Iraq

GDP (US$ Billion)

197.70 (2017)

World Ranking 54/192

GDP Per Capita (US$)

5,088 (2017)

World Ranking 100/192

Economic Structure

(in terms of GDP composition, 2018)

Services
(41.20%)
Industry
(55.80%)
Agriculture
(3.00%)

External Trade (% of GDP)

73.4 (2016)

Currency (Period Average)

Iraqi Dinar

1184.00 per US$ (2017)

Political System

Multiparty republic

Overview

Iraq's economy is dominated by the oil sector, which provides over 90% of government revenue and 80% of foreign exchange earnings. While Iraq's recent contracts with major oil companies have the potential to greatly expand oil revenues, the country will need to upgrade its refinery and export infrastructure to enable these deals to reach their potential. Following the reclamation of Iraqi territory from Islamic State (IS) 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. That said, sustained increases in the standard of living of Iraq still depend on the government passing major policy reforms, improving the internal security profile and developing Iraq's massive oil reserves.

Sources: World Bank, Fitch Solutions

 

Major Economic/Political Events and Upcoming Elections

November 2017
Government forces with Shi'a and Kurdish allies drove Islamic State out of all but a few remote areas.

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

October 2018
Parliament elected Barham Salih as president. He appointed a Shi'a former minister, Adel Abdul Mahdi, as Prime Minister, with the support of the Shi'a majority of members of parliament.

March 2019
The Pearl Petroleum consortium, led by United Arab Emirates-based Dana Gas, committed to investing AED2.6 billion in order to expand Kurdistan's Khor Mor gas complex under a 20-year sales deal with the Kurdistan Regional Government for the Kurdistan Gas Project. Expansion works will include the construction of two production trains at Khor Mor and drilling wells to boost production capacity by 63%.

March 2019
China Petroleum Engineering and Construction Corporation signed a contract with Basra Gas Company (BGC) to build a natural gas liquids (NGL) plant in southern Iraq. The NGL facility will be built in the Ar Ratawi area in the province of Basra. The facility will boost BGC's current gas production capacity by 40%. The plant, scheduled to be completed at the end of 2020, will also reduce gas flaring and increase BGC's dry gas supply and NGL export capabilities.

June 2019
The Japan International Cooperation Agency (JICA) signed an official development assistance loan agreement with Iraq to provide up to JPY110 billion (equivalent to over USD1 billion) for the Basrah Refinery Upgrading Project (II). The project includes the installation of a new fluid catalytic cracking complex in the refinery. Japanese technology will be used in the project. The scheme, to be implemented by Iraqi Ministry of Oil, aims to boost the quality and productivity of petroleum products, reduce the supply-demand gap, decrease the environmental load and transfer related technologies between Japan and Iraq. The new complex is scheduled to start commercial operations in April 2024.

August 2019
Construction Third Engineering Bureau Co signed a construction contract with Iraq to carry out various civil engineering and infrastructure projects in the south of the country. Under the USD1.4 billion contract, the firm will build housing, education and medical care centres, a visitors' serving complex, and ancillary facility projects in the Najaf, Karbala and Basra governorates. The projects will be completed over a period of three years.

August 2019
The 32km Shalamcheh-Basra railway project connecting Iran and Iraq will begin in the coming months and will be completed within a year. A 700m movable bridge will also be built over the Arvand River as part of the Shalamcheh-Basra project. The project would effectively link the Iranian cities of Khorramshahr and Abadan along with the Imam Khomeini Port to the Iraqi city. Iran's Mostazafan Foundation is set to fund the project as the Iranian party of the agreement. The project is part of Iran, Iraq and Syria's efforts to expand transportation cooperation among the three countries. It will link Iran to Syria via Iraq. Iran is waiting for the Iraqi side to assign the land needed for the implementation.

September 2019
Iraq's president Barham Salih pledged that his office would draft a new electoral law and overhaul the country's election commission. The president stated that if the new electoral law is passed by parliament, he would agree to early elections.

September 2019
Iraq signed a deal with Gulf Cooperation Council Interconnection Authority (GCCIA) for the construction of a 300km transmission line that will run from Kuwait to Al Faw Port in Iraq. The construction work will require an investment of around USD220 million, which will be provided by GCC. The transmission line is expected to import 500MW of power from Gulf countries to Iraq's grid by 2020.

