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By Omar al-Shaher for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

According to an Iraqi financial expert, the value of Iraq’s federal reserves currently amounts to about $80 billion, following the recent increase in the country’s oil exports. Nevertheless, no information was made available by the Central Bank of Iraq (CBI) to this effect.

Speaking to Al-Monitor, Iraqi financial expert Hussein al-Asadi said, “According to my information, the value of Iraq’s federal reserves currently amounts to about $80 billion. This includes funds, precious metals and other items.”

Nevertheless, the spokesman for the CBI, which is charged with managing the federal reserves of Iraq, has yet to issue a statement in this regard. Meanwhile, Al-Monitor’s correspondent in Baghdad failed to obtain comment from the bank’s governor, Abdul Basit Turki, to this effect, or determine the identity of those authorized to speak to the media. The bank has only issued statements to comment on the developments of its work.

The last comment made by the CBI regarding the country’s federal reserves dates back to Jan. 31, 2012, when the bank denied the “decline of gold reserves.” The CBI stated, “They have been stable throughout the past months and amount to 29,730 tons.”

Asadi added, “The US dollar is the main currency in the Iraqi reserves. There are also some reserves in other currencies, in addition to gold. ... Due to the troubled military and political conditions of the country, Iraq’s reserves cannot be invested to a large extent, as is the case in China or the United Arab Emirates, for instance.”

“Iraq is distributing its reserves to a number of banks just to protect [these funds], although it does generate some interest on the deposits,” Asadi added.

By John Lee.

Iraq has selected five additional international oil companies to bid for the development of its $4.4-billion Nassiriya oil field and the construction of a new 300,000 bpd refinery, reports Reuters.

The companies added to the list are:

• France's Maurel et Prom;
• Russia's Rosneft;
• Essar UAE India;
• South Korea's GS Engineering & Construction Corp.; and,
• India's ONGC Bangalore.

The 45 firms already qualified from previous bidding rounds are eligible to bid, as are the seven companies shortlisted in March.

An auction for the contract is to be held on 19th December.

(Source: Reuters)

On Monday, the Central Bank of Iraq announced the increase of its US Dollar sales during Monday's auction after reaching  $16278000 last Sunday.

"The total US Dollars sold by the bank amounted to $288639000 at price of 1166 IQD per US dollar during the auction, which included the participation of twenty-four banks," CBI reported in a statement to AIN. 

"The price of the dollar sale and the remittances at the auction reached 1179 IQD against the US dollar. That included the commission of the CBI, which was up to 13 IQD per US dollar, while the US dollar buying sale reached 1171 IQD."

According to AIN, the CBI will continue buying and selling the US Dollar at the price of 1166 IQD within the same adopted commission.

(Source: All Iraq News)

By Omar al-Shaher for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Two Iraqi parliamentary committees monitoring fiscal policy in Iraq have held two contradictory positions on the Iraqi currency “reset” project, which would delete three zeros from the currency. There has been much debate about the project's feasibility and the date of its implementation.

While the parliamentary Economic Committee believes that the deletion of three zeros from the Iraqi currency would strengthen it, the parliamentary Finance Committee fears that this project would open the door to counterfeit operations.

In a statement to Al-Monitor, Mudher Mohammad Saleh, former deputy governor of the Central Bank of Iraq, warned against the consequences of such a step if it is not implemented at the appropriate time.

Abdul Abbas Shayya, a member of the Economic Committee in the Iraqi parliament, told Al-Monitor, “Reforming the management of the Iraqi currency now requires the deletion of three zeros. This has been endorsed by the parliamentary Economy and Investment Committee."

Shayya, an MP for the State of Law Coalition led by Prime Minister Nouri al-Maliki, added that the Economic Committee "asked the government and the Central Bank to quickly replace the current Iraqi currency with another that is less [in value] by three zeros."

"The Iraqi currency is weak, and the money supply has amounted to multi-trillions because of the existence of these useless zeros," he said. "The country will witness a significant increase in oil revenues, financial earnings and high budgets. Thus, we need to print new banknotes, as estimated by the Central Bank."

By Mark DeWeaver.

Since the beginning of 2012 the Iraqi dinar has been on something of a roller coaster ride. Changes in central bank policy combined with strong dollar demand from Iran and Syria have twice pushed the market rate above 1280. Both times, subsequent increases in dollar sales at the central bank’s currency auctions then steered the rate back toward 1200. (See chart. Data is from the Central Bank of Iraq website.)

