Investment Funds Start to Target Iraq

The business community in Iraq, and internationally, is focused on the task of rehabilitating the oilfields and re-building the country. This is hardly a surprise; quite apart from the investments to be undertaken directly by the oil companies, Iraq’s National Development Plan foresees over $200 billion in investment in services, economic stimulus and environmental protection from 2010 to 2014.

For investors not directly involved in energy and construction, however, it has not been so easy to get exposure to the Iraqi economy. Yes, there is a stock market, but it is relatively small and companies tend to be thinly traded.

But as Mark DeWeaver, of Quantrarian Asia Hedge, points out, there are many parallels between Iraq and the frontier markets we have seen develop in recent years:

  • Like Sir Lanka after 2001, a civil war is coming to an end;
  • like Russia in the mid-‘90s, inflation has come down dramatically; and
  • like Taiwan in the late-‘80s or, even better, Saudi Arabia ten years ago, exports are set to soar.

If that’s really the case, and if the political factions can successfully conclude the ongoing election process in a peaceful and democratic manner, then it will be reasonable to expect the investment community to start taking more notice.

Both Northern Gulf Partners and Godvig Capital already operate Iraq-focused funds, while FMG’s Special Opportunity Fund will soon give exposure to shares on the Iraqi stock market, in addition to shares in companies that derive a significant part of their business from Iraq. The fund can also hold Iraqi dinars, dollars, euros, and bonds.

Clearly this is at the high-risk end of the spectrum, and although the minimum investment is just $10,000, the fund is restricted to high-net-worth individuals. But if Iraq can stay on track this may be the first of many investment products to benefit from Iraq’s future success.

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