Sources: BBC Country Profile – Timeline, Xinhua, JICA, Fitch Solutions

Major Economic Indicators
Graph: Iraq real GDP and inflation
 
Graph: Iraq real GDP and inflation
 
Chart: Iraq GDP by sector (2018)
 
Chart: Iraq GDP by sector (2018)
 
Chart: Iraq unemployment rateNote: No data from IMF
Chart: Iraq unemployment rate
Note: No data from IMF
Graph: Iraq current account balance
 
Graph: Iraq current account balance
 

e = estimate, f = forecast
Sources: Fitch Solutions, IMF, World Bank
Date last reviewed: November 17, 2019

External Trade

Merchandise Trade

Graph: Iraq merchandise trade
 
Graph: Iraq merchandise trade
 
 

Sources: WTO, Fitch Solutions
Date last reviewed: November 17, 2019

Graph: Iraq major export commodities (2014)
Note: Food and agricultural products, manufactured consumer goods, and machinery and complex manufactured products are combined to form one 'other goods' category for better graphical representation
Graph: Iraq major export commodities (2014)
Note: Food and agricultural products, manufactured consumer goods, and machinery and complex manufactured products are combined to form one 'other goods' category for better graphical representation
Chart: Iraq major export markets (2014)
Note: Only two export destinations are specified in source; area nes = area not elsewhere specified. We do not recommend the use of this chart owing to limited data
Chart: Iraq major export markets (2014)
Note: Only two export destinations are specified in source; area nes = area not elsewhere specified. We do not recommend the use of this chart owing to limited data
Graph: Iraq major import commodities (2014)
 
Graph: Iraq major import commodities (2014)
 
Chart: Iraq major import markets (2014)
Area not elsewhere specified accounts for 12.3% of imports
Chart: Iraq major import markets (2014)
Area not elsewhere specified accounts for 12.3% of imports

Note: 2014 is latest direct data available
Sources: UNCTAD, Fitch Solutions
Date last reviewed: November 17, 2019

 

Trade in Services

Chart: Iraq trade in services
 
Chart: Iraq trade in services
 

 

Sources: WTO, Fitch Solutions
Date last reviewed: November 17, 2019

Trade Policies
  • Iraq's non-membership of the World Trade Organization (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, although agreements exist with the European Union (EU) and some countries in the Middle East and North Africa.

  • Since 2016, the flat 5% import tariff has been replaced 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 makes it difficult for firms to calculate tariffs and navigate the legal environment.

  • A sales tax of 300% is imposed on alcohol and tobacco (cigarettes), 15% on travel tickets, 15% on cars and 20% on mobile recharge cards and internet. This is in addition to services rendered by deluxe and first-class restaurants and hotels, which are subject to a 10% sales tax. There is no tax provision in the Iraqi tax law addressing excise taxes. The customs duty rates are specified in the customs tariff and the agriculture agenda that are annexed to the Customs Duty Law.

  • 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 comprise parts from multiple different countries. The conflict in Syria and its spillover into Iraq has caused huge disruption to trade flows between Iraq and its neighbours, including Jordan, Syria and Lebanon. The damage to infrastructure and security risks caused by Islamic State will continue to delay supply chains in the short-to-medium term despite the group being driven out of the country in late 2017.

Sources: WTO – Trade Policy Review, Fitch Solutions

Trade Agreements

Multinational Trade Agreements

Active

  1. Greater Arab Free Trade Area (GAFTA): 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, and trade between member states remains somewhat limited.

  2. 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 (FTA), it offers some preferential trade access and provides a basis for further liberalisation of trade measures.

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

  4. Pan-Arab Free Trade Area (PAFTA): The FTA came into force in January 1998.
Other Developments
  1. In January 2019 Iraq and Iran announced intentions to sign a zero-tariff trade agreement. The re-implementation of sanctions on Iran by the United States was temporarily waivered for a 90-day period; however, Iraq has stated that it needs additional time (beyond the 90-day leniency period) to adjust to an environment where it is unable to trade with its neighbour (as Iraq has signalled that it will follow through with sanctions in an effort to isolate the Persian state). However, Iraq remains dependent on Iranian gas and electricity, making any zero-tariff agreement a potential boon for Baghdad going forward.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

Investment Policy

Foreign Direct Investment

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

Source: UNCTAD, Fitch Solutions
Date last reviewed: November 17, 2019

 

Foreign Direct Investment Policy

  1. Iraq's attractiveness as an investment destination is dented by 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, transport, 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 hydrocarbon resources is not permitted. This means that international oil companies must take technical service agreements or production sharing agreements which are time limited.

