The U.S. business community is increasingly interested in potential investment and export opportunities in Iraq. Since the December 9, 2017, declaration by then-Prime Minister Haider al-Abadi that the Iraqi Security and Coalition Forces successfully liberated all of Iraq, foreign companies have gradually increased their activity in exploring non-oil trade with and investment in Iraq. Prime Minister Adil Abd al-Mahdi (AAM) has committed to an economic plan that includes reforming Iraq’s failing state-owned enterprises (SOEs), fighting corruption, reducing bureaucratic bottlenecks, investing in necessary infrastructure, and stimulating the private sector.
The Government of Iraq (GOI) continues to face the challenges of reconstruction after the defeat of ISIS, assisting more than 1.7 million Iraqis who remain displaced, and an economy that is primarily dependent on oil revenues and burdened by institutional corruption. Although the GOI announced the defeat of ISIS in late 2017 and more than 4.2 million Iraqis have returned to their homes, the rate of returns is slowing. Many of those still displaced are concerned about security in their areas of origin as well as the lack of livelihoods, appropriate housing, or other basic services. After a peaceful transition of power to AAM’s technocratic coalition in October 2018, the failure of the GOI to pass a budget in a timely manner and complete the formation of a cabinet significantly slowed the momentum of this ambitious economic reform plan.
ISIS’s previous control of large swaths of territory in Mosul and parts of northern and western Iraq, beginning in June 2014, cut key domestic and international trade routes and slowed economic growth. Though major military operations against ISIS have concluded, lack of security and the threat of resurgent extremist groups remain an impediment to investment in many parts of the country. Some militia groups that participated in the fight against ISIS remained deployed even after the completion of combat operations. In many instances, these militia appeared to be under only marginal government control and were implicated in a range of criminal and extralegal activities, including extortion. However, the security situation varies throughout the country and is generally less problematic in the Iraqi Kurdistan Region (IKR).
With non-oil bilateral trade with the U.S. just over USD 1 billion and limited U.S. foreign direct investment (FDI) in an economy with an estimated gross domestic product (GDP) of USD 200 billion, the Iraqi market offers tremendous potential for U.S. exporters. However, due to the statist approach of the central government and its aversion to foreign investors owning or having operational control of infrastructure, particularly in the energy sector, many of these opportunities are high risk but rewards can be limited. This structure may have a chilling effect on FDI from the U.S. Iraq has the fifth largest proven oil reserves in the world and needs tremendous investment in reconstruction and infrastructure development. Iraq also has the twelfth largest natural gas reserves in the world, but due to underdevelopment of its natural gas sector, and the increased need for natural gas to produce electricity, Iraq has recently been forced to import natural gas and is actively soliciting foreign investment to develop this vitally important sector. U.S. companies have opportunities to invest in the security, energy, environment, construction, healthcare, tourism, agriculture, and infrastructure sectors. Iraq imports large volumes of agricultural commodities, machinery, consumer goods, and defense articles. A December 2018 trade mission by 57 U.S. companies to Baghdad represented many of these sectors, but the obstacles to doing business in Iraq are substantial and few of these companies realized any significant progress since their visit to Iraq.
Government contracts and tenders – the source of most commercial opportunities in Iraq – historically have been almost entirely financed by oil revenues. Increasingly, the GOI has asked investors and sellers to provide financing options and allow for deferred payments. Increases in oil production and exports in 2017, along with an increase and stabilization in oil prices, resulted in a 37 percent increase in oil revenues from 2016 levels. The 2019 budget passed by Parliament in January projects a deficit of USD 23.3 billion based on an expectation that the price of oil exports will average USD 56 per barrel and Iraq will receive USD 79.3 billion in oil revenue.
Investors in Iraq continue to face extreme challenges resolving procurement disputes with GOI entities, receiving timely payments, and winning public tenders. Potential investors should prepare to face significant costs to ensure security, cumbersome and confusing procedures, and long payment delays on GOI contracts. Difficulties with corruption, customs regulations, dysfunctional visa and residency permit procedures, nonexistent dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints from companies operating in Iraq. Shifting and unevenly enforced regulations create additional burdens for investors. The GOI currently operates 192 SOEs, a legacy from decades of statist economic policy.
Investors in the IKR face many of the same challenges as investors elsewhere in Iraq, but a pro-business visa regime and a traditionally more stable security situation make the region more attractive to foreign businesses. However, the 2014 ISIS offensive, the drop in oil prices, and the aftermath of the 2017 Kurdish independence referendum – which led to the central government’s physical seizure of the Kirkuk oil fields and the temporary closure of IKR’s airports to international flights – dampened foreign investment and the region’s economy has struggled to recover. Recent positive signs boosting confidence in the IKR economy include a stable oil price, the resumption of budget support to the Kurdistan Regional Government (KRG) from the central government, and initial agreements between the GOI and KRG on issues such as a unified customs system and the shipment of Kirkuk oil through the IKR pipeline to Turkey. According to the Kurdistan Board of Investment (BOI), the total capital of licensed projects in the IKR in 2018 increased by over 340 percent compared to 2017.
Numerous efforts to facilitate business climate improvements saw positive movement in the past year. In November 2018, the U.S. Embassy Baghdad Trade and Investment team (T&I) was approved as a partner post of the U.S. Foreign Commercial Service (USFCS), supported by the USFCS office at U.S. Embassy Amman. T&I can now offer eight of Commerce’s fee-based services supported by economic officers and the team’s three local staff.
The U.S. government and the GOI have revived the 2005 U.S.-Iraq Strategic Framework Agreement and the Trade and Investment Framework Agreement (TIFA), which convened the first and only TIFA council meeting in 2014. The American Chamber of Commerce in Iraq (AmCham Iraq), re-launched in October 2015, provides a platform for commercial advocacy for the U.S. business community, and recently hired a full-time executive director. Efforts to organize an American Chamber of Commerce in the IKR have stalled but regional chambers of commerce in Sulaimaniya, Duhok, and Erbil also provide support to U.S. businesses in the IKR.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||168 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2018||171 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||Not Ranked||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$2,527||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$4,630||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The GOI has publicly stated its commitment to attract foreign investment in the Prime Minister’s National Program to strengthen local industries and promote the “Made in Iraq” brand. In February 2018, the GOI partnered with the World Bank and the Kuwaiti government to host the Kuwait International Conference for the Reconstruction of Iraq. The GOI has not yet followed through on commitments made at the conference to reform processes and regulations that hinder investment.
In December 2015, the GOI passed an amended National Investment Law (NIL) that improves investment terms for foreign investors, allows them to purchase land in Iraq for certain projects, and speeds up the investment license process. However, purchasing land for commercial or residential development is extremely difficult. In 2015, Iraq also joined the International Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID).
Nevertheless, foreign investors continue to encounter bureaucratic challenges, corruption, and a weak banking sector, which make it difficult to successfully conclude investment deals. State-owned banks in Iraq serve predominantly to settle the payroll of Iraq’s public sector and privately-owned banks, and until recently served almost entirely as currency exchange businesses. Some of the privately-owned banks have begun commercial lending programs, but Iraq’s lack of a credit monitoring system, insufficient legal guarantees for lenders, and limited connections to international banks hinder commercial lending. The financial sector in the IKR is still recovering from years of financial instability there, and the Central Bank of Iraq (CBI) levied sanctions against the IKR financial system immediately following the Kurdistan independence referendum in September 2017.
