Gulf firms keen to hop on Iraq growth wagon

Dubai: Regardless of Iraq's political troubles, Gulf companies are eager to make profits in a country that has the oil-driven potential to develop exponentially.

Struggling to recover from the war, Iraq is desperately in need of developing its infrastructure.

Launched in May, Iraq's National Investment Commission (NIC) is promoting foreign investment to draw $500 billion (Dh1.83 trillion) of investment for reconstruction and development in the next six years.

While part of the development was difficult to finance nationally, now the revenues are starting to trickle in from oil production in the northern region of Kurdistan that can turn the situation around.

Kurdistan saw its first oil exports at the end of May, boosting the country's June exports to 1.9 million barrels per day, according to the US State Department.

Meanwhile, in July, the country earned $3.7 billion from exports of over 2 million barrels per day, according to Iraq's Ministry of Oil.

Internationally, a significant investment has come from Crescent Petroleum and Dana Gas, the first Middle East investors in the energy sector since the war in Iraq began. Their project, Pearl Petroleum, started off with an initial investment of $650 million to develop gas fields in Kurdistan. The two companies produced 75 million cubic feet of gas a day initially, and plan to reach 300 million cubic feet by early 2010, Majid Jaffar, executive director of Crescent, told Dow Jones.

Additionally, two of Europe's largest utilities, OMV and MOL, have invested about $350 million to buy a 10 per cent stake in Pearl Petroleum.

Robert Powell, economist at The Economist Intelligence Unit (EIU) for the Middle East and North Africa, said that the country needs huge investments, in the range of $50 billion and $75 billion for the development of infrastructure and twice as much for its oilfields.

"So, put simply, the opportunities are enormous." But what hinders these investments from coming in are various issues, such as poor security and an unstable legal environment, he said.

"Theoretically the 2006 investment law allows 100 per cent foreign ownership of projects.... However, corruption is rife, and the courts are slow," Powell said.

The UAE' s non-oil trade with Iraq last year was Dh11.3 billion, with the bulk of it coming from re-exports. It ranks as the UAE's third-ranking trade partner for re-exports and 19th for total trade.

While trade with the UAE has picked up, there are plenty of UAE-based companies waiting for better conditions. Vipen Sethi, chief executive of the Landmark Group, a regional retail conglomerate based in the UAE, said that the company would look towards Iraq as a potential market.

"We have plans to expand but nothing is confirmed as yet for Iraq. It's the mid-market, and because of its large population, it's a good place to go to once it stabilises," said Sethi.

Rakhee Nagpal, founder and chairman of Dynamic Vertical Solutions (DVS), an end-to-end information technology solutions provider that focuses on the retail and hospitality sector, said the Iraq market is an "interesting one for us".

She said that the company would expand into the market, except that their principals have limitations.

"We had some interest in the past, with new hotels coming up but we have limits to sell there, even with Microsoft products," said Bill Tomlinson, general manager for the Middle East at DVS.

The World Bank ranked Iraq at 152nd among the 181 countries it surveyed for 2009's Doing Business Report.

The low ranking that represents the difficulties in doing business stem from the country's red tape involved in getting permits, trading across borders and enforcing contracts, issues with getting credit as well as security, the report said.

Nevertheless, there are companies that consider the opportunities in Iraq greater than the risks involved.

A new entrant into the Iraq market is Arabian Automobiles, the exclusive dealer in Dubai and Northern Emirates for Nissan, Infinity and Renault. The distributor recently signed an agreement with Nissan to sell and service its vehicles in Iraq.

BlackGold, a UAE-based company and a subsidiary of Al Zarouni Enterprises, has also ventured into the energy market in northern Iraq.

The company said recently that it would be investing several million dollars to explore and produce energy in northern Iraq. Exploration is scheduled to start in 2010, and production likely to commence in early 2011, it said.

Two regional airlines launched flights to Iraq recently, in obvious signs of change.

Gulf Air started a five-times-a-week service from London to Baghdad via its hub in Bahrain last week, and Bahrain Air, the country's private airline, will start daily flights to Iraq this month.

Ebrahim Abdullah Al Hamer, Bahrain Air's managing director, said that the plan to introduce the two new destinations of Baghdad and Najaf "represents a dedication to the lucrative Iraqi market, and appreciation of its immense growth and potential."

Economy to rise 6.2% next year

The Economist Intelligence Unit (EIU) forecasts the real gross domestic production growth of Iraq to slow to 5.8 per cent in 2009 but increase to 6.2 per cent in 2010.

The EIU says oil output is expected to stagnate this year as maintaining Iraq's decrepit oil infrastructure is difficult. "However, with a pick-up in development expected in 2010, and exports from two fields in Iraqi Kurdistan commencing in June, production should increase once more next year."

"Although export volumes only returned to their January levels in June, earnings have been pushed higher by the rise in oil prices."

EIU said that import growth would rise markedly this year, as Iraq relies heavily on imports for both consumer goods and capital inputs.