Iraq

Iraq

Iraq: Market Profile

Picture: Iraq factsheet
Picture: Iraq factsheet

 1. Overview

Following the complete liberation from ISIS of all Iraqi territory in December 2017, the Government of Iraq is putting in place a comprehensive reconstruction package linking immediate stabilisation to a long-term vision and initiating a recovery and reconstruction process. The country is prioritising investment expenditure for reconstruction in areas liberated from ISIS and for increasing electricity production. In 2017, the current account deficit was estimated to have returned to a surplus equal to 0.7% of GDP.

Sources: World Bank, BMI Research

2. Major Economic/Political Events and Upcoming Elections

March 2015
Islamic State destroyed Assyrian archaeological sites of Nimrud and Hatra.

November 2016
Parliament recognised the Shi'a Popular Mobilisation Units (PMU) militia as part of the armed forces with full legal status.

November 2017
Government forced with Shi'a and Kurdish allies drive Islamic State out of all but a few redoubts.

May 2018
Parliamentary elections. The political bloc of Shi'a cleric Moqtada al-Sadr won most votes.

Source: BBC country profile – Timeline

3. Major Economic Indicators

Graph: Iraq real GDP and inflation
Graph: Iraq real GDP and inflation
Graph: Iraq GDP by sector (2016)
Graph: Iraq GDP by sector (2016)
Graph: Iraq unemployment rate
Graph: Iraq unemployment rate
Graph: Iraq current account balance
Graph: Iraq current account balance

e = estimate, f = forecast
Sources: IMF, World Bank

4. External Trade

4.1 Merchandise Trade

Graph: Iraq merchandise trade
Graph: Iraq merchandise trade
Graph: Iraq major export commodities (2014)
Graph: Iraq major export commodities (2014)
Graph: Iraq major export markets (2014)
Graph: Iraq major export markets (2014)
Graph: Iraq major import commodities (2014)
Graph: Iraq major import commodities (2014)
Graph: Iraq major import markets (2014)
Graph: Iraq major import markets (2014)

Sources: WTO, Trade Map, BMI Research

4.2 Trade in Services

Graph: Iraq trade in services
Graph: Iraq trade in services

Source: WTO

5. Trade Policies

  • Iraq's non-membership of the WTO means that it has few preferential trade arrangements in place and consequently all imported goods are subject to the costly tariff regime regardless of their origin. Access to large markets is also somewhat restricted, though agreements do exist with the EU and some other MENA countries.

  • A flat 5% import tariff has been replaced since 2016 with a multiple tariff rate regime which ranges from 0%-80% for agricultural goods and from 0%-40% for non-agricultural goods. The opacity and convoluted nature of the trade regime also makes it difficult for firms to calculate tariffs and increases the risk of corruption and smuggling which damages the effective functioning of supply chains.

  • Convoluted procedures significantly increase the times and costs required for international trade, and complicate the import process. In addition, corruption is a major problem in Iraq.

  • Certificates of origin are required for all products, which must include approval by numerous agencies in Iraq and the origin country of the goods. This is particularly difficult for imports of complex manufactured products which are comprised of parts from multiple different countries.

  • The conflict in Syria and its spill-over into Iraq has caused huge disruption to trade flows between Iraq and its neighbours, including Jordan, Syria and Lebanon. The damage to infrastructure caused by IS will also continue to delay supply chains despite the group being driven out of the country in late 2017.

Sources: WTO – Trade Policy Review, BMI Research

6. Trade Agreement

6.1 Multinational Trade Agreements

Active

  • Greater Arab Free Trade Area (GAFTA): The Greater Arab Free Trade Area (GAFTA) saw tariffs between 17 Arab states rapidly decline from an average 15% in 2002 to 6% in 2009. However, the preferential rates available under GAFTA are not applied consistently by Iraqi customs, while trade between member states remains somewhat limited.

  • EU-Iraq Partnership and Co-operation Agreement: The EU offers a huge market for Iraqi goods and is a key source of imports. While not a full free trade agreement, the Partnership and Cooperation Agreement offers some preferential trade access and provides a basis for further liberalisation of trade measures.

  • Global System of Trade Preferences among Developing Countries (GSTP): The partial scope agreement came into force in April 1989.

  • Pan-Arab Free Trade Area (PAFTA): The free trade agreement came into force in January 1998.

