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By Mustafa Saadoon, for Amwaj Media. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

Will Kadhimi deliver Gulf investment to Iraq?

Prime Minister Mustafa Al-Kadhimi has paid his first official visit to Saudi Arabia as he continues his efforts to further cooperation with Iraq's Gulf neighbours.

The full report can be viewed here (registration required).

By Ali Mamouri for Al-Monitor. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

Iraqi prime minister makes first visit to Saudi Arabia

Iraqi Prime Minister Mustafa al-Kadhimi made his first visit to Saudi Arabia in an effort to enhance ties between the two countries.

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By John Lee.

Iraqi Prime Minister Mustafa Al-Kadhimi visited Riyadh on Wednesday on his first official visit to Saudi Arabia.

A session of talks was held between the Prime Minister and His Royal Highness Prince Muhammad bin Salman bin Abdulaziz Al Saud, which dealt with cooperation between the two countries.

The two sides agreed on the following:

1. Establishing a joint Iraqi-Saudi fund, the capital of which is estimated at three billion dollars, as a contribution from the Kingdom of Saudi Arabia in promoting investment in economic fields in the Republic of Iraq, for the benefit of the Saudi and Iraqi economies, with the participation of the private sector on both sides.
2. Cooperation in the fields of energy and renewable energy and activating and accelerating the joint action plan under the umbrella of the Saudi-Iraqi Coordination Council, with the need to continue cooperation and coordination of positions in the petroleum field, within the scope of work of the Organization of Petroleum Exporting Countries (OPEC), and the (OPEC+) agreement, with full commitment to the requirements of the agreement, the compensation mechanism, and all the decisions that have been agreed upon to ensure the stability of the global oil market
3. Completing the electrical interconnection project due to its importance for the two countries.
4. Enhancing coordination in the field of mutual support within the framework of multilateral diplomacy.
5. Enhancing investment opportunities for Saudi companies and inviting them to expand their activities in Iraq and in various fields, and in reconstruction efforts.

Bilateral agreements were signed that included:

1. an agreement to avoid double taxation;
2. an agreement for cooperation in the field of development planning for economic diversification and private sector development;
3. a cooperation agreement between the Saudi Contractors Authority and the Iraqi Contractors Union for the reconstruction of Iraq; and,
4. an agreement for financing Saudi exports to Iraq.

Two memoranda of understanding and cooperation were also signed:

1. a memorandum of understanding between the Iraqi Media Network and the Saudi Radio and Television Authority; and,
2. a memorandum of cooperation between the King Abdul Aziz House in the Kingdom and the National Library and Archives in the Republic of Iraq.

(Source: Office of the Iraqi Prime Minister)

By John Lee.

Prime Minister Mustafa al-Kadhimi has spoken of creating a "New Mashreq", to harness the broad common interests between Iraq, Jordan and Egypt in order to create a prosperous economic zone that will benefit all countries in the region and in which Iraq would play a major role.

Addressing staff at the headquarters of the Foreign Ministry in Baghdad, the Prime Minister said that, "Iraq also has multifaceted relations with the Kingdom of Saudi Arabia and with all other Gulf countries, and that the Iraqi government is proceeding with several investment projects with these countries in various sectors including agriculture, industry and energy."

He also pointed out that Iraq concluded a rail link agreement with Iran, which will connect Iraq with northern China and create new economic opportunities.

The Prime Minister added that Iraq must continue with this approach, face internal and external crises, and work to resolve them through multi-track diplomacy that responds to the developments of the new world.

"We have a comprehensive vision for resolving conflicts and building peace, and we call on internal and external parties to play it, and to move together towards achieving a comprehensive and lasting peace" concluded Prime Minister Al-Kadhimi.

(Source: Govt of Iraq)

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Market Review: "Market Roars Back to Life"

The market, after January's 9.3% sell-off, resumed the rally that was ignited by the 22.6% devaluation of the Iraqi Dinar (IQD) against the USD in late December, ending February with a bang! The market, as measured by the Rabee Securities RSISX USD Index, ended the month up 25.7%, and is up 14.1% for the year.

February saw a resumption of the trends that drove the index's rally of 8.7% (in local currency terms) in the immediate aftermath of the currency's devaluation, in which both daily turnover and foreign buying increased meaningfully month-on-month.

However, the crucial difference this time is that these trends lasted the whole month, and their momentum was sustained throughout. Average daily turnover, excluding block transactions, increased 189% over the prior month and 145% over the average of the prior 12 months (first chart below). A similar pattern, but less dramatic, was the resumption of foreign buying in both absolute terms and as a percentage of total buying (second chart below).

