MFA: Strategic opportunities for foreign exporters
The covid-19 pandemic and the collapse of oil prices in 2020 resulted in significantly reduced revenues to the state budget (over 90% of revenues are oil exports, the private sector is minimally represented and underdeveloped) and there was an unprecedented lack of liquidity as spending remained high at maintained amount of costs for civil servants’ wages and pensions.
The government has been dealing with the lack of liquidity by borrowing from the Central Bank of India (CBI) dollar reserves to pay nearly US$5 billion a month in the wage bill to the approximately million civil servants. In October 2020, the government approved a comprehensive “white paper” of policy and of economic reforms, which sets the plan for their distribution in the next 3 to 5 years. The document was initiated by the World Bank, and the government adapted it according to Iraqi priorities. If they are implemented, there could be a turnaround for the Iraqi economy.
After weeks of complicated negotiations, the Iraqi parliament only approved the 2021 state budget of $89 billion with a budget deficit of $19.79 billion on March 31. It is calculated on an average oil price of USD 45 per barrel. The KRI’s share of the budget will be billion USD and is conditional on the monthly supply of 250,000 barrels of oil to the federal organization SOMO, which ensures exports. The KRI must also prioritize the payment of salaries to its public sector workers and members of the armed Kurdish militia (peshmerga). Approving the budget opens up the opportunity for the government to apply for loans on international financial markets.
Until June 2020, there was no stable government in Iraq. The current government has a transitional mandate until the elections, which should be held in October 2021. The budget for 2020 has not been approved. The government’s preventive measures against the spread of the covid-19 pandemic by restricting movement, etc., were continuously applied. The Central Bank of Iraq (CBI) took several steps, e.g. an amount of IQD 45 billion (USD 35 million) was allocated to a special account and made available to the Iraqi Ministry healthcare and crisis staff in the fight against the pandemic.
The CBI, in cooperation with the Ministry of Labor and Social Affairs, administered a subsidy that the government allocated to poor families in a total amount of approximately IQD 300 billion (US$20 million), or announced a 6-month moratorium on borrowers’ loan repayments. The CBI also ordered all banks to reduce interest on loans from 4.8% to 3.5% (loans up to 20 million IQD) and from 6.3% to 4% (loans from 21 million to 1 billion IQD).
The largest export commodity is Škoda passenger cars (47% in 2020) and interest in them continues to grow.
In the field of energy, these are mainly refineries and power plants. It involves the construction of new investment units or the expansion of the capacity of existing investment units. In the case of refineries, the rehabilitation of refineries and the construction of a new refinery in Basra, which should have the same capacity or larger than the existing refinery in Shuaiba (US$ 500 million), are being considered, and the restoration of the refinery in Al Faw is in the preparatory phase. Furthermore, expansion of the capacity of smaller refineries in the cities of Amara, Samawa, Nasirije is being considered (in each case, the expansion of capacity represents the amount of USD 100 million).
According to allcountrylist, capacity expansion at small refineries in the Iraqi Kurdistan region is under consideration for the NOKAN GROUP ($100m) and KIRKUK ($100m) refineries. In the case of power plants, negotiations are underway for the construction of a steam-gas cycle for the Khormala power plant (USD 300 million). There are plans to build new gas-fired power plants (the country has the 12th largest gas reserves in the world).
The construction of hydroelectric power plants is also current. The Ministry of Electricity wants to continue the investment project to build seven solar power plants, suspended as a result of the war with ISIS and the poor security situation in recent years. New power plants are to be built by 2030 in the provinces of Karbala, Wasit, Babylon and Al-Muthanna with a total installed capacity of 10 GW.
In the defense industry, there is a constant demand for various types of ammunition and combat equipment, including tanks, guns, combat vehicles. The opportunity to expand in this sector has been strengthened by promising purchases from the Iraqi side in recent years. The Iraqi Ministry of Defense and Industry is also currently being consulted on the possibility of exporting an investment unit – a munitions factory – and one munitions factory for Baghdad ($350m) and another for Erbil ($350m) is being considered.
The war-ravaged country requires the restoration of buildings and structures, whether housing stock or industrial buildings. Opportunities are in the supply of machinery and equipment for the operations of cement or limestone plants, techniques for handling building materials, solutions for the transport of bulk materials or the export of mining machinery. For example, the investment project “Akashat” for the mining and processing of phosphates in 7 factories in Al-Anbar province is current. These factories fall under the Iraqi state enterprise the General Company for Phosphates. The “Akashat” project is important for Iraq in terms of fertilizer production and further development of Iraqi agriculture. “Contract award” for Finesta Group was issued by the Ministry of Industry and Mineral Resources of Iraq in 2020.
Agricultural and food industry
Although agriculture accounts for roughly 2% of GDP, it employs 18% of people. From the point of view of the Iraqi government, this is a preferred sector in which it will invest, and in cooperation with the organizations FAO and WFP, the goal is to significantly improve services for agricultural primary production and build the capacities of the food industry. The means of production are technically obsolete or damaged by wartime. It will be necessary to introduce modern technological procedures, which cannot do without supplies from developed countries, in order to significantly increase the quality of final products and competitiveness in exports, in which Iraq has great potential.
The Ministry of Industry and Minerals announced in March 2021 the start of investments in sugar mills in Maysan and Nineveh provinces to restore and modernize production lines. The medium-term plan includes the restoration and expansion of a total of 7 sugar mills.
Between 1970 and 1990, Zetor tractors were assembled in the city of Iskandariya, south of Baghdad. It was the largest Zetor factory abroad, over 80,000 of them were created here. In 2011, Zetor returned to the Iraqi market and delivered 70 new tractors. The interest of the Iraqi government representatives is, as in the past, to import tractor kits (SKD) so that the final assembly of the tractors can take place directly in Iraq.