The COVID-19 pandemic and subsequent drop in global oil prices continue to reverberate in Iraq. The Iraqi government has been covering a large fiscal deficit by borrowing domestically and drawing on its foreign reserves. In December 2020, the GOI devalued Iraq’s dinar by 22% to forestall a liquidity crisis. This has raised domestic prices for food and other commodities in Iraq’s import-dependent economy.
Widespread protests in October 2019 caused the resignation of then PM Adil Abdul-Mahdi and his government. After a lengthy period of government formation, the current government of PM Mustafa al-Kadhimi came to power in May 2020. Sporadic violent protests continue, especially in the country’s south, and Kadhimi has called for early elections, currently scheduled for October.
In October 2020, Iraq’s cabinet approved an economic reform agenda known as the “white paper,” which identified over 200 reforms, legislative amendments, subsidy cuts, and e-government measures that are broadly in line with previous World Bank and IMF reform recommendations. The white paper acknowledges the scope of Iraq’s structural economic problems and aims to place Iraq on a private sector-driven economic growth path. While it is clear that Kadhimi and key advisors are intent on reform, it is less clear that these efforts will overcome other long-standing, entrenched political opposition whose stakeholders profit from GOI opacity and inefficiency.
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. Many militia groups that participated in the fight against ISIS remain deployed and are only under nominal government control. Several militias have been implicated in a range of criminal and extralegal activities in commercial sectors, including extortion. However, the security situation varies throughout the country and is generally less problematic in the Iraqi Kurdistan Region (IKR).
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, registration, customs regulations, irregular and high tax liabilities, unclear visa and residency permit procedures, arbitrary application of 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.
Despite these challenges, the Iraqi market offers some potential for U.S. exporters. Iraq regularly imports agricultural commodities, machinery, consumer goods, and defense articles. While non-oil bilateral trade with the United States was $771.9 million in 2020, Iraq’s economy had an estimated GDP of $200 billion. Government contracts and tenders are the source of most commercial opportunities in Iraq in all sectors, including the significant oil and gas sectors, and have been financed almost entirely by oil revenues. Increasingly, the GOI has asked investors and sellers to provide financing options and allow for deferred payments.
Investors in the IKR face many of the same challenges as investors elsewhere in Iraq, but the IKR has a traditionally more stable security situation. However, the region’s economy has struggled to recover from the 2014 ISIS offensive, the drop in oil prices, the aftermath of the 2017 Kurdish independence referendum, and ongoing disputes with the central government over revenue sharing.
The U.S. government and the GOI have revived the 2008 U.S.-Iraq Strategic Framework Agreement and the Trade and Investment Framework Agreement (TIFA) and held the second TIFA meeting in June 2019 and Strategic Dialogue in 2020 with good success. The American Chamber of Commerce in Iraq provides a platform for commercial advocacy for the U.S. business community. Local businesses also are re-energizing an American Chamber of Commerce presence in the IKR.
|TI Corruption Perceptions Index||2020||160 of 175||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2020||172 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||N/A||N/A||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||N/A||N/A||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||N/A||N/A||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|