(Source: Iraq Stock Exchange (ISX), AFC Research, data as of February 25^th)

While foreign buying in the leading names in the banking, consumer, and telecom sectors initiated the rally, it was local buying that extended and sustained it throughout the month. In particular, the Bank of Baghdad (BBOB) was up 69.2%, Baghdad Soft Drinks (IBSD) was up 30.7%, and AsiaCell (TASC) was up 24.6% - these three stocks accounted for over 90% of the index's gain and for the bulk of the daily turnover in the market.

Among the banking sector, BBOB's rally was joined by the low-priced Gulf Commercial Bank (BGUC) in which 4 successive increases in the minimum trading increment resulted in a 21.4% increase in BGUC. Other leading banks lagged significantly, such as Mansour Bank (BMNS) which was up 5.3%, the National Bank of Iraq (BNOI), up 2.4%, and the Commercial Bank of Iraq (BCOI), up 2.3%. While IBSD was joined by Al Mansour Pharmaceuticals (IMAP), up 15.2%.

The initial post-devaluation rally in late December and the strong follow-through in February suggests that that the market is primed for a rally following a brutal seven-year bear market - that even after its February gain, the market, as measured by the Rabee Securities RSISX USD Index, is still down by over 63% from its 2014 high.

The market's narrow breadth notwithstanding, the fact that the gains were made by the leading names in their respective industries is promising for the rally's continuation. For such a continuation to be sustainable, it should unfold over the next few months and come with a broadening of market breadth as other stocks begin to contribute to the market's recovery from its deep downturn. However, this recovery's pace is likely to be uneven with plenty of zigs and zags along the way.

It was argued here, post the currency's devaluation that:

"While the devaluation is an adverse event, the reaction of the equity market and the increased foreign participation indicates that the change is positive for equities. While the missing pieces of Iraq's re-rating are many and will take time to materialize, this positive reaction to the devaluation suggests that the event might start the process of Iraq's re-rating - which from a long-term perspective is positive for the equity market."

One of these missing pieces is the role that oil prices play in the foreign perception of Iraq contributing to foreign fund inflows, and more significantly, the role oil prices play in driving Iraq's economy and thus corporate profits.

Oil prices by the end of February staged a remarkable recovery of over 300% from the depths of the price collapse last April, in which the COVID-19 induced worldwide lockdown magnified an earlier crash in prices brought on by the price war between Russia and Saudi Arabia. This recovery was driven by the reversal of these same forces to hopes of a successful COVID-19 vaccination roll-out, and by extra production cuts over two-month of a further 1 mln barrels a day by Saudi Arabia, bolstering the remarkable cohesion of the OPEC+ agreement to cut oil production by an estimated at 12% of world oil supply last April 2020 - an agreement driven by self-interest and commercial logic just as was argued here last March soon after the initiation of the price war that:

"... while both combatants on paper have the resources to wage the price war, yet the effects of the 2014 price-war on both were profound which led to an unimaginable alliance in the first place. Given that effects of a new price war will be equally profound, it seems logical that political considerations will ensure that such war does not last, and that just as political reasons led to the price war, that subsequent ones will end it."

The availability of more than one effective vaccine for the COVID-19 pandemic bolsters the potential for a synchronised developed world economic recovery in the second half of 2021 and into 2022 - a recovery supported by unprecedented worldwide fiscal stimuli to the global economy, as well as continued adherence of OPEC+ to the production cuts - cuts that should last into year-end with a potential extension into 2022. This combination would argue for Brent crude prices to average in the range of USD 50-60 per barrel in 2021, and a range of USD 60-70 per barrel in 2022 - a case more promising than, but which nevertheless builds on the case made here in April 2020 that:-

"The known nature of the virus precludes a return to full normalcy when global lockdowns are expected to ease from mid-summer onwards. Combined with the unknown nature of the new normal as the world learns to deal with and ultimately contain the virus, the return to a pre-virus oil demand picture is unlikely within the next 12 months. But, in six to nine months demand for oil should recover from the extreme lows of April and trend upwards to a small drop from base-line demand by year end.

However, with a return to some sort of post-lockdown normalcy in early 2021, low oil prices should stimulate demand, and coupled with the massive worldwide fiscal stimuli to the global economy should begin to recover. Following a time-lag, as demand absorbs the stored supply, the supply-demand picture should be tilted in supply's favour, and oil prices will trend higher - likely to a price range of USD 45-55 per barrel for Brent crude."

