Some international companies are cautiously returning to Iraq

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BASRA, Iraq — For years Iraq has gone from crisis to crisis. Now, some foreign companies see an opportunity as the turmoil appears to be easing.

After disruptive anti-corruption protests earlier this year, a degree of stability has returned to parliament. The low oil prices that have undermined its economy have staged a fragile recovery. And Iraqi forces have pushed the Islamic State back into a few pockets of the country, most recently driving them out of Fallujah and Ramadi.

Since then, interest in the country from serious investors has increased, said Mudher Salih, a former senior central bank official who advises Prime Minister Haider al-Abadi on financial policy. “After Fallujah and Ramadi, everything changed,” he said.

Part of that shift is foreign capital, and deal-seeking executives are cautiously returning to Iraq and improving its business prospects.

In January, General Electric signed contracts worth $ 1 billion to upgrade Iraq’s power infrastructure, the company’s largest electricity contract in the country since 2008. GE, which operates in the country for years, said it “continues to see growth opportunities develop. ”

In April, the World Bank’s International Finance Corporation arranged a $ 375 million finance package for an Iraqi power company, backed by Bank Audi of Lebanon, the bank’s first major investment in the country. The deal is a sign of IFC’s increased support for Iraq in the 12 months leading up to June 2016, which was accompanied by “increased interest from investors in the region,” said Mouayed Makhlouf, director of the region. IFC for the Middle East and North Africa. Audi Bank declined to comment.

A sign that some companies are betting even tourism could start to pick up, Wyndham Hotel Group has announced plans to open two new hotels in Najaf, a pilgrimage destination for Shia Muslims, by 2018.

“It takes a long time to develop new hotels, so you can’t wait for it to be in all the travel magazines,” said Daniel Ruff, Wyndham president for Europe, Middle East and the United States. Africa. “Once you’re the first in, you see opportunities emerge quickly and the growth can be really fantastic. “

International law firm Eversheds said it was working on two deals to acquire assets in the country, the first Iraqi acquisitions the firm has processed in more than 12 months.

Another great reason to be optimistic: the International Monetary Fund.

Last month, he approved a $ 5.3 billion bailout for the cash-strapped country, helping to close its budget deficit and restore investor confidence. The deal obliges Iraq to undertake significant economic changes, cut spending and fight corruption, and paves the way for more aid.

Driven by increased oil production, economic reforms and the lessening threat from the militant group, the World Bank expects the Iraqi economy to grow by around 7% this year.

Foreign direct investment in Iraq, mostly based on spending by international oil companies, could increase by around 20% this year to almost $ 4 billion, according to estimates by Astrit Sulstarova, head of the trends unit. and investment data to the United Nations Conference on Trade and Development. In 2015, a year of military uncertainty and falling oil prices, FDI fell by 30%.

Iraq is still in a delicate situation. The price of oil, the government’s main source of revenue, remains under pressure. The country’s budget deficit climbed to 14.3% of GDP last year and is expected to approach 15% in 2016.

Meanwhile, a growing humanitarian crisis threatens to overwhelm the government, adding to the pressure on spending. The UN estimates that more than three million people have already been displaced by the war against Islamic State in the country and that millions more could be affected by an upcoming campaign for the Iraqi capital of extremists of Mosul and the current offensive.

And the anti-corruption protests have pursued and disrupted the Iraqi government, and may resurface.

The obstacles facing businesses also remain significant. Stifling bureaucracy and rampant corruption create a difficult environment. Simply starting a business requires about 10 different procedures and takes about a month, according to the World Bank. It’s no surprise, then, that Iraq ranks 161st out of 189 countries in the World Bank’s 2016 Ease of Doing Business ranking.

The Iraqi government in particular makes it a difficult trading partner. Mohammed Al Khasaky, chairman of the Iraqi group AKG Engineering Construction & Trading called it “impossible” to work with the government. His business, like many others, has not been paid for over a year.

Still, Mr. Khasaky is eager to continue operating in Iraq, provided he can avoid depending on government money. “We are ready to exploit any opportunity if the money comes from outside the Iraqi government,” he said.

Sami al-Araji, chairman of the Iraqi National Investment Commission, acknowledged the challenges facing companies, but said he was considering “all means and means to try to alleviate the difficulties for companies”.

Activity in the country’s oil sector is sluggishly improving, and the government is working to generate interest in underdeveloped oil fields and large infrastructure projects.

According to Iraqi officials, Exxon Mobil Corp. and PetroChina, a state-controlled company Co.

are in talks to help boost production from two of the southern country’s smaller oil fields. Exxon declined to comment and PetroChina did not respond to a request for comment.

Write to Sarah Kent at [email protected] and Ali Nabhan at [email protected]

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