Our comprehensive assessment of Iraq's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Iraq, as well as the latest industry developments that could impact Iraq's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Iraq before your competitors.
Iraq Country Risk
Islamic State will remain well entrenched over the coming year, and Iraqi security forces (ISF) and its allies will focus on re-conquering the Anbar province. Iraq will maintain formal unity within a fragile federalised state over the coming decade, with the Kurdish region retaining significant autonomy but not outright independence.
Stronger headline growth of the Iraqi economy in 2015 will result from accelerating oil exports. Conversely, domestic expansion will be sluggish and uneven; consumer spending and capital formation will be hit hard by political instability, and declining oil prices will hinder the government's ability to prop up spending.
Major Forecast Changes
The Iraqi Central Bank will devalue the Iraqi dinar by 7% in H216, as pressures on the country...
Iraq Operational Risk Coverage (9)
Iraq Operational Risk
Iraq Operational Risk
BMI View: Iraq is a logistics underperformer in the MENA region, with the country's poor supply chain connections posing a range of risks to business operations. These mostly stem from the chronic instability which has been a feature of Iraq's recent history. The expansion of Islamic State into Iraq throughout June 2014 is not likely to cause significant disruption to oil production and exports, but the rise in sectarian violence does pose a threat to Iraq's economic growth. It has also increased the risk of utilities shortages, with the electricity and water supply already failing to meet demand. Much of the country's north and west has been left inaccessible, while the transport network has already suffered from damage and neglect in the period following the US-led invasion of 2003,...
Iraq Crime & Security
Iraq Crime & Security
Iraq is one of the most unsafe locations in the world for foreign businesses and workers. An extremely strong threat of terrorist activity, crime, and violence pervades Iraqi society, and there is also an inefficacy and ineptitude on behalf of the Iraqi security forces to combat such threats and provide security to Iraqi civilians and foreign nationals travelling in Iraq. In the BMI Crime and Security Risk Index, Iraq has the third lowest score in the MENA region, and the fourth lowest globally, at 6.6 out of 100, placing it among the most dangerous countries in the world including Sudan, Afghanistan, and Syria.
By far the biggest security risk affecting Iraq is the threat of terrorism. The resurgent terrorist groups that have been resourced and fuelled by the Syrian civil war have motivated themselves to vastly increase the number of violent attacks they carry out in Iraq over the past 18 months. This has culminated...
Iraq Labour Market
Iraq Labour Market
BMI View: The US-led invasion of Iraq in 2003 has caused a cascade of problems which have decimated the country's labour market. The education system suffered severe infrastructural damage, while many teachers and academics were killed or forced to flee. The current governmental and humanitarian crisis has further exacerbated the instability of the Iraqi labour conditions. Consequently, both access to schools and the quality of education is poor, lowering the overall skill level of the labour force. A lack of job creation has also resulted in high unemployment, while preventable diseases and unexpected injuries are highly likely to affect the workforce. The country's main mitigating factors are its large unskilled labour force and low employment costs, which benefit...
Iraq is affected by several logistics risks, not least the unreliability of its electricity supply, the inadequacy of transport infrastructure, and the prohibitive cost of international trade. All of these factors increase the risk for investors and businesses looking to enter the Iraqi market. These risks are mitigated somewhat by the size of the Iraqi market, as it is forecast to grow strongly in its reconstructive phase following the 2003 incursion. Overall Iraq scores 41.8 out of 100 in BMI's Logistics Risks Index, placing it in 15th position regionally out of 19 countries. That it is sitting marginally above poverty-stricken Algeria and Yemen, and conflict-wracked Libya and Syria, is representative of the severity of the operational risks posed by Iraq's limited transport and utilities infrastructure and complex and costly trade bureaucracy.
The quality and extent of Iraq's transport infrastructure is erratic. The...
Iraq Trade & Investment
Iraq Trade & Investment
Iraq represents huge potential for trade and investment. It is currently generating up to IRD10bn a month from oil exports, a figure which could easily treble by the end of the decade. Further massive revenues are expected from Iraq's infant gas industry, which will recover IRD10 million of gas per day once the planned capture programme comes on stream in 2014. On top of this, Iraq has not even started to mine the rich mineral wealth beneath its deserts and mountains, including gold and platinum. Simply put, Iraq is potentially one of the world's wealthiest nations and already has one of the fastest growing economies. However, at present Iraq is one of the regional underperformers for Trade and Investment Risks, due to the lack of rule of law and weak financial sector. Its score of 31.2 out of 100 places it in 5 th lowest position out of 18 countries in the region, slightly ahead of neighbours Iran and Syria. However, Iraq could still be seriously...
