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Country name: Republic of Iraq
Population: 27,499,638 (July 2007 estimate)
Land Area: 437,072km²
Official Language: Arabic
Currency: 1 Iraqi Dinar (ID) = 1,000 fils
Main Cities: Baghdad (capital), Basra, Mosul, Kirkuk, Najat
Iraq is a major oil producing country whose oil sector has traditionally provided about 95% of foreign exchange earnings. As is well known, recent events have drastically reduced economic activity. The 2003 intervention resulted in the closure of the greater part of the country’s central economic administrative structures. Although only a comparatively small amount of capital plant was damaged, subsequent looting and ongoing insurgent attacks undermined efforts to rebuild the economy, which has the potential to be one of the strongest in the region. Failure to rehabilitate key economic facilities, such as oil pipelines, plant and infrastructures, continues to hold Iraq back from achieving the projected export volumes, although recently total government revenues have been higher than anticipated due to high oil prices. Iraq has now managed to establish fully functioning national institutions essential to the implementation and follow through of economic policy and enabling it to take important strategic decisions, including the drafting of business laws.
The country is not only fortunate in its extensive oil resources, much of which is unexplored, it enjoys many other resources such as fertile agricultural land. Farming provides rich and diverse range of produce both for domestic consumption and export. The main agricultural produce include wheat, barley, rice, vegetables, dates, cotton; cattle, sheep, poultry. Meanwhile, its main industries are petroleum, chemicals, textiles, leather, construction materials, food processing, fertilizer, metal fabrication and processing.
Immediately after 2003, Paul Bremer as head of the Coalition Provisional Authority issued a series of orders designed to restructure the economy in line with free market thinking. Order 39 laid out the framework for full privatization in Iraq, except for "primary extraction and initial processing" of oil, and permitted 100% foreign ownership of Iraqi assets. Other orders established a flat tax of 15% and permitted foreign corporations to repatriate all profits earned in Iraq. Bremer's privatization plan was not implemented during his tenure, though his orders remain in place.
After 2003 it was estimated that Iraq had an estimated $120 billion of external debt. In late 2004, the Paris Club of international creditors agreed to cancel 80% of the debt owed to member nations, an amount estimated in 2004 at $42 billion.
In October 2003, the new Iraqi dinar replaced the old dinar as the official currency. In March 2005, its value, originally 1,950 to the US dollar, had appreciated to 1,460 to the US dollar.
Iraq has been granted a six-month extension until 28 September 2007 to its stand-by arrangement with the IMF. The stand-by arrangement in an amount equivalent to $714.7 million was approved on December 23, 2005 by the IMF.
Iraq is entering a crucial period in its economic recovery. Despite very difficult circumstances, Iraq has taken important measures to keep their economic program on track. “The maintenance of fiscal discipline, as well as the tightening of monetary policy and the appreciation of the dinar, are commendable,” stated Takatoshi Kato, IMF Deputy Managing Director and Acting Chair. The increase of official domestic fuel prices and the enactment of a law liberalizing the import of fuel products are seen by the IMF as important steps. The approval of a proposed new oil and gas law is awaited and will be an important signal for the future development of the important oil sector. Iraq is also making progress in financial sector reform.
Inflation has remained high due to an important extent to the prevailing difficult security situation and supply disruptions. The Central Bank of Iraq may need to take further steps in order to prevent high inflation from becoming entrenched. The IMF is advising Iraq on its spending priorities and says fiscal policy should be supportive by keeping current spending, including the wage and pension bill, in check. “It is important to increase government investment, especially in the oil sector. The government also needs to reduce supply bottlenecks, especially of fuel products. To that end, actions are needed to facilitate the importing of fuel products by the private sector. The pace of structural reforms needs to be increased,” Kato said.
“While the restructuring effort on the two largest banks is commendable, efforts should be made to restructure the four other state-owned banks. The modernization of the payments system needs to be expanded to cover all banks,” the IMF official stated.
Prior to 2003 the 17 private banks established during the 1990s were limited to domestic transactions and attracted few private depositors. Those banks and two main state banks were badly damaged by the international embargo of the 1990s. To further privatize and expand the system, the CPA in 2003 removed restrictions on international bank transactions and freed the Central Bank of Iraq from government control. In its first year of independent operation, the Central Bank received credit for limiting Iraq’s inflation. In 2004 three foreign banks received licenses to do business in Iraq.
Iraq Securities Commission has issued detailed rules governing trading of non-Iraqis at the Iraq Stock Exchange (ISX), Chairman Abdulrazzaq Al-Saadi indicated.
Generally foreign investors, and particularly the private sector, have been waiting for stability and the security situation to substantially improve before making large commitments. Although foreign banks received permission to do business in Iraq, prevailing conditions so far have limited their activity. Standard Chartered, HSBC, and the National Bank of Kuwait received licenses to conduct banking transactions in Iraq, but a limit of six such banks was set until 2008. Iraq’s Foreign Investment Law allows foreign banks to hold a 50% interest in Iraqi private banks. In 2005 the World Bank’s International Finance Corporation joined the National Bank of Kuwait in buying a share of the Credit Bank of Iraq, a major infusion of money into the Iraqi financial system. In early 2005, reports emerged of US and European firms seeking to gradually privatize Iraq’s oil industry, despite a fair amount of resistance in the country. Shell Oil, British Petroleum, and Exxon Mobil have signed agreements to study Iraq’s reserves, and in December 2004 an international consortium signed a small-scale oilfield development agreement with the Ministry of Oil.