Sources: WTO Regional Trade Agreements database, BMI Research

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Iraq FDI stock
Graph: Iraq FDI stock
Graph: Iraq FDI flow
Graph: Iraq FDI flow

Source: UNCTAD

7.2 Foreign Direct Investment Policy

  1. Iraq's attractiveness as an investment destination is seriously marred by extremely challenging operating conditions. Some barriers have emerged as a direct result of government policies, for example, foreign investment is barred or capped in a number of sectors including utilities, transportation, agribusiness and mining.

  2. The government continues to operate restrictions on foreign investment in certain sectors, particularly those with strategic value to the Iraqi economy, such as oil and gas. Foreign ownership of hydrocarbons resources is not permitted, forcing international oil companies to take technical service agreements or production sharing agreements which are time-limited and do not offer lucrative returns on investment.

  3. Non-resident persons or entities are not allowed to own land for industrial purposes without an Iraqi partner, except for the purpose of developing residential real estate projects.

  4. All foreign-owned entities in Iraq must employ Iraqi nationals as 50% of their workforce, while foreign firms are also encouraged to partner with and procure from local industries.

  5. Government tender processes in Iraq are opaque, poorly managed and plagued with corruption, creating difficulties for foreign businesses attempting to win government contracts. Government ministries are also required by law to give preference to SOEs when awarding contracts, even if their bids are more expensive than those offered by other firms.

  6. SOEs are present throughout the Iraqi economy, with over 190 currently operational in a diverse range of sectors. SOEs receive preferential treatment by law in a broad swathe of areas including the awarding of government contracts, the allocation of financing, and the availability of subsidies.

Sources: WTO – Trade Policy Review, The International Trade Administration (ITA), US Department of Commerce, BMI Research

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Khor al-Zubair in the south, Nineveh in the north, Fallujah in the centre, and al-Qaem in the westThese zones allow exemption from all taxes including corporation tax and fees for goods imported and exported from the areas. They also offer access to key transport routes, infrastructure and services, although the level of development and availability of facilities varies significantly.

Sources: US Department of Commerce, BMI Research

8. Taxation – 2018

  • Value Added Tax: Varies
  • Corporate Income Tax: 15% on profits and 35% on profits of oil and gas companies

Source: PwC Taxes at a Glance 2017

8.1 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax15% on profits and 35% on profits of oil and gas companies
Capital Gains Tax15% on profits and 35% on profits of oil and gas companies
Withholding Tax15% on interest paid to non-residents and 15% on royalties paid to non-residents
Social Security Contributions (all employers)12% on gross salaries and 25% on gross salaries for oil and gas companies
VAT/GST (standard)No unified regime. Some sales taxes charged on luxury items including alcohol and cigarettes (300%), cars (15%) and mobile and internet services (20%)
Stamp duty0.2% on contract value (variable)

9. Foreign Worker Requirements

9.1 Foreign worker permits

The employee must complete a blood test on entry to Iraq, and the employer must submit an application for a work permit to the relevant government authority with which they are normally affiliated, for example the Ministry of Oil. The lack of centralised or streamlined application procedures for work permits, which are normally processed through a labour or immigration ministry, means that the process is often slow and mired in bureaucratic inefficiency, with companies experiencing long delays when attempting to obtain residency permits.

9.2 Foreign worker restrictions

Although priority in employment is awarded to Iraqi nationals by law, in practice the shortage of high skilled labour means that there are limited legal obstacles to bringing in foreign workers.

9.3 Security situation

Employers will be obligated to pay exorbitant insurance premiums for foreign staff, and may also be required
to offer substantial hardship and danger pay premiums.

9.4 Religious/Cultural Barriers

Iraq is a majority Muslim country with stricter laws on personal freedoms than workers from Western countries will be accustomed to.

Sources: Government websites, BMI Research

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
Caa1 (Stable)03/08/2017
Standard & Poor'sB- (Stable)03/09/2015
FitchB- (Stable)06/12/2017

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
166/189165/190168/190
Ease of Paying Taxes Index
59/18952/190129/190
Logistics Performance Index
149/160N/AN/A
Corruption Perception Index
166/176169/180N/A
IMD World CompetitivenessN/AN/AN/A

Sources: World Bank, IMD, Transparency International

10.3 BMI Risk Indices


World ranking
201620172018
Economic Risk Index Rank142/202
Short-Term Economic Risk Score45.250.853.3
Long-Term Economic Risk Score44.447.544.8
Political Risk Index Rank189/202
Short-Term Political Risk Score31.731.735.4
Long-Term Political Risk Score36.336.736.7
Operational Risk Index Rank189/201
Operational Risk Score33.230.127.3

Source: BMI Research

10.4 BMI Risk Summary

ECONOMIC RISK
Iraq's over-reliance on the hydrocarbon sector will continue over the coming quarters, and so will widespread corruption in the country. The institutional crisis in Baghdad will ensure that mismanagement continues, and the allocation of foreign aid will not be optimised. Low oil prices will prevent the country from receiving large hydrocarbon revenues that compensate for the absence of economic diversification.

