Download Iraq Business Forecast Report Q2 2011 Brochure

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Iraq Business Forecast Report Q2 2011
Description:
Government Formation and Oil Output Gains Bode Well For The Economy Iraq continues to face significant
challenges, but the country has made some significant strides in recent months. Most importantly, the
country finally has a coalition government, after nine months of political gridlock, which will set the stage for
passing key legislation. Another remarkable success is the 10% rise in oil output reported by several
international energy companies at their respective fields in recent months, which bodes well for the fiscal
budget and the economy overall. That said, the country continues to face major obstacles, including political
wrangling within the cabinet, ongoing disagreements between Baghdad and Arbil (the capital of the
Kurdistan region), and security concerns.
Overall, though, our outlook on the country for 2011 has brightened since our last quarterly report, and we
expect the economy to expand at a healthy rate in the medium term. Iraq achieved a major political
milestone in December 2010 with the formation of a cabinet led by incumbent Prime Minister Nouri alMaliki, though we expect political progress to remain slow and stability to remain fragile. Disagreements
within the coalition were so great that candidates for three of the most important ministerial portfolios –
interior, defence, and national security, could not be agreed upon. The premier decided to hold the positions
temporarily until compromise candidates could be found.
Furthermore, security risks have returned to the fore, as attacks on Iraqi security and police forces, religious
groups, and politicians have become more prevalent in 2011. We expect Iraq’s economy to post healthy
rates of growth over the medium term, expanding an average 6.3% per year through 2015. Returns on
energy investment, healthy oil prices, and the promotion of non-hydrocarbon sectors of the economy are
the primary factors underpinning our view. The telecommunications, industrial, construction, and power
sectors are set to outperform, although for the time being we stress that the primary driver of growth will
remain the hydrocarbon sector.
Disputes between Baghdad and the Kurdistan Regional Government (KRG) are far from over, which bodes
poorly for foreign investment. The main differences surround the oil industry, as there is not yet a
hydrocarbons law or revenue-sharing legislation that dictate how oil contracts and revenues should be dealt
with. A disagreement regarding border demarcation of the Kurdistan region is also creating tensions, and a
planned census, which was to resolve the border issue, appears to have been postponed indefinitely. A
further issue involves disputes regarding the allocation of electricity between the northern provinces and
the rest of Iraq, which led to Kirkuk’s refusal to send electricity to the national grid for a few days in January
2011.
Contents:
Executive Summary
Government Formation and Oil Output Gains Bode Well For The Economy
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Government One Month On: Stability Risks Remain
While the Iraqi government has made some progress since its formation on December 21, we maintain our
view that substantial challenges and risks lay ahead
Table: Political Overview
Long-Term Political Outlook
A Brighter Outlook
Iraq is at its most stable since the 2003 US -led invasion, but the numerous challenges it faces present
significant risks that it could descend into chaos once again
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth To Depend On Continued Gains In Oil Sector
Iraq’s economy will grow an average 6.0% per year in real terms through 2015, with rapid expansion in the
oil and infrastructure sectors underpinning our view
Table: ECONOMIC ACTIVITY
Balance of Payments
Balance Of Payments On Stable Footing
Elevated oil prices, along with output growth, will keep Iraq’s current account firmly in surplus going forward,
and we forecast the current account surplus to average 2.5% of GDP through 2015
Table: CURRENT ACCOUNT
Fiscal Policy
Fiscal Gap To Widen Dramatically
Iraq’s fiscal budget will fall deeply into deficit in 2011, and we project the shortfall to widen to 10.2% of GDP
in 2011 from an estimated 3.6% in 2010
Table: FISCAL POLICY
Inflation
Inflation To Accelerate In 2
Iraq inflation will accelerate going forward, and we have revised up our 2011 average headline inflation
forecast from 3.1% to 5.3%
Table: MONETAR Y PO LIC Y
Chapter 3: 10-Year Forecast
The Iraqi Economy To 2020
Greater Political Stability And Solid Growth
We expect that Iraq will become an increasingly stable polity, setting the foundation for average real GDP
growth of 6.0% between 2011 and 2020
Table: Long-Term Macroeconomic Forecasts
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
Table: BMI Business And Operation Risk Ratings
Table: BMI Legal Framework Rating
Infrastructure
Table: Labour Force Quality
Market Orientation
Table: Middl e East and Af rica – Annual FDI Infl ows
Operational Risk
Table: Trade And Investment Ratings
Table: Top export destinations
Chapter 5: BMI Global Assumptions
Global Outlook
Growth Solidifies, But Inflation Poses A Threat
Table: Global Assumptions
TABLE: GLOBAL & RE GIONA L REA L GDP GRO WTH % CHG Y-O-Y
TABLE: CONSENSUS FORECASTS
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