There is no culture of investment within Iraq and citizens do not have enough confidence in the market to invest their money in it. With so little foreign investment, it’s no surprise. Instead, Iraq’s save, putting their money into banks.
Jasim al-Aradi is one Iraqi businessman who does use the Iraqi bourse. He sits on the edge of his chair, watching the rises and falls in prices nervously.
“All over the rest of the world, the stock market is considered an important indicator for the performance of the economy as a whole. But in Iraq, which was expected to be among the most active countries in this field, there are many factors that limit its economic performance."
According to al-Aradi, there are a number of major factors that lead to instability of the stock market such as the absence of security, the lack of progress in the political process and the existing laws.
Muhammad Ismail, a member of Iraqi Brokers Union, added that “"the weaknesses of the Iraqi stock market, and its very modest performance is a result of the weaknesses of the listed companies in the market. There are no new bigger companies such as airliners and communications companies and this why the Iraqi stock market is still not effective on the economic level."
The stock market re-opened in 2004 as the Iraqi Securities Market managed by the Iraqi Securities Commission. It is a young market and businesses on it are still trying to make their presence felt and improve their status. 91 companies are currently listed in seven sectors: banking, hospitality, industry and services, insurance, financial investment and agriculture.
Thabet al-Baldawi, an investor and the head of the regional bureau of the Union of Arab Engineering Industries, told Niqash that "the financial market in Iraq is still a new and promising experience, but it continues to suffer from the bad economic and political conditions that have hindered its progress."
"Globally, financial markets bring profits and attract investors, but in Iraq, investors are reluctant to invest in the country because of the decline in share prices of listed companies as a result of depreciation and lack of renovation efforts," Baldawi said.
"In the absence of an economic or investment culture among Iraqis, the stock market and that culture need developing. We need to encourage citizens to invest and to buy and sell shares.”
The number of investors registered in the Iraqi stock market registry does not exceed 100,000 Iraqis and foreign investors. This is a very modest number compared to the total population which is around 32 million. What is more worrying is that the number has even decreased with many businessmen and investors leaving Iraq during the sectarian tensions between 2006 to 2008.
“The volume of commercial, financial or investment activity in any country is determined by the size of the economy. In recent years, Iraq has been under siege, so its no surprise that we have seen a contraction,” says Taha Ahmad Abdul-Salam, head of the Iraqi stock market.
“The cost of production is high and profits are very low in businesses that require energy or raw materials. Under these conditions, investors do not feel encouraged to buy shares or feel any confidence that they will make money.”
Abdul-Salam says that not one of the companies listed on the market is operating anywhere near its full capacity. Iraqi companies are just not competitive enough to demand a higher price.
"The shares are not profitable enough to attract people to buy and that is why the shares' prices have declined. Most of the shares are sold for 1-4 dinars with the exception of those companies' shares who work in services, hotels and industries."
Commodities in Iraq are too expensive and the country has suffered from ‘commodity dumping’ from outside. The shortage of electricity supply means companies rely on costly generators, pushing the costs of their products higher and squeezing their profit margins.
Production techniques are also outdated. There is not only the need for investment to bring production up to date but labourers must be trained. All this costs a great deal and will eat into the profits of companies, making them less attractive investments.
The laws that exist to encourage investment, particularly from abroad, are one way to attract foreign investment but if the companies themselves are not worth investment, investors’ participation in the market will remain very limited.
"Foreign investors find in the emerging Iraqi stock market a good investment opportunity, but at the same time investors want guarantees and want to see a good legal framework and strong institutions to invest their money because they cannot come themselves to Iraq," said Abdul-Salam.
"Iraq has developed its stock market to become electronic but we still do not have the one institution that foreign investors really want to see: 'the guarantor bank', which should be responsible for organising the sale and purchase of shares between brokers and investors to guarantee the buying and selling operation, inform the involved parties, and ensures payment are concluded."
If these conditions are met, "the Iraqi stock market may be able to attract new investors from all over the world," said Abdul-Salam.