  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. In accordance with the Iraqi Investment Law, approved industrial projects are given certain custom duty and tax incentives; however, oil and gas is not one of the sectors that is normally granted investment promotion exemptions incentives. The tax incentives may include corporate tax, individual tax and others; however, the tax incentives vary from one project to another.

  5. The Board of Investment Promotion has the authority to add any sector or specific project to the list of sectors or projects that benefit from the investment promotion law incentives.

  6. Income tax paid to a foreign country on income earned in that country may be credited against tax paid to Iraq. The amount of the credit may not exceed the amount of tax assessed in Iraq.

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

  8. Government tender processes in Iraq are opaque and often bear significant legal risks, creating difficulties for foreign businesses attempting to win government contracts. Government ministries are also required by law to give preference to state-owned enterprises (SOEs) when awarding contracts, even if their bids are more expensive than those offered by other firms.

  9. SOEs are present throughout the Iraqi economy, with more than 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: US Department of Commerce, Fitch Solutions

 

Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive Programme Main Incentives Available
Khor al-Zubair in the south, Nineveh in the north, Fallujah in the centre and al-Qaem in the west - These 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 vary significantly

Sources: US Department of Commerce, Fitch Solutions

Taxation – 2019
  • Value Added Tax: No unified regime – varies from 10%-300%
  • Corporate Income Tax: 15% (except for oil and gas entities)

Source: National Sources

 

Business Taxes

Type of Tax Tax Rate and Base
Corporate Income Tax 15%
Corporate Income Tax for foreign oil and gas companies 35%
Capital Gains Tax Taxed as corporate income: 15% standard rate, and 35% on profits of oil and gas companies
Withholding Tax - 15% on interest paid to non-residents and 15% on royalties paid to non-residents
- No withholding tax is applicable to dividends
Property Taxes 10% on the annual revenue for all real estate
VAT/GST (standard) A sales tax of 300% is applicable for alcohol and tobacco (cigarettes), 15% on travel tickets, 15% on cars, and 20% on mobile recharge cards and internet. Services rendered by deluxe and first class restaurants and hotels, which are subject to a 10% sales tax
Stamp duty Range from 0.1%-3% on contract value (variable)

Sources: National sources, Fitch Solutions
Date last reviewed: November 17, 2019

Foreign Worker Requirements

Foreign Worker Permits

An 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.

 

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.

 

Security Considerations

Employers are obligated to pay high insurance premiums for foreign staff and may be required to offer substantial hardship and danger pay premiums.

Sources: Government websites, Fitch Solutions

Risks

Sovereign Credit Ratings

  Rating (Outlook) Rating Date
Moody's Caa1 (Stable) 30/07/2019
Standard & Poor's B- (Stable) 03/09/2015
Fitch Ratings B- (Stable) 25/07/2019

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

 

Competitiveness and Efficiency Indicators

  World Ranking
2018 2019 2020
Ease of Doing Business Index 168/190 171/190 172/190
Ease of Paying Taxes Index 129/190 129/190 131/190
Logistics Performance Index 147/160 N/A N/A
Corruption Perception Index 168/190 N/A N/A
IMD World Competitiveness N/A N/A N/A

Sources: World Bank, IMD, Transparency International, Fitch Solution

 

Fitch Solutions Risk Indices

  World Ranking
2017 2018 2019
Economic Risk Index Rank N/A 133/202 148/201
Short-Term Economic Risk Score 50.8 55.2 55.8
Long-Term Economic Risk Score 47.5 46.2 44.6
Political Risk Index Rank N/A 188/202 187/201
Short-Term Political Risk Score 31.7 35.4 35.4
Long-Term Political Risk Score 36.7 36.7 36.7
Operational Risk Index Rank N/A 189/201 186/201
Operational Risk Score 30.1 27.2 26.9

Source: Fitch Solutions
Date last reviewed: November 17, 2019

 

Fitch Solutions Risk Summary

ECONOMIC RISK

Potential foreign investors now view Iraq with more interest following the removal of Islamic State; however, the country's high reliance on the hydrocarbon sector will continue over the coming quarters, signalling limited investment opportunities outside of the hydrocarbons sector. The economy should gain strength in 2019 due to stronger oil output and expansion in the non-oil sector, although public investment could be curtailed somewhat by the 2019 budget's focus on current spending. However, the fragile domestic political backdrop, security concerns and geopolitical tensions pose the key downside risks. Looking ahead, while recovery in oil prices will provide some tailwinds to growth, the country will remain highly susceptible to renewed oil price weakness and disruptions to production. Economic activity is unlikely to significantly outperform 2019 levels in 2020. While a continued loose fiscal stance should support momentum somewhat, structural bottlenecks and a lack of capital spending will restrain the economy. Political risk and volatile oil prices pose further downside risks.

