Iraq reconstruction bid hinges on own policies, regional ties

Many investors are likely waiting to see the outcome of the elections before committing money in Iraq.
Sunday 18/02/2018
Iraqi Prime Minister Haider al-Abadi (C) attends the Kuwait international conference for the reconstruction of Iraq in Kuwait City, on February 13. (AFP)
Why is this man smiling? Iraqi Prime Minister Haider al-Abadi (C) attends the Kuwait international conference for Iraqi reconstruction in Kuwait City, on February 13. (AFP)

LONDON - The success of Iraq’s bid to rebuild the country’s infrastructure, damaged by years of war and corruption, is likely to depend more on the government’s policies than on the international investment conference recently convened in Kuwait, analysts said.

International donors at the February 12-14 conference pledged $30 billion to help Iraqi reconstruction following the war against the Islamic State (ISIS). The pledges include loans, direct investment and investment guarantees.

The World Bank estimated that Iraq needs nearly $88 billion over the next five years for reconstruction, which means Baghdad will predominately rely on its federal budget to come up with the rest. Iraq will also need to attract more private sector investments.

“The government budget will form the bulk of that money, followed by private investment. Donors are seen as an added boost, not the bulk,” Elizabeth Dickinson, a Gulf researcher at the International Crisis Group, said on Twitter.

A damaged building in the Iraqi city of Mosul on February 14. (AFP)
A damaged building in the Iraqi city of Mosul on February 14. (AFP)
A damaged building in the Iraqi city of Mosul on February 14. (AFP)
A damaged building in the Iraqi city of Mosul on February 14. (AFP)
A damaged building in the Iraqi city of Mosul on February 14. (AFP)
A damaged building in the Iraqi city of Mosul on February 14. (AFP)
A damaged building in the Iraqi city of Mosul on February 14. (AFP)
A damaged building in the Iraqi city of Mosul on February 14. (AFP)
A damaged building in the Iraqi city of Mosul on February 14. (AFP)

As Iraq’s budget is dependent on oil exports, crude prices are likely to affect how much cash is available over the next five years. Aside from the agreement among OPEC members to cap output and improve the country’s production capacities, Iraq is very much at the mercy of the market’s oil prices.

Iraqi politics, however, are likely to play a large role in whether much of the pledges are met and if new investments are to be made in the country. One determining factor is the crackdown on rampant corruption, which has not escaped the attention of Iraqi Prime Minister Haider al-Abadi.

“We will not stop fighting corruption, which is not less than terrorism. In fact, it was one of the reasons for the rise of terrorism,” Abadi said at the conference.

Some commentators argued that even if the pledges are not honoured, Iraq can attract investment by ridding itself of corruption.

“Any progress achieved against corruption will improve Iraq’s environment to do business,” wrote Iraqi commentator Muhammad al-Waeli in the blog 1001iraqithoughts.com.

Abadi announced the ratification of international covenants to protect investments. It remains to be seen whether investors will feel reassured.

“[The] conference was meant to ‘introduce’ global companies to Iraq and put guarantees and incentives in place, so private finance flows in longer term,” said Dickinson. Small business deals could prove more important tomorrow than a $1 billion in cash today, she added.

Another important factor is Iraq’s maintaining good ties with its neighbours and the wider region: $5 billion was pledged by Arab Gulf countries and another $5 billion was promised by Turkey. Any souring of ties could threaten investments in Iraq.

The conference came three months ahead of Iraqi elections. Many investors are likely waiting to see the outcome of the poll before committing money in Iraq. They may fear a rise in Iranian influence in Iraq.

“I think many people are waiting until after the elections,” an unnamed senior US official told Foreign Policy. “They want to know the composition of the government first.”

Iraqi analyst Sajad Jiyad said that he expected an increase in Saudi investment should Abadi remain in power after the elections in May. This is because the country will be stable and the Saudis feel “they can work with” Abadi, Jiyad said on Twitter.

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