The breakdown of pledges shows a majority of export credits and investment commitments (see figure 1).2 Crucially, the assumption is that international actors such as the US will facilitate and de-risk investments, but will not provide direct aid as in the post-2003 Iraq reconstruction. During the conference, the US Export-Import Bank and Iraq’s ministry of finance signed a $3 billion memorandum of understanding3, and the Overseas Private Investment Corporation was said to be reviewing $500 million in additional funding in the form of political risk insurance, loans and loan guarantees.4
The Republic of Iraq’s National Investment Commission (NIC) revealed 157 projects for which it is seeking funding, with a heavy emphasis on the oil & gas sector, transportation infrastructure and agricultural projects. Some of these projects boast expected returns on investment rates of 17% or 33.6%, although it is unclear how the NIC estimated these figures.
The GoI stresses the role of the private sector in driving “broad based non-oil growth”. The UN currently estimates that 99% of the government’s revenue is generated by the oil sector. But the GoI’s table of financial needs reflects considerable opportunities in non-oil sectors such as housing, financial services, water and sanitation (see figure 2).5
The GoI stresses the role of the private sector in driving “broad based non-oil growth”. The UN currently estimates that 99% of the government’s revenue is generated by the oil sector.6 But the GoI’s table of financial needs reflects considerable opportunities in non-oil sectors such as housing, financial services, water and sanitation (see figure 2).7
In addition, international organizations have made significant commitments to the country, offering secure avenues of involvement for private investors. The Funding Facility for Stabilization (FFS) was established in June 2015 to help the Iraqi Government rehabilitate public infrastructure and facilitate the return of displaced populations. The FFS was initially capitalized at $7 million from the United States Agency for International Development (USAID). At least 23 donors have now contributed more than $420 million in funding to the FFS, which is administered by the United Nations Development Programme.8 The World Bank Group also increased its total commitment to Iraq to $4.7 billion.9
Iraq is working to become an attractive destination for foreign investors. Entire segments of the economy are under development, and commercial competition should remain low in the early stages of reconstruction. But structural reforms will be critical to attract and retain international investments. In addition, the outcome of the May 12, 2018 parliamentary and provincial elections may significantly influence implementation.
The GoI set out its governing approach to reconstruction in the Iraq Reconstruction and Development Framework (the “Framework”) for the 2018-2027 period.10 The Framework’s financing strategy rests on four priority areas: (1) mobilizing (international) public funding; (2) leveraging domestic and international private sector; (3) appropriate allocation of resources through commercial or concessional models; (4) improving financing delivery.
To achieve these goals, the Framework pledges legal reforms to improve the “business and investment environment, revenue sharing, private sector development initiatives, reducing agricultural tax and subsidy distortions, establishing mobile payment networks, and improving the regulatory and supervisory framework for financial transactions.”11 Further, the GoI commits to service pending debt to the private sector, reform state-owned banks, and adopt de-risking strategies in line with Kuwait conference pledges: political risk insurance, payment and loan guarantees, as well as blended finance.
The Framework puts considerable emphasis on structural reform, acknowledging the country’s challenging legal and commercial environment. Favorable investment opportunities will hinge on the effective implementation of these reforms. Foreign investors’ preliminary due diligence thus remains critical in safeguarding their investments in Iraq.
1 Maher Chmaytelli, Ahmed Hagagy, Allies promise Iraq $30 billion, falling short of Baghdad’s appeal, REUTERS (Feb. 14, 2018), https://www.reuters.com/article/us-mideast-crisis-iraq-reconstruction-ku/allies-promise-iraq-30-billion-falling-short-of-baghdads-appeal-idUSKCN1FY0TX
2 Based on authors’ compilation of publicly available sources. The origin of 7 billion USD remains unclear.
3 Notwithstanding the fact the Bank has been without a quorum on its board since 2015, which prohibits the agency from offering financing of more than $10 million USD.
4 Secretary Rex W. Tillerson, Remarks at the Iraqi Reconstruction Conference Session on Private Sector Engagement, Kuwait City, Kuwait (Feb. 13, 2018), https://www.state.gov/secretary/remarks/2018/02/278289.htm
5 Republic of Iraq, Presidency of Council of Ministers, National Investment Commission, “Major strategic (large) and (medium-size) projects available for investment according to sectors” (Jan. 2018), http://www.iraq-businessnews.com/wp-content/uploads/2018/01/Major-Strategic-Projects.pdf.
6 United Nations Development Programme – Iraq, About Iraq (2018), http://www.iq.undp.org/content/iraq/en/home/countryinfo.html
7 Iraq Ministry of Planning, World Bank Group, “Iraq Reconstruction and Investment, Part 1: Reconstruction and Development Framework,” at 23 (Feb. 2018) (“Reconstruction Framework”) http://www.cabinet.iq/uploads/Iraq%20Reconstruction/Iraq%20Recons%20&%20Inves.pdf
8 United Nations Development Programme – Iraq, In-Depth (2018), http://www.iq.undp.org/content/iraq/en/home/ourwork/Stabilization/In-depth.html
9 World Bank Group, World Bank’s Commitment to Iraq Reaches US$4.7 Billion (Feb. 14, 2018), http://www.worldbank.org/en/news/press-release/2018/02/13/world-banks-commitment-to-iraq-reaches-us47-billion
10 Id. at 1, 2.
11 Id. at 10.