teaching each week left me with plenty of time to research Iraq and its economy from a new perspective that both complimented my existing one and enhanced my performance as CIO of the AFC Iraq Fund. It has been such a rewarding experience that I will extend it for another year.
In this report I will try to give the AFC travel report readers a sense of the change that Iraq has gone through over the last eighteen months - a significant social and economic transformation, brought on by the combination of the improved security and an expansionary budget by a government flush with the bounty bequeathed by higher oil prices.
The end of the ISIS conflict, in late 2017, brought with it an unprecedented return to security that led to a social change that is almost impossible to explain, especially to those who have not been to Iraq, without putting things in a recent historical perspective. Nowhere is this sense of change more pronounced than in Baghdad, home to almost eight million people or about 20% of the country's total population.
The insurgency that began soon after the invasion in 2003, and morphed into a full-scale civil war by 2005-2006, led to three drastic security measures in Baghdad. The first of which was the sealing of what has become known as the Green Zone, the seat of the government, some foreign embassies, and international organizations. This was followed by: the erection of thousands of blast walls and Bremer-Walls (portable, steel-reinforced concrete blast walls) that separated the Green Zone from the rest of Baghdad. In addition, hundreds of streets in the city, both major and minor were diverted, others were cut in the middle, and blocked certain neighborhoods off from others. Also, hundreds of security checkpoints were set-up throughout the city.
The result was that the streets of Baghdad mutated into an impossible maze with maddening traffic jams. As the cars in use have more than doubled since 2003, roads were cut in half and crucial thoroughfares that passed through the Green Zone were reduced to a plethora of diversions. The last time the country saw city planning on any scale was in the early 1980s when the population was less than 15 million versus the current 40 million. Combined with bombings, both roadside bombs and suicide bombings, and other attacks, life in Baghdad was frozen with all the negative spillovers on social and economic life.
The defeat of ISIS in late 2017 led to increased security, and normal life returned gradually to the city as Baghdadis resumed their long forgotten active social lives. Many friends who would only entertain or meet at daytime during 2013-2016, began to do so at night in the many restaurants that dot Baghdad, both in the many new malls and in the commercial streets of the city. Over the last few months, these social activities bloomed into the old Baghdadi late social nights with restaurants open for business until well after midnight. Something which I enjoyed in early December of last year, attending a jam-packed and lively concert by famous Iraqi singer, Ilhaam Al Madfai, at the prestigious Hunting Club in Al Mansour district. I was still hungry after the concert, and together with my brother went on an after a midnight exploration and opted for the "Al Bawadi Kebab" , a famous traditional kebab restaurant, on the other side of the city, in Al Karadah district. The kebab was awesome and so was the Iraqi style tea, that we continued sipping until the restaurant closed, but not before taking photos with the staff. Having made friends with the taxi driver, we were invited for breakfast at another traditional restaurant "Al Baghdadi Kuba" for Kuba, a concoction of fried minced meat, fat, raisins within a pastry made of crushed grains or grit and bulgur and cooked in meat stew.
An evening at the Hunting Club, Al Amerat street, Al Mansour district, Baghdad
Dinner at "Al Bawadi Kebab", near the National Theatre, Al Karadah district, Baghdad
Breakfast at "Al Baghdadi Kuba", Orizdi Street, Al Karadah district, Baghdad
The revival of social life received a huge boost by the new government's decision in late 2018 to begin removing thousands and thousands of the hated blast and Bremer walls, reducing check-points dramatically, and the opening of most of the Green Zone. I felt the full effects of the change in my last trip in late July, as by then the Green Zone was almost fully open, and the blast walls were mostly gone. The effect has been nothing short of dramatic for daily life in Baghdad, as many journeys that would take hours were reduced to under half an hour. Mainly this was because the opening of the Green Zone meant the unblocking of some of Baghdad's most important thoroughfares as can be seen from the Google map below. It became easy to go to many places all over Baghdad in a single day and left a lot of time for work and recreation, all of which meant that economic life got a boost that the city has not seen since the '90s. Once again it became possible to live in any part of Baghdad yet go to restaurants or malls in any other place, or for suppliers to access customers all over the city, and all in the same day.
Perhaps the most important change that will unfold over the next few years is for Baghdadis to reconnect with each other. The years of sectarian violence led to the evolution of communities centered on ethnic and confessional identities, that was solidified by the erection of the blast walls. The result was social segregation as whole neighborhoods were cut off from others, and a new generation that has not known other than their small communities in their own neighborhoods.
The Green Zone within Baghdad
The return of security, the removals of blast walls, Bremer-Walls, checkpoints, and the opening of the Green Zone coupled with an expansionary government budget revived the city's economy, something which is yet to be seen in official economic figures. While, it was obvious for visitors and residents for some time that Baghdad's restaurants regained their vibrancy, what was not obvious, and most interesting for me, was the number of new construction projects, be they residential housing blocks, offices, or houses. While not an overall construction site, like the 2003-2009 Dubai building boom, by any stretch of the imagination, yet cranes have appeared all over Baghdad which stood out for me during my trip in late July (see below).
