Foreign direct investment (FDI) in Iraq

FDI in Figures

Global foreign direct investment (FDI) flows showed a strong rebound in 2021, up 77% to an estimated USD 1.65 trillion, from 929 billion in 2020, surpassing their pre-COVID19 level. FDI flows in developing countries increased by 30% but almost three quarters of the total increase in global FDI (USD 500 billion) was recorder in developed economies, with developing economies showing a more modest recovery growth. FDI inflows to West Asia and the middle East increased by more than 49% in 2021 to 90 billion USD (UNCTAD, January 2022).

According to UNCTAD's 2021 World Investment Report, FDI inflows stood at USD -2.8 billion in 2020, compared to USD -3 billion in 2019, slightly up but still negative as a result of the global economic crisis triggered by the Covid-19 pandemic. The latest data available for FDI stock date from 2018, it fell to USD 10.1 billion, accounting for nearly 5.3% of GDP of the country. Since 2013 the FDI inflow has been negative, Iraq has had trouble attracting foreign capital because of its substantial security problems, fragile institutions and lack of governance. Nevertheless, hydrocarbons continue to draw in foreign companies, and the majority of FDI goes to the oil industry.  In addition to the oil industry, the production of cement and the construction & public works sector offer interesting opportunities for investment. The United States and the European Union are the leading investors in Iraq. In 2020, the electricity sector attracted some of the largest investment projects of the year, with GE and Siemens agreeing to upgrade Iraq's power stations and transmission grid.

Iraq has long term potential for foreign investments. In fact, the country has the fourth largest proven oil reserves in the world and needs major reconstruction efforts and infrastructure development. According to Iraqi law, a foreign investor is entitled to make investments in Iraq on terms no less favourable than those applicable to an Iraqi investor, and the amount of foreign participation is not limited. However, Iraq’s National Investment Law limits foreign direct and indirect ownership of natural resources, particularly the extraction and processing of any natural resources. Further restrictions apply to the ownership of banks and insurance companies. According to the National Investment Law, the Iraqi government reserves the right to screen foreign direct investment. Iraq is making slow progress enacting laws and developing institutions needed to implement economic policies. Furthermore, political reforms are still needed to assuage investors' concerns regarding the uncertain business climate. The Iraqi government is eager to attract additional foreign direct investment, but it faces several obstacles, including a weak political system and concerns about security and social stability. Attracting foreign direct investment (FDI) is crucial to efforts to rebuild the country, particularly given the lack of local finance, but the country’s investment climate is attractive only to institutions with the highest tolerance of risk. Corruption, obsolete infrastructure, a lack of skilled labour and outdated commercial laws hinder investment and continue to constrain growth of private, non-oil sectors. Iraq ranks 172nd out of 190 countries according to the last World Bank's Doing Business 2020 classification, losing one place compared to the previous year.

What to consider if you invest in Iraq

Strong Points

Iraq can be an interesting destination for FDI, as the country still needs investment in reconstruction and infrastructure development.
Among the country’s strong points:
- the national law on investments (NIL) comprises several exemptions for qualified investments, including a ten-year exemption from taxes and exemptions from import duties for the necessary equipment and materials
- in the coming years Iraq will have to implement several multi-billion dollar projects in numerous sectors, like security, energy, environment, construction, healthcare, tourism, agriculture, and infrastructure sectors
- investors can repatriate capital brought into Iraq, along with proceeds
- Iraq has the world’s fourth largest proven oil reserves
- a population of almost 40 million, with a young median age (less than 20 years).

Weak Points

The country has several factors hindering FDI, including:

- high dependence on the oil sector
- investors often find it hard to resolve commercial disputes and to receive timely payments
- the country’s regulatory environment remains opaque
- corruption, customs regulations, dysfunctional visa procedures, electricity shortages and lack of access to financing are all common complaints from foreign investors
- weak and limited banking sector
- corruption is widespread in government tenders and in the awarding of licenses or concessions
- violence and instability persist in many areas of the country.

Iraq ranked 168th out of 190 countries in the 2018 Doing Business report by the World Bank.

Government Measures to Motivate or Restrict FDI

The National Investment Law (NIL) was amended in December 2015 in order to improve the investment climate for FDI. The new provisions allow foreign investors to purchase land in Iraq for certain projects, and speed up the investment license process. Tax incentives include a ten-year exemption from taxes for qualified investments, along with exemptions from import duties.

The National Investment Commission (NIC) and the Provincial Investment Commissions (PICs) have been established to provide information, sign contracts, and facilitate registration for new foreign and domestic investors. The NIC can provide investors support in matters related to work permit applications, customs procedures and business registration.

On the other hand, as a result of popular protests, the Iraqi government has applied pressure on foreign companies to hire more of the local employees.