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, 2017)

Services
(52.21%)
Industry
(42.96%)
Agriculture
(4.83%)

External Trade (% of GDP)

73.4 (2016)

Currency (Period Average)

Iraqi Dinar

1184.00 per US$ (2017)

Political System

Multiparty republic

Overview

Following the reclamation of Iraqi territory from ISIS 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. The outlook for Iraq is favourable and overall GDP growth is projected to accelerate in 2019 sustained by higher oil production. In the following years, oil production is expected to increase only marginally, reducing overall growth until 2023, due to the limited capacity of the government to mobilise investment in the oil sector.

Sources: World Bank, Fitch Solutions

Major Economic/Political Events and Upcoming Elections

November 2017

The government forced with Shi'a and Kurdish allied 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 Shia former minister Adel Abdul Mahdi as Prime Minister, with the support of the Shia majority of MPs.

March 2019

The Pearl Petroleum consortium, led by the UAE's Dana Gas, has committed to invest AED2.6 billion to expand Kurdistan's Khor Mor gas complex under a 20-year sales deal with the Kurdistan Regional Government for 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 come up 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.

Sources: BBC country profile – Timeline, Fitch Solutions

Major Economic Indicators
Graph: Iraq real GDP and inflation
 
Graph: Iraq real GDP and inflation
 
Graph: Iraq GDP by sector (2017)
 
Graph: Iraq GDP by sector (2017)
 
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, Fitch Solutions

Date last reviewed: March 22, 2019

External Trade

Merchandise Trade

Graph: Iraq merchandise trade
 
Graph: Iraq merchandise trade
 
 

Sources: WTO, Fitch Solutions

Date last reviewed: March 22, 2019

Graph: Iraq major export commodities (2014)
 
Graph: Iraq major export commodities (2014)
 
Graph: Iraq major import commodities (2014)
 
Graph: Iraq major import commodities (2014)
 
Graph: Iraq major export markets (2014)
 
Graph: Iraq major export markets (2014)
 
Graph: Iraq major import markets (2014)
Note: 'Area Nes' accounts for 12.3% of imports
Graph: Iraq major import markets (2014)
Note: 'Area Nes' accounts for 12.3% of imports

Note: 2014 is latest direct data available, Area Nes = area not elsewhere specified

Sources: Trade Map, Fitch Solutions

Date last reviewed: March 22, 2019

Trade in Services

 

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

Note: 2016 is latest available data

Sources: WTO, Fitch Solutions

Date last reviewed: March 22, 2019

Trade Policies
  • Iraq's non-membership of the World Trade Organisation (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 European Union (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.

  • 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 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 and security risks caused by Islamic State will also 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 Agreement

Multinational Trade Agreements

Active

  • Greater Arab Free Trade Area (GAFTA): The 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 FTA came into force in January 1998.

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
 

Sources: UNCTAD, Fitch Solutions

Date last reviewed: March 22, 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, 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. 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, while foreign firms are also encouraged to partner with and procure from local industries.

  8. Government tender processes in Iraq are opaque and often 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.

  9. 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: 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 varies 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 Ranges from 0.1%-3% on contract value (variable).

Sources: National sources, Fitch Solutions

Date last reviewed: March 22, 2019

Foreign Worker Requirements

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, with 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 will be obligated to pay high insurance premiums for foreign staff, and may also 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) 03/08/2017
Standard & Poor's B- (Stable) 03/09/2015
Fitch Ratings B- (Stable) 30/07/2018

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

Competitiveness and Efficiency Indicators


 
World Ranking
 
2017 2018 2019
Ease of Doing Business Index
 
165/190 168/190 171/190
Ease of Paying Taxes Index
 
52/190 129/190 129/190
Logistics Performance Index
 
N/A 147/160 N/A
Corruption Perception Index
 
169/180 168/190 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 133/202 144/202
Short-Term Economic Risk Score
 
50.8 55.2 58.8
 
Long-Term Economic Risk Score 47.5 46.2 45.1
Political Risk Index Rank N/A 188/202 188/202
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 189/201 188/201
Operational Risk Score 30.1 27.2 27.0
 