Qadysaia Expressway, Qadysaia district, Baghdad
Abu Nuwas Street, Al Karadah district, Baghdad. Overlooking the construction site of the new HQ building for the Central Bank of Iraq
Baghdad Gate residential complex, Mansour Street, Al Mansour district, Baghdad
Rowad Street, Al Mansour district, Baghdad
However, Baghdad is not the only place where I have seen the revival of reconstruction. Some of the unfortunate features of Sulaimani, the city where my university is located, are the unfinished cement skeletons of residential towers that stand as sad monuments to the severe recession that ended the Kurdistan Region of Iraq's [KRI] prosperity in early 2014. The region's recession started over disputes about the KRI's independent oil exports, between the Federal Government of Iraq (GoI) and the semi-autonomous region's government (the Kurdistan Regional Government [KRG]). The disputes led to the GoI cutting the KRI's share of the federal budget, which the KRG could not cover with its independent oil exports especially as oil prices collapsed in the wake of the ISIS conflict.
This led to sharp cuts in the KRG's spending on public employee salaries and in government spending on investments and infrastructure. The cuts were made worse by the proximity to the conflict as business spending, trade flows and other economic activity came to a standstill. The upshot was that the KRI's non-oil GDP contracted sharply between 2014-2017. These negative developments, came to an end in early 2018, as the GoI resumed partial payments to the KRG from its share of the federal budget, which increased meaningfully in March 2019 as the GoI began to implement the expansionary 2019 federal budget. Coupled with increasing independent KRI oil exports and higher oil prices, the KRG resumed full public employee salary payments and even started making payments to contractors that were withheld during the crisis.
The early signs of the above effects on the region's economy can be witnessed in the revival of consumerism seen first from the return of vibrancy to restaurants, like earlier in Baghdad, but more importantly in the return of reconstruction activities. I began to notice the early signs of this when some of the concrete skeletons, mentioned earlier, gradually started to be finished off with walls and windows, as shown in the photo below.
Kirkuk Road, Sulaimani. The block on the left is almost fully completed, while the rest remain as skeletons awaiting further construction
Sulaimani is not alone in the KRI regarding the return of construction activity as friends, living in the KRI's capital Erbil, report the same phenomenon there. Also, local media reported on the return of investment activity in the region as well as the resumption of many projects that were halted in 2014.
One of the most enjoyable aspects of my stay was deepening my connection with the Iraqi entrepreneurs that I wrote about in my January 2018 report, and with the wider entrepreneur community in the country. Then, I reported on the "The Station", the first purpose-built co-working space for young entrepreneurs in Baghdad, which opened a couple of months later. The Station, however, I am happy to report, is just a small taste of the vibrant entrepreneurial space operating in Baghdad and elsewhere in Iraq as I discovered different manifestations of co-working spaces. Each location-along with the start-ups it supports-has a story worth telling as I wrote in an article on the space in October 2018 that also reviews a number of the country's start-ups. I have come to thoroughly enjoy spending many evenings in Baghdad at the Al-Faisaliya Restaurant & Café, a unique co-working space within a café-restaurant, that in addition to supporting start-ups, supports emerging music bands. Another interesting co-working space is the inspiring group of volunteers at IQPeace that supports young innovators and provides a space for music and art production. The group organizes the annual Baghdad City of Peace Carnival, which at its most recent celebration in September 2018, attracted approximately 30,000 visitors, and the group hopes to exceed that in this year's festival, planned for late August.
The Station, Karadah district, Baghdad. Featuring book-store by Daraj, and yellow "Bean Chairs" by Ariika
An evening at the Faisaliya, Arassat Al-Hindiya, Baghdad. Featuring Project 904 performing a remix of a traditional song "Yaba-Yaba"
One of the co-working rooms at IQPeace, Arassat Al-Hindiya, Baghdad
At long last, I managed to visit the Iraqi Museum, which I last visited as a boy in the seventies and which occupies the same building. On display are some of the same artifacts, but viewed this time with mature eyes, I was able to truly appreciate the wonders within it. The museum, covering over ten thousand years of the country's history, reopened in 2015, following significant repair works and the return and restoration of stolen artifacts that were looted after the invasion in 2003. The looting was probably among the worst cultural atrocities ever recorded, resulting in the loss of over 15,000 artifacts with those that escaped theft being either too heavy to lift or the 8,366 items that staff stored at great risk to their lives. Massive international collaboration has traced and returned about 7,000 of the stolen artifacts with ongoing efforts to locate and return the rest. This loss and return of these are covered in a University of Sydney report in 2018.
I spent over four hours admiring the wondrous artifacts, and even though as an Iraqi with a passion for history, I was conditioned to expect to marvel at the ingenious Sumerians, cultured Babylonians or the majestic Assyrians- which I did anew. Nevertheless, I was in awe at the sophistication of what I saw at the pre-history chamber housing artifacts as far back as ten thousand years ago. In particular, a cabinet full of housing pots and jars dating about 5,600-4,000 BC stood out as an example of this early sophistication (photos below). Others mesmerized me, were all over the place, but especially fascinating was the Warka Vase (photo below), looted but recovered, dating back to 3,000-2,900 BC from the Sumerian city of Uruk - probably one of the oldest cities in the world. A report like this can't do justice, even a partial one, to the wonders of this museum but a recent article in the New York Times does an excellent job.
