Investors across the world who are either already in Iraq or thinking about the many investment opportunities that exist in the war-ravaged nation have welcomed the news of Citigroup’s plan to open a branch office in Baghdad that will support its corporate customers and facilitate financial transactions.
Citi will be the first American lender in Iraq and its presence on the ground will make things a great deal easier for foreigners doing business in Iraq, says Rene Fijen, founder of Dutch transport safety firm Fijen BV, which has been active in the autonomous Iraqi region of Kurdistan for two years now.
“Having a large international bank like Citi on the ground is a great step forward for Iraq and for investors here, because it’s going to make it that much easier to get money in and out of a country where financial transactions are not easy, but where there’s a lot to be done,” according to Fijen. “Investors can now feel more confident that through a Citi, their transactions will be executed according to international standards.”
Fijen said Citi will expand beyond Baghdad to open offices in places like war-battered Basra in the South of Iraq, and Erbil, the Kurdistani capital, which is rife with opportunity. Fijen’s firm, in fact, has teamed up with Dutch public transport company GBV to bring bus lines to Erbil and Suleimani, Kurdistan’s other principal city.
According to The International Monetary Fund (IMF), Iraq’s economy is slated to grow by 9% this year and the Iraqi government plans to increase its budget spending by a hefty 18% to $118 billion this year. Many investors, however, are still leery of committing to the country.
“Iraq is increasingly getting attention but the lack of custody has not led to much follow through investment, so it’s still a story waiting to happen,” said Daniel Broby, CIO of London boutique investment firm, Silk Invest.
Kurdistan, on the other hand, is quite attractive, Broby said. The autonomous region is rich in natural resources, for one, with sizeable oil reserves (very soon, Kurdistan will begin exporting oil to Turkey). But more importantly, Kurdistan is a lot more politically stable than Iraq, Broby said, which makes it all the more attractive for foreign investors.
Fijen attributes that stability to the region’s history.
“The Kurds have suffered a great deal in history and now that suffering has resulted in a strong sense of wanting to work hard and become stronger and more powerful,” he said. “While in Iraq you have Shias and Sunnis and there’s always tension between them, in Kurdistan you have only Kurds, and because they were marginalized for so long, there is a real willingness among them to work together to build up their homeland.”
The Kurdistan Regional Government is very keen on attracting foreign investment into the region and has made a great effort to introduce liberal rules and regulations. Last year, around $5 billion poured into Kurdistan, from, among others, the Arab nations, Turkey and Lebanon.
Furthermore, a great number of young Kurds who grew up and studied in European nations like The Netherlands and Germany are now bringing their savoir faire to rebuild their homeland and more Europeans are also starting to look at the many opportunities in the region, Fijen said, which include investments in infrastructure and agriculture. “Just about everything needs to be done in Kurdistan,” he said.
To the extent that banking services can also improve, then things can only get better because one of the greatest drawbacks to doing business in Kurdistan is the fact that the region operates largely on a cash bank system. “That’s basically a couple of guys with plastic bags of money going back and forth,” according to Fijen, and only a few local banks are able to transfer money to and from abroad.
To have a large international lender present will considerably up the ante when it comes to investing in Kurdistan, Fijen said.
Overall, the financial services sector in Iraq needs some serious work. The banking sector does not have proper relationship banks and as such is not connected into the global financial system, Broby said.
The IMF has also emphasized the need for the Iraqi Central Bank to reinforce its capacity to conduct monetary policy and manage foreign exchange reserves.