Page last updated at 23:42 GMT, Thursday, 13 November 2008

Funds starting to flow into Iraq

Reconstruction in Iraq faces many challenges. But as the BBC World Service's Business Daily programme found, the hurdles are not just about violence, but also about bureaucracy and delay.

Iraq dock workers
Investment has been increasing as the security situation improves

Iraq desperately needs more foreign investment - and the downward slide of oil prices increases the pressure on a country whose government gets 90% of its budget from oil revenues.

But there are huge hurdles - the security situation, legal problems, political hold-ups and frustrating delays in getting government permission to start big new projects.

Fear of violence is still part of everyday life, but Sa'ad al Kawaz, the manager of an air-conditioning company, insists the situation is improving.

"Sometimes we cannot go out, because violence forces you to stay at home," he says, but demand for his product is increasing as more buildings, factories and hospitals are built.

"Iraq needs to be rebuilt and it is worth staying here and working and investing," he says.

Broad spectrum

The region around the southern city of Basra is key to the drive for new investment, because it contains 70% of Iraq's proven oil reserves and has direct access to the sea-routes of the Gulf.

Companies have to balance the risk and the opportunity
Michael Wareing
Basra Development Commission

Michael Wareing, the head of the Basra Development Commission, which is funded by the UK government, says investment interest has been growing as the security situation improves.

"We are involved at the moment with just under 20 individual companies, not just British, but also European and from the Middle East region," he says.

"A wide variety of industries are interested, not just oil and gas, and each company has its own concerns such as security in a local area, the availability of loans, and legal and contractual issues."

Many companies no longer focus on the security position and would be happy to invest in the country if it remains stable.

The big issue now is turning much more to the ability of the government to issue specific contracts.

Iraqi construction worker
Iraq offers opportunities other than oil and gas

"It's complicated," Mr Wareing says, "particularly on the larger projects, because they have to be approved locally and by central government."

"We are actually seeing a lot of tenders being issued at the moment and a lot of bids being made."

Government sweeteners

To encourage investment in the country, the government in Baghdad is offering companies tax-free status over 10 years, along with a promise not to nationalise them.

"We have been looking at state-owned industries where there is a need for investment to improve facilities, to improve manufacturing plants, so we have been looking at assurances in terms of the future intentions of the government," Mr Wareing says.

There remains however, a widespread perception that corruption is rife in Iraq.

Mr Wareing points out that companies are well aware of the challenges, including corruption, but as those companies operate all over the world, they do not compare operating in Iraq with the UK or the US.

If we continue to have a stable security position, there continues to be a lot of opportunity
Michael Wareing
Basra Development Commission

"They make a comparison with other countries where they currently operate, and that applies to both corruption and the security situation," he says.

The current financial upheavals around the world could deter investment in Iraq, however.

"Obviously companies have to balance the risk and the opportunity," Mr Wareing says, "particularly in the south around Basra, which offers both an international airport and ports leading to the gulf."

Rather than domestic politics or the credit crunch, the biggest challenge is getting through the contracts system.

"It's not surprising considering how young the current government is, both at a provincial and national level," he says, "but what's encouraging is that we are seeing a lot of contracts being awarded on a number of quite major projects."

"Providing we can continue to have a stable security position, there is no question there continues to be a lot of opportunity in Iraq," he adds.

The programme looking at this issue can be heard on the Business Daily podcast dated 10 November 2008

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