Iraq Industry Coverage (9)
BMI View: Iraq's car market will only slowly return to growth, as the ongoing security concerns and low levels of private consumption mean there will just be a low base that results in a 2% increase in 2016.
|f = BMI forecast. Source: Renault, BMI|
We do expect a return to positive sales growth in 2016, although this will be a relatively small increase of 2.0%.
Defence & Security
Iraq Defence & Security
BMI expects the Iraqi defence budget to be worth USD25.7bn in 2015, which is a significant increase on the USD22.2bn expected by the end of 2014. Despite a slight improvement in the domestic situation on the previous quarter, as a result of international support to shore up the government and the security forces, BMI expects Iraq to be plagued with governance and security difficulties for the foreseeable future.
We have given Iraq an overall security risk rating of 27 for Q115. To us, it seems evident that Iraq's greatest security risk is terrorism, both domestic and international, leaving it with a score of mere 16 out of 100 for Q115. That said, we think that the country is also affected by wider interstate tensions occurring across the Middle East and that its weak governance and security architecture leaves the domestic scene vulnerable to the power play politics of external actors, Notably...
BMI View : The dire security situation and weak government spending capabilities will deter investment into Iraq's construction sector in the medium term. On a positive note, the country is actively seeking FDI into its hydrocarbons industry and gas pipeline infrastructure. Meanwhile, the project pipeline remains swollen with large developments, but the investment and operating environment make it challenging to conduct business.
Latest Updates And Structural Trends
Security and macroeconomic headwinds facing the industry are...
Iraq Medical Devices
BMI View: We forecast that the market will experience moderate growth. The instability of the political environment, declining oil prices and a lack of healthcare facilities are likely to affect market competitiveness. As there is very little domestic production, the market is heavily reliant on imports, which have experienced strong growth in recent years but are declining in 2015.
BMI View: The mining sector of the Middle East and North Africa will see strong growth in over the coming years, especially given easing sanctions on Iran. With low base effects, governmental will to increase non-oil revenues and significant resources it appears the region is set for strong growth. We highlight Turkey and Northern Iraq as key areas for growth. That said, the region will remain peripheral in the global mining sector as it continues to underperform due to political instability in much of the region.
The key issue in the Middle East's mining sector presently is Iran's ongoing negotiations with Western powers. Our core scenario is for sanctions to be eased from Q116 which will have be a game changer for the country's beleaguered mining industry...
Oil & Gas
Iraq Oil & Gas
BMI View: Powerful oil production growth realised in 2015 will come to an abrupt slowdown over the coming years as lower oil prices subdue the governments' ability to reimburse development costs. Natural gas imports from Iran from 2016 will play a significant role in meeting pent up demand from the power sector.
Pharmaceuticals & Healthcare
Iraq Pharmaceuticals & Healthcare
BMI View: Iraq's pharmaceutical market will remain unattractive for multinational drugmakers over the medium term. The government is devoting a greater proportion of fiscal resources to strengthen Iraq's political and economic institutions, which are currently under an immense threat of collapse. This reflects volatile oil prices and the growing threat of Islamic State. This situation has created severe funding shortages to Iraq's healthcare sector, and many donor-funded health programmes have been forced to close, leaving a large number of citizens without access to urgently needed health services and medicines.
Headline Expenditure Projections
Pharmaceuticals: IQD1.89trn (USD1.59bn) in 2014 to IQD2.02trn (USD1.67bn) in 2015; +6.6% in local currency and +4.6% in US dollar terms....
BMI View: Iraq is fundamentally an attractive telecoms market owing to its large population, a mobile penetration rate of just 85%, and the recent allocation of 3G licences, but the emergence of Islamic State (IS) and falling oil prices are impacting the economy and weighing on mobile growth. BMI believes the short-term outlook for telecoms operators is grim, as these challenges are set to remain in place over the next year, at least. Nevertheless, over the longer term, we expect strong growth in the mobile sector, particularly for 3G services given the lack of affordable wireline broadband alternatives.
|Operators Under Pressure In The Challenging Environment|
|Quarterly Net Additions ('000)|
BMI View: We expect the majority of our forecast indicators to see a substantial decline over 2015 in the wake of IS' continued targeting of water facilities, and we do not anticipate a full recovery until the end of our forecast period. Should the conflict continue or intensify, with IS destroying facilities as opposed to capturing them, then this poses a significant downside risk to our forecasts.
ISIS still controls or has a presence near a number of key river dam water supply facilities across Iraq, particularly those on the major Tigris and Euphrates rivers, which represent Iraq's key freshwater resources. We see this as a serious risk both to...