Economy Starts to Hum, but Projects Need to Ramp Up

Consumerism is also clearly on the rise. Baghdad Soft Drinks, a distributor of Pepsi, reported a 28 percent rise in first quarter sales, while telecoms operator AsiaCell recorded an 18 percent rise in sales in 2012, with the number of customers up 12 percent. Both companies have rewarded investors with large dividend payouts, giving yields of 5.5 percent and 9.1 percent respectively.

With oil revenues rising, Iraq’s parliament passed the country’s biggest ever budget in early March, albeit following months of wrangling, mainly because of disputes over oil revenues between the Kurdistan Regional Government and the central government.

The $118.6 billion budget  for 2013 is 18% is more than last year’s, with 93% of revenue coming from oil exports. Some $45.5 billion has been earmarked for investment, with priority given to energy, security and public services.

Unfortunately, Iraq’s ministries have not had a great track record on disbursement, especially on “soft infrastructure” such as education, health and utilities – where around half of budgets in the last couple of years were not spent. In a chicken-and-egg scenario, these are the areas that ordinary Iraqis believe will most improve their lives, and help reduce sectarian tension, yet they are the hardest to implement because of political rivalry and the security situation.

If the government can turn this around and begin to roll out investment projects effectively, the positive economic developments may start to drown out the negative news.

Sherif Salem is portfolio manager at Abu Dhabi-based asset manager Invest AD. He manages the Invest AD Iraq Opportunity Fund, as well as helping to manage other equities funds investing in the Middle East and Africa.

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