Recently, the GOI has been exploring financing options to pay for large-scale development projects rather than relying on its previous practice of funding investments entirely from current annual budget outlays. According to the NIL, the GOI reserves the right to screen foreign direct investment. The U.S. Department of State is not aware of specific instances where this screening process has explicitly blocked foreign investments in Iraq, but the bureaucratic barriers to investment – including, for example, a requirement to place a significant portion of the capital investment in an Iraqi bank prior to receiving a license – remain significant.
The IKR has its own investment law (passed in 2006) and supporting regulations. The KRG is working to put the business registration process and procedures online, and initial steps have been completed. The KRG is generally open to public-private partnerships and is interested in modern, long-term financing, as demonstrated by the KRG’s oil and gas sector contracts that increase production. Legislation to amend the investment law to broaden its reach to potential investors remains pending in the Iraqi Kurdistan Parliament (IKP).
According to Iraqi law, a foreign investor is entitled to make investments in Iraq on terms no less favorable than those applicable to an Iraqi investor, and the amount of foreign participation is not limited. However, Iraq’s NIL limits foreign direct and indirect ownership of most natural resources, particularly the extraction and processing of any natural resources. It does allow foreign ownership of land to be used for residential projects and co-ownership of land to be used for industrial projects when an Iraqi partner is participating.
Iraq’s 2006 Investment Law Number 13 called for the establishment of a National Investment Commission (NIC) and a Provisional Investment Commission in each province. The NIC, launched in 2007, is a cabinet-level organization which provides policy recommendations as well as support to current and potential investors in Iraq. The NIC’s “One Stop Shop” is intended to guide investors through the investment process, though investors have reported challenges using the NIC’s services. The NIC can also grant investment licenses and facilitate visa and residency permit issuances for business travelers.
Limits on Foreign Control and Right to Private Ownership and Establishment
According to the National Investment Regulation No. 2 of 2009, if an investment license is granted to a project, at least 50 percent of the project’s workers must be Iraqi nationals. The amended NIL also states that investors should give priority to Iraqi citizens before hiring non-Iraqi workers. As a result of popular protests in the summer of 2015, the GOI has applied pressure on foreign companies to hire more local employees. In order to generate non-oil revenues, the GOI has also encouraged foreign companies to partner with local industries and purchase Iraqi-made products. The GOI generally favors SOEs and state-controlled banks in competitions for government tenders and investment. This preference discriminates against both local and foreign investors.
Other Investment Policy Reviews
In the past three years, the GOI has not conducted any investment policy reviews through the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD).
Foreign investors interested in establishing an office in Iraq or bidding on a public tender are required to register as a foreign business with the Ministry of Trade’s Companies Registration Department. The procedure costs and time to obtain a business license can be found at https://baghdad.eregulations.org/procedure/21?l=en . The process for doing so is too complicated to do from overseas, so companies must register using a local agent or consultant. Investors who will do business only in the IKR can register with the KRG directly. Companies that will do business in both the IKR and greater Iraq must register with the Ministry of Trade. The KRG has been negotiating with the GOI to gain Ministry of Trade recognition outside the IKR for KRG-issued business registrations.
Under the NIL, the NIC and the Provincial Investment Commissions (PICs) are intended to be one-stop shops that can provide information, sign contracts, and facilitate registration for new foreign and domestic investors. The NIC offers investor facilitation services on transactions including work permit applications, visa approval letters, customs procedures, and business registration. Investors can request these services through the NIC website: http://investpromo.gov.iq/ . However, the National and Provincial Investment Commissions struggle to operate amid unclear lines of authority, budget constraints, and an absence of regulations and standard operating procedures. The Investment Commissions still generally lack the authority to intercede when investors encounter bureaucratic obstacles with other Iraqi ministries.
In order to incorporate a company in Iraq, an investor must obtain a statement from an Iraqi bank showing a minimum capital deposit. All investors must also apply for an investment license from the appropriate national, regional, or provincial investment commission. Companies are required to register with the General Commission for Taxation and register employees for social security (if applicable). Companies automatically should receive their tax identification number as part of registering their business with the Ministry of Trade. Companies that provide security are also required to register with the Ministry of the Interior. It takes an average of 10 working days to start a business in Iraq, according to the 2018 World Bank Ease of Doing Business report; online procedures accounted for only 0.5 days of that time.
The National Investment Commission does not exclude businesses from taking advantage of its services based on the number of employees or the size of the investment project. The commission can also connect investments by micro-, small-, and medium-sized enterprises (MSMEs) with the appropriate provincial investment council.
The Kurdistan Board of Investment (BOI) manages a streamlined investment licensing process in the IKR whose policy is to acknowledge receipt of the license request within 30 days of the initial license application; however, the licensing process can take from three to six months and may involve more than one KRG ministry or entity, depending on the sector of investment. Despite bureaucratic hurdles, on the whole, the BOI investment framework seems to work well. Because of oversaturated commercial and residential real estate markets, the BOI has moved away from approving licenses in these sectors but still approves them on a case-by-case basis. Businesses reported some difficulties establishing local connections, obtaining qualified staff, and meeting import regulations. Businesses also report that the KRG has not provided all promised support infrastructure such as water, electricity, or wastewater services under the investment law framework. However, the BOI receives generally high marks for being helpful in resolving problems. Additional information is available at the BOI’s website: http://www.kurdistaninvestment.org/ .
Iraq does not restrict domestic investors from investing abroad.
2. Bilateral Investment Agreements and Taxation Treaties
Iraq does not have a bilateral investment treaty (BIT) or a bilateral taxation treaty with the United States. The United States and Iraq signed an Agreement for Economic and Technical Cooperation on July 11, 2005, and it entered into force December 18, 2013. The U.S.-Iraq Strategic Framework Agreement (SFA) (available at the following website: http://photos.state.gov/libraries/iraq/216651/US-IRAQ/us-iraq-sfa-en.pdf ) provides intergovernmental forums to address impediments to investment and trade. There was a bilateral Higher Coordinating Committee (HCC) meeting on January 28, 2018, under the auspices of the SFA. At the HCC both sides committed to reinvigorate the TIFA process and to the formation of two bilateral working groups: 1) to simplify Iraq’s visa and residency permit process and 2) to resolve commercial disputes between American companies and the GOI. The existing TIFA between the governments of Iraq and the United States entered into force in 2013 and the inaugural TIFA Council meeting took place in March 2014 in Washington, D.C. The second TIFA Council is scheduled to take place on June 14, 2019. The TIFA provides a framework for dialogue to increase trade and investment cooperation between the two countries.
Iraq is a signatory to investor protection agreements or memorandums of understanding with 35 bilateral partners and nine multilateral groups. The agreements include arrangements within the Arab League, as well as arrangements with Afghanistan, Armenia, Bangladesh, France, Germany, India, Iran, Japan, Jordan, Kuwait, Mauritania, the Republic of Korea, Sri Lanka, Syria, Tunisia, Turkey, the United Kingdom, Vietnam, and Yemen.
Iraq currently has bilateral investment treaties with Armenia, France, Germany, Japan, Jordan, and Kuwait. Only the BITs with Japan and Kuwait are in force. Iraq’s investment agreements include general provisions on promoting and protecting investments, including clauses on profit repatriation, access to arbitration and dispute settlements, fair expropriation rules, and compensation for losses. However, the Iraqi government’s ability and willingness to enforce such provisions remains untested.
