By John Lee.

The National Investment Commission (NIC) has announced the following investment opportunities:

  1. Chlorine production plant – State Company for Mining

(Source: National Investment Commission)

(Picture: Business opportunity word cloud, from ibreakstock/Shutterstock)

By John Lee.

The National Investment Commission (NIC) has announced the following investment opportunities:

  1. Rehabilitation of 8 factories – State Company for Glass and Refractories Industry (SCGR)

(Source: National Investment Commission)

(Picture: Business opportunity word cloud, from ibreakstock/Shutterstock)

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The market’s action in July was so quiet that it turned activities like watching paint dry into spectator sports, as the start of the peak summer and holiday season depressed trading volumes.

Nonetheless, the average daily turnover’s decline of −15% month-on-month did not erase the turnover gains made in the prior two months, small as they were.

For the month, the market, as measured by the Rabee Securities RSISX USD Index (RSISUSD), was down −4.40% and down −3.97% for the year.

The highlight of the month, though, was the release of the latest IMF country report for Iraq, in which the IMF updated its estimates, last made in the summer of 2017, for both the future economic outlook and for the last few years. The changes to its GDP growth estimates for the crisis years 2014-2017 were as follows:

Year 2014 2015 2016 2017
Old estimates +0.7% +4.8% +11.0% -0.4%
New estimates +0.7% +2.5% +15.2% -2.5%

While estimates for the years following the conflict changed as follows:

Year 2018 2019 2020 2021
Old estimates +2.9% +1.7% +2.0% +2.1%
New estimates -0.6% +4.6% +5.3% +2.6%

The main takeaway is that the crisis years were, on the whole, weaker than initially expected. While, 2018, the first year following the conflict, was the second year of a deep recession with a contraction of -0.6% on the back of the prior year’s -2.5% decline, instead of being a first year of an economic recovery, at +2.9%, following a shallower decline of -0.4%  -a message telegraphed by companies listed on the Iraq Stock Exchange (ISX) over the last two years. On the other hand, the expected recovery in 2019/2020 would be much stronger than estimated earlier with GDP growing at +4.6%/+5.3% instead of +1.7%/+2.0%.

Higher oil exports and the improved oil pricing environment, over the last two years, resulted in much higher government revenues, than estimated earlier, from 2017 onwards. This, with a long lag, is initially translating into increased consumer spending in 2019, given that the government employs over 50% of the working population. This, would then, be followed by the government’s investment spending powering the non-oil economy. Subsequently, the IMF’s new assumptions on non-oil GDP growth rates are crucial for the economy and the stock market. The IMF’s estimates for the severe contraction in non-oil GDP during the crisis years changed as follows:

Year 2014 2015 2016 2017
Old estimates -3.9% -9.6% -8.1% +1.5%
New estimates -3.9% -14.4% +1.3% -0.6%

Accordingly, the downward trajectory in 2015 was much steeper at −14.4% than earlier estimates of −9.6%, while the stability expected for 2017 was, instead, a double dip recession following the bounce in 2016. Also, the contraction lasted longer at four years than earlier expectations of three years. While estimates for the years following the conflict changed as follows:

Year 2018 2019 2020 2021
Old estimates +2.0% +3.0% +3.9% +4.0%
New estimates +0.8% +5.4% +5.0% +4.1%

Confirming the earlier message that 2018 was the second year in a contraction with the non-oil GDP dragging the overall GDP down, negating the strong contributions of higher oil prices and exports to the overall GDP growth. Subsequently, the expected recovery for 2019/2020 would be much stronger at +5.4%/+5.0% versus earlier estimates of +3.0%/+3.9%. The changes, for outlook for non-oil GDP growth, are consistent with the analysis, made here over the last few months, on the drag on the economy in 2018 and early 2019 as a result of the political paralysis before, during, and after the May 2018 parliamentary elections. A paralysis that would have ended in March as the 2019 budget was only passed into law in late February 2019.

Furthermore, the IMF estimates that non-oil investment spending for 2019 would be about USD 11.25bln, or an +8.5% stimulus to the new non-oil GDP estimate for 2019. It’s unlikely, that the government would be able to spend all of the budgeted amount in 2019, given the slow nature of investment spending, and the government’s historic under-execution of such spending. Which probably explains the IMF’s estimates for investment spending at about 13.5% less than that projected by the 2019 government budget.