In the most recent iteration of this cycle, the dinar appears to have gotten a boost from the Iranian election held on June 14. Hopes for an easing of US sanctions following the victory of moderate candidate Hassan Rouhani seem to have led to a significant drop in Iranian dollar demand both at home and abroad. The Iranian rial is reportedly up 20.7% post-election, rising from 36,200 to the dollar to 30,000. Iranians are now said to be selling down hoards of US dollar cash, the total value of which the Central Bank of Iran puts at USD 18 billion.

The effect on the dinar has been less dramatic but is still easy to see on the chart. The Iraqi currency rose 1.0% from June 13 to June 15 and was up 2.9% (to 1215) as of June 27.

How long this trend can continue remains to be seen, however. President Obama earlier this month signed an executive order that will take effect July 1 and is intended to increase the pressure on the rial.

Clyde & Co launched its inaugural Middle East Deal Study at an exclusive event hosted at the Ritz Carlton recently.

The study, the first of its kind in the region, analyses data from 86 of the Mergers and Acquisitions (M&A) and Joint Venture (JV) transactions the firm worked on in the region during 2012.

The study establishes a baseline for 'market practice’ in the Middle East, providing a unique insight into doing business in the Middle East, identifying trends and providing statistics. Interestingly, Joint Ventures remained as attractive as M&As in providing a route to market.

In fact, JV transactions occurred as frequently as M&A transactions which can be explained by the regulatory environment in the Middle East, where local partners and market knowledge is often required.

Overall, analysis of the deal study highlights an increase in market confidence, a rise in the use of the auction sale processes and an enthusiasm from new entrants trying to gain a foothold in the region. These elements have transformed the Middle East into a seller friendly market, with entrepreneurial businesses attracting international investors looking to access the Middle East market.

With possible reductions to the ‘barriers of entry’ in doing business in the Middle East market, brought about by either the new investment law which may increase foreign ownership limits or the eagerly awaited announcement by MSCI to upgrade the UAE and Qatar to emerging markets, has the potential to make the region even more attractive to international companies and investors.

This could have a positive impact on the regions deal market, invigorating the private sector to follow the upward investment trend seen through public sector spending in critical areas of the economy.

The study highlights that sellers and buyers should expect split signing and completion when doing an M&A deal. 31%of M&A deals took between three and six months to complete, bringing up a host of related issues such as walk away rights and management of the target during this period.

The study also found a clear tendency towards the use of English law, with M&A deals split between courts and arbitration (41% and 59% respectively) whilst arbitration remained the preferred forum for joint ventures (93%).

Philip O'Riordan (pictured), partner in Clyde & Co’s MENA corporate group, said:

"Globally, we see the importance of the public sector in stimulating growth and providing employment.

"The findings of the study show that regionally there is the emergence of a vibrant private sector, which we expect to grow on the back of increased public investment in critical areas of the economy such as energy, infrastructure and construction.

"We believe the deal study provides valuable information for any company planning and implementing a transaction in the region."

To request a copy of the deal study please email [email protected].

(Source: Clyde & Co)

By Omar al-Shaher for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Adil Abdul-Mahdi, the former Iraqi vice president who resigned from his post, vehemently criticized Iraq’s economic policy, describing it as a failure. Abdul-Mahdi warned that tampering with the balances of nature of the economy could lead to “tsunamis, desertification and misinterpreted fluctuations.”

Abdul-Mahdi is one of the most prominent figures of the Islamic Supreme Council headed by Ammar al-Hakim. He assumed the post of minister of economy during the mandate of former Iraqi Prime Minister Ayad Allawi, and was later appointed vice president before presenting his resignation due to political conflicts.

On his personal Facebook page, Abdul-Mahdi wrote about the dramatic fluctuation in the exchange rate of the Iraqi dinar against the US dollar since the beginning of April. “The high demand for the US dollar that we have seen for months has been widening the gap between supply and demand, at about $60 million-$70 million per day. A black market has emerged, in addition to two different exchange rates with a difference of 8%-10%.”

Since the beginning of April 2013, the exchange rate of the Iraqi dinar has entered a phase of decline against the US dollar, which hit its nadir last week when the dinar dropped from 1,200 per US dollar — the exchange rate registered in March — to 1,300 per US dollar.