Iraq joined the Greater Arab Free Trade Area (GAFTA) in 1998 to better integrate economically with other Middle Eastern countries. However, Iraq withdrew from GAFTA on November 17, 2016, choosing instead to implement tariffs on all the goods coming into the country.
U.S. companies have raised concerns about the Ministry of Finance (MOF)Tax Commission’s use of the “deemed tax” method to calculate corporate taxes, which can be disadvantageous for firms generating less than 20 percent profit, the standard percentage applied to every company, regardless of the firm’s actual profit. U.S. investors also complain about the application of the social tax, equivalent to 5 percent of employees’ pay and a 12 percent employer contribution, to third country national employees who do not participate in or benefit from the Iraqi health or pension system, which the taxes are used to fund.
3. Legal Regime
Transparency of the Regulatory System
Iraq’s overall regulatory environment remains opaque. Corruption, unclear regulations, and bureaucratic bottlenecks are major challenges for investors that bid on public procurement contracts or seek to invest in major infrastructure projects. The KRG rolled out procurement reform measures in 2016 that seek to address some of these issues, yet the efficacy of these measures remains unclear. Iraq’s commercial and civil laws generally fall short of international norms. There are few provisions regarding commercial competition. The NIL does not establish a full legal framework governing investment.
The absence of other laws in areas of interest to foreign investors also creates ambiguity. Iraq’s Legislative Action Plan for the Implementation of WTO Agreements – the legislative “road map” for Iraq’s eventual WTO accession – requires competition and consumer protection laws that are critical for leveling the business playing field. The Council of Representatives (COR) passed a Competition Law and a Consumer Protection Law in 2010; however, the Competition and Consumer Protection Commissions authorized by these laws have yet to be formed. Without these commissions, investors do not have recourse against unfair business practices such as bid rigging or abuse of a dominant position in the market.
The way in which the Iraqi government promulgates regulations can be opaque and lends itself to arbitrary use. Regulations imposing duties on citizens or private businesses are required to be published in the official government gazette. However, there is no corresponding requirement for the publication of internal ministerial regulations. This loophole allows bureaucrats to create internal requirements or procedures with little or no oversight, which can result in additional burdens for investors and other businesspersons.
Regulations exist at both the national and the provincial level. National regulations are the most relevant to foreign businesses. Lack of regulatory coordination between GOI ministries and national and provincial authorities can result in conflicting regulations, which makes it difficult for investors and business people to easily and accurately interpret the regulatory environment.
Publicly listed companies are governed by the Interim Law on Securities and Markets (Coalition Provisional Authority Order Number 74) which is consistent with international norms; however, enforcement of this law is often not effective. Accounting, legal, and regulatory procedures are opaque, inconsistent, and generally do not meet international standards. Draft bills, including investment laws, are not available for public comment.
The GOI encourages private sector associations but private sector associations are generally not influential, given the dominant role of SOEs in Iraq’s economy. In the IKR, private sector associations have more influence and many, such as the contractors’ union, are very active in advocacy with the KRG.
The promulgation of new regulations with little advance notice and requirements related to investment guarantees have also slowed projects. While the Kurdistan Region Investment Law (KRIL) of 2006 does not stipulate that a local partner is necessary to acquire an investment license, government officials sometimes encourage this practice.
Iraq has limited transparency of its public finances or government held debt. Publicly available budgets included expenditures broken down by ministry and revenues broken down by source and type. The budget provided limited details regarding allocations to and earnings from state-owned enterprises (SOEs). Financial statements for most SOEs were generally not publicly available. Limited information on debt obligations was available on the Central Bank and MOF websites. A detailed breakdown of government debt was not made publicly available.
International Regulatory Considerations
Iraq is not a member of the WTO and is not a signatory to the Trade Facilitation Agreement.
Legal System and Judicial Independence
Iraq has a civil law system, although Iraqi commercial jurisprudence is relatively underdeveloped. During decades of war and sanctions, Iraqi courts became isolated from developments in international commercial transactions. Corruption and bureaucratic bottlenecks remain significant problems. As trade with foreign parties increases, Iraqi courts have seen a significant increase in complex commercial cases. Contracts should be enforceable under Iraqi law. In practice, however, honoring contracts and contract enforcement remains a challenge due to unclear regulations, lack of decision-making authority, and rampant corruption.
Laws and Regulations on Foreign Direct Investment
Iraq is a signatory to the League of Arab States Convention on Commercial Arbitration (1987) and the Riyadh Convention on Judicial Cooperation (1983). Iraq formally joined the ICSID Convention on December 17, 2015, and on February 18, 2017, Iraq joined the Investor-State Dispute Settlement (ISDS) process agreement between investors and states.
Additional information can be found in “A Legal Guide to Investment in Iraq” http://cldp.doc.gov/programs/cldp-in-action/details/1551 .
Competition and Anti-Trust Laws
The COR passed a Competition Law and a Consumer Protection Law in 2010. However, the Competition and Consumer Protection Commissions authorized by these laws have yet to be formed. The NIL is supposed to promote fair competition and “competitive capacities” in the local market. However, the NIL does not include provisions related to the competition legislation. The prominent role of SOEs in Iraq and corruption issues undermine the competitive landscape.
Expropriation and Compensation
Article 23 of the Iraqi Constitution prohibits expropriation, unless done for the purpose of public benefit and in return for just compensation. The Constitution stipulates that expropriation may be regulated by law, but specific legislation regarding expropriation has not been drafted. Article 9 of the amended NIL also guarantees non-seizure or nationalization of any investment project covered by the provisions of this law, except in cases where a final judicial judgment has been reached. It prohibits expropriation of an investment project, except in cases of public benefit and with fair compensation. Iraq’s Commercial Court is charged with resolving expropriation cases. Over the past six years, there have not been any government actions or shifts in government policy that would indicate possible expropriations in the foreseeable future.
In the IKR, if the BOI determines that investors are using land awarded under investment licenses for purposes other than those outlined in the license, it can impose fines and potentially confiscate the land. Article 17 of the IKR investment law outlines an investor’s arbitration rights, which fall under the civil court system. Arbitration clauses should be written into local contracts in order to facilitate enforcement in the event of a dispute.
ICSID Convention and New York Convention
Iraq is considering, but has not yet signed or ratified, the convention on Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the ad hoc arbitration rules and procedures established by the UN Commission on International Trade Law (UNCITRAL Model Law). The enforcement of arbitral awards must comply with the special requirements set forth in current Iraqi civil procedure law and other related laws.
Investor-State Dispute Settlement
In November 2010, Iraq’s Higher Judicial Council established the First Commercial Court of Iraq, a court of specialized jurisdiction for disputes involving foreign investors as part of a national strategy to improve Iraq’s investment climate. This court began hearing cases in January 2011. In 2017, a Higher Judicial Council survey of the 16 federal courts of appeals that heard Iraq’s commercial cases showed that 1,565 commercial cases had been filed and 83 percent of those cases had been completed. Given that all of Iraq’s ministries are located in the capital, and the vast majority of commercial cases involve a foreign party and an Iraqi government agency, the Baghdad Commercial Court reviews far more commercial cases than the general jurisdiction courts in the surrounding provinces. In 2017, 982 commercial cases were filed with Baghdad’s Commercial Court, representing 63 percent of the total commercial cases filed. In the IKR, commercial disputes are handled through the civil court system.