(Source: IMF, country reports no. 17/251 and 19/248, Asia Frontier Capital)

On the heels of the new IMF report, the Ministry of Finance (MoF) data as of May, show a month-on-month growth in investment spending of +20%, but from a very small base, as the January-May investment spending is only about 8% of the non-oil investment spending budget of USD 11.25bln. Implying that most of the estimated +5.4% growth in non-oil GDP for 2019 would be backend loaded, and thus a much stronger growth is anticipated in the second half of 2019 than the first half. It will likely accelerate further in 2020, as the unfinished spending for 2019 spills over into 2020. The government has considerable firepower at its disposal to continue investment spending, even as it continues to under-execute, as the same MoF data for May shows a further growth in budget surplus for 2019 at USD 3.3bln, for a cumulative 29-month surplus of USD 26.5bln.

As postulated here in the past, this investment spending which started with a trickle in 2019, should grow as the full spending gets underway, carrying over into 2020, and ultimately would lead to a sustained economic recovery in line with the new IMF’s future outlook, or probably somewhat higher given the multiplier effects of such spending.

The news from the corporate world supports the economic picture painted by the IMF as evidenced from a number of corporate earnings reports for the second quarter. Pepsi bottler, Baghdad Soft Drinks (IBSD), continued its strong growth with revenues for the six months in 2019 up +3% over the same period in 2018, with its pre-tax profits for the same period up +9%. Telecom operators AsiaCell Communications (TASC) and Zain Iraq (TZNI) reported increased customers by 6% and 4% respectively for the six months in 2019 versus the same period in 2018. However, both revenues and earnings continued, for the same period, to show an industry in the early stages of recovery with TASC having flat revenues but earnings before interest depreciation and amortization (EBITDA) down −9%, while TZNI reported revenues declining −6% and EBITDA up +13%. Both companies cited increased competition and marketing costs.

Bank of Baghdad’s (BBOB) second quarter (Q2) numbers, marked a bank following through with the recovery that began in 2018, which, while confirming the initial signs of a gradual recovery in the sector, also disappointed local speculators who were hoping for a repeat performance of the first quarter (Q1). Deposits continued to grow at +4.3% for the first half of 2019 versus the same period in 2018, while credit growth continued to be negative at −1.4%- which is a slower rate compared with the past- and led to a drop of −27.1% in net interest income. FX income recovered +57.0%, which is an easy comparison given the severe drop seen in the same period in 2018, but nevertheless pointing to a stabilization in this income source. Commission income, continuing to rise in importance, was up +21.3%. Net income, while up +983% in the period or at over 10x the figure for the same period in 2018, while very healthy, was mostly achieved in Q1. Therfore, while Q2’s net income showed continued growth, it nevertheless poured cold water over speculative hopes for the bank to resume dividend payments for 2018’s earnings. It was these hopes that led to a +62.5% rally in the stock in May, which soon moderated to a decline of −12.8% in June, and declined a further −17.6% in July as the bank confirmed in its AGM that it would not pay dividends for the year. The stock’s closing price in July, is still up +16.6% from the April close before it started its wild three-month ride. While, BBOB pulled the other leading banks up with it in May, it did not drag them lower in June and July which is very different from the market’s responses to such disappointments in 2018. That time all banks were painted by the same brush, which shows a market that has begun to discriminate showing it has likely bottomed or is making a bottom.

Trading activity in August will likely continue to be in-line with that of July’s activity, as it is part of the peak of the summer season and will include the second Eid holiday break of the year. While, there is no new source of liquidity in the market, and local speculators continue to dominate activity, foreign investors have been consistent net buyers over the last few of months in a marked contrast from the picture for most of the prior months as the chart below shows.

Index of net foreign activity on the Iraq Stock Exchange (ISX)

(Source: Iraq Stock Exchange (ISX), Asia Frontier Capital)

The extension of the June pull-back in July, continues to suggests the beginning of a consolidation phase, which would need a significant recovery in turnover before a recovery can become sustainable and for the market, as measured by the Rabee Securities RSISX USD Index (RSISUSD), to claw back some of the −70.5% decline from the peak in early 2014 to July’s 2019 closing levels.

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS), and an Adjunct Assistant Professor at AUIS. He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The market’s action in July was so quiet that it turned activities like watching paint dry into spectator sports, as the start of the peak summer and holiday season depressed trading volumes.

Nonetheless, the average daily turnover’s decline of −15% month-on-month did not erase the turnover gains made in the prior two months, small as they were.

For the month, the market, as measured by the Rabee Securities RSISX USD Index (RSISUSD), was down −4.40% and down −3.97% for the year.

