From Al Jazeera. Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

How will US sanctions affect Iran-Iraq economic relations?

The Trump administration is giving Iraq a few more months to continue buying oil and electricity from neighbouring Iran before the United States enforces sanctions against Tehran.

After years of conflict, Baghdad now relies heavily on Iran for goods and services.

And Iranian President Hassan Rouhani is visiting Iraq to solidify ties between the neighbours, trying to convince them to defy the US president.

Al Jazeera‘s Natasha Ghoneim reports from Baghdad:

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)

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)

Advertising Feature

Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 7th March 2019).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD595 (+3.0%) / $640 (-2.0%) (weekly change) (-9.8% and -9.8% YTD change, respectively). The number of week traded shares was 14.8 bn and the weekly trading volume was IQD6.4 bn ($5.3 mn).

ISX Company Announcements

  • According to the ISX announcement, the opening price of the IQD5.0 mn class bonds (CB125) will be IQD5,375,890 on Sunday (Mar. 10, 2019). [Table: 2.3]
  • ISX will suspend trading of Trans Iraq Bank for Investment (BTRI) starting Mar. 17, 2019 due to the AGM* that will be held on Mar. 20, 2019 to discuss and approve 2017 annual financial results.
  • ISX will suspend trading of Middle East Producing & Marketing – Fish (AMEF) starting Mar. 14, 2019 due to the GA that will be held on Mar. 19, 2019 to elect new board members. AMEF will resume trading on Mar. 20, 2019.
  • ISX will suspend trading of Al-Mansour Bank (BMNS) starting Mar. 11, 2019 due to the AGM* that will be held on Mar. 14, 2019 to discuss and approve 2018 annual financial results.
  • Credit Bank of Iraq (BROI) will resume trading on Mar. 10, 2019 after discussing and approving 2017 annual financial results and deciding to distribute 2.5% cash dividend (IQD 0.025 dividend per share, 6.4% dividend yield). The opening price will be IQD0.37 with +/-20% change.
  • Al -Hilal Industries (IHLI) will resume trading on Mar. 10, 2019 due to disclosing its 2017 annual financial results.
  • ISX requested Modern Animal and Agricultural productions (AMAP) on Mar. 5, 2019 to disclose its AGM* minutes that was held on Feb. 28, 2019.
  • ISX suspended trading of International Islamic Bank (BINT) starting Mar. 4, 2019 due to the AGM* that will be held on Mar. 7 to increase company’s capital from IQD100 bn to IQD250 bn through 150% rights issue.
  • ISX announced that Al-Ameen Insurance (NAME) resumed trading on Mar. 4, because it received a letter sent by the Board of Insurance which is stating that NAME is continuing its activities, except life insurance.
  • Cross Transactions: 13.0 bn shares of Trust International Islamic Bank (BTRU) on Mar. 3, 2019, which represents 5.2% of BTRU capital.

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 Iraqi market, as measured by the Rabee Securities RSISUSD Index, declined by -9.7% in February, taking the year to date decline to -12.5%.

February’s decline takes the index below the multi-year lows made in May 2016, for a decline of ­-70% from the multi-year highs of January 2014 to February 2019, versus the -68% decline from the same highs to May 2016. However, the severity of the decline and the immediate triggers are the only things that the two months have in common, while all other indicators, both fundamental and technical, are diametrically opposed.

The immediate trigger for the decline in the last two months was a foreign portfolio liquidation, the same trigger behind that of the period leading into May 2016. However, the similarity ends there, as the current foreign liquidation is that of a relatively small single portfolio vs. the massive multi-month liquidation witnessed then as the chart below demonstrates.

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

The above chart is an index of the absolute level of foreign selling & buying with their respective moving averages, clearly showing the contrast between the two periods (both highlighted in light orange). The main reason for the similarity, in effect of the selling on the index, is due to the extremely low liquidity in the current market- a low level that has been discussed in “Volumes and Reversion to the Mean”.

The average daily turnover per month since late 2014 (chart below) shows the association of low turnover with the index levels. Moderate selling in such an environment of extremely low liquidity exerts a strong downward pressure on prices, which coupled with low prices turns a few price increments into much larger percentage moves. A case in point is Bank of Baghdad (BBOB) which started the month at IQD 0.280 per share. Due to selling it declined to IQD 0.250 by month’s end. This is equal to three price increments (the minimum price increment is IQD 0.010), yet it is a -10.7% decline from 0.280 to 0.250, which in turn accounted for a -1.2% downward move in the index. Another issue of low liquidity is how it affects higher priced stocks, resulting in them trading in much larger price increments, with the end result producing the same percentage change effects as for the lower priced stocks.

