Country Risk: Iraq

Official Name: Republic of Iraq
Time Zone: UTC+3

Internet Domain: .iq
International Dialing Code: +964

Table of Contents

Location and Size

Iraq is approximately 437,072 sq. km.; about the size of California. The country is bordered by Kuwait, Iran, Turkey, Syria, Jordan, and Saudi Arabia.

Government

Constitutional democracy and federal system of government. On October 3, 1932, Iraq gained independence from the League of Nations Mandate under British Administration. Several coups after 1958 resulted in dictatorship. The Coalition Provisional Authority (CPA) was established in 2003 under Multi-National Force – Iraq protections. On June 28, 2004, the CPA transferred sovereignty to the Iraqi Interim Government. A new four-year, constitutionally based government took office in March 2006, and a new cabinet was installed in May 2006. Branches include:

• Executive: Presidency Council (one president – Barham SALIH and two vice presidents); Council of Ministers (one prime minister – Adil ABD AL-MAHDI, two deputy prime ministers, and 34 cabinet ministers). The President is the Head of State, protecting the Constitution and representing the sovereignty and unity of the state, while the Prime Minister is the direct executive authority and commander in chief.
• Legislative: Elected 275 member Council of Representatives. At least one-quarter of the members of the Council of Representatives must be female.
• Judicial: Independent. The Federal Supreme Court is the highest court in the country, and the final authority on legal decisions. The establishment of the federal courts, their types, and methods for judicial appointments will be set forth by laws enacted by the Council of Representatives.

Legal System

Iraqi’s legal system is based on European civil and Islamic law under the framework outlined in the Iraqi Constitution. Iraq has not accepted compulsory International Court of Justice (ICJ) jurisdiction. (What does this mean?)

People

• Population (2018): 40,194,216
• Population growth rate (2018): 2.5%
• Languages: Arabic, Kurdish (official in Kurdish regions), Turkoman (a Turkish dialect), Assyrian (Neo-Aramaic), Armenian
• Literacy: 79.7%
• Ethnic Make-up: Arab 75%-80%, Kurdish 15%-20%, Turkoman, Assyrian, or other 5%
• Religions: Muslim 97% (Shia 60%-65%, Sunni 32%-37%), Christian or other 3%

Economy

Iraq’s present-day economy is dominated by the oil sector, which has traditionally provided about 95% of foreign exchange earnings. Iraq has the world’s third largest reserves of crude oil but attacks, corruption and smuggling have crippled exports. Current estimates show that oil production averages 2.1 million barrels/day.

Historically, Iraq’s economy has been heavily dependent on oil exports and an emphasis on development through central planning. Prior to the outbreak of the war with Iran in September 1980, Iraq’s economic prospects were bright. The Iran-Iraq war depleted Iraq’s foreign exchange reserves, devastated its economy, and left the country saddled with a foreign debt of more than $40 billion.

Violence and sabotage continue to hinder efforts to revive an economy shattered by decades of conflict and sanctions. However, insurgent attacks have decreased and the security environment is improving in many parts of the country. That is helping to spur economic activity.

The government is pursuing a strategy to gain foreign participation in joint ventures with State-owned enterprises. Provincial Councils are also using their budgets to promote and facilitate investment at the local level. The Central Bank has been successful in controlling inflation through appreciation of the dinar against the US dollar. However, Iraq’s challenge will be to use macroeconomic gains to improve the lives of ordinary Iraqis. Reducing corruption and implementing structural reforms, such as bank restructuring and developing the private sector, will be key to Iraq’s economic success.

• Currency: Dinar (IQD)
• Leading Markets (2018): US 43.5%, Italy 11%, South Korea 7.3%, Canada 4.5%, France 4.1%
• Leading Exports – Commodities: Crude oil 84%, crude materials excluding fuels 8%, food and live animals 5%
• Leading Suppliers (2018): Syria 27.6%, Turkey 20.6%, US 11.2%, China 6.2%, Jordan 4.7%
• Leading Imports – Commodities: food, medicine, manufactured items
• Top Industries: Petroleum, chemicals, textiles, leather, construction materials, food processing, fertilizer, metal fabrication/processing
• Top Agricultural Products: Wheat, barley, rice, vegetables, dates, cotton; cattle, sheep, poultry

Comparative Economic Indicators – 2018

*2017 estimates
**PPP – Purchasing Power Parity
Sources: CIA World Factbook and Coface Rating

Credit and Collections

ABC-Amega’s collection experience in Iraq

ABC-Amega does not provide collection services in Iraq at this time

Dispute Resolution

The law of domestic arbitration is fairly well developed in Iraq, however, international arbitration is not sufficiently supported by Iraqi law. Iraq has not signed or adopted the 1958 United Nations New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) nor the rules and procedures established by the UN Commission on International Trade Law (UNCITRAL).

Risk Assessment

Coface Country Rating: D ” A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high.