OPERATIONAL RISK
Iraq's abundant natural resource wealth and large market are outweighed by prevalent issues with insecurity, making the country an extremely unappealing destination for investment. Conflict risks pervade every facet of Iraqi society, creating obstacles to all business activities and affecting all areas of the country's operating environment. The prospect for significant improvement in these issues over the medium term is bleak, with entrenched corruption, infrastructure weakness and security concerns remaining pertinent structural risks to business activities.

Graph: Iraq short term political risk index
Graph: Iraq short term political risk index
Graph: Iraq long term political risk index
Graph: Iraq long term political risk index
Graph: Iraq short term economic risk index
Graph: Iraq short term economic risk index
Graph: Iraq long term economic risk index
Graph: Iraq long term economic risk index

100 = Lowest risk, 0 = Highest risk
Source: BMI Research

10.5 BMI Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Iraq Score27.343.725.228.811.5
MENA Average47.449.348.148.443.9
MENA Position (out of 18)1714
1716
18
MENA Average47.449.348.148.443.9
MENA Position (out of 18)1714
1716
18
Global Average49.849.850.049.349.9
Global Position (out of 201)189143188176
198

100 = Lowest risk, 0 = Highest risk
Source: BMI Operational Risk Index

Graph: Iraq vs global and regional averages
Graph: Iraq vs global and regional averages
Country
Operational Risk IndexLabour Market Risk Index
Trade and Investment Risk IndexLogistics Risk Index
Crime and Secruity Risk Index
UAE73.867.879.672.575.1
Qatar66.363.963.167.870.5
Bahrain64.158.468.571.158.5
Oman63.251.059.866.475.4
Saudi Arabia61.863.061.863.259.2
Jordan58.054.959.159.758.3
Kuwait55.352.351.751.166.2
Morocco53.639.862.055.257.2
Tunisia47.142.352.446.946.7
Egypt45.846.046.453.537.4
Lebanon43.047.950.040.633.6
Iran42.948.738.351.233.3
Algeria39.944.031.739.844.2
West Bank And Gaza33.746.436.830.221.5
Libya28.344.426.029.313.5
Syria28.142.930.026.412.9
Iraq27.343.725.228.811.5
Yemen21.630.623.017.315.6
Regional Averages47.449.348.148.443.9
Emerging Markets Averages46.848.047.545.846.1
Global Markets Averages49.849.850.049.349.9

100 = Lowest risk, 0 = Highest risk
Source: BMI Operational Risk Index

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Iraq


2017
Growth rate (%)
Number of Iraqi residents visiting Hong Kong1460.7
Number of Iraqis residing in Hong KongN/AN/A

Sources: Hong Kong Tourism Board, BMI Research


2017Growth rate (%)
Number of MENA residents visiting Hong Kong129,816-2.5
Number of MENA residing in Hong KongN/AN/A

Sources: Hong Kong Tourism Board, BMI Research

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of Iraq companies in Hong KongN/AN/A
- Regional headquarters
- Regional offices
- Local offices

11.3 Visa Requirements for Hong Kong Residents

Hong Kong residents require an Iraqi tourist visa. The tourist visa allows the holder to enter Iraq once during the three months from the date of grant and stay in it for a period of one month, for the purpose of visiting tourist and relic sites.

The following conditions must be met:

  • The passport has validity for a period of minimum six months.
  • Filling in a Visa application form with two photographs.
  • Ability to cover the cost of living during the period of his stay in Iraq for holders of ordinary passports.
  • There is no objection prevent him from entering the territory of the Republic of Iraq regarding the public health, security, morals, or the national economy.
  • Provide a convincing reason for visit.
  • The requester is not accused or convicted of a crime outside Iraq may be extradited for.
  • There is no order of deporting him from the Republic of Iraq and to achieve this must check the records for the barred from entering Iraq in accordance with the attached form.
  • Full address in the place, where he will stay in the Republic of Iraq.

Source: iraq.visahq.hk