FINANCIAL TIMES 1/26/10

Financial Times - [1/26/2010]

It may have taken months of haggling and brinkmanship but Iraq’s general elections are now due to take place early in March. They will determine the 325 members of the Council of Representatives, who are in turn due to elect a president and prime minister.

Many investors in the country argue it is not who wins the elections that is important, or even the precise level of unrest that surrounds the polls, so much as the fact that elections take place at all. Having patience and taking a long-term view in Iraq are paramount, they say.

“We tend to look at micro trends and ignore the macro. The overall trend continues to move forward,” says Adam Such, a former commander of a US military unit that fought in Iraq after the invasion of 2003. Mr Such is now executive vice-president of C3 Invest, a California-based private equity fund.

C3’s investments in Iraq have ranged from installation of a fibre optic network in Baghdad to plans to develop Al Zawra Park, an entertainment zone in the capital.

The country remains a high-risk investment destination amid continual concerns about instability and sectarian and ethnic tensions, particularly as the US is due to withdraw all its combat troops this year.

A government decision last week to exclude more than 500 candidates, mainly Sunni Arabs, from the elections threatens to cause further tensions. Iraq is also plagued by rampant corruption and an inefficient bureaucracy, factors that have combined with security concerns to stymie much needed investment.

The Al Zawra project, however, is just the type of scheme the US and Iraqi authorities are keen to promote as marking the direction in which the country is moving nearly seven years after the invasion.

Early investors in Iraq included mobile phone companies. The country now has three mobile operators, two of them foreign controlled – Kuwait’s Zain; Korek, which is strong in Kurdistan; and Asiacell, a unit of Qatar Telecommunications.

Then, tortured negotiations over the lucrative oil sector captured the foreign investment headlines.

The hydrocarbons sector was hamstrung by delays in putting in place a workable law, turf battles between Baghdad and the Kurdish region over fields in northern Iraq, and complaints by foreign oil companies over unreasonable terms, which caused a botched auction of oil contracts last June.

But, given the scope for development and Iraq’s potentially huge reserves, even these delays did not deter investors. In a more successful licensing round in December, seven of 10 available areas were licensed, and on better than expected terms.

Even outside the oil sector, Iraq is slowly attracting more foreign direct investment. According to fDi Markets, a crossborder investment tracking service owned by the Financial Times, Iraq received 19 greenfield investment projects last year totalling $2.52bn as of November (compared with 18 in 2008). There was an increase in the latter part of the year in particular.

Last October, at an investment summit in Washington, Iraqi officials presented 750 projects in 12 sectors to potential investors. The event was attended by roughly 1,000 people, including representatives of companies such as BAE Systems, Boeing, Honeywell and Motorola.

Also present were Nouri al-Maliki, the prime minister, and most of his cabinet, and the governors and heads of investment commissions of all the Iraqi provinces.

The Iraqi government announced in Washington that foreign investors in real estate and construction projects could now own land – a significant development for a country where land ownership is a highly sensitive subject. Foreigners do not need an Iraqi partner for these projects, and there are some investment incentives available.

The government has also announced plans for 500,000 new homes to fill a shortfall of millions that are estimated to be needed over the next decade.

Hayder Judi, the project manager of a $100m, 300-room five-star hotel in Baghdad’s international zone, says hospitality is a sector with high potential. The project is being funded by Summit Global Group, a consortium that includes US and Iraqi investors.

“Hospitality facilities are something Iraq needs a lot of and with other types of projects you sometimes have to be careful not to step on any toes because of political sensitivities. This is not the case with a hotel project; it is a safe investment in a sense,” Mr Judi says.

Elsewhere, the five-star Mnawi Basha hotel opened in central Basrah last July. Iraqi-owned Le Royal has plans for a new five-star hotel in Arbil that will have 260 rooms plus 11 buildings for long-lease tenants.

Hussain Ali Qaragholi, senior vice-president and Iraq business head for Abu Dhabi Islamic Bank, leads one of half-a-dozen Islamic banks to have gained a toehold in Iraq in recent years.

“We expect investment decisions to move forward without waiting for election results,” Mr Qaragholi says.

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