Coface Business Climate Rating: D ” The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.

Credendo Political Risk Rating: 6 ” High risk (1-7)
Credendo Commercial Risk Rating: C ” High risk (A, B, C)

Business Climate

The business environment leaves much to be desired and could undermine the country’s capacity to achieve an economic take-off. There are still many pockets of insurrection, particularly in some provinces: Nineveh, Kirkuk, Diyala, and Baghdad. The national elections scheduled for December 2009 could stir renewed tensions. Institutional weaknesses and a civil service still shaky and vulnerable to political, religious, and regional jockeying for influence can negatively affect payments and debt collection.

Transparency of Regulatory System: The Iraqi government is still in the process of establishing its National and Regional Investment Commissions as required under the National Investment Law, a year after the law was officially published. Once fully implemented, the law would establish a legal framework for investment. Even when the law is in effect and fully enforceable potential investors will still face significant hurdles in understanding the basic steps for starting and operating a business in Iraq given the complexity of Iraq’s existing laws, regulations, and administrative procedures.

Competition and consumer protection laws that are critical for leveling the business playing field in the market are needed. A competition law could help cut down on unfair business practices such as price-fixing by competitors, bid rigging, and abuse of dominant position in the market.

Patents and Brands: The government of Iraq is in the process of developing a new intellectual property rights (IPR) law in line with the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), but the exact structure of this and related legislation is still being determined. IPR protection functions are currently spread across several ministries.

Conversion and Transfer Policies: In practice there are no restrictions on current and capital transactions involving currency exchange as long as underlying transactions are supported by valid documentation. However, it is unclear whether currency convertibility is entirely free from exchange restrictions. The National Investment Law contains provisions that, once implemented, would allow investors to bank and transfer capital inside or outside of Iraq.

Economic Freedom: The 2019 Index of Economic Freedom of The Heritage Foundation has not determined economic freedom score for Iraq due to insufficient, reliable information. The Iraqi economy is slowing recovering from dictatorship, the war, and the economic crisis; however the country is still unstable. Iraq was last graded in the 2002 Index, when it received an overall 15.6 score (countries are scored on the basis of 0=least free up to 100=most free.

Corruption: Corruption in all areas remains a significant problem. Under Saddam Hussein’s regime, corruption was a fact of life for every Iraqi and touched upon every economic transaction. The former regime’s control of the economy left a legacy of heavy state procurement and subsidies distorting market prices.

Political Violence: Security continues to be the number one concern of the Iraqi Government and interested businesses. The security situation in Iraq remains difficult. Theft and violent crime persist, and the threat of attacks against U.S. citizens and facilities remains high. In addition, roads and other public areas continue to be dangerous for Iraqi and foreign travelers. Law enforcement is limited, although there is ongoing training and deployment of new Iraqi police units.

Business Protocol

Business Cards: Have one side of your card translated into Arabic.

Business Attire: Conservative, as in almost all Muslim nations.

Greeting: The most common business greeting is the handshake with direct eye contact. Handshakes can be rather prolonged; try not to be the first person to remove your hand. Men should wait to see if a woman extends her hand.

Conversation: The need to save face and protect honor means that showing emotions is seen negatively. Displays of anger are not acceptable. If you must show disapproval it is always best to do so one-to-one, quietly and with tact.

Always keep your word. Do not make a promise or guarantee unless you can keep it. If you want to show a commitment to something but do not want to make caste iron assurances employ terms such as “I will do my best,” “We will see,” or the local term “insha-Allah” (God willing).

Meetings and Negotiations: Iraqi business people are relatively formal in their business dealings. They are not, however, afraid of asking blunt and probing questions. These may be about you, your company or its intentions.

Due to the hierarchical nature of organizations and businesses, the leader of an Iraqi team does most of the talking for his company or department. Subordinates are there to corroborate information or to provide technical advice and counsel to the most senior Iraqi.

Decisions are generally made by the top of the company but this will be based on recommendations from pertinent stakeholders and technical experts who sit in on meetings.

Expect interruptions during meetings when phone calls may be taken or people enter the room on other matters. This should not be seen negatively; one should simply remain patient and wait for the focus to return to them.

Sources for further information on doing business in Iraq

Doing Business: Iraq – World Bank Group Flagship Report, 2019

The Embassy of the Republic of Iraq in Washington, DC (USA)
Ambassador: Fareed Yasseen

Embassy of the United States in Baghdad-Iraq
Ambassador: Douglas Silliman

Iraqi-American Chamber of Commerce & Industry

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countriesFor further information, contact [email protected].

This report represents a compilation of information from a wide variety of reputable sources.

Economic Indicators: Variety of sources including the CIA World Factbook, Coface Country Rating, Economist Country Briefings, Federation of International Trade Associations (FITA) Country Profiles.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Credendo

Historical Exchange Rates: OANDA.com The Currency Site.