Cabinet number 21, Pre-history chamber at the Iraqi Museum, Baghdad. The cabinet features pots and jars found in Tel Harmal and Tel Sinker in middle and north Mesopotamia dating to 5,600-4,000 BC.
Marvelling at the Warka Vase, the Sumerian chamber, the Iraqi Museum, Baghdad.
(Photo courtesy of "Iraqi Museum Friends"- a voluntary society of the museum's staff promoting the museum)
Leaving the museum, which is on the Al Karkh side of Baghdad, separated from Al Rusafa side by the Tigris River, for a meeting, I opted for the long route to savor some of the greenery in Baghdad. Taking advantage of the newly re-opened roads through Arbatash Tamuz Street, hooking right onto the Qaddisaya Expressway, before passing over the beautiful Al Jadriyah bridge leading to the elegant Al Jadriyah neighbourhood in Karadah- housing the University of Baghdad (see Google map earlier in this article).
Iraq Post building, Allawii Street, Allawii District, Baghdad.The view across the road from the Iraqi Museum.
Al Jadriyah neighbourhood, Karadah district, Baghdad. The view coming down the Al Jadriyah bridge. Baghdad University on the right behind the palm trees, its white arch in the entrance barely showing among the palm trees
As this has been a report that explores the revival of Baghdad and not a narrative of the city's violent past, I must clarify that I haven't been to Baghdad's neglected, poor or no-go neighborhoods - areas that show a very different face of the city and are in urgent need of attention by the authorities. The reconstruction of the poor and neglected parts of the capital, as other parts of the country, is a massive challenge, yet an essential part of the revival of the country.
The extent of such neglect struck me in full force when I visited my old primary school, Madame Adel School. The school is in Al Al-Sa'adoon Park neighborhood in Al Rusafa district, which I attended while I was living with my grandparents next to the leafy Al-Sa'adoon Park. The park which gave the neighborhood its name was founded by the British in the 1930s during the mandate era, as the local version of London's Hyde Park, and for years was thought of as the lung of Baghdad. The school was arguably one of Baghdad's best, founded by a Lebanese lady - known as the iron lady by her pupils, her husband and sister, and followed a disciplined academic and extra-curricular schedule that provided a solid foundation for its pupils in years to come.
However, that was the past and much to my dismay I discovered that the whole neighborhood suffered greatly from the years of neglect and decay, with my old school showing these very signs. Next to the school on the Andalus Square, is the Baghdad chapter of the Seventh-day Adventist Church, which suffered the same fate, but in addition, its beautiful stained windows were shattered by a number of nearby blasts from 2003, and in September 2004 when a car packed with 150 kilograms of explosives detonated just outside the church which luckily was empty at the time.
In front of Madame Adel School, Al Al-Sa'adoon Park neighbourhood, Al Rusafa district, Baghdad.
Seventh-day Adventist Church, Nidhal Street, Andalus Square, Al Al-Sa'adoon Park neighbourhood, Al Rusafa district, Baghdad.
Finally, no report on Baghdad can be complete without mentioning of Al-Mutanabbi Street, the city's literary heart - a street jam-packed with bookstores, with traditional booksellers displaying all manners of books in stores and on the street. Al-Mutanabbi Street, its inhabitants and visitors embody the old Arab saying, "Egyptians write, Lebanese publish, Iraqis read". As a teenager, the street was one of my favorite haunts and I was so happy to see that it has lost none of its spirit or allure. The Shabandar Cafe personifies the street and Iraq's revival - in 2010 a car bomb almost destroyed the café, killing thirty people including the owner's four sons and grandson. However, Mohammad al-Khashali reopened the café soon after and insisted on maintaining its open-minded culture as a home to Iraqi writers and intellectuals from all faiths for generations, even during the darkest years of sectarian warfare.
Chatting with a street bookseller, Al-Mutanabbi Street, near the old quarter of Baghdad
Chatting with Mohammad al-Khashali, owner, "The Shabandar Café", Al-Mutanabbi Street, Baghdad.
I, as a native of Baghdad, despite having spent the bulk of my life living in so many beautiful cities all over the world, can only marvel at how she maintained her grace, charm and much of her beauty in-spite of all the calamities that have befallen her. I hope the photos and the narrative has shown AFC newsletter readers some of the promising aspects of Baghdad and its potential.
Currently, investors can gain exposure to Iraq via listed stocks on various internationally recognized stock exchanges. One can gain exposure to the Iraqi oil and gas sector via Genel Energy (OTCPK:GEGYF) [GENL LN], DNO ASA (OTCPK:DTNOF) [DNO NO], and Dana Gas [DANA UH] listed on the London, Oslo, and Abu Dhabi stock exchanges respectively. Investors can also gain exposure to the Iraqi telecom sector via Zain Group [ZAIN KK], Oman Telecom [OTEL OM], and Ooredoo [ORDS QD] listed on the Kuwait, Muscat, and Qatar stock exchanges respectively.