Additional information can be found in “A Legal Guide to Investment in Iraq:” http://cldp.doc.gov/programs/cldp-in-action/details/1551
International Commercial Arbitration and Foreign Courts
Iraq is a signatory to the League of Arab States Convention on Commercial Arbitration (1987) and the Riyadh Convention on Judicial Cooperation (1983). Iraq formally joined the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) on December 17, 2015, and on February 18, 2017, Iraq joined the Investor-State Dispute Settlement (ISDS) process agreement between investors and states.
Under Iraqi law, an Iraqi debtor may file for bankruptcy, and an Iraqi creditor may file for liquidation of the debtor. Bankruptcy is not criminalized. The Iraqi Companies Law regulates the process for liquidation of legal entities. Nevertheless, the mechanism for resolving insolvency remains opaque. Iraq ranks 168 out of 190 countries in the category of Resolving Insolvency, according to the World Bank’s 2018 Doing Business Report.
4. Industrial Policies
The amended NIL offers foreign investors several exemptions for qualified investments, including a ten-year exemption from taxes, exemptions from import duties for the necessary equipment and materials throughout the period of project implementation, and exemption from taxes and fees for primary materials imported for commercial operations. The exemption increases to 15 years if Iraqi investors own more than 50 percent of the project. The NIL also allows investors to repatriate capital brought into Iraq, along with proceeds, in accordance with the law. The Embassy is unaware of any foreign companies that have successfully received these benefits. Foreign investors are able to trade in shares and securities listed on the Iraqi Stock Exchange. Hotels, tourist institutions, hospitals, health institutions, schools, and colleges also are granted additional exemptions from duties and taxes on their imports of furniture, tools, equipment, machinery, and means of transportation, but foreign companies who sell goods or services to any entity in Iraqi may be subject to Iraqi taxes.
Foreign and domestic companies may also be exempted from taxes on profits if they have contracts with the GOI to execute projects within the National Investment Plan, which is prepared annually by the Ministry of Planning. The GOI ministries overseeing investment projects are responsible for providing updates for the list of investment contracts to the Tax Commission in the MOF. Companies (foreign and domestic) that have registered businesses in order to execute contracts outside the National Investment Plan do not receive tax exemptions. However, in some cases, GOI entities have negotiated partial or short-term tax exemptions for companies as part of a project contract.
Income tax language is included in GOI petroleum contracts with the Ministry of Oil (MOO) and applies to each consortium and its partners. This contract language was ratified by the Council of Representatives and supersedes the Tax Code. Secondary contracts issued by consortiums holding primary petroleum contracts are treated differently. The consortium is required to withhold 7 percent from secondary contracts for remittance to the GOI. Companies pay a profit tax in the amount of 15 percent unless they operate in the oil sector where a 35 percent tax profit rate applies. Defining the activities which constitute “petroleum activities” (and are thus subject to the 35 percent vs. the 15 percent tax rate) is a gray area subject to interpretation. Any business or individual considering doing business in Iraq should obtain competent advice from an accountant or attorney.
Under the IKR’s investment law, foreign and national investors are treated equally and are eligible for the same benefits. Foreign investors may choose to invest in the IKR with or without local partners, and full repatriation of profits is allowed. While investors have the right to employ foreign employees in their projects, priority is given to awarding projects that employ a high share of local staff and ensure a high degree of knowledge transfer. Additionally, the law allows an investor to transfer his investment totally or partially to another foreign investor with the approval of the BOI.
Foreign Trade Zones/Free Ports/Trade Facilitation
The Free Zone Authority Law No. 3/1998 permitted investment in Free Zones (FZ; similar to a U.S. Foreign Trade Zone) through industrial, commercial, and service projects. This law is implemented through the Instructions for Free Zone Management and the Regulation of Investors’ Business No. 4/1999 and is administered by the Free Zones Commission in the MOF. Under the law, capital, profits, and investment income from projects in a FZ are exempt from all taxes and fees throughout the life of the project. Goods entering into Iraq’s market from FZs are subject to normal import tariffs; no duty is levied on exports from FZs.
Activities permitted in FZs include: industrial activities such as assembly, installation, sorting, and refilling processes; storage, re-export, and trading operations; service and storage projects and transport of all kinds; banking, insurance, and reinsurance activities; and supplementary and auxiliary professional and service activities. Prohibited activities include actions disallowed by other laws in force, such as weapons manufacture and environmentally-polluting industries.
Iraq currently has four FZs with tax exemptions and other incentives for the transportation, industrial, and logistics sectors. Iraq’s largest FZ is the Basrah/Khor al-Zubair FZ, located 40 miles southwest of Basrah on the Arab Gulf at the Khor al-Zubair seaport. This 18 square km zone has been operational since June 2004, and hosts a number of local and foreign companies. The Ninewa/Falafel Free Zone is located in the north, near roads and railways that reach Turkey, Syria, Jordan, and the Basrah ports. An undeveloped zone in Fallujah is in the planning stages. However, none of these areas are operating as a significant focal point for investment or trade. The Falafel and Fallujah zones are located in formerly ISIS-held areas, and the possibility of continued political instability makes further development in the near future unlikely. There is also a FZ in Baghdad. The Free Zone Commission lacks capacity and is further inhibited by being under the MOF, which lacks a specific mandate to develop the FZs.
In the IKR, there are currently no FZs. The KRG has approved plans for zones in each of the IKR’s four provinces, however, due to the economic crisis, implementation has ceased.
Performance and Data Localization Requirements
In February 2016, the GOI implemented Labor Law No. 37 which allows for collective bargaining, further limits child labor, and provides improved protections against discrimination and sexual harassment at work. The law also enshrines the right to strike, banned since 1987. Under the law, the GOI will no longer restrict workers to affiliate with only one union or federation, and coverage is expanded to include all workers not covered by Iraq’s civil service law. The law describes two categories of workers: local Iraqis and foreign workers employed by Iraqi entities or working in the GOI. The law does not explain how or whether it applies to foreign workers employed by foreign companies in Iraq.
According to the 2015 amended NIL, foreign workers may be hired for investment projects, when needed, after priority has been given to Iraqi workers. However, according to National Investment Regulation No. 2 of 2009, at least 50 percent of an investment project’s workers must be Iraqi nationals. International companies have noted that Iraq lacks a skilled labor force and it can be a challenge to meet this requirement. Foreign investors are expected to help train Iraqi employees to increase their efficiency, skills, and capabilities.
In the IKR, hiring locally is encouraged, but not mandated by either the KRIL or the 2011 Employment Policy of the KRG Ministry of Labor and Social Affairs. In the IKR, foreign employees must obtain a security clearance issued by the KRG Ministry of Interior, a medical clearance which includes an HIV test, and a work permit issued by the KRG Ministry of Labor and Social Affairs (MOLSA) before applying for the residency permit required for legal employment. Some foreign companies have reported prolonged delays in obtaining necessary residency permits for foreign workers. Additional clearances are required in order to appoint foreign nationals as managers of foreign-owned limited liability companies.
