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no taxes, no duty – but basra’s free zone still tricky for foreign investors

Murtada Taleb
It was designed to attract investors to Iraq and although things are getting better in Basra’s duty-free zone, there are still many obstacles for foreign investors there – some of which come straight…
1.08.2013  |  Basra
Basra\\\'s busy ports attract investors to the economic free zone.
Basra\\\'s busy ports attract investors to the economic free zone.

The free zone near the southern Iraqi city of Basra has been around for some time now – it was first created in 1999 when former Iraqi leader Saddam Hussein was still in power. But it is only recently that it seems to finally be attracting the right kind of attention.

The zone, around one million square meters or one square kilometre large, offers tax exemptions on imports, dedicated transportation – it is right by the Khor Al Zubair port area - and flexible legislation. It’s attractions for foreign and Arab investors are evident.

But due to the security and economic situation in Iraq over the past decade, it hasn’t had much success at drawing new investors to the country.

The free zone has had three phases of development, explains Mohammed Radi, general manager of the free zone. Before 2003, small local investors came to the area. After 2003, and the US-led invasion that toppled Saddam Hussein’s government, security conditions deteriorated and the free zone wasn’t particularly attractive to any investors until as late as 2008. However after 2009, things started to look up again as Basra became one of Iraq’s safer and more prosperous areas, due, partially, to the amount of oil being produced in the region; over half of Iraq’s oil comes from this area.

“The free zone has started to attract a lot of good investments,” Radi noted. “Especially after the recent oil licensing rounds.”

Today there are up to 50 investors in the free zone; half are Arab, with the other half foreign, Radi says. Up until recently the only people investing in logistics projects for the oil industry were from the Iraqi government. But apparently this is now changing.

“Some of the projects being implemented are happening for the first time in Iraq,” says one optimistic businessman there, Mustafa Hussein Kamel. “For instance, there’s an Italian company’s project involving large tanks for oil with 5,000 cubic meters capacity, that will be used for analysis and loading at the port.”

Still, there remain a number of obstacles that foreign investors need to overcome. One of these involves work permits and visas. “The difficulties around obtaining a visa have driven some investors to despair,” says Zahra al-Bukhari, who is on Basra’s provincial council. “In the past residency permits could be issued by local authorities and the local investment authority. But now a residency permit can only be approved by the Prime Minister’s office. This is an extremely complex process and it is impractical. It causes a lot of confusion for foreign investors.”

Local officials and economic advisers believe this should be altered to make it easier for foreign investors to come into Iraq.

“Facilitating entry visas for foreigners working in the oil industry has become a priority for the oil ministry,” says Falah Hussein, an economic adviser. “There have been a lot of complaints from oil company representatives who got contracts during the licensing rounds, about getting their staff the right visas.”

To remedy this the Basra local authority has asked Baghdad for permission to start issuing visas themselves again, saying the process is hindering investment in the free zone. And it’s not only oil companies complaining about this issue; other firms involved in transport, port maintenance and communications have also run into this obstacle.

This story was prepared as part of the Media Academy Iraq’s mentorship programme for young Iraqi journalists, together with NIQASH’s regular correspondents around Iraq.The mentor for this story was regular NIQASH contributor Waheed Ghanem.

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