Despite relative gains in terms of security and modest political developments, however, most U.S. firms may still not be prepared to do business amid continuing challenges and uncertainties.
More than 850 participants from 12 different sectors have registered to attend the Iraq Investment and Business Conference, which is being hailed by the U.S Department of Commerce as one of the best opportunities for U.S. investors to build an economic partnership with Iraq. The U.S. State Department describes the event as a first step in the new relationship with Iraq that was established with the signing of the bilateral Strategic Framework Agreement last November.
Two years after civil conflict nearly ripped the country apart and more than six years after the U.S.-led invasion, Iraqi officials say they are ready and in need of American investment as they seek to rebuild their country.
Already, the two countries have seen a boost in bilateral economic ties. U.S. exports to Iraq increased from US $1.5 billion in 2006 to US $2.1 billion in 2008, while U.S. imports from Iraq nearly doubled, from US $11.6 billion to US $21.1 billion, during the same period. State Department data from February 2008 shows the United States is by far the largest export market for Iraq.
Moreover, analysts say there is a lot of money to be made in Iraq today. But, while the national investment law in Iraq offers a variety of incentives for foreign investors, few U.S. businesses have, as of yet, the willingness or contacts to engage in such a challenging environment.
Iraq’s political economy remains largely based on patronage and corruption, with the privileged and clerical class exploiting the political vacuum of recent years to expand their fiefdoms. In the vibrant economy of the south, for example, powerful Shiite political entities control at least a portion of the port activity and the trade relationship with Iran.
Additionally, the Iraqi Parliament is notoriously slow to move and, with national elections set for January, political uncertainty could throw up further political obstacles.
Nevertheless, the economic climate continues to draw foreign interest. This week's trade conference in Washington is fully booked and media attention is growing, providing a good indicator of the increasing awareness from the parts of the U.S. business sector that have the stomach and influence to do business in Iraq.
Representatives from such powerhouses as Boeing, Exxon Mobil and GE join an illustrative list of potential American investors in Iraq. U.S. companies 360 Architecture and Newport Global have already formed a joint venture with the Iraqi firm Abdullah al-Jiburi Contracting, Iraq’s largest general contractor, to build a "sports township" in Basra for the 2013 Gulf Cup soccer tournament.
Oil, of course, ranks first in terms of attractive sectors. Iraq in 2008 was the 13th largest producer of crude oil in the world, while its proven reserves rank third. But analysts believe Iraq has an even bigger potential as only a fraction of the known fields are in development and most of the country remains unexplored.
Iraq in June moved forward with its first post-invasion international auction for lucrative oil contracts, though political instability, a lack of necessary legislation and lingering concerns over violence prompted many potential investors to shy away. Iraq is missing out on billions of dollars revenue because it cannot generate the foreign interest it needs and a second round of auctions has already been delayed.
But officials say Iraq needs more than oil investments as the country’s major infrastructure – roads, bridges, not to mention electricity – tries to rebuild. Today the country is in urgent need of foreign capital and expertise to achieve these goals, and Baghdad has made some modest steps toward opening the sector to external investment.
For many potential U.S investors, corruption remains the main obstacle. While some steps have been taken to deal with this issue, many foreign businesses say the potential pitfalls and uncertainties of the system are still too significant to contemplate investment even amid an improving security environment.
Nonetheless, U.S. Vice President Joe Biden, during a September visit to Iraq, lauded the investment opportunities in the country, extending a warm welcome to Iraqi officials for this week's investment conference in Washington. Iraqi Prime Minister Nouri al-Maliki has said that he will present the conference with a wish list for U.S. investors.
Even so, while there are substantial opportunities for American money in Iraq and trends suggest the country is on the road to recovery, there is still a long way to go before U.S. investors readily pour their money into the country.
Iraqi officials have their work cut out for them this week as they seek to change this perception.