The highlight of the month, though, was the release of the latest IMF country report for Iraq, in which the IMF updated its estimates, last made in the summer of 2017, for both the future economic outlook and for the last few years. The changes to its GDP growth estimates for the crisis years 2014-2017 were as follows:

Year 2014 2015 2016 2017
Old estimates +0.7% +4.8% +11.0% -0.4%
New estimates +0.7% +2.5% +15.2% -2.5%

While estimates for the years following the conflict changed as follows:

Year 2018 2019 2020 2021
Old estimates +2.9% +1.7% +2.0% +2.1%
New estimates -0.6% +4.6% +5.3% +2.6%

The main takeaway is that the crisis years were, on the whole, weaker than initially expected. While, 2018, the first year following the conflict, was the second year of a deep recession with a contraction of -0.6% on the back of the prior year’s -2.5% decline, instead of being a first year of an economic recovery, at +2.9%, following a shallower decline of -0.4%  -a message telegraphed by companies listed on the Iraq Stock Exchange (ISX) over the last two years. On the other hand, the expected recovery in 2019/2020 would be much stronger than estimated earlier with GDP growing at +4.6%/+5.3% instead of +1.7%/+2.0%.

Higher oil exports and the improved oil pricing environment, over the last two years, resulted in much higher government revenues, than estimated earlier, from 2017 onwards. This, with a long lag, is initially translating into increased consumer spending in 2019, given that the government employs over 50% of the working population. This, would then, be followed by the government’s investment spending powering the non-oil economy. Subsequently, the IMF’s new assumptions on non-oil GDP growth rates are crucial for the economy and the stock market. The IMF’s estimates for the severe contraction in non-oil GDP during the crisis years changed as follows:

Year 2014 2015 2016 2017
Old estimates -3.9% -9.6% -8.1% +1.5%
New estimates -3.9% -14.4% +1.3% -0.6%

Accordingly, the downward trajectory in 2015 was much steeper at −14.4% than earlier estimates of −9.6%, while the stability expected for 2017 was, instead, a double dip recession following the bounce in 2016. Also, the contraction lasted longer at four years than earlier expectations of three years. While estimates for the years following the conflict changed as follows:

Year 2018 2019 2020 2021
Old estimates +2.0% +3.0% +3.9% +4.0%
New estimates +0.8% +5.4% +5.0% +4.1%

Confirming the earlier message that 2018 was the second year in a contraction with the non-oil GDP dragging the overall GDP down, negating the strong contributions of higher oil prices and exports to the overall GDP growth. Subsequently, the expected recovery for 2019/2020 would be much stronger at +5.4%/+5.0% versus earlier estimates of +3.0%/+3.9%. The changes, for outlook for non-oil GDP growth, are consistent with the analysis, made here over the last few months, on the drag on the economy in 2018 and early 2019 as a result of the political paralysis before, during, and after the May 2018 parliamentary elections. A paralysis that would have ended in March as the 2019 budget was only passed into law in late February 2019.

Furthermore, the IMF estimates that non-oil investment spending for 2019 would be about USD 11.25bln, or an +8.5% stimulus to the new non-oil GDP estimate for 2019. It’s unlikely, that the government would be able to spend all of the budgeted amount in 2019, given the slow nature of investment spending, and the government’s historic under-execution of such spending. Which probably explains the IMF’s estimates for investment spending at about 13.5% less than that projected by the 2019 government budget.

(Source: IMF, country reports no. 17/251 and 19/248, Asia Frontier Capital)

On the heels of the new IMF report, the Ministry of Finance (MoF) data as of May, show a month-on-month growth in investment spending of +20%, but from a very small base, as the January-May investment spending is only about 8% of the non-oil investment spending budget of USD 11.25bln. Implying that most of the estimated +5.4% growth in non-oil GDP for 2019 would be backend loaded, and thus a much stronger growth is anticipated in the second half of 2019 than the first half. It will likely accelerate further in 2020, as the unfinished spending for 2019 spills over into 2020. The government has considerable firepower at its disposal to continue investment spending, even as it continues to under-execute, as the same MoF data for May shows a further growth in budget surplus for 2019 at USD 3.3bln, for a cumulative 29-month surplus of USD 26.5bln.

As postulated here in the past, this investment spending which started with a trickle in 2019, should grow as the full spending gets underway, carrying over into 2020, and ultimately would lead to a sustained economic recovery in line with the new IMF’s future outlook, or probably somewhat higher given the multiplier effects of such spending.

