Kurdish Stability Attracts Tourists, Creates Opportunities
BMI View : Whilst the opportunities from the rebuilding of Iraq and remedying the country's housing deficit are severely dampened by the poor business environment and security situation in the majority of the country, Iraqi Kurdistan is experiencing strong construction growth off the back of business and tourist demand. We expect the region to outperform the average 7.3% real construction value growth that we are forecasting in Iraq as a whole between 2013 and 2017.
The potential for the Kurdish region of Iraq to outperform the rest of the country's construction sector has been highlighted again after Dubai based Emaar Properties , in partnership with the construction arm of the K urdish Faruk Group Holding , reportedly signed on to construct a new tourist development. The US$2bn project near Dukan Lake , Sulaymaniyah Governorate will include hotels, restaurants and residential areas as well as cinemas and casinos, according to Herish Muharam Mohamad, chairman of Kurdistan Regional Government's investment board.
Seen as a stable and investment friendly region of an otherwise turbulent Iraq, the Kurdish region has been experiencing a boom in construction activity, buoyed by demand driven by the developing oil sector. In tandem with business demand, the Kurdish region has also seen its tourist numbers grow at astonishing rates, with Turks and Iranians crossing the border to take advantage of new shopping malls in Erbil and tourists from Iraq's South wanting to enjoy the relative calm that the region offers. This demand has attracted the attention of hotel majors Sheraton, Marriot, Hilton and Best Western, who all have new developments underway in the regional capital Erbil.
Construction demand in Erbil is robust according to the real estate services organisation Colliers International, which believes that 112,500 housing units are needed during the next five years, that demand for commercial space currently stands at 770,000m² and that the retail sector is currently also undersupplied. That said, with regards to the last point, Colliers also highlights that a glut of retail space is due to come online in the coming quarters. The picture overall is one of numerous opportunities.
|Kurdish Region Attracts Foreigners And Iraqis Alike|
|Kurdistan Tourist Numbers, 2007-2012|
Supply To Meet Demand
Serviced by the Erbil International Airport, which opened in 2005, the Kurdish region of Iraq has experienced a boom in tourist numbers. After a year-on-year increase between 2011 and 2012 of 23%, the aim is to attract 5mn tourists by 2015. In 2012, there were 259 hotels and 31,634 beds in the Kurdish region of Iraq. Whilst these numbers are up from 106 hotels and 10,451 beds in 2007, reported 100% occupancy rates in Erbil during the high season show that there is still a huge demand for tourist infrastructure. The new billion dollar development at Dukan Lake highlights this demand and how opportunities stemming from it are not confined to the regional capital. Reinforcing this, the development of Dahuk Governorate's US$400mn airport by Incheon International Airport Corp. to facilitate growing tourist numbers to the northern region of Kurdistan should see that region also develop its tourist infrastructure.
|Well Placed For Regional Tourists|
|Kurdish Region of Iraq|
Construction Sector Continues To Provide
The Iraqi construction sector, whilst plagued by Iraq's general business environment, is being kept afloat as the government attempts to rebuild the country's war ravaged and neglected infrastructure and remedy the chronic housing shortage. This mammoth task will continue to provide opportunities over the coming years and as such we currently forecast an average real growth rate of 7.4% between 2013 and 2017. Whilst risks in Iraq weigh heavy, as shown by major housing projects failing to come to fruition despite huge demand (such as in the case of the Besmaya housing mega-project on the outskirts of Baghdad), the lack of many of the risks affecting the rest of Iraq should see the Kurdish region outperform the already strong growth rates that we are forecasting for the rest of Iraq ( see, 'Karbala Project Not To Improve Housing Outlook' , 7 March).
Business Environment May Delay Take-Off
The Kurdish Regional Government has a fractured relationship with the administration in Baghdad, which is the major threat to our positive outlook for the region. Baghdad fears increased Kurdish autonomy, supported by Erbil's control over Kurdish oil. Disputes over remuneration for oil exports have led to the halting of the flow of oil south from Kurdistan. Whilst the failure to reach an agreement on oil payments between the federal Iraqi government in Baghdad and Kurdistan is not preventing major international oil companies (IOCs) from keeping the finances of the region in good shape, which will likely keep the construction pipeline well supported, the uncertainty over the long-term outcome of the dispute may deter investors. That said, with the much better security situation, ability to use international labour, transfer interest overseas and operate tax free for 10 years, Kurdistan presents an attractive destination for construction companies.