Yet, the value of the dinar improved this week following news about a proposal presented by the parliamentary Financial Commission, which stipulates disbursing half of all state employees’ salaries in dollars.

By Omar al-Shaher for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Over the last few days, the government in Baghdad has been preoccupied with attempting to control the exchange rate of the Iraqi dinar against the US dollar. The rate has been dropping since April, reaching its lowest at the beginning of this week.

During the preceding week on the local market, the dinar dropped against the dollar from 1,200 to 1,300, widening the gap against the official exchange rate by 121 dinars.

The Central Bank of Iraq (CBI) sells one dollar for every 1,179 dinars to authorized banks, which then sell it for 1,189 dinars to citizens traveling for medical treatment. Otherwise, traders and others looking to buy dollars must enter a public auction for hard currency sales managed by the CBI. This is one of a series of measures overseen by the Interior Ministry.

The CBI, the country's monetary policy authority, recently held a series of meetings with members of the country's Parliamentary Presidential Board — which consists of Speaker Osama al-Nujaifi, First Deputy Speaker Qusai al-Suhail and Second Deputy Speaker Aref Tayfur — to explain how to deal with the decline in the local exchange rate.

In a statement issued on May 12 and obtained by Al-Monitor, the Iraqi legislature announced that the parliamentary presidential board had met that day with Abdul Basit Turki, governor of the CBI by proxy and head of the Supreme Audit Board. It also proclaimed:

“The Parliamentary Presidential Board expressed its full support for the CBI scrutinizing the private banks’ activity, archiving information and taking reform measures, which include controlling the exchange rate of the dollar, reducing money laundering and strengthening the CBI’s capacity in economic development.”

By Mark DeWeaver.

I thought Sansar Capital’s recent report on the Iraqi banks was excellent. But I was surprised by its somewhat negative take on North Bank (BNOR). In particular, I found myself not entirely convinced by the following three points, which form the basis for their bearish case:

1. Insufficient collateral for overdraft lending is a significant risk. Actually, this is only true if the bank has no ability to assess the cashflow situation of its customers. This is unlikely to be true of BNOR’s corporate overdraft clients, which include large cash-rich companies such as Asiacell.
2. The new Central Bank of Iraq (CBI) auction rules threaten the growth of BNOR’s forex business. This will only be true if the bank’s customers are unable to find a way around the rules. But in fact they have in the past displayed considerable ingenuity in adapting to the CBI’s ever-changing forex policies. It’s not clear why this time should be different.
3. The absence of auditors’ qualifications in the English translation of the 2011 annual report implies an effort to mislead foreign investors. Maybe. But in the bank’s favor, it’s worth pointing out that (1) these qualifications did not appear in the Arabic version of the 2012 annual report, (2) unlike most of the other banks, BNOR has at least gone to the trouble of having its annual report translated, and (3) when meeting with the bank’s management in person I have always found them to be extraordinarily candid.

In addition to this, the bank is one of Iraq’s best capitalized, being one of only three to have reached the CBI’s IQD 250 bn share capital target. It has also been one of the top performing names in the Iraqi market. Adjusted for capital increases, the shares have risen by over 250% since 2009.

What’s not to like?

By Omar al-Shaher for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

According to experts, the hard-currency auction governed by the Central Bank of Iraq (CBI) — the authority in charge of implementing monetary policy in the country — has ushered in the formation of financial groups, in which board members of Iraqi private banks are investing.

Every day since 2004, the CBI has held an auction through which hard currency is sold to banks, companies and traders in exchange for evidence of import and transaction receipts. The auctions aim to prevent market speculation and stabilize the exchange rate of Iraqi dinars to the US dollar. The CBI — which does not deal with individuals — sells $1 for 1,118 Iraqi dinars.

The exchange rate has been fluctuating following an arrest warrant issued against the former governor of the CBI, Sinan al-Shabibi, at the end of last year. During his term, Shabibi tightened the auctions as information leaked about smuggling money from Iraq to Iran to meet the latter’s needs for hard currency amid international sanctions.

As a way of dealing with the accusations, the CBI prohibited any bank or company with capital of less than $400,000 from taking part in the currency auction. Additionally, all participants had to submit their participations to the criminal division in the Ministry of Interior, the economic crime unit and the money-laundering division of the CBI for approval.