The news from the corporate world supports the economic picture painted by the IMF as evidenced from a number of corporate earnings reports for the second quarter. Pepsi bottler, Baghdad Soft Drinks (IBSD), continued its strong growth with revenues for the six months in 2019 up +3% over the same period in 2018, with its pre-tax profits for the same period up +9%. Telecom operators AsiaCell Communications (TASC) and Zain Iraq (TZNI) reported increased customers by 6% and 4% respectively for the six months in 2019 versus the same period in 2018. However, both revenues and earnings continued, for the same period, to show an industry in the early stages of recovery with TASC having flat revenues but earnings before interest depreciation and amortization (EBITDA) down −9%, while TZNI reported revenues declining −6% and EBITDA up +13%. Both companies cited increased competition and marketing costs.

Bank of Baghdad’s (BBOB) second quarter (Q2) numbers, marked a bank following through with the recovery that began in 2018, which, while confirming the initial signs of a gradual recovery in the sector, also disappointed local speculators who were hoping for a repeat performance of the first quarter (Q1). Deposits continued to grow at +4.3% for the first half of 2019 versus the same period in 2018, while credit growth continued to be negative at −1.4%- which is a slower rate compared with the past- and led to a drop of −27.1% in net interest income. FX income recovered +57.0%, which is an easy comparison given the severe drop seen in the same period in 2018, but nevertheless pointing to a stabilization in this income source. Commission income, continuing to rise in importance, was up +21.3%. Net income, while up +983% in the period or at over 10x the figure for the same period in 2018, while very healthy, was mostly achieved in Q1. Therfore, while Q2’s net income showed continued growth, it nevertheless poured cold water over speculative hopes for the bank to resume dividend payments for 2018’s earnings. It was these hopes that led to a +62.5% rally in the stock in May, which soon moderated to a decline of −12.8% in June, and declined a further −17.6% in July as the bank confirmed in its AGM that it would not pay dividends for the year. The stock’s closing price in July, is still up +16.6% from the April close before it started its wild three-month ride. While, BBOB pulled the other leading banks up with it in May, it did not drag them lower in June and July which is very different from the market’s responses to such disappointments in 2018. That time all banks were painted by the same brush, which shows a market that has begun to discriminate showing it has likely bottomed or is making a bottom.

Trading activity in August will likely continue to be in-line with that of July’s activity, as it is part of the peak of the summer season and will include the second Eid holiday break of the year. While, there is no new source of liquidity in the market, and local speculators continue to dominate activity, foreign investors have been consistent net buyers over the last few of months in a marked contrast from the picture for most of the prior months as the chart below shows.

Index of net foreign activity on the Iraq Stock Exchange (ISX)

(Source: Iraq Stock Exchange (ISX), Asia Frontier Capital)

The extension of the June pull-back in July, continues to suggests the beginning of a consolidation phase, which would need a significant recovery in turnover before a recovery can become sustainable and for the market, as measured by the Rabee Securities RSISX USD Index (RSISUSD), to claw back some of the −70.5% decline from the peak in early 2014 to July’s 2019 closing levels.

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS), and an Adjunct Assistant Professor at AUIS. He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

The ISIL conflict displaced 6 million people in Iraq, disrupted the national economy and limited employment opportunities for citizens.

Sixty per cent of jobs in Iraq are in the private sector, within Small and Medium Enterprises (SMEs); very large numbers of those businesses experienced loss as a result of the conflict and need support to rebuild.

In Fallujah, for example, an International Organization for Migration (IOM) market assessment found that 69 per cent of construction businesses and 66 per cent of food-related businesses saw their workshops looted or burned between 2014 and 2017. Mosul and numerous other areas also showed high levels of damage and limited access to finance—challenges that EDF is designed to help businesses overcome.

On Monday (05/08), IOM Iraq signed a memorandum of understanding with telecommunications company Asiacell to support innovation under the Enterprise Development Fund (EDF) — a livelihoods programme that contributes to economic recovery and private sector revitalization through tailored support to Small and Medium Enterprises.

The innovation component (EDFi) supports early-stage tech businesses and tech start-ups in Iraq that can contribute to the local economy and create jobs for young people in the tech sector.

“We strongly believe that the engagement of the private sector is a necessary condition for successful and sustainable economic recovery and job creation,” said IOM Chief of Mission Gerard Waite. “IOM Iraq looks forward to a long, productive collaboration with Asiacell, as we work to expand job creation and improve economic opportunities across Iraq.”

“Today marks the start of a strategic partnership between Asiacell and IOM that will bring the EDF-I into effect in Iraq,” added Asiacell CEO Amer Sunna. “Asiacell looks forward to contributing to the development of youth skills and capabilities, and setting the foundation for a powerful and sustainable economy.”

