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Foreign Investment in Iraq: Now you see it now you don’t, March 25 2007

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Efforts to inject life into the small Iraqi bourse, the Iraq Stock Exchange, ISX, seem to have stalled again. According to informed sources, recently announced plans to open the exchange to foreigners will not take place in the near future despite the enacted foreign investment law. The small manually operated stock exchange which was opened June 2004 has been trying since to allow foreign investors to bye and sell sock of some 80 listed small companies in the exchange.



Despite recent proclamations by the chief executive officer of the exchange to the effect that procedures have been agreed upon to regulate the process, our sources say that many unresolved difficulties are more then likely to delay the much awaited opening up plan for quite some time.



Informed opinion say that the circulated procedures are crafted in such a way to make foreign investment in the ISX highly difficult and if adopted these procedures will repel foreign investors rather then encourage them. Venturing into the ISX is already a very risky proposition because the infant capital market of Iraq is highly unstable due to the ongoing war and the uncertainty of the future of the whole country itself. Non Iraqi investors are to provide a long list of documentary evidence of their status before they can enter the market, according to the circulated procedures. The procedures, according to one broker, are cumbersome, expensive and time consuming.



Moreover there are other more serious caveats. Careful reading of the Investment Law which was passed by parliament late 2006 shows that most articles of the law speak about regulation of direct foreign investment, that is investment in factories, agriculture etc. Such investments will be fully protected by the state of Iraq against nationalization and will be afforded tax perks for up to 10 years. Foreign investors are guaranteed the ability to take their profits out of the country at free will. But to benefit from such privileges and to be able to enter Iraq in the first place, the investor needs a license from a newly created Commission which oversees the process.



In only one odd article does the foreign investment law allude to investment in the financial markets of Iraq where it says foreign investors are allowed to buy and sell shares in the Iraq Stock Exchange. It does not say however, whether those wanting to invest in the ISX need or do not need, the prior license of the Investment Commission. It makes one wonder whether those who do invest in the capital market can freely take their money in and out of Iraq via the banking the system? Regulations of the Central Bank of Iraq are very cumbersome when it comes to taking out of Iraq any some of money in excess of $10,000.



Brokers who met the chairman of the Iraqi Securities Commission, the regulatory body that overseas the work of the ISX, last Thursday, say they went out of the meeting with the distinct impression that opening up the exchange to foreign investment will not happen any time in the near future. Among the many floating ideas in the meeting, one suggested that without automation and a central depository system, it was futile to make a hasty move of opening the exchanger for foreign traders. Concerns about money laundering were also raised, in addition to concerns about the security of the brokers who handle foreign traders. Foreign investment is seen suspiciously by many in Iraq, especially those who grew up in a closed culture of the old regime. Some say that foreign investment is tantamount to selling the assets of Iraq on the cheap. Similar concerns have strongly been raised about the yet to be enacted oil law which for the first time removes the monopoly of the state over oil exploration and development projects.









DISCLAIMER: This document has been compiled and issued by Kubba Consultants, which has obtained the information from sources it believes to be reliable, but Kubba Consultants makes no guarantee as to either its accuracy or completeness and has not carried out an independent verification. Kubba Consultants accepts no responsibility or liability for losses or damages incurred as a result of opinions formed and decisions made based on information presented in this report. This document is not an offer to sell or solicitation to buy any securities. The opinions and estimates expressed herein are those of the issuer.

© Kubba Consultants 2007



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