Foreign direct investment (FDI) in Iraq

FDI in Figures

According to UNCTAD's World Investment Report 2023, FDI inflows stood at USD -2 billion in 2022, compared to USD -2.6 billion one year earlier. Since 2013 the FDI inflow has been negative, Iraq has had trouble attracting foreign capital because of its substantial security problems, fragile institutions and lack of governance. However, data from fDi Markets reveals that inbound foreign direct investment reached an unprecedented USD 24 billion during the initial nine months of this year, surpassing more than double the previous annual record set in 2008. Hydrocarbons continue to draw in foreign companies, and the majority of FDI goes to the oil industry.  In addition to the oil industry, the production of cement and the construction & public works sector offer interesting opportunities for investment. Iraq is estimated to require approximately USD 57 billion to address its reconstruction needs, as outlined by the World Bank. In pursuit of meeting these demands, authorities are actively endeavoring to attract international oil companies while also fostering investment in non-oil sectors, including construction, renewables, clean energy, and banking.

According to Iraqi law, a foreign investor is entitled to make investments in Iraq on terms no less favourable than those applicable to an Iraqi investor, and the amount of foreign participation is not limited. However, Iraq’s National Investment Law limits foreign direct and indirect ownership of natural resources, particularly the extraction and processing of any natural resources. Further restrictions apply to the ownership of banks and insurance companies. According to the National Investment Law, the Iraqi government reserves the right to screen foreign direct investment. Iraq is making slow progress enacting laws and developing institutions needed to implement economic policies. Furthermore, political reforms are still needed to assuage investors' concerns regarding the uncertain business climate. The Iraqi government is eager to attract additional foreign direct investment, but it faces several obstacles, including a weak political system and concerns about security and social stability. The security environment, including the threat of resurgent extremist groups, remains an investment impediment in many parts of the country.  Other lingering effects of the fight against ISIS include major disruptions of key domestic and international trade routes and the negative impacts on respective economic infrastructure. Iraq continues to face challenges in its operating environment, characterized by its heavy reliance on oil revenues, which constitute 99% of exports and 85% of the budget over the last decade, as noted by the World Bank. This dependency leaves the country vulnerable to fluctuations in energy prices. Despite its significant oil resources, Iraq grapples with energy shortages, enduring blackouts lasting up to 12 hours daily. Compounding this issue, approximately 40% of its electricity is imported from Iran, underscoring its energy scarcity. Attracting FDI is crucial to efforts to rebuild the country, particularly given the lack of local finance, but the country’s investment climate is attractive only to institutions with the highest tolerance of risk. Corruption, obsolete infrastructure, a lack of skilled labour and outdated commercial laws hinder investment and continue to constrain growth of private, non-oil sectors. Iraq ranks 154th out of 180 countries in the 2023 Corruption Perception Index, while it is not ranked on the Global Innovation Index 2023 and on the latest Index of Economic Freedom.

What to consider if you invest in Iraq

Strong Points

Iraq can be an interesting destination for FDI, as the country still needs investment in reconstruction and infrastructure development.
Among the country’s strong points:
- the national law on investments (NIL) comprises several exemptions for qualified investments, including a ten-year exemption from taxes and exemptions from import duties for the necessary equipment and materials
- in the coming years Iraq will have to implement several multi-billion dollar projects in numerous sectors, like security, energy, environment, construction, healthcare, tourism, agriculture, and infrastructure sectors
- investors can repatriate capital brought into Iraq, along with proceeds
- Iraq has the world’s fourth largest proven oil reserves
- a population of almost 40 million, with a young median age (less than 20 years).

Weak Points

The country has several factors hindering FDI, including:

- high dependence on the oil sector
- investors often find it hard to resolve commercial disputes and to receive timely payments
- the country’s regulatory environment remains opaque
- corruption, customs regulations, dysfunctional visa procedures, electricity shortages and lack of access to financing are all common complaints from foreign investors
- weak and limited banking sector
- corruption is widespread in government tenders and in the awarding of licenses or concessions
- violence and instability persist in many areas of the country.

Iraq ranked 168th out of 190 countries in the 2018 Doing Business report by the World Bank.

Government Measures to Motivate or Restrict FDI

The National Investment Law (NIL) was amended in December 2015 in order to improve the investment climate for FDI. The new provisions allow foreign investors to purchase land in Iraq for certain projects, and speed up the investment license process. Tax incentives include a ten-year exemption from taxes for qualified investments, along with exemptions from import duties.

The National Investment Commission (NIC) and the Provincial Investment Commissions (PICs) have been established to provide information, sign contracts, and facilitate registration for new foreign and domestic investors. The NIC can provide investors support in matters related to work permit applications, customs procedures and business registration.

On the other hand, as a result of popular protests, the Iraqi government has applied pressure on foreign companies to hire more of the local employees.