EDF aims to restore essential economic infrastructure by providing financial capital to SMEs in economic sectors that were successful prior to the conflict but suffered loss and damage and have a high demand for labour. By targeting key sectors and providing necessary funding, the EDF encourages rapid but also large-scale job creation. The fund has received hundreds of applications since the pilot phase was launched in September 2018, and 142 business grants have been approved to date.

“After the liberation of Mosul, I sold a small plot of land that I owned and tried my best to reopen my factory,” explained Moufaq Ahmed Mohamed, an EDF beneficiary and owner of an oxygen plant. “I started with only two workers. Later, I received a grant from IOM which enabled me to buy a generator which is crucial to my work.”

“[Before that] I frequently lost hours of work due to sudden power outages,” he continued. “This generator was a boon to my factory; I have been able to produce more, enabling me to hire more people and expand to 11 workers — which means feeding 11 families. This makes me very happy; this kind of support for the private sector contributes to the revival and rebuilding of Mosul.”
EDF forms part of IOM’s work in support of the people and Government of Iraq (GOI) to promote sustainable recovery across the country.

IOM Iraq’s EDF is supported by the USA Department of State’s Bureau of Population, Refugees, and Migration (PRM); the European Commission’s Directorate-General for International Cooperation and Development (DG DEVCO); KfW, the German Development Bank; the Government of the Netherlands; and the United States Agency for International Development (USAID).

(Source: IOM)

By John Lee.

Iran‘s Securities and Exchange Organization (SEO) and the Iraqi Securities Commission (ISC) have signed a memorandum of understanding to create a joint investment fund.

According to Iran’s SEO, the agreement is “primarily focused on development of Islamic Financial instruments, enhancement of technical infrastructure and establishment of common investment funds through shared partnership of both Iranian and Iraqi sides“.

SEO Chairman Dr. Shapour Mohammadi commented:

“Very soon, we will be enabled to enlist Iraqi companies in Iranian capital market and vice versa, thanks to the signed MOU and further works both side have to do in future.”

(Source: Iran Securities and Exchange Organization)

By John Lee.

The National Investment Commission (NIC) has announced the following investment opportunities:

  1. Pesticides plant – Al Furat State Company for Chemical and Pesticides Industries
  2. Chlorine plantGeneral Company for Mining Industries

(Source: National Investment Commission)

(Picture: Business opportunity word cloud, from ibreakstock/Shutterstock)

By John Lee.

The National Investment Commission (NIC) has announced the following investment opportunities:

  1. Pesticides plant – Al Furat State Company for Chemical and Pesticides Industries
  2. Chlorine plantGeneral Company for Mining Industries

(Source: National Investment Commission)

(Picture: Business opportunity word cloud, from ibreakstock/Shutterstock)

This past week, IBBC’s ,

Christophe Michels, Managing Director of the Iraq Britain Business Council (IBBC), and IBBC’s Deputy Chairman, Eng. Rasmi Al Jabri, visited Iraq with Brigadier James Ellery CBE, Chairman of Turnkey LLC.

The main focus of the visit was construction and redevelopment in Ramadi, Anbar Province, which has undergone a remarkable period of change since Islamic State was ousted from the area.

While in Ramadi, IBBC met with a number of tribal leaders, local business figures and the provincial governor, Mr Ali Farhan Hamid, who shortly intends to visit the UK. IBBC looks forward to hosting him on this trip, and will be organising events which will allow its members to meet and network with him in the near future.

Mr Michels commented:

Overall, this trip was a great success. While always good to connect with members, it was particularly impressive to see how far the Anbar Province has come since its liberation from Islamic State.

“The level of infrastructure and construction I saw is some of the best in Iraq, and increasing long-term stability offers real potential for foreign investors.”

IBBC also visited Baghdad, where they met Dr Thamer Ghadhban, Deputy Prime Minister and Minister of Oil, Abdulkariem Al Faisal, Chairman the Prime Minister’s Advisory Commission, Professor Hamid Ahmed, Deputy Minister of Higher Education and Dr Salar Ameen, Deputy Chairman of the National Investment Commission.

They also hosted a dinner at the Alwiyah Club, which was kindly sponsored by the Iraqi International Islamic Bank and attended by over forty IBBC members.

A particular highlight of the trip’s time in Baghdad was a visit to the Iraqi National Museum. While closed for a number of years after the war, it has now reopened to the public, and is a world-leading collector and displayer of ancient artefacts from the region.

For more information on the Iraq Britain Business Council, visit https://www.iraqbritainbusiness.org/

(Source: IBBC)

By John Lee.

The National Investment Commission (NIC) has announced a new investment opportunity in Iraq:

(Source: National Investment Commission)

(Picture: Business opportunity word cloud, from ibreakstock/Shutterstock)