By Robin Wigglesworth in London and Camilla Hall and
James Drummond in Abu Dhabi
Commerce in Iraq is forced to co-exist with extreme violence. When
al-Qaeda-linked militants attacked a church in Baghdad’s affluent Karada
district last year, resulting in scores of deaths, the Iraq Stock Exchange
opposite the church still opened its doors the next day.
The number of bombings and attacks has fallen sharply from the peak in
2006-2007 but Iraq still seethes with barely contained sectarian tensions and intermittent bouts of violence.
However, that is not deterring investment bankers hungry for potentially
lucrative mandates. Over the past year, a trickle of visits from intrepid
bankers has turned into a steady stream of senior executives from some of the
world’s largest financial institutions.
“The international banks can smell the opportunities,” says Shwan Taha, an
Iraqi who formerly worked for the family office of hedge fund manager George
Soros, and returned to Iraq in 2007 to set up Rabee Securities, now one of the
country’s largest brokerages. “More and more bankers are flying in, and more
will continue to come.”
The head of a major private security company says he has seen a noticeable
increase in visits by investment bankers in the past four to five months.
“We’ll provide access to secure accommodation and personal security details,
including close protection,” he says. “The biggest single threat to those kind
of people is really kidnap – that’s obviously a fairly nasty outcome.”
In addition, Iraq’s economy is expected to expand rapidly on the back of
heavy government investment in rebuilding the country.
It is primarily these rebuilding efforts that are enticing bankers. Some
estimate that the total bill for sorely needed investments in oil and gas
infrastructure, electricity, healthcare, sewage and roads will end up being more
than $500bn in the coming decades.
The tiny but growing Iraq Stock Market (ISX) is also attracting some
attention. It was opened for foreign investment in 2007, and in 2009 moved to
daily trading and introduced OMX’s electronic trading system. The total market
capitalisation of the 85 listed companies is still a minuscule $3.5bn but the
market has risen by about a third this year.
“We would like the ISX to become an integral part of the growth of Iraq,”
says Taha Ahmed al-Rubaye, the exchange’s chief executive. “For that we are
encouraging more companies to list and also educating the public and businesses
on the benefits of capital markets.”
Yet despite all its promise, bankers concede that Iraq is fraught with
Security is the largest concern. Baghdad remains riddled by checkpoints,
monstrous concrete barriers and barbed wire. “It’s a lot better than it was but
security is still a major problem,” concedes a senior American banker.
Iraq’s convoluted, dysfunctional politics is another obstacle. While an Iraq
Securities Commission has been established to regulate the capital markets, the
law that spells out those regulations is still awaiting its turn in parliament –
much like the long-delayed petroleum law that has stymied the development of
Iraq’s oil industry.
Banks also run the risk of falling foul of Iraq’s murky politicking, vividly
highlighted by a scandal at the Trade Bank of Iraq, set up and assisted by a
JPMorgan-led group of banks.
Hussein al-Uzri, the bank’s founder and chairman, was this summer forced to
flee the country after the authorities accused Trade Bank of financial
irregularities. Mr Uzri said the allegations were fabricated, and Sir Claude
Hankes, an independent adviser to the bank, sent a damning open letter accusing
prime minister Nouri al-Maliki of widespread “political corruption”.
One senior investment banker says his institution is staying out of Iraq due
to the “reputational risks” that can result from operating in the country.
Nonetheless, for many international banks contending with a bleak outlook in
more traditional markets, Iraq’s potential is simply “too big to ignore”, says
one senior banker.