Source: Fitch Solutions

Date last reviewed: March 22, 2019

Fitch Solutions Risk Summary

ECONOMIC RISK

Potential foreign investors now view Iraq with more interest following ISIS' removal. Iraq's economy is dominated by the oil sector, which provides over 90% of government revenue and 80% of foreign exchange earnings. Iraq's recent contracts with major oil companies have the potential to greatly expand oil revenues, but Iraq will need to upgrade its refineries and export infrastructure to enable these deals to reach their potential. Higher oil prices should buttress the economy in the near term, although further protests could dent activity. A drawn-out government formation process, endemic corruption and political instability also pose downside risks. Furthermore, potential oil-price shocks could prevent the country from receiving large hydrocarbon revenues that compensate for the absence of economic diversification.

OPERATIONAL RISK

Iraq will likely experience a modest recovery in economic growth over the next five years. The operating environment is increasingly reflecting a brightening outlook for the non-oil economy, benefitting from confidence gains associated with higher oil prices and 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 in the country and will likely take years to resolve.

Source: Fitch Solutions

Date last reviewed: March 25, 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 Economic and Political Risk Indices

Date last reviewed: March 22, 2019

Fitch Solutions Operational Risk Index


 
Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Iraq Score 27.0 43.7 24.4 28.6 11.3
MENA Average 47.5 49.3 48.0 48.7 44.1
MENA Position (out of 18) 16 14
 
16 16
 
18
Global Average 49.6 49.7 49.9 49.0 49.8
Global Position (out of 201) 188 143 190 175
 
198

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
 
Operational Risk Index
 
Labour Market Risk Index
 
Trade and Investment Risk Index Logistics Risk Index Crime and Security Risk Index
UAE 72.7
 
67.8
 
79.0 68.7
 
75.3
 
Qatar 66.0
 
63.9
 
61.9
 
71.6
 
66.5
 
Bahrain 64.9
 
58.4 69.5 71.5
 
60.1
Oman 63.3 51.0 61.6 64.5 76.0
Saudi Arabia 61.6 63.0 62.1 62.7 58.6
Jordan 58.6 54.9 60.6 59.0 60.0
Kuwait 55.1 52.3 51.5 52.5 64.1
Morocco
 
53.2 39.8 63.5 54.8 54.6
Egypt
 
48.4 46.0 46.1 56.4 45.3
Tunisia
 
47.3 42.3 56.9 47.3 42.8
Lebanon 43.4 47.9 51.8 41.4 32.4
Iran 42.8 48.7 36.6 50.8 35.1
Algeria
 
41.5 44.0 31.2 42.9 47.9
Palestine 34.2 46.4 37.2 32.0 21.2
 
Libya
 
27.2 44.4 21.7 29.3 13.4
 
Iraq 27.0 43.7 24.4 28.6 11.3
 
Syria 26.6 42.9 23.8 27.0 12.7
Yemen 21.9 30.6 25.0 15.8
 
16.1
 
Regional Averages
 
47.5
 
49.3
 
48.0
 
48.7
 
44.1
 
Emerging Markets Averages 46.7
 
48.1
 
45.5
 
47.4
 
46.0
 
Global Markets Averages 49.6
 
49.7
 
49.9
 
49.0
 
49.8
 

100 = Lowest risk, 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Date last reviewed: March 22, 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)

Sources: Hong Kong Census and Statistics Department, Fitch Solutions

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: March 22, 2019


 
2017
 
Growth rate (%)
 
Number of Iraqi residents visiting Hong Kong 146 0.7

Source: Hong Kong Tourism Board


 
2017 Growth rate (%)
Number of MENA residents visiting Hong Kong 129,816 -0.2

Sources: Hong Kong Tourism Board, Fitch Solutions

Date last reviewed: March 22, 2019

Commercial Presence in Hong Kong


 
2016
 
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

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 to prevent a person from entering the territory of Iraq in regards to 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 Iraq.
  • Full address of where the person will stay in Iraq.

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: March 22, 2019

 

 

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