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Iraq Defence and Security Report Q4 2009
Market |
Defence |
Report Type |
Market Research |
Country |
Iraq |
Published |
16 September 2009 |
Number of Pages |
43 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
Iraq oil sector to expand over the coming years
In the first month after the US military withdrew from Iraqi towns and cities to bases in the countryside, fears that violence would suddenly spike did not materialise, although devastating bomb blasts in Baghdad on August 19 served as a reminder that the security situation may yet deteriorate and that the lead up to next January's parliamentary elections could be turbulent. We expect incumbent Prime Minister Nouri al-Maliki to be returned to office at those polls. Diverse political coalitions should provide a check on Maliki's apparent growing power, though this will also mean that the policy-making process remains ponderous.
Coming off a low base and aided by an improving security situation, we see real GDP growth averaging 5.8% over the five-year forecast period. Though Iraq's flagship oil bidding round at the end of June was largely disappointing, we nonetheless see the oil sector, which remains the engine of the economy, expanding over coming years. Moreover, the rise in oil prices over the course of H109 and into H2 has eased the pressure on the central government's finances somewhat, though we still project Baghdad to turn out large fiscal deficits between 2009 and 2011. Greater stability has certainly boosted the appeal of Prime Minister Nouri al-Maliki, and we expect him to be returned to office in parliamentary elections scheduled for January 2010. While this stability has also boosted the appeal of Iraq as an investment destination, foreign companies will find the business environment challenging for years to come.
The disappointment of the first oil bidding round has not materially affected our growth projections as slow progress in oil sector expansion has always been our core scenario. We forecast real GDP growth of 3.7% and 6.2% in 2009 and 2010, respectively. We do see oil output increasing over the next five years, just not as rapidly as Baghdad hopes. An especially successful second bidding round at the end of November could force us to revise upwards our oil production, and thus real GDP growth, projections.
Away from the oil sector, ambitious development projects are beginning to take shape; the housing sector, in particular, looks set to grow strongly in the years ahead.
The improvements in the security situation mean that Iraq is now an increasingly viable investment destination, and Baghdad is keen to welcome in foreign businesses. However, potential investors will face considerable challenges for years to come. General Electric (GE)'s recent experience highlights some of the risks: Baghdad is currently unable to pay the US company for equipment already manufactured. Iraq will likely find the funds in late-2009 or early-2010, but the episode could put off other potential investors. Other challenges include endemic corruption, poor infrastructure, an unsophisticated financial services sector and Iraq's cumbersome bureaucracy. Nonetheless, Iraq is luring greater numbers of foreign companies.
For Q309, the updated the methodology of its Terrorism Rating and expanded it to cover 170 global cities, as well as 130 states. As before, the Terrorism Rating incorporates our analysts’ qualitative view of the terrorist threat. However, it also incorporates secondary analysis of data on global terrorist incidents obtained from the US State Department’s Worldwide Incidents Tracking System (http://wits.nctc.gov/), to provide a quantitative assessment of the risks.
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