By Orlando Crowcroft
Is the war-torn country ready for international firms to move in?
The news that the World Bank had agreed to insure an investment by a Turkish company in Baghdad was a long-awaited breakthrough in Iraq, a country which is recently best known for its political stalemate.
The US$5 million guarantee will insure the Karo Dis Ticaret ve Sanayi’s investment in a factory 17km south-east of Iraq’s capital against expropriation, war and civil disturbance and currency risks. The first time such a guarantee has been given, this has been taken both as a sign that private firms are now willing to invest in the country with a level of security.
“It is a nice demonstration that you can do business in Iraq even with a security situation which is of concern to everyone and an environment that is not yet conducive to large projects,” explained James Bond, chief operations officer at the Multilateral Investment Guarantee Agency (MIGA), the World Bank’s insurance arm that is insuring the Turkish company. “It is taking perhaps longer than we all would’ve liked to get the larger complex projects moved forward, but private investment on a smaller scale is happening,” he added.
Iraq’s gross domestic product of about US$12 billion is expected to double by 2014. And changes in regulations, such as the law passed in November 2009 that allows foreigners to own land for housing, have opened up construction opportunities, with the key potential of foreign investment now possible. Meanwhile, away from the deserts of south and central Iraq, Iraqi Kurdistan is serving as a base for companies investing in the country. In late September the construction fair Project Iraq was held, exhibiting 300 exhibiting companies from 23 countries.
“With some $25 billion in housing projects, $8 billion in transportation and $5.5 billion in water and sewage, the Iraqi government is focusing primarily on reconstruction and rehabilitation,” said Fady Darwish, general manager of Project Iraq organiser IFP Iraq.
“Several new cement plants are being either revamped or erected to satisfy a growing need and major international players are now present. Iraq consumes around 15 million tons of cement yearly, with the Iraqi ministry being the largest consumer,” he added.
Erbil itself is one area that is offering serious potential to foreign businesses. The capital of Kurdistan, it is a secure and stable region that acts as the northern gateway to the country and is often called The Other Iraq. Its investment law is cited as one of the most investor-friendly in the region and it has a booming real estate industry.
A number of high-profile, large-scale projects are underway elsewhere in the country, with several projects announced over the past few months. From the early days of reconstruction where basic infrastructure such as roads and power plants were a primary focus, the projects underway have become increasingly diverse and combine to form a list that would not be out of place in many major cities, with hotels, housing and irrigation among those included.
The major hotel management company Rotana took its first step into the country in December 2008, signing an agreement with Summit Hotels for a five-star property in Baghdad’s Green Zone. Dewan Architects and Engineers won the design contract for the project, which will include 300 bedrooms, a ballroom and a conference centre.
The 35,000m2 project is currently under construction and is scheduled to complete in 2012. Aimed at both business travellers and tourists, the hotel is intended to become a landmark development for the country. “When completed the Rotana will become one of the pilot buildings in post-war Baghdad – a city which is recovering from years of destruction,” said Dewan executive director Ammar Al Assam.
The Rotana Baghdad is one of a number of prestigious projects being undertaken in the city by Dewan, the firm having reopened its Iraq office in 2008 after the previously high levels of violence subsided. It is also undertaking the Bab Al Muraq Hotel and mall complex and the redevelopment of the area surrounding the Holy Shrines in Al Kadhimiya, which will include the restoration of historic buildings as well as new buildings and utilities services.
Competition for the latter project demonstrated the huge interest in construction work in Iraq, with Dewan being chosen from a shortlist of ten international and Iraqi firms bidding for the contract. The design process for the multi-billion dollar project is expected to take five years, with construction expected to continue for 10-20 years.
“The Iraq market offers huge potential,” stressed Al Assam. “There is good potential in Basra, Najaf and Sadr City,” he added.
In the housing market, the overall interest of international firms for available contracts in the housing sector led to the doubling of a target to build 500,000 homes. The government now aims to build one million new homes within three years, with a further million needed by 2015 to meet the shortage caused by war and sanctions. Construction projects for the one million properties have been estimated to have an overall value of US$50 billion.
The government has estimated that 85% of home building will be carried out by the private sector and foreign investments. Contracts have already been awarded to firms including the UAE-based Al Maabar and Bonayan International as well as firms from countries as diverse as the USA, Turkey, Germany and New Zealand.
“When we saw the huge interest by giant firms...this made us seize the opportunity instead of 500,000 to reach for one million,” said Iraq’s National Investment Commission chairman Sami Al Araji.
More than 100 firms from countries including USA, UAE, China, Turkey and Canada have reportedly shown interest in the projects. Canadian Traugott Building “When we reach the stage of understanding with any company, we will sign a contract with it immediately,” Al Araji announced earlier this year.
Much of the interest follows the setting up by the government of favourable terms to lure companies in, including support that far exceeds that of other markets. IN a country known for its insecurity, the government is aiming to make companies feel secure. “We will bring the land and the buyer, and we will participate in funding the project,” explained Al Araji. “They will not risk any money, they will finish the work and they will sell [the home] to a company which we will establish,” he said.For all the latest construction news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.