As U.S. businesses look around for new opportunities to expand internationally, they may not automatically think of Iraq. Yet as a result of recent developments, certain areas of Iraq, especially the Kurdistan Region of Iraq, are becoming promising emerging markets—areas that offer both profitable new markets for U.S. investors and exporters, as well as prime locations for manufacturers.

Last June, the Kurdistan Regional Government began utilizing an Iraqi pipeline that pumped nearly 100,000 barrels of crude oil a day from the Tawke and Taq-Taq oil fields to Turkey’s port Ceyhan. If the pumping operation proves successful, oil from the Kurdistan Region of Iraq will provide another source of crude for Europe—reducing the continent’s dependence on Russia. The pipeline will also serve as a continuing economic gateway between Turkey and Iraq, giving rise to supporting industries and a new level of consumer affluence. In addition, the Kurdistan Region of Iraq offers millions of acres of arable farmland, accessible water, sulfur, and other natural resources essential to building a diversified economy.

Although the conditions for investment are best in the Kurdistan Region of Iraq, the rest of the country is also improving. The people of Iraq are educated and ripe for hiring. “The Iraqis are a young, urban and literate people,” noted the Honorable John Sullivan, former Deputy Secretary to the U.S. Chamber of Commerce, during a panel discussion focused on Investment in Iraq at the Milken Institute Global Conference in Los Angeles. Many Iraqi citizens have lived in the U.S. or other Western countries, speak English, and have been trained in mathematics, science, and other technical fields.

Decades of under-investment in Iraq, particularly in the Kurdistan Region of Iraq, means that there is a huge potential for international trade and investment. Despite the current global economic recession, the International Money Fund (IMF) predicts that the Iraqi economy will grow by at least 7 percent for the next five years.

Iraqi business leaders are now investigating ways to leverage the country’s assets to become competitive in industries, such as agriculture, textiles, construction materials and chemicals—all of which provide a strong network of local vendors and service providers for foreign companies operating out of Iraq. Other areas ripe for investment include power generation, water, health, education, real estate development, and urban planning.

U.S.-based companies have already begun to trickle into Iraq. General Electric and Daimler Chrysler opened offices in Baghdad. A Turkish company recently won a contract to build a new communications tower in the capital; the Ministry of Health is soliciting tenders to erect a new hospital; General Electric sold $3 billion worth of turbine generators in Iraq; and Boeing signed a $5.0 billion commercial aircraft deal. Enterprises from Britain, China, France, Germany, India, Iran, Japan, Kuwait, South Korea, Qatar, Turkey, and the UAE have all established operations in Iraq.

In total, foreign companies have reportedly invested $910 million in private joint-ventures in Iraq, and investors, such as the Marshall Fund, a private equity fund launched by three former U.S. military officers that invests in non-oil Iraqi firms, added another $500 million for start-ups. In the Kurdistan Region of Iraq, the Marshall Fund has made investments such as its $6 million investment in a tomato paste factory, according to a recent article in The Economist.

The Iraqi government received nearly $100 billion in project proposals last year, including a $13 billion new port for the southern city of Basra, several hotels and thousands of housing units. Perhaps the most ambitious project, submitted by investors from Kuwait, Qatar and the United Arab Emirates, calls for an entirely new city to be built just outside the holy Shiite city of Najaf at a cost of $38 billion. World Bank Group supports efforts to attract private investment as one of its central strategies to creating jobs in Iraq.

Like any emerging market, logistical complexities do exist. The border crossing between the Kurdistan Region of Iraq and Turkey, for example, faces backlogs of 12 to 13 days. (The reason: while nearly 4000 trucks pass from Turkey to the Kurdistan Region of Iraq on a daily basis, only around 1,000 trucks are cleared for the return trip.) Insurance for shipping through Basra is currently prohibitively expensive. Poor quality roadways make travel difficult both within Iraq and between bordering countries.

To help overcome some of these challenges, conglomerates, like Iraq Logistic, have established networks of forwarders that combine a global worldwide network of members with local regional experience. Other companies, like Agility Logistics, have gained valuable experience in Iraq by providing logistics for the U.S. military and can pass that experience along to their clients. What’s more, the U.S. military has begun to help with some infrastructure improvements and by training Iraqi military personnel how to run logistics systems.

Potential investors have also voiced concerns over security, pointing out that many of the delays and inefficiencies in the Iraq supply chain are associated with this issue. Logistically speaking, one of the best ways to address the security issue in the near future is to create “trusted supply chains,” in which products are verified and tracked at a manufacturer or warehouse to a safe port of debarkation. Ground supply chains can be made much more efficient through public/private partnerships that certify cargos passing through the trusted supply chain and establish special “trusted border crossing” lanes for vehicles departing Iraq from certified trucking companies. Maritime supply chains can also be made more efficient through similar public/private partnerships that establish Basra as a “trusted port” that can maintain the integrity of certified shipments as they leave the country.

In the foreseeable future, the Kurdistan Region of Iraq will remain safer than the rest of the country; but security is also improving in the south. Internal security concerns remain more serious than external concerns. The regions around Mosul and Kirkuk remain the areas of greatest concern. For the most part, Iraq has good relations with its neighbors, although they remain wary of Iran. In the north, Turkey continues to have issues with separatist Turkish Kurds, yet it maintains surprisingly good relations with the Kurdistan Regional Government.

One final issue that impacts Iraqi development is the banking system. Known to lack transparency, Iraq’s financial system has dampened prospective investor enthusiasm in the past. In the last year or so, important first steps have been put in place to rectify some of the banking issues with the adoption of the Iraqi constitution and the national investment law. The Iraqi constitution protects property ownership rights for domestic companies, equal employment opportunity rights, and the right to transport goods and capital between regions—none of which existed under the Hussein regime.

While the use of credit cards and electronic transfers remains a challenge, I believe that online electronic transfer of funds for business transactions will be available shortly. In fact, Enterra Solutions International, LLC, which specializes in building sustainable markets in emerging countries, is working to incorporate this capability to our Iraqi business-to-business trading exchange (www.enterraoneworld.com). This past January, Enterra also worked with the Kurdistan Regional Government to launch the Kurdistan Business Center, which provides a single point of contact for investors and businesses seeking to operate in the region.

Overall, enterprise and small business in the Kurdistan Region of Iraq continues to flourish despite the economic climate impacting the rest of the world. In a speech delivered in London last May, Dr. Mostafa Al Bazergan, Chairman, Iraqi British Business Council, predicted that 2009 “promises to be a year of opportunities for foreign investors and continued prosperity for Iraq. The economic future of Iraq looks bright due to the ingredients of success it has in its strategic position, human and material wealth.” The best chance to achieve peace and prosperity in Iraq is to attract foreign direct investment. Although there remain risks to investments, it’s clear that business opportunities abound. wt



Stephen F. DeAngelis is Founder, President, and CEO of Enterra Solutions, LLC. He also serves as co-chair of the U.S. Chamber of Commerce’s Iraq Initiative as well as co-chair of its Kurdistan Region of Iraq Investment Taskforce.