Traditionally, Iraq’s manufacturing activity has been closely connected to the oil industry. The major industries in that category have been petroleum refining and the manufacture of chemicals and fertilizers. Before 2003, diversification was hindered by limitations on privatization and the effects of the international sanctions. Since 2003, security problems have inhibited efforts to establish new enterprises. The construction industry is an exception; in 2000 cement was the only major industrial product not based on hydrocarbons. The construction industry has profited from the need to rebuild after years of war and conflict.
Aside from hydrocarbons, Iraq’s mining industry has been confined to extraction of relatively small amounts of phosphates, salt, and sulfur. Since a relatively productive period in the 1970s, the mining industry has been hampered by conflict.
Historically, only 50 to 60% of Iraq’s arable land has been under cultivation. Despite its abundant land and water resources, Iraq remains a net food importer.
The UN Oil-for-Food program in existence from 1997–2003 reduced farm production by supplying artificially priced foreign foodstuffs. The military action of 2003 did little damage to Iraqi agriculture; because of favourable weather conditions, in that year grain production was 22% higher than in 2002. Long-term plans call for investment in agricultural machinery and materials and more prolific crop varieties.
Throughout the 20th century, human exploitation, shifting agriculture, forest fires, and uncontrolled grazing denuded large areas of Iraq’s natural forests, which in 2005 are almost exclusively confined to the northeastern highlands. Most of the trees found in that region are not suitable for lumbering. Despite its many rivers, Iraq’s fishing industry has remained relatively small and based largely on marine species in the Gulf.
As one of the three most oil-rich countries in the world, Iraq has sufficient resources for complete energy independence and for substantial exports. By world standards, production costs for Iraqi oil are relatively low. In 2004 Iraq had eight oil refineries, the largest of which were at Baiji, Basra, and Daura. Sabotage and technical problems at the refineries forced Iraq to import fuels, liquid petroleum gas, and other refined products from nearby countries. In October 2004, Iraq spent $60 million for imported gasoline. In late 2004 and early 2005, sabotage of plants and pipelines reduced export and domestic distribution of oil, particularly to Baghdad. Nationwide fuel shortages and power outages resulted. As much as 90% of Iraq’s power generating and distribution systems were destroyed in 1991, and full recovery never occurred.
From the 1990s until 2003, the punishing international trade embargo restricted Iraq’s export activity almost exclusively to oil. In 2003 oil accounted for about $7.4 billion of Iraq’s total $7.6 billion of export value, and statistics for earlier years showed similar proportions. After the end of the trade embargo in 2003 expanded the range of exports, oil continued to occupy the dominant position: in 2004 Iraq’s export income doubled (to $16.5 billion), but oil accounted for all but $340 million (2%) of the total. In late 2004, sabotage significantly reduced oil output, and experts forecast that output, hence exports, would be below capacity in 2005 as well. Chief export markets are the United States (which accounted for nearly half), Italy, France, Jordan, Canada, and the Netherlands. In 2004 the value of Iraq’s imports was $21.7 billion, incurring a trade deficit of about $5.2 billion. In 2003 the main sources of Iraq’s imports were Turkey, Jordan, Vietnam, the US, Germany, and the UK. Because of Iraq’s inactive manufacturing sector, the range of imports was quite large, including food, fuels, medicines, and manufactured goods.
EU and Iraq launched negotiations for a Trade and Cooperation Agreement in Brussels in November 2006 when leading officials from the European Commission and the Iraqi government met to discuss the deal which aims to promote bilateral trade in line with WTO principles. It is hoped that the TCA will help to strengthen the EU’s relations with Iraq and thus help integrate the country into the world economy by encouraging transparency and legal certainty in economic operations.
This agreement aims to improve trade procedures between Iraq and the EU, covering a wide range of issues, including trade in goods, services, measures to encourage investment, customs, intellectual and industrial property rights, and public procurement rules. Co-operation could cover a number of key aspects in the economic area, as well as in the human development and poverty reduction field, environment, culture and education.
Since 2003, the European Commission has contributed €720 million towards the reconstruction with a focus on assisting Iraqi people in accessing basic services, furthering democracy, and promoting good governance. In 2006, the Iraqi government has proposed a Compact to build a new partnership between Iraq and the international community. It won support from the European Union.
Ministers from Iraq have been taking part in numerous meetings around the world with officials and business leaders to discuss potential joint ventures and co-operation agreements with international companies. It was reported in February 2007 that the country’s Industry & Minerals Minister Fawzi Hariri had held separate talks in Washington with both ExxonMobil Corporation and Chevron Corporation on plans for a $3,000 million 1.2-million-tonne-a-year integrated grassroots petrochemicals complex to be located near Basra. If negotiations are successful, construction will be scheduled by the end of 2007.
Iraq has issued an appeal for potential international partners to come forward to help with the proposed privatization of 60 companies in the industrial sector before offering shares in the state-owned firms.
“Our vision is to move towards a free-market economy and end the government monopoly,” said Industry & Minerals Minister Fawzi Hariri, speaking at a meeting at the Foreign & Commonwealth office in London on 22 January 2007. “We are not talking about an immediate sale of state-owned enterprises but a phased program aimed at rehabilitation,” he stressed. “The aim is to plug the experience and technology gap before moving on to privatization.”
In total the companies scheduled for privatization have 230 factories and span six sectors, including construction, engineering and textiles. Once co-operation agreements are in place, the government plans to offer shares to employees in the businesses and to governorates through a stock market listing.
Steel production is one of the essential supplies that Iraq needs to fulfill its reconstruction objectives. The ministry for Industry and Minerals is also developing a 14-year investment plan for the petrochemicals sector and is looking for the right partners. The plan calls for rehabilitating existing petrochemicals and fertiliser complexes by 2008 and introducing new technology to the plants by 2012.
Quelle: Ghorfa, Arab-German Chamber of Commerce & Industry e.V.
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