The Government of Iraq (GOI) continues to face reconstruction challenges after the defeat of the ISIS physical caliphate, an uneven security environment, an economy primarily dependent on oil revenues, and deep institutional corruption. Widespread street protests that began October 2019 led to the resignation of then Prime Minister Adil Abd al-Mahdi, amid calls for greater government accountability, improved government services, and more jobs. After two other PM-designates were unsuccessful, the Iraqi Council of Representatives approved Mustafa al-Kadhimi, his political platform, and some proposed cabinet ministers on May 7, 2020.
An uneven security environment, including the threat of resurgent extremist groups, remains an impediment to investment in many parts of the country. Other lingering effects of the fight against ISIS include major disruptions of key domestic and international trade routes and the destruction of economic infrastructure, especially in the ISIS-controlled territory in Mosul and parts of northern and western Iraq. Some militia groups that participated in the fight against ISIS remained deployed even after the completion of combat operations. Some militia also appear to be under only marginal government control and have been 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).
Despite these challenges, the Iraqi market offers some potential for U.S. exporters. Iraq imports large volumes of agricultural commodities, machinery, consumer goods, and defense articles. While non-oil bilateral trade with the United States was just over USD1 billion in 2019, Iraq’s economy had an estimated GDP of USD200 billion. Government contracts and tenders are the source of most commercial opportunities in Iraq in all sectors, including the significant oil and gas sectors, and have been financed almost entirely by oil revenues. Increasingly, the GOI has asked investors and sellers to provide financing options and allow for deferred payments. Although there has been slow progress in negotiating flare-gas-capture projects on associated gas-to-oil production and licensing the exploration of free gas fields, Iraq announced the release of a national gas plan in early 2020, which identified several long-term investment projects to modernize and increase the capacity of the country’s gas industry.
Investors in Iraq continue to face extreme challenges resolving issues with GOI entities, including procurement disputes, receiving timely payments, and winning public tenders. Difficulties with corruption, customs regulations, irregular and high tax liabilities, unclear visa and residency permit procedures, arbitrary application of e-regulations, lack of alternative 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 state-owned enterprises (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 have a pro-business, visa-on-arrival option and traditionally more stable security situation. However, the region’s economy has struggled to recover from the 2014 ISIS offensive, the drop in oil prices, and the aftermath of the 2017 Kurdish independence referendum. Key factors in the IKR’s ability to attract business and investment interests include: stable oil prices, budget support to the Kurdistan Regional Government (KRG) from the central government, and agreements between the GOI and KRG on a unified customs system and the shipment of Kirkuk oil through the IKR pipeline to Turkey.
Numerous efforts to facilitate business climate improvements saw positive movement in the past year. Since November 2018, the U.S. Embassy Baghdad Trade and Investment Team has operated as a partner post of the U.S. Commercial Service, supported by its office at the U.S. Embassy Amman. As a result, the U.S. Embassy in Baghdad now offers eight fee-based services, including market reports, local partner matching, and trade missions.
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), and held the second TIFA meeting in June 2019 with good success. The American Chamber of Commerce in Iraq, having relaunched in October 2015, provides a platform for commercial advocacy for the U.S. business community. Local businesses also are re-energizing an American Chamber of Commerce presence in the IKR.
|TI Corruption Perceptions Index||2019||162 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2019||172 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||Not Ranked||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2018||2,216||https://apps.bea.gov/international/
|World Bank GNI per capita||2019||5,740||http://data.worldbank.org/indicator/