Foreign investors can apply for a visa at Iraqi embassies, or in some cases, through the National Investment Commission. In other cases, investors can apply for and receive visa approval letters from the Ministry of Interior. Visa approval letters authorize investors to receive a visa upon arrival from Ministry of Interior officials at Iraq’s airports. Investors must be sponsored by an Iraqi government entity and receive an official invitation letter, approved by the Ministry of Interior, from that entity. Obtaining visas for foreign contractors regularly takes several months and allegations of corruption are commonplace. In April, the Council of Ministers (COM) considered an official “decision” authorizing Ambassadors, or authorized officials, to grant six month, multiple entry visas. The COM decision would stipulate that the applicant must have at least USD 5,000 in his bank account and present a health certificate indicating that he is free from the Human Immunodeficiency Virus (HIV) as well as a letter from an accredited commercial or industrial chamber attesting to his bona fides as a businessperson. According to the COM decision, the applicant is permitted to stay in Iraq for a period not exceeding 60 days from the date of entry.
All visitors and new residents to Iraq, with the exception of those traveling on a tourist visa, must have a blood test for HIV and complete the process to obtain a residency permit within 15 days of arrival or face fines. Once in Iraq, foreign investors and employees must obtain work permits, the process for which is often lengthy and unpredictable. There are frequent instances when work or business travel is delayed because foreign employees are unable to receive a visa.
U.S. citizens traveling to the IKR can obtain an airport-issued IKR visa upon arrival that is valid for 30 days; however, this visa is not valid for travel in Iraq outside the IKR because the GOI does not honor the KRG-issued visa. U.S. citizens who plan to stay for longer than 30 days require an extension to their IKR visa or must obtain residency permits. The KRG does not require HIV tests if the travel is shorter than 15 days.
Additional information can be found on the U.S. Department of State’s website: www.travel.state.gov.
The GOI does not follow any forced localization policy in which foreign investors must use domestic content in their goods and technology. There are no requirements for IT providers to turn over source code and/or provide access to surveillance.
The GOI strongly resists offering ownership or profit sharing with any potential foreign investor. The government prefers to structure investments by foreign parties as contracts for which the government agrees to pay for services or equipment at a price not tied to profits or returns but which is guaranteed by a clause in the annual budget law. The KRG, in contrast, has employed “build-own-operate” project structures and production sharing contracts in its management of the energy, oil, and gas sectors.
5. Protection of Property Rights
Since 2009, Iraqi law allows foreigners to own land. The amended NIL allows foreign interests to own land for the express purpose of developing residential real estate projects. It also allows foreign investors to own land for industrial projects if they have an Iraqi partner. Additionally, foreign investors are permitted to rent or lease land for up to 50 years, with an option to renew. In December 2010, the GOI approved implementing regulations to the NIL, in the form of a Prime Ministerial decree (regulation seven). The regulations allow investors to obtain land for residential housing projects free of charge on the condition that land value is excluded from the sales price. The decree requires the Department of Real Estate to revoke the land registration from domestic or foreign investors who do not carry out the obligations of their agreement.
For non-residential, commercial investment projects – including agriculture, services, tourism, commercial, and industrial projects – the decree allows for leasing and allocation of government land, but not sole ownership. The terms and duration of these leases will vary, depending on the type of project and negotiations between the parties. Land for non-residential projects will be leased free of initial down payment, and compensation will be either a percentage of pre-tax revenue or a specified percentage of the “rent allowance” for the land. These smaller percentages of the “rent allowance” rate, ranging from one to 25 percent, amount to significant rent reductions for leased land, as specified by type of investment project in the decree.
In the IKR, foreign land ownership is allowed under Law Number 4 of 2006. The BOI initially awarded more than half of all investment licenses to housing projects, though the lack of a clear sector strategy and speculation in housing properties prompted the board to freeze all new investment licenses issued in the sector in mid-2012, however, licenses are still issued on a case-by-case basis. Investment licenses that include land ownership are more likely to be issued in the BOI’s priority sector development areas of agriculture, industry, and tourism. However, issues regarding timely transfer of land title have sometimes slowed projects.
Mortgages and liens exist in Iraq, and there is a national record system. However, mortgages are not common. Iraq ranks 113 out of 190 countries on the 2018 World Bank’s “registering property” index.
Intellectual Property Rights
Legal structures that protect intellectual property rights (IPR) in Iraq are inadequate, and infringements are common. There is a significant presence of counterfeit products in the Iraqi marketplace, including pharmaceutical drugs. According to a 2016 study by the Business Software Alliance on self-reported piracy, 85 percent of Iraq’s software was unlicensed in 2015, consistent with the levels found in each survey since 2009. During the past year, no new IP-related laws or regulations have been enacted. The GOI attempts to track seizures of counterfeit medicines. Reporting is inconsistent.
The GOI’s ability to enforce IP protections remains weak, and IP responsibilities are currently spread across several ministries. The Ministry of Culture handles copyrights, and the Ministry of Industry and Minerals (MIM) houses the office that registers trademarks. The Central Organization for Standardization and Quality Control (COSQC), an agency under the Ministry of Planning, handles the patent registry and the industrial design registry. The Ministry of Planning’s patent registry office has occasionally included Arab League Israel Boycott questionnaires in the patent registry application. U.S. companies are not allowed under U.S. law to complete Arab League Boycott questionnaires. IP infringement cases are primarily heard in commercial courts, although on a relatively infrequent basis, cases may be transferred to the criminal courts.
A draft IP law, which would comply with the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and consolidate all IP responsibilities into a single body, was redrafted during the past year and sent for parliamentary legislative review in October 2017. The original draft was completed in mid-2007, but has not moved forward.
In 2018, the Council of Ministers Secretariat (COMSEC) reviewed IP forms and processes for simplification and preparation of implementing eForms. The patent application, updated in January 2018, is now based on World Intellectual Property Organization (WIPO) standards. However, the application processes for all classes of IP protection favor domestic applicants through requirements for local Iraqi-national agents and optional, but advantageous, in-person review committee meetings.
The U.S. government is continuing efforts to bolster understanding of IPR and build GOI capacity to protect them. In June 2012, the Federal Court of Cassation, the highest civil court in Iraq, upheld a finding by the Baghdad Commercial Court that ruled in favor of a U.S. firm in a trademark dispute, setting a positive precedent for IP protection in Iraq. The Commercial Court has jurisdiction over commercial disputes that involve at least one foreign party and disputes over various commerce-related issues including trade, real estate, banking, trademarks and intellectual property, transportation, and other areas. It was established in November 2010 under the Higher Judicial Council with the assistance of the U.S. Department of Commerce’s Commercial Law Development Program (CLDP), which provided technical assistance and training to Iraqi judges who serve on the court. The head of the patent section and his deputies received training with the U.S. Patent and Trademark Office (USPTO) sponsored by the CLDP.
Iraq is a signatory to several international intellectual property conventions and to regional and bilateral arrangements, which include: 1) the Paris Convention for the Protection of Industrial Property (1967 Act), ratified by Law No. 212 of 1975; 2) the World Intellectual Property Organization (WIPO) Convention, ratified by Law No. 212 of 1975 (Iraq became a member of the WIPO in January 1976); 3) the Arab Agreement for the Protection of Copyrights, ratified by Law No. 41 of 1985; and 4) the Arab Intellectual Property Rights Treaty (Law No. 41 of 1985).
Iraq is not listed in USTR’s Special 301 report or notorious market report.
