A new survey of senior businesspeople by the Economist Intelligence Unit finds that investor perceptions of Iraq are slowly improving, despite the country’s many problems. Preliminary results from our survey of 300 executives – all of whom have direct input into their company’s decisions on doing business in the Middle East – show that the security situation remains the major deterrent to business. Indeed, 64% said it is still too dangerous to do business in Iraq at the present time. But more than half of those surveyed said their view of Iraq has become more positive over the past two years .
Moreover, most respondents expect the security situation for foreign executives and employees to improve over the next two years, with 46% saying it would improve somewhat and 9% saying it would improve significantly, despite the drawdown of Western troops. Just 10% expected it to worsen.
Other key findings include:
• Iraq’s capital holds great economic importance: Northern Iraq, where violence has been limited, is the region that investors view the most favourably, with 46% of respondents viewing it either highly favourably or somewhat favourably, while 20% view it unfavourably. Yet Baghdad, which has suffered far more violence, is viewed almost as favourably by our respondents, 46% of whom said they viewed it either highly favourably or somewhat favourably – illustrating the economic importance of the country’s capital.
• Sector analysis: 43% saw construction and real estate as the country’s most promising non-hydrocarbon sector, followed by consumer goods (23%), with healthcare and pharmaceuticals tying with chemicals for third place (18%) respectively. Media (4%) and retail (6%) were seen as the least promising sector.
• A country with significant opportunities: 45% of respondents judged that “The ongoing violence means doing business in Iraq will remain too risky for some time”. But nearly as many – 38% – see Iraq as “A country with significant opportunities for those who are willing to accept risks in the short-term”.
• Increased business dependant on issue of security: 40% of respondents are not currently considering doing business in Iraq but would do so if circumstances change. Those who are not currently doing business in Iraq emphasised that the most important factor in their decision is security.
• ‘Violence’ possesses most risk to businesses: The top three risks to business were judged to be violence (67%), corruption (44%) and the lack of infrastructure (35%). The next three were bureaucracy, lack of contract protection and credit risk.
• Iraq’s attractive resources: The most attractive aspect of Iraq as perceived by these executives was – unsurprisingly – the country’s oil and gas resources (cited by 56% as one of the top three attractions). 18% also cited other natural resources such as phosphates. The second and third biggest draws were the prospects of the untapped consumer markets and early-mover advantage. • Opportunity to make high returns: Among the 175 respondents who are doing or considering doing business in Iraq, the top reason cited was the opportunity to make high returns (49%), followed by the opportunity to reach a largely untapped consumer market (38%).
• Taking advantage of oil and gas resource: 25% were attracted by the opportunity to take advantage of oil and gas resources, while another 25% believed their company was well-placed to take part in reconstruction efforts. 23% cited the country’s important strategic location in the region, while 17% emphasised a desire to participate in Iraq’s renewal.
• Desire to renew Iraq: Among executives based in the Middle East, 27% cited a desire to participate in Iraq’s renewal – although the opportunities for returns and for reaching untapped consumers remained the first and second most important reasons respectively.
The full results of the survey also include a detailed analysis of how businesses from different regions of the word perceive Iraq – and what they believe should happen politically. The complete findings will form part of an extensive piece of research into business perceptions of Iraq, including in-depth interviews with key executives. This report will be launched at Economist Conferences’ Iraq Business and Investment Summit in Manama, Bahrain on September 29th 2010.