Iraq Business Forecast Report Q3 2008

Publication Date	June 2008
Publisher	Business Monitor
Product Type	Report
Pages	50
ISBN Number	1745-0594
Product Code	BMI01229

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Summary

A Critical Time in Post-War Revival Iraq is currently at an important juncture in its post-war recovery. On the upside, increasing oil production is boosting economic growth, pushing the dinar higher and helping the government to consolidate its debt burden. In addition, the government is addressing key political issues such as insurgent activity and the sectarian divide, by leading military operations across Iraq and increasing political dialogue respectively. However, key risks - notably the recent increase in violence - remain, and have the potential to hamper Iraq's future economic prosperity and political stability.

While in our last two Business Forecast Reports we had been more positive about the domestic political situation, the recent escalation in violence in Baghdad, Basra and Mosul highlight Iraq's delicate security situation. In addition, the ongoing sectarian divide - especially with Kurdistan over the controversial oil law - remains a key issue that could potentially hamper further political unity. However, the government is looking to address these issues. It has started negotiations with the Kurdistan Regional Government, set a date for provincial elections and begun its final military operation to drive out al-Qaeda insurgents. In addition, on the foreign front Baghdad has seen strengthening ties with Iran as a positive step that will help to cement long-term political stability.

In an economic sense, Iraq's recovery looks set to continue over the coming years, on the back of a steady increase in oil production and further investment and aid boosting non-oil sector growth.

We therefore expect real GDP growth to average 8. % annually between 008- 01 , which will support gradual currency appreciation. We anticipate external debt - which we forecast to fall to 60.9% of GDP in 008 - to stabilise. However, Iraq's economy remains at the mercy of the unstable security situation, a fact highlighted by the strong economic performance seen in recent years in Kurdistan. The region has remained relatively isolated from the conflict seen across Iraq, which has helped boost foreign investment and led to higher GDP per capita.

The security situation also has a key influence on Iraq's business environment, with daily terrorist attacks continuing to hamper the government's efforts to encourage foreign investment. On top of this, a number of key areas - such as the legal system and investment regime - are in desperate need of reform as the current legislation is highly convoluted, drawing on a number of different sources from different eras. On the upside, the government is continuing to improve the physical infrastructure: it recently allocated an additional US$ bn - on top of the 008 budget - to promote reconstruction projects, and signed a deal to upgrade commercial aviation infrastructure. However, with the US estimating that around US$ 00bn is needed for reconstruction, Iraq has only just started on the long path to creating an investor-friendly business environment.

Content

Executive Summary
- A Critical Time in Post-War Revival
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Foreign Policy
- A Complex Relationship, but Ties Set to Remain Close
- While Iran's Stalling of The Fourth round of Talks with The US over Iraq's Security Could Potentially Destabilise
- Relations with Baghdad, We Expect The Two to Remain Close Allies Going Forward, Given The Recent Strengthening
- in Political and Economic Ties
- Domestic Politics
- Increasing Violence and Sectarian Divide Remain Key Risks
- The Recent Escalation in Violence, following The Government's Crackdown against Shi'a Militias, and The Ongoing
- Sectarian Divide, Remain The Key Political Risks to Iraq's Future Stability
List of Tables
- Table: Iraq Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Post-War Bounce to Continue Given Strong Oil Growth
- Iraq's Post-War Bounce Looks Set to Continue over The Coming Years, as Real Gdp Is Forecast to Grow by An Average
- 8.5% Annually, on The Back of Strong Growth in The Non-Oil Sector and An Even Better Performance in The Hydrocarbons
- Industry
List of Tables
- Table: Iraq - Economic Activity
- External Debt
- Economic Recovery to Contribute to Declining Debt Burden
- While We Expect Iraq's External Debt Burden to Rise Slightly over The Coming Years, Ongoing Economic Growth
- and High Oil Prices Will Mean That Debt as A Percentage of Gdp Continues to Fall
List of Tables
- Table: Iraq - Foreign Debt
- Regional Outlook
- Kurdistan - Reaping The Benefits of Security
- While Kurdistan Remains One of The Wealthiest and Most Investor Friendly Regions in Iraq, Which Is Keen to Attract
- Further Investment into Its Energy and Non-Oil Sectors, Ongoing Wrangling between The Kurdish Regional Government
- and Baghdad over The Unsigned National Hydrocarbons Law Will Continue to Obstruct This Goal
- Exchange Rate Outlook
- Gradual Appreciation Expected as Anti-Inflationary Tool
List of Tables
- Table: Iraq - Exchange Rate Policy
Chapter 3: Special Report
- Business Outlook for Global Frontier Markets
- Growing Fast on The New Frontier
- The 41 States That Bmi Examines in A New Report on Our Online Service May Make up Only A Small Slice of The World
- Economy, but They Possess Characteristics That Will See Them Gain Importance in The Eyes of Investors and Global
- Businesses over The Coming Years
List of Tables
- Table: Frontier Markets - Key Data and Projections for Top 10 Countries
- Frontier Investment
- Potential and Pitfalls
- The Spectacular Macroeconomic Performance of Frontier Markets in Recent Years Has Been Matched by Mildly
- Successful Efforts to Deepen Capital Markets
List of Tables
- Table: Gdp per Capita, US$ (in Order of % Increase)
- Table: Diversity through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- Laos
- Neighbouring Economies The Key to Growth
- Laos's Gdp Growth Has Been Boosted in Recent Years as Neighbours China, Thailand and Vietnam Compete for
- Its Natural Resources. Gdp Expansion in 2007 Has Been Estimated at 7.6% and We See Annual Growth Remaining
- above 7% for Our Five-Year Forecast Period
- Yemen
- Huge Potential, but Don't Bank on Gcc Membership
- Markets Do Not Come Much More Frontier than Yemen, and, as Would Be Expected, There Is Huge Potential for
- Development, with The Prospect of Eventual Gcc Membership Likely to Act A Key Investment Pull
List of Tables
- Table: Yemen Economic Activity
- Democratic Republic of The Congo
- Mining Industry to Drive Growth
- The Democratic Republic of The Congo's Mining Industry Will Be A Key Driver of Growth and Is Likely to Attract
- Significant Levels of Fdi, with Our Real Gdp Forecasts Standing at 8.3% and 7.9% in 2008 and 2009, Respectively
List of Tables
- Table: Democratic Republic of The Congo - Economic Activity
- Cuba
- Investment Prospects after Fidel
- The Accession of A New Leadership Structure in Cuba Has Sparked Excitement That The 45-Year-Old Trade Embargo
- with The US May Be Lifted and Cuba May Move toward Market Liberalisation
List of Tables
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals to Drive Economic Boom
- Mongolia Is in The Midst of A Massive Resource-LED Economic Boom That Should Lift Gdp Growth into The Double
- Digits and Underpin Robust Increases in Exports and Inflows of Foreign Investment Capital over The Long Term
List of Tables
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Iraq Business Environment
List of Tables
- Table: Bmi Business and Operational Risk Ratings
- Institutions
List of Tables
- Table: Bmi Legal and Framework Ratings
- Infrastructure
List of Tables
- Table: Middle East & Africa, Annual Fdi Inflows
- Table: Bmi Trade Ratings
- Operational Risk