Iraq has more than one point of contact for IPR:
Ministry of Culture (Copyrights)
Director of the National Center for the Protection of Copyrights and Related Rights
Ms. Hind Al-Hadithi
Tel.: (964) 770 335 0655
Official email: firstname.lastname@example.org
Ministry of Planning (Patents)
Chief of Central Organization for Standardization and Quality Control (COSQC)
Registrar of Patents and Industrial Designs
Mr. Saad Abdul Wahab
Director of Industrial Property Division
Mr. Wisam Saeed A’asi
Tel.: (964) 770 974 7231
Ministry of Industry and Minerals (Trademarks)
Industrial Organization and Development Directorate
Director General and Trademark Registrar
Mr. Alaa Mousa Ali
Director of Legal Section
Ms. Thanaa Mohan
A copy of a public list of local lawyers can be obtained by emailing BaghdadACS@state.gov. The American Chamber of Commerce in Iraq can be reached at: email@example.com.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en
6. Financial Sector
Capital Markets and Portfolio Investment
Iraq remains one of the most under-banked countries in the Middle East. The Iraqi banking system includes seven state-owned banks, with the three largest, Rafidain Bank, Rasheed Bank, and the Trade Bank of Iraq (TBI), accounting for roughly 85 percent of Iraq’s banking sector assets. Rafidain and Rasheed offer standard banking products but primarily provide pension and government salary payments to individual Iraqis. As of early 2018, 18 foreign banks have licensed branches in Iraq and several others have strategic investments in Iraqi banks. By law, the CBI may only exchange currency to be used for purchases of legitimate goods and services.
Iraq’s economy remains primarily cash-based, with many banks acting as little more than ATMs. Credit is difficult and expensive to obtain. However, the GOI is implementing a project to distribute public salaries using electronic payments. Most trade-based letters of credit are with external banks. Iraq ranks 186 out of 190 in terms of ease of getting credit on the World Bank’s 2019 Doing Business Report. Although the volume of lending by privately-owned banks is growing, most privately-owned banks do more business providing wire transfers and other fee-based exchange services than lending. Only about 20 of the 50 privately-owned banks have participated in a Small-to-Medium Enterprise lending program funded by the Central Bank of Iraq since 2015. Businesses are largely self-financed or obtain credit from individuals in private transactions. State-owned banks mainly make financial transfers from the government to provincial authorities or individuals, rather than business loans.
The main purpose of the TBI is to provide financial and related services to facilitate trade, particularly through letters of credit (LCs). In 2009, the MOF opened the government LC market by granting private banks permission to issue LCs below USD 4 million. The ceiling was later raised to USD 10 million. Virtually all government LCs are processed by the TBI, which has stated it transfers a number of LCs under USD 5 million to private banks.
The National Investment Law allows foreign investors to purchase shares and securities listed in the Iraqi Stock Exchange (ISX) and the GOI welcomes foreign portfolio investment.
Money and Banking System
The GOI has had little success reforming its two largest state-owned banks, Rafidain and Rasheed, however banking sector reform is a priority of Iraq’s IMF and World Bank programs. Private banks are mostly active in currency exchanges and wire transfers. The CBI is Iraq’s central bank, headquartered in Baghdad, with branches in Basrah and Erbil. Work continued to fully reconnect CBI’s Erbil branch to the electronic CBI system, which would link the IKR’s state-owned banks. In January 2018, the KRG MOF announced plans to consolidate the region’s 92 state-owned banks under a single bank, to be named “Nishtiman.”
Foreign Exchange and Remittances
The currency of Iraq is the dinar (IQD). Iraqi authorities confirm that in practice there are no restrictions on current and capital transactions involving currency exchange as long as underlying transactions are supported by valid documentation. The NIL allows investors to repatriate capital brought into Iraq, along with proceeds. Funds can be associated with any form of investment and freely converted into any world currency. The NIL also contains provisions that allow investors to maintain accounts at banks licensed to operate in Iraq and transfer capital inside or outside of the country.
The GOI’s monetary policy since 2003 has focused on ensuring price stability primarily by maintaining a de facto peg between the IQD and the USD while seeking to maintain exchange rate predictability through supplying USD to the Iraqi market. Banks may engage in spot transactions in any currency but are not allowed to engage in forward transactions in Iraqi dinars for speculative purposes. There are no taxes or subsidies on purchases or sales of foreign exchange.
There have not been any recent changes to Iraq’s remittance policies. Foreign nationals are allowed to remit their earnings, including U.S. dollars, in compliance with Iraqi law. Iraq does not engage in currency manipulation. Iraq is listed as a jurisdiction with strategic deficiencies according to the Financial Action Task Force.
Sovereign Wealth Funds
Iraq does not have a sovereign wealth fund.
7. State-Owned Enterprises
State-owned enterprises (SOEs) are active across all sectors in Iraq. GOI ministries currently own and operate over 192 SOEs, a legacy of the state planning system. Many Iraqi SOEs are unproductive, and the GOI’s continued support of unprofitable entities places a substantial fiscal burden on Iraq. These firms employ over half a million Iraqis, many of whom are underemployed. The degree to which SOEs compete with private companies varies by sector; SOEs face the most competition in the market for consumer goods. The GOI has expressed a commitment to reforming the SOEs and taking steps toward privatization as part of its international financing programs.
Law 22 of 1997 and the NIL provide the regulatory framework for the operations of SOEs and joint ventures between foreign companies and SOEs. Law 22 is complex, and several articles are ambiguous regarding the rights and privileges that SOEs enjoy. Article 15.3 of Law 22 allows Iraqi SOEs to engage in partnership agreements or joint ventures with foreign companies. However, the lack of clarifying regulations has created difficulty in implementation. Ministries have faced challenges in reviewing partnership agreements without sufficient criteria to determine if the agreements would be effective or successful. When parent ministries wish to initiate a partnership for an SOE under their purview, they generally advertise the tender on their ministry’s website. Partnerships are negotiated on a case-by-case basis, and the minister’s approval is required. The Ministry of Industry and Minerals (MIM), which oversees the largest number of Iraq’s SOEs, received the Council of Ministers’ approval in 2013 to institute the following requirements for partnerships: 1) change the required minimum duration to three years; 2) add a requirement that the foreign company register a company office in Iraq; and 3) add a requirement that the foreign company participate in the production of goods.
According to the Prime Minister’s Advisory Council, foreign companies have faced challenges in partnerships because the GOI has at times cut subsidies to the SOE after partnerships were formed, the employment policies and salary decisions were dictated by the parent ministry, and gaps between the GOI’s official policy and practices affected their bottom line. In addition, the MIM has often required that the foreign investor pay all SOE employees’ salaries regardless of whether they are working on the agreed project.
GOI entities are required to give preferential treatment to SOEs under multiple laws. A 2009 Council of Ministers’ decision requires all Iraqi government agencies to procure goods from SOEs unless the SOE cannot fulfill the quality and quantity requirements of the tender. A Board of Supreme Audit decision requires government agencies to award SOEs tenders if the SOE’s bid is no more than 10 percent higher than other bids. Furthermore, some GOI entities, including the MIM, have also issued their own internal regulations requiring tenders to select Iraqi SOEs, unless the Iraqi SOE states that it cannot fulfill the order. Sometimes a foreign firm must form a partnership with an Iraqi firm to fulfill tenders promulgated by SOEs.
Under Article 16 of the 2008 Regulations for Implementing Government Contracts (Law No. 1), SOEs are exempt from bid bond and performance bond requirements. While the Iraqi budget outlines the funds that the SOEs will receive, both for operational costs as well as for salary payments, the SOEs do not always receive the exact figure allocated. As a result of years of sanctions and war, most of these SOEs suffer from sclerotic management and dependence on GOI contracts. Many of them are not commercially viable due to bloated payrolls and obsolete equipment, although some have adapted and are producing goods for the domestic market.
