Foreign Direct Investment in Iraq in 2024
Iraq has faced longstanding challenges in attracting foreign direct investment (FDI). Persistent security issues, weak institutions, and governance gaps have kept FDI inflows negative since 2013. In 2022, UNCTAD’s World Investment Report recorded a -USD 2 billion inflow, slightly improved from -USD 2.6 billion in 2021. Yet, recent data from fDi Markets reveals a potential turning point. During the first nine months of this year, Iraq attracted an unprecedented USD 24 billion in FDI. This figure more than doubles the previous record set in 2008, highlighting renewed investor interest.
Hydrocarbons remain a key driver of foreign investment in Iraq, with most FDI directed toward the oil sector. Oil exports serve as the foundation of Iraq’s GDP. Beyond oil, Iraq’s cement production and construction sectors present promising opportunities. According to the World Bank, Iraq needs around USD 57 billion for reconstruction. To meet this demand, authorities are working to attract international oil companies while also promoting investment in non-oil sectors. Key areas include construction, renewables, clean energy, and banking, all of which offer growing potential for foreign investors.
In Iraq, much of the non-state, non-oil economy is informal, cash-based, and vibrant. Iraq remains one of the most under-banked countries in the Middle East, cash transactions are prevalent, and much of the economy is dollarized. The Iraqi government is aware of the challenges this imposes for business and is taking some initial corrective actions.
Foreign Direct Investment in Iraq
Iraq administers foreign direct investments under its National Investment Law. Under Iraqi law, foreign investors are granted the same investment terms as Iraqi investors, with no cap on foreign ownership. However, Iraq’s National Investment Law restricts foreign ownership in natural resources, specifically in extraction and processing. Additional limits apply to foreign ownership in banks and insurance companies. The government also retains the right to screen foreign direct investments. Although Iraq is working to enact the necessary laws and build institutions, progress remains slow in establishing the frameworks needed for effective economic policy implementation.
Under the Iraqi Investment Law, foreign investors can enjoy various exemptions for qualified investments. These include a 10-year tax exemption, exemptions from import duties on essential equipment and materials, and waivers for taxes and fees on primary materials. Additionally, investors are permitted to repatriate capital and profits generated in Iraq. Foreign investors can also trade on the Iraqi Stock Exchange.
Hotels, tourist facilities, hospitals, educational institutions, and colleges benefit from extra exemptions on duties and taxes for importing furniture, tools, equipment, machinery, and transportation means. However, foreign companies selling goods or services in Iraq may still be subject to Iraqi taxes.
Investing in Kurdistan
The Iraqi constitution grants semi-autonomous rights to the Kurdistan Region (IKR), making it a popular entry point for foreign businesses in Iraq. The Kurdistan Region operates under a distinct 2006 investment law that offers foreign investors several incentives, including full property ownership, capital repatriation, and 10-year tax holidays.
The Kurdistan Board of Investment (KBOI) oversees licensing and promotes investment in key sectors like agriculture, manufacturing, and tourism. Additionally, the KBOI’s Foreign Direct Investment Unit supports foreign investors in navigating the Kurdistan Regional Government’s (KRG) bureaucracy and resolving any challenges that arise.
A key advantage in Kurdistan is that foreign companies can maintain 100% ownership, unlike in federal Iraq, where foreign ownership is capped at 49%. This autonomy and ownership freedom make the Kurdistan Region an attractive destination for foreign investment.
The Kurdistan government actively seeks to attract further investment, providing dedicated support to facilitate the investment process.
Challenges in Iraqi Investment Landscape
Investing in Iraq comes with a range of challenges. Common issues for both local and foreign companies include corruption, complicated business registration, customs and tax hurdles, selective regulation enforcement, dispute resolution difficulties, electricity shortages, and limited financing options. Iraq has slowly worked on enacting laws and developing institutions, but progress remains limited. Furthermore, political reforms are needed to help ease investor concerns about Iraq’s uncertain business environment.
Investors in Iraq should conduct thorough due diligence on local partners before making commitments. In Iraq’s honor-based culture, relationships are crucial, yet courts are often ill-equipped to handle commercial disputes that may arise. In a positive step forward, Iraq signed the UN Singapore Convention on commercial mediation in 2024.
The government is eager to attract more foreign direct investment in Iraq, yet persistent issues in security and political stability continue to deter investors. Security risks, including the potential resurgence of extremist groups, still disrupt business operations and trade routes, hindering economic growth. Despite Iraq’s abundant oil resources, energy shortages remain severe, with many regions facing blackouts up to 12 hours daily. Heavy reliance on oil—99% of exports and 85% of the national budget—leaves Iraq highly vulnerable to energy price fluctuations, according to the World Bank.
Key factors hindering FDI in Iraq include:
- Heavy dependence on the oil sector, leading to vulnerability in energy markets
- Slow, complex processes for resolving commercial disputes and securing timely payments
- An opaque regulatory environment that complicates operations
- Widespread issues in government contracts, licensing, and tendering processes
- Limited, underdeveloped banking sector and financing constraints
- Persistent security concerns, violence, and instability across various regions
Company Registration in Iraq
Foreign investors interested in establishing an office in Iraq or bidding on a public tender are required to register as foreign businesses with the Ministry of Trade.
- Private limited liability company (LLC);
- Branch office of a foreign entity; and
- Representative office of a foreign entity.
Digital Banking in Iraq and Investment Opportunities
Digital banking in Iraq will alter the behavior of both companies and consumers holistically. In Iraq, digital banking has transformed the way things are done.
Real Estate Market in Iraq
Iraq is ranked fourth among 14 countries in the Arab real estate market for 2024. The growth in the real estate market is driven by increased foreign investment and a growing population.
Investment Opportunities in Iraq
Iraq aims to boost the country’s economic performance through enhancing political stability and security, building and improving infrastructure, promoting investment in non-oil sectors.