Country Reports - Iraq

Unstable Iraq Finds Safe Haven in Business Minded KRG

April 2017

Country Reports - Iraq

Unstable Iraq Finds Safe Haven in Business Minded KRG

April 2017
The Iraqi economy is facing severe and pressing challenges. The decline in oil prices in 2015 and 2016 have contributed to a sharp deterioration of economic activity and have rapidly increased the fiscal and current account deficits, according to a 2016 World Bank country report. Macroeconomic risks remain elevated due to Iraq's continued exposure to a volatile oil market, but the medium-term outlook seems more favorable, thanks to an expected increase in oil prices in 2017. The government is facing the challenge of maintaining macroeconomic stability, undertaking structural reforms to improve the delivery of public services, reconstructing core physical infrastructure and assisting the 3.4 million people displaced by conflict.

Geo-political and security events have severely dented growth, diverted resources away from productive investment. The non-oil economy contracted by almost 14 percent in 2015 following a 5 percent fall in 2014. Iraq's economy grew by 2.9 percent in 2015 on the back of about 19 percent increase in oil production. Growth in 2016 is expected to further increase to 4.8 percent, sustained by an increase in oil production, but non-oil GDP is expected to contract by 8.2 percent. Low oil prices have sharply reduced oil revenues, which decreased by about USD35 billion in 2015 compared to 2014. The resumption of the production sharing agreement between the federal government and the Kurdistan Regional Government (KRG) in August 2016 will help KRG address its fiscal crisis. The KRG is targeting 8 percent economic growth for 2015-2016 and is working on diversifying its regional economy, according to information gathered by IFP Iraq. While the Board of Investment (BOI) previously licensed the housing sector extensively, 2014 witnessed an ongoing trend towards projects in the industrial sector that has emerged as the primary destination for investment. Over the course of the last two years, industrial investment licenses have surpassed those in the housing sector and represent around 184 projects valued at a total of USD12.8 billion. Currently, the KRG is seeking private developers to exploit its potential minerals industry. Reports point to good potential for mining iron ore, chromium, nickel, platinum, gold, copper, barite, and zinc in a 15-25 km belt running through Kurdistan's mountainous area. Kurdistan's power generation capacity is primarily managed by the private sector. While the demand for electricity in the region has increased from 925 MW in 2004 to nearly 4,000 MW in 2014, the KRG plans to fully meet the 6,000 MW demand by 2016, through the expansion of the electricity generating capacity. Electricity demand is to grow 15 percent annually over the next three years, KRG's Ministry of Electricity further predicts. The installed capacity for renewable energy resources in the Kurdistan Region remains quite limited and open for investment. Since 2003, the private sector has invested around USD5 billion in electricity generation in Kurdistan, IFP Iraq added. The Kurdistan Region is dramatically underserved in terms of facilities for water processing, treatment, and recycling. The KRG authorized the construction of numerous wastewater treatment facilities throughout the region. The construction of the Goptapa Chamchamel Water Project (USD113 million) in the Slemani governorate, and the Amedy Water Project (USD96 million) in the Duhok governorate, are already underway. Similar other projects are in various stages of planning.