In 2015, the MIM developed a plan to restructure its 59 SOEs. Under the proposed plan, the MIM would rate SOEs based on their profitability and degree of government dependence. Unprofitable SOEs that are unable to cover payroll obligations would be sold or shut down. However, no action to implement this plan has been undertaken. Article 14 of the 2017 Federal General Budget Law expanded the potential role of private investment in SOE reform, giving governorates the mandate to expand partnerships with the private sector “as much as possible” with approval of the governorate’s council.
Iraq is not party to the Government Procurement Agreement within the framework of the WTO.
Articles 20-25 of Law 22 specify the selection process of an SOE’s Board of Directors. The law includes provisions to introduce a degree of autonomy. For example, it requires that the minister’s sole appointment to the Board of Directors receive the approval of an “Opinion Board.” Nevertheless, in practice, the majority of board members have close personal and political connections to the parent ministry’s leadership.
SOEs do not adhere to OECD Guidelines. Iraq does not have a centralized ownership entity that exercises ownership rights for each of the SOEs. SOEs are required to seek their parent ministry’s approval for certain categories of financial decisions and operation expansions. However, in practice, SOEs defer to the parent ministry for the vast majority of decisions. SOEs submit financial reports to their parent ministry’s audit departments and the Board of Supreme Audit. These reports are not published and sometimes exclude salary expenses.
The GOI has repeatedly announced that it plans to reorganize failing SOEs across multiple sectors. Additionally, the GOI is eager to modernize Iraq’s financial and banking institutions. There are, however, no concrete timelines for these initiatives, and entrenched patronage networks tying SOEs to ministries remain a stumbling block. Presumably, foreign investors would have an opportunity to invest in privatization projects. The IMF Stand-By Arrangement requires the GOI to conduct an audit of state-owned banks and the World Bank’s Development Policy Loan requires Iraq to audit SOEs.
8. Responsible Business Conduct
The international oil companies active in Iraq are required to observe international best practices in corporate social responsibility (CSR) as part of their contracts with the GOI. Nevertheless, the GOI does not have policies in place to promote CSR and raise awareness of environmental and social issues among investors. The concept of CSR is not widely recognized in Iraq and few NGOs and business associations are monitoring it. Iraq has not subscribed to the OECD’s Guidelines for Multinational Enterprises. As security and business conditions improve in Iraq, awareness of CSR is likely to increase.
In the IKR, oil companies are mandated in their production sharing contracts with the KRG to give back to the communities in which they work through corporate responsibility agreements. These agreements require yearly payments from which the KRG prioritizes and allocates funds for projects such as improved roads, university training for local youth in the geotechnical and energy fields, and health clinics.
According to the amended 2015 NIL, investors are required to protect the environment and adhere to quality control systems. These include soil testing requirements on the land designated for the project as well as conducting an environmental impact study. In practice, the GOI lacks a mechanism to enforce environmental protection laws and implementation is limited.
Iraq became a member of the Extractive Industries Transparency Initiative (EITI) in 2009. The Government of Iraq established a 15-person committee to work on EITI, including several Directors General within the MOO, four representatives from NGOs, as well as oil company executives. The committee provided required reports through 2013. In February 2017, the World Bank approved a USD 350,000 program to assist Iraq with carrying out its EITI obligations. In November 2017, the EITI Board concluded Iraq had made inadequate progress and temporarily suspended Iraq’s membership and gave Iraq 18 months to carry out corrective actions. The MOO continues to engage with the EITI Board as it prepares for its next review.
Iraq ranked 168 out of 180 on Transparency International’s 2017 Corruption Perception Index. Public corruption is a major obstacle to the development of Iraq’s economy and to political stability. Corruption is pervasive in government procurement, in the awarding of licenses or concessions, dispute settlement, and Iraq’s customs regime.
On January 29, Prime Minister AAM announced his plan to fight corruption through efforts to strengthen anti-corruption laws as outlined in the National Program. He asked that the COR do its part in fighting corruption and strictly adhere to the disclosure of property belonging to members of parliament. The Prime Minister announced his intention to re-evaluate the Commission of Integrity (COI).
While large-scale investment opportunities exist in Iraq, particularly for sophisticated investors, corruption remains a significant impediment to conducting business, and foreign investors can expect to contend with corruption in many forms, and at all levels. While the GOI has moved toward greater effectiveness in reducing opportunities for procurement corruption in sectors such as electricity, oil, and gas, credible reports of corruption in government procurement are widespread, with examples ranging from bribery and kickbacks to awards involving companies connected to political leaders. Investors may come under pressure to take on well-connected local partners to avoid systemic bureaucratic hurdles to doing business. Similarly, there are credible reports of corruption involving large-scale problems with government payrolls, ranging from “ghost” employees and salary skimming to nepotism and patronage in personnel decisions. Moving goods into and out of the country continues to be difficult, and bribery of port officials is commonplace; Iraq ranks 181 out of 190 countries in the category of “Trading Across Borders” in the World Bank’s 2018 Doing Business report.
U.S. firms frequently identify corruption as a significant obstacle to foreign direct investment, particularly in government contracts and procurement, as well as performance requirements and performance bonds.
There are three principal institutions specifically designated to address the problem of corruption in Iraq. CPA Order 57 established Inspectors General (IGs) for each of Iraq’s ministries. Similar to the role of IGs in the U.S. government, these offices are responsible for inspections, audits, and investigations within their ministries. The Commission of Integrity, initially established under the Coalition Provisional Authority (CPA), is an independent government agency responsible for pursuing anti-corruption investigations, upholding enforcement of laws, and preventing crime. The COI investigates government corruption allegations and refers completed cases to the Iraqi judiciary. COI Law No. 30, passed in 2011, updated the CPA provisions by granting the COI broader responsibilities and jurisdiction through three newly created directorates: asset recovery, research and studies, and the Anti-Corruption Academy.
The Board of Supreme Audit (BSA), established in 1927, is an analogue to the U.S. government’s General Accountability Office. It is a financially and administratively independent body that derives its authority from Law 31 of 2011 – the Law of the Board of Supreme Audit. It is charged with fiscal and regulatory oversight of all publicly-funded bodies in Iraq and auditing all federal revenues, including any revenues received from the IKR.
None of these organizations has provided an effective check on public corruption.
Neither the COI nor the IGs has effective jurisdiction within the IKR. The Kurdistan Board of Supreme Audit audits regional revenues with IKP and GOI oversight. The IKP passed the Commission on Public Integrity (Law No. 3) in 2011, which established a regional Commission of Integrity (KCOI) that began its work in late 2013. The IKP passed an amendment to the law in May 2014 that gave the KCOI increased jurisdiction over other branches of government, and made the KCOI responsible for investigating money laundering. The Commission launched an initiative in early 2014 to collect financial declaration forms from public officials at the director general-level and above. They received a 95 percent response rate and have begun to check the disclosure documents against other public records. According to the KCOI 2018 Annual Report, 191 corruption cases were investigated, including 116 that were referred for prosecution in court. The cases came to the KCOI from different sources such as the Prosecutor’s office, KRG Intelligence, the KCOI Hot Line, and IKR media outlets. The KCOI settled 75 cases in 2018 with 55 ending in sentencing and 20 dismissed.
Iraq is a party but not a signatory to the UN Anticorruption Convention. Iraq is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Resources to Report Corruption
According to Iraqi law, any person or legal entity has the right to submit corruption-related complaints to the COI or the inspector general of the GOI ministry or body engaging in corruption.