Brent Crude Prices 2016-2021

(USD per barrel)

(Source: Bloomberg, data as of March 1^st, 2021)

Such a scenario is extremely positive for Iraq and its equity market given the country's extreme dependence on oil revenues, which historically constituted over 90% of government revenues. Given the dominance of the economy by the state - as the largest formal employer, and through its direct and indirect control of the largest economic activities - means that higher oil revenues will feed into increased consumer spending and to a revival in said economic activities.

Such a revival will sustain the recovery in economic activities that have returned to levels meaningfully above those that prevailed just before the nationwide lockdown last March, as seen from Google mobility data (below chart). In particular, activities in the crucial sectors of retail and grocery have recovered to between 20-60% above the levels that prevailed pre-lockdown. The sharp decline at the end of February is due to the new rolling lockdowns from Friday's to Sunday's, cutting the workweek to four days, in response to the emergence of a potential new wave of the pandemic.

(Baseline is the median, for the corresponding day of the week, during January 3^rd - February 6^th 2020,

Source: Google, data as of February 21^st)

Please click here to download Ahmed Tabaqchali's full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years' experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS), and an Adjunct Assistant Professor at AUIS. He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

By John Lee.

Iraq continues to be listed as "not free" in Freedom House's latest Freedom in the World index.

Scoring 29 points from a possible total of 100, Iraq does, however, rank considerably better than neighbouring Iran (16), Saudi Arabia (7), and Syria (1). Jordan scores better with 34, while Turkey also comes in ahead with 32.

The Freedom in the World index, which has been published since 1973, assesses the condition of political rights and civil liberties around the world.

(Source: Freedom House)

The Foreign Minister Receives Secretary General of Gulf Cooperation Council of Arab States to Discuss Gulf Investment in Iraq

Iraq's Foreign Minister Mr. Fuad Hussein has this week discussed investments in Iraq with the Secretary-General of the Gulf Cooperation Council, Dr. Nayef Al-Hajraf.

During the meeting, issues of concern to the Gulf Cooperation Council and Iraq were also discussed, as the Minister welcomed the results of the Al-Ula summit and the return of normal relations between the Kingdom of Saudi Arabia and Qatar, indicating that the natural relations between countries in the region effects positively the Gulf countries and Iraq.

The two sides also discussed economic issues with the Gulf states, and the issue of electrical interconnection and the war against terrorism in addition to preparations for holding early elections in Iraq, and cooperation and coordination in building good relations with regional countries.

On his part, the Secretary General of the Gulf Cooperation Council, Dr. Nayef Al-Hajraf, stated that the Cooperation Council is keen to strengthen relations with Iraq, pointing out that the electrical interconnection program is one of the most important projects that will benefit all.

Mr. Al-Hajraf stressed that the stability of Iraq has positive outcome for the security of the region, and that the Gulf states support the stability of Iraq in its war against terrorism and drying up its sources, indicating that the Iraqi government is capable of extending the law.

(Source: MOFA)

By John Lee.

Prime Minister Mustafa Al-Kadhimi received a delegation of Saudi officials and business people in Baghdad on Monday.

Among the visitors was the Saudi Minister of Commerce, Acting Minister of Media, and Chairman of the Saudi-Iraqi Coordination Council, Dr. Majid bin Abdullah Al-Qasabi.

The delegation included businessmen representing 22 Saudi companies.

During the meeting, they discussed issues of common interest between the two countries, and ways to support and enhance them in all fields.

The two sides also signed an agreement to establish a metal silo to store wheat in Al-Diwaniya province, and a hospital in Al-Saqlawiya, Anbar province.

(Source: SPA)

By John Lee.

The Governor of Najaf governorate has announced a new road project linking the governorate with Saudi Arabia.

Luay Al-Yassiry (pictured) is quoted as saying that the project will include the paving a 239-kilometer road, and the building of border outlets and areas for trade.

The first phase of the project includes paving 20 kilometres of the road, with the construction of a 288 metre-long bridge in Wadi Hasab.

The Arar border crossing linking Iraq and Saudi Arabia reopened last month following a 30-year closure.

(Source: Middle East Monitor)

By Adnan Abu Zeed for Al Monitor. Any opinions expressed here are those of the author(s) and do not necessarily reflect the views of Iraq Business News.

Will reopening of border crossing drive Saudi investment in Iraq?

The recent reopening of the Iraqi border crossing of Arar with Saudi Arabia  in a bid to enhance trade exchange between the two countries coincided with talks about the Saudi agricultural investment project in Iraq.

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