Foreign net buying of ISX-listed shares has been waning since the middle of last year. After rising from about IQD 900 million for all of 2010, average weekly net buying by non-Iraqis rose to over IQD 4 billion in the first half of last year but then declined to about IQD 2.8 billion in the second half. As of January 20, the year-to-date average is negative IQD 111 million.

You might think that foreigners are being scared away by the political situation. The chart tells a different story, however. The current drama in Parliament only really started in December. That was almost six months after the foreign net buying peak in early June.

The foreign pullback actually corresponds more closely to the drop in world markets occasioned by the start of the European crisis last summer. It is also noteworthy that the record IQD 17.2 billion in net foreign selling during the week of October 21 occurred just two weeks after the S&P 500 hit its low for the year.

Perhaps all that really matters for foreign inflows is the likelihood of another global financial meltdown. Too bad that scenario is still not really “off the table.”

A deal for US fighter jets and tanks will not be stopped by political instability, reports Al Jazeera.

The deal is reportedly for USD11bn-worth of weaponry. Since the US pulled out its remaining troops two weeks ago, violence has increased, arrest warrants have been issued against senior politicians opposing prime minister Nouri al-Maliki, and opposing factions have made demands for decentralising power to such an extent and in such a way that it would probably require amending the constitution.

Alexandre Vautravers, editor of Swiss Military Review, told Al Jazeera: “If the US did not sell weapons to Iraq, the weapons would still materialise, perhaps from Russia or China, or perhaps from Iran.”

Although the weaponry is advanced, it is not cutting edge. ”The types of weapons which have been sold, F-16s, M1 Abrams tanks, these vehicles, these aircrafts, have been designed 20 or 30 years ago.”

According to Vautravers, the US accounts for nearly 60% of arms sales to the Middle East.

(Sources: Al Jazeera)

Iraq’s stock exchange closed 34% up for the whole of 2011 due to the earliest foreign investors buying into Iraq’s growth story.

Undeterred by increasing security and political issues, and housing and power shortages, intrepid foreign buyers bought a net USD110m in shares this year in a market currently valued at $4bn. Next year will bring more of the same.

Sherif Salem, a portfolio manager with Invest AD, an Abu Dhabi investment company, told Reuters: ”We are still committed to the Iraqi market.” Invest AD has invested around $18m in Iraqi companies in just over a year.

Bartle Bull of Northern Gulf Partners said: “Iraq will be the fastest-growing important economy in the world by far for the next decade, and we expect to see this reflected in the country’s public companies.”

Banking dominates the exchange of less than 100 companies, but it also features insurance, industry, tourism, agriculture and even a carpet business.

Levels of violence rose in Iraq over the past week. Conditions are still quieter than July and June but they have been gradually worsening over the course of September. Last week saw a series of brutal attacks, mainly in the central region, affecting Baghdad and the provinces of Anbar and Babil. Mosul in the north of the country also experienced a series of bombings and shootings. Two kidnap incidents have also been reported in the country over the past 24 hours, following a lull in abductions recorded since the middle of August. AKE’s quarterly kidnap brief will be issued at the beginning of October. If you would like to sign up to receive a copy please enter your details here.

North
Shelling of the border areas by the Turkish and Iranian military continues in Kurdistan, with at least one civilian injured during operations last week. However, much of the region continues to function largely unaffected and Kurdistan should still be regarded as a stable investment climate. The neighbouring province of Ta’mim which holds the frequently hostile city of Kirkuk was relatively quiet. Instead, the more populous city of Mosul in nearby Ninawa province experienced the lion’s share of the region’s hostilities.

Weekly Attacks in Iraq - the last 6 months

Centre
A rise in the number of suicide attacks in the centre of the country has stoked concerns that radical Islamists are regrouping and increasing their efforts against civilians and the Iraqi security forces. A warning was issued by al-Qaeda in Iraq during Ramadan that it was ready to initiate many suicide bombings and the latest spree would indicate that it is making good on its promise.  The country has seen an average of one suicide attack per week in 2011, with at least 500 people killed and hundreds more injured by the tactic this year.

As previously outlined in Iraq Business News, gunmen attacked a minibus travelling from the predominantly Shi’ah city of Karbala to a Shi’ah shrine in Syria on 12 September. It was carrying a group of Shi’ah pilgrims when it was stopped, close to the junction town of Nukhayb in the sparsely populated but predominantly Sunni district of Rutbah. At least 22 of the male passengers were led away and then shot dead. Security measures have been heightened in the central provinces in the aftermath of the attack but the implemented procedures are not exhaustive and further attacks should be expected.