OPERATIONAL RISK

Iraq is highly dependent on the performance of the oil sector for economic growth. An improvement in the political security environment could also create a platform for stronger efforts to rebuild the country's damaged infrastructure network. That said, the country still faces significant infrastructure gaps, legal risks and security challenges that raise the cost of doing business and will likely take years to resolve. Overall, Iraq remains one of the most risky locations in the world in which to do business.

Source: Fitch Solutions
Date last reviewed: November 30, 2019

 

Fitch Solutions Political and Economic Risk Indices

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: Fitch Solutions Poitical and Economicl Risk Indices
Date last reviewed: November 17, 2019

 

Fitch Solutions Operational Risk Index

  Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Iraq Score 26.9 43.6 24.8 26.8 12.4
MENA Average 47.4 52.3 48.0 48.1 40.9
MENA Position (out of 18) 17 15 16 16 18
Global Average 49.7 50.3 49.8 49.3 49.2
Global Position (out of 201) 186 138 189.0 180 196

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

Graph: Iraq vs global and regional averages
 
Graph: Iraq vs global and regional averages
 
Country/Region Operational Risk Index Labour Market Risk Index Trade and Investment Risk Index Logistics Risk Crime and Security Risk Index
UAE 72.2 71.3 79.1 67.9 70.5
Qatar 65.4 65.0 61.8 73.7 61.2
Oman 64.4 62.2 61.9 64.1 69.2
Bahrain 64.4 63.1 69.5 71.5 53.6
Saudi Arabia 62.3 67.2 62.1 62.4 57.7
Jordan 56.1 56.9 60.7 54.7 52.3
Morocco 53.7 43.2 63.8 54.8 53.2
Kuwait 53.1 54.2 51.2 50.8 56.2
Egypt 48.4 49.9 45.7 55.2 42.9
Tunisia 46.8
 
42.2 56.2 46.5 42.3
Lebanon 43.8 53.0 51.9 40.8 29.7
Iran 43.3 49.5 36.7

52.7

34.4
Algeria 38.6 46.1 31.1 40.9 36.2
West Bank and Gaza 34.8 48.8 37.4 35.8 17.0
Libya 28.2 47.2 22.1 26.5 17.1
Syria 27.9 45.6 23.7 27.5 15.0
Iraq 26.9 43.6 24.8 26.8 12.4
Yemen 21.9 32.7 24.9 13.9 16.1
Regional Averages

47.3

52.3 48.0 48.1 40.9
Emerging Markets Averages 46.9 48.5 47.4 45.8 45.9
Global Markets Averages 49.7 50.3 49.8 49.3 49.2

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: November 17, 2019

Hong Kong Connection

Hong Kong’s Trade with Iraq

Graph: Major export commodities to Iraq (2018)
 
Graph: Major export commodities to Iraq (2018)
 
Graph: Major import commodities from Iraq (2018)
 
Graph: Major import commodities from Iraq (2018)
 

Note: Graph shows the main Hong Kong exports to/imports from Iraq (by consignment)

Graph: Merchandise exports to Iraq
 
Graph: Merchandise exports to Iraq
 
Graph: Merchandise imports from Iraq
 
Graph: Merchandise imports from Iraq
 

Note: Graph shows Hong Kong exports to/imports from Iraq (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: November 17, 2019

  2018 Growth rate (%)
Number of Iraqi residents visiting Hong Kong 130 -8.2
Number of Middle East residents visiting Hong Kong 130,511 0.5

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: November 17, 2019

 

Commercial Presence in Hong Kong

  2018 Growth rate (%)
Number of Iraq companies in Hong Kong N/A N/A
- Regional headquarters
- Regional offices
- Local offices

 

Visa Requirements for Hong Kong Residents

HKSAR passport holders 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.

Visa is not required for holders of a signed and stamped letter issued by the Ministry of Interior of Iraq, provided arriving at Baghdad, Basra or Najaf.

Visa is not required for holders of a signed and stamped letter issued by the Ministry of Interior of the Kurdistan Regional Government, provided arriving at Erbil and Sulaymaniyah.

Source: VisaHQ
Date last reviewed: November 18, 2019

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