Commission for Integrity
Department of Complaints and Reports
10. Political and Security Environment
On December 9, 2017, former PM Abadi announced all of Iraqi territory had been liberated from ISIS. Much work remains to prevent the reemergence of ISIS, and Iraqi forces continue to carry out counter-terrorism operations against ISIS cells throughout the country. Terrorist attacks within the IKR occur less frequently than in other parts of Iraq, although the KRG, U.S. government facilities, and western interests remain possible targets, as evidenced by the April 17, 2015, bombing in the public area outside U.S. Consulate General Erbil. In addition, anti-U.S. sectarian militias may threaten U.S. citizens and western companies throughout Iraq.
The U.S. government considers the potential threat to USG personnel in Iraq to be serious enough to require them to live and work under strict security guidelines. State Department guidance to U.S. businesses in Iraq advises the use of protective security details. Detailed security information is available on the U.S. Embassy website: http://iraq.usembassy.gov/. Some U.S. and third-country business people travel throughout much of Iraq; however, in general their movement is restricted and most travel with security advisors and protective security teams.
11. Labor Policies and Practices
Iraq continues to face high unemployment, a large informal sector, lack of satisfactory work standards, and a large unskilled labor force. Domestic and foreign investors often cite the lack of skilled Iraqi labor as one of the major impediments to investing in Iraq. Political instability and violence led many highly-educated Iraqis to leave the country in recent years. Although the Iraqi government’s campaign to defeat ISIS came to a successful end in late 2017, more than 1.7 million Iraqis remained displaced as of April, with most unable to find jobs or pursue livelihood activities to support their families. Female IDPs continued to be vulnerable to economic exploitation and discriminatory employment conditions.
In 2018, the World Bank estimated the unemployment rate at 16.9 percent. In 2015, UNDP reported that unemployment among Iraqi youth with higher education was above the national youth unemployment average. According to UNDP data from 2014, the government accounted for 40 percent of all jobs, with a higher percentage in urban areas (45 percent) than in rural areas (28 percent). Employment in the agricultural sector represented 23.4 percent and employment in the services sector represented 58.3 percent of all employment. While accounting for 65 percent of Iraq’s GDP and over 90 percent of government revenue, the oil sector employs only 1 percent of the total labor force.
Foreign investors tend to rely on foreign workers. According to the 2015 amended NIL, foreign workers may be hired for investment projects, when needed, after priority has been given to Iraqi workers. However, according to National Investment Regulation No. 2 of 2009, at least 50 percent of an investment project’s workers must be Iraqi nationals. International companies have noted that it can be a challenge to meet this requirement. Foreign investors are expected to help train Iraqi employees to increase their efficiency, skills, and capabilities.
In the IKR, hiring locally is encouraged but not mandated by either the KRIL or the 2011 Employment Policy of the KRG Ministry of Labor and Social Affairs. Foreign employees must obtain a security clearance issued by the KRG Ministry of Interior and a work permit issued by the KRG MOLSA before applying for the residency permit required for legal employment. Some companies have reported prolonged delays in obtaining necessary residency permits for foreign workers.
The Iraqi Constitution states that citizens have the right to form and join unions and professional associations. Iraq is a party to both International Labor Organization (ILO) conventions related to youth employment, including child labor. Iraqi labor laws also regulate working conditions and prohibit all forms of forced or compulsory labor, including by children. However, the GOI has not effectively monitored or enforced the law, which has resulted in poor working conditions for many workers.
In February 2016, the GOI passed a new labor law that was drafted with the assistance of the ILO and is more consistent with current international standards. Labor Law No. 37 allows for collective bargaining, further limits child labor, and provides improved protections against discrimination at work. For the first time, the labor law addresses sexual harassment at work and provides protection against it. The law also enshrines the right to strike, banned since 1987. Under the law, the GOI no longer restricts workers to affiliate with only one union or federation, and coverage is expanded to include all workers not covered by Iraq’s civil service law.
The new labor law was not implemented in the IKR, and the KRG continues to use the previous 1987 labor law. Demonstrations took place in December 2017 in Sulaimaniya and Erbil provinces to protest the KRG’s non-payment of government salaries and public corruption. Demonstrations took place March 2018 throughout the IKR regarding the KRG’s payment of civil servant salaries at reduced austerity levels begun in 2015. In response to these protests, the KRG revised the austerity package later that month, though it remained three months in arrears on paying salaries. On March 10, the KRG announced that it had ended the austerity program and paid the December 2018 salaries at full rates.
The MOLSA sets a minimum monthly wage for unskilled workers. The private sector sets wages by contract, and the GOI sets wages for those working in the public sector. The Council of Ministers approved changes to the public sector pay scale, which took effect in January 2015, to reduce the pay gap between low- and high-ranking employees. The changes also reduced wage disparities among government ministries and canceled extra wages issued to employees in Baghdad’s International Zone. According to Iraqi law, all employers must provide some level of transport, accommodation, and food allowances for each employee. The law does not fix these allowance amounts. In December 2013, the government launched a Social Safety Net program to assist the unemployed and persons with disabilities in gaining access to financial aid and benefits from the government; as of April 2018, MOLSA’s Directorate of People with Disabilities and Special Needs reported the program covers approximately 4 million individuals.
12. OPIC and Other Investment Insurance Programs
OPIC’s current outstanding commitment in Iraq in loans and insurance is USD 139 million with an additional USD 32 million in loans yet to be disbursed. OPIC is currently reviewing a number of project proposals, including in the health care, tourism, energy, and housing sectors, and an expansion of a successful microfinance project. OPIC has one investment project in the IKR and has provided funding for a small- and medium-sized enterprise credit organization. The Investment Incentive Agreement (IIA) between the United States and the GOI provides the basis for OPIC to provide financing and political risk insurance in Iraq. OPIC has another project to build residential apartments in the Green Zone of Baghdad. The Project will consist of 12 buildings totaling 576 apartments. [Note: Iraq is a signatory to the Riyadh Convention; however, it is not a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the “New York Convention”), which is typically a requirement for OPIC’s political risk insurance. End note.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
The GOI collects and publishes limited statistics with which to compare international and U.S. investment data. The NIC and Provincial Investment Commissions (PIC) granted 1067 licenses between 2008 and 2015, the latest statistics available, with a total potential value of USD 53.9 billion. However, an investment license from the NIC or a PIC does not mean that the proposed investment will be implemented.
In the IKR, the Kurdistan BOI granted 51 licenses in 2018, with a total potential value of USD 3.13 billion. Compared to 2017, the BOI granted licenses to 18 more projects, representing a capital increase of USD 2.4 billion (340 percent). The granting of an investment license by the BOI does not mean that the proposed investment will be implemented. All of the licenses granted in 2018 were to national (i.e. Iraqi-owned) projects.
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2018||$218,130||2016||$192,061||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2016||$5,911.20||2016||$1,748||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Host country’s FDI in the United States ($M USD, stock positions)||N/A||Data not available||N/A||Data not available||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Total inbound stock of FDI as % host GDP||2016||3.5%||2016||1%||UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx|
*Host Country Statistical Source: Ministry of Planning; Central Bank of Iraq
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.
14. Contact for More Information
Embassy Baghdad Economic Section
Al-Kindi Street, International Zone, Baghdad
Office: +1-301-985-8841 x3013