Shi’ah religious worshippers may be targeted over the coming days as many will be commemorating the anniversary of the death of Imam Sadiq, a revered holy figure. As previously reported, religious pilgrimages remain an attractive target for terrorists. The date falls on 25 Shawwal (23 September) and could see a rise in attacks on civilians gathered around mosques or travelling to shrines such as Karbala or Najaf. As well as the Nukhayb killings there has been at least one attack believed to have been targeting Shi’ah pilgrims over the past week. Caution is therefore recommended.

South
The southern provinces remained very quiet last week with no major incidents reported. Personnel still need to remain on guard, but conditions remain far more stable than the central provinces. Sporadic terrorist attacks may still occur, but the currently stable security environment bodes well for the numerous businesses looking to work in the region.

John Drake is a senior risk consultant with AKE, a British private security firm working in Iraq from before 2003. Further details on the company can be found here while AKE’s intelligence and political risk website Global IntAKE can be accessed here.

You can obtain a free trial of AKE’s intelligence reports here.
You can also follow John Drake on twitter here.

Khalil Bin Abdullah Al Khonj, chairman of the Oman Chamber of Commerce and Industry (OCCI) met Habib Yousr Al Hashmi, the Chairman of the Iraqi Businessmen Union, on Tuesday, according to Oman Tribune.

Al Khonji talked about exchanging visits and delegations to enhance trade and investment between the two countries, and in both the private and public sectors. He said that there was a relationship binding the nations together.

Al Hashmi highlighted the diverse trade, industrial and oil activities in the Al Basra Governorate, which seeks to attract companies from countries in the Middle East, rather than relying on the foreign companies already competing to take advantage of the Iraqi growth story.

The two business leaders also discussed exchanging expertise.

(Source: Oman Times)

The Iraq Future Energy Conference will be hosted in Istanbul, Turkey, from 26th September to 29th September.

There is a full programme to demonstrate how energy and infrastructure companies can take a piece of the projects worth tens of billions of US dollars.

Attendees can learn about the Ministry of Oil’s four-year plan ending in 2014, the reorganisation of the Ministry of Oil, new regulations related to energy, and on getting the balance between domestic energy needs and exports, and how the electricity and oil and gas sectors can help.

There will be talks from Shell, Total and StatOil on their own projects, and attendees will learn what is on offer in the fourth bidding round for oil and gas-related projects.

Other sessions cover Iraq’s ambitious infrastructure plans, including upgrading pipelines and building storage terminals, as well as information on the financing and how to overcome Iraqi bureaucracy.

And all that is just part of what’s happening on the first day of the conference. For more details, visit The Energy Exchange.

 By T. Keyzom Ngodup, co-founder and Executive Director at Ideas sYnergy, an Iraq based private sector development consulting company.

IRAQ INSIGHTS, published by Ideas sYnergy, aims to consolidate and build intellectual capital on private sector development, empowering stakeholders to address issues of access and structural reforms on a diverse range of topics impacting inclusive economic development in Iraq.                            

IRAQ INSIGHTS                 June 2011, Birds Eye View: Iraq’s Performance 

•  “Sowing the Oil”: Positive Trends in Economic Diversification
• 2011 “better” or “worse”?
• Access to Finance: Are Banks Bankable to Scale-up Intermediation?
• Transparency, Corruption & Media Freedom: A Deteriorating Trend
•  Foreign Commercial Activity in Iraq: 2010 Year in Review by Dunia Frontier Consultants 

 Iraq Insights by Ideas sYnergy_June 2011 Issue I

T. Keyzom Ngodup is co-founder and Executive Director at Ideas sYnergy, an Iraq based development consulting company committed to economic and social development through market-based solutions that help build and scale innovative businesses for sustainable and inclusive private sector development.

Recently ISX CEO Taha Ahmed Abdul Salam told reporters that foreigners now hold 19% of ISX-listed shares. (See this link.) This seems like a big percentage but in fact reveals that foreign institutional participation in the market remains quite limited.

As of the end of last month, strategic shareholders in the eight foreign-invested banks held 328 bn shares. (See Table. Figures for total shares are from the May ISX monthly report.) This number is 17% of the total for the whole market. (Doing the same calculation by market cap you get 22%.)

These investors are not really market participants. Most are large banking groups like HSBC, which owns 70.1% of BDSI, or National Bank of Kuwait, which owns 75% of BROI (the IFC owns another 10%). Their Iraqi bank holdings are not short-term punts but rather form part of a long-term business strategy. They are generally unlikely to trade and their holdings cannot be thought of as part of the free float.

The remaining share of only 2% for all other foreigners is actually a more interesting number than the 19% cited by the CEO. If this is also their share of total ISX market cap, their holdings would only be worth about US$ 76 mn. Considering that US$ 20 mn in assets under management is often cited as the minimum threshold for a viable fund-management business, it seems there can be no more than a handful of small foreign funds in the market so far.