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

The macro picture between 2016 and now couldn’t be more different. In 2016 Iraq’s economy was being crushed by the double whammy of collapsing government revenues, due to falling oil prices, and the sharply increasing cost of the ISIS war- a war that many international commentators believed marked the end of the Iraqi state. However, the end of the ISIS war cemented Iraq’s integrity and its position as a key player in the Middle East. This is evidenced by the high number of heads of state and high-level official visits to Iraq over the last few months as relationships which were forged during the ISIS-conflict are being developed into future economic relationships.

On the other hand, the economy in 2019 is gradually benefitting from the expansionary effects of the reversal of the forces that crushed it. In particular, the healing effects of higher oil revenues over the last two years is beginning to filter down into the broader economy with the first signs being seen in the recent recovery in broad money, or M2 which acts as a proxy for economic activity, as can be seen in the chart below.

(Source: Central Bank of Iraq, Iraq’s Ministry of Oil, Asia Frontier Capital)

(Note: M2 as of Nov with AFC est.’s for Dec; Oil revenues as of Feb)

The period leading to the May 2016 low witnessed multi-month declines in oil revenues that had a massive negative effect on economic activity as first seen in the stagnation of M2, followed by a decline as manifested in the onset of a severe economic contraction. It was natural then that these effects would negatively impact corporate earnings and ultimately lead to a marked decline.

A mirror image reversal is taking place in 2019 as multi-month increases in oil revenues have revived M2 which points to an economic recovery. The early signs of this is evidenced in the growth of customer deposits (consumers, businesses and government) with banks, which can be seen in the chart below through the growth of the IQD Current Account (C/A) component of banks’ reserves with the Central Bank of Iraq (CBI) – the recovery of which accelerated in May 2018, with the latest data as of early February indicating a continuation of this trend.

(Source: Central Bank of Iraq, Asia Frontier Capital)

(Note: M0 as of Jan, IQD C/A component of bank’s reserves as of Jan)

Other signs of economic recovery can be seen from the recent earnings reports of consumer spending related companies such as Pepsi bottler Baghdad Soft Drinks (IBSD) and mobile operator AsiaCell (TASC). Of the two, the data from TASC is promising, as the company is especially leveraged to the economic recovery given the severe hits its profitability took due to the ISIS conflict which were discussed fully in “Telecoms Dial up Recovery

The drag on the economy thus far in 2018 and 2019 has been due to the political paralysis before, during, and after the May 2018 parliamentary elections. This led to a torpidity in government spending, but a silver lining of the government inaction has been the steady growth in the government budget surplus that is estimated to be about USD 24.5 bln in the two years ending in 2018. This paralysis in government spending has finally come to an end with parliament’s approval of the 2019 budget in mid-January.

The 2019 budget’s non-oil investment programme is about USD 12.5 bln, which would be equivalent to about a 7.5% stimulus to the estimated non-oil GDP for 2019. While it is highly unlikely that this would be immediately spent, yet the spending should start with a trickle but grow as investment spending gets underway.

Just as the negative fundamental forces in 2016 were the reason for the market’s decline, their reversal and the early signs of economic recovery should lead to an economic growth which must find its way into corporate earnings’ recovery- which in turn should lead to a rising market. Logically, this ought to mean an end to the market’s divergence from its past close relationship with oil revenues (a proxy for the forces driving the economy) which is currently at the widest it has been for the last few years (see below).

(Source: Iraq’s Ministry of Oil, Rabee Securities, Asia Frontier Capital)

(Note: Oil revenues as of Feb)

In conclusion, the fundamentals seen in the prior charts surely argue that it’s only a matter a time before the liquidity in the broader economy finds its way into the Iraqi equity market, the reigning ugly duckling of frontier markets, to turn it into a swan or at least into a duck that flies.

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.

Advertising Feature

Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 28th February 2019).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD577 (-4.6%) / $621 (-4.4%) (weekly change) (-12.5% and -12.5% YTD change, respectively). The number of week traded shares was 2.0 bn and the weekly trading volume was IQD1.3 bn ($1.1 mn).

ISX Company Announcements

  • According to the ISX announcement, the opening price of the IQD5.0 mn class bonds (CB125) will be IQD5,368,219 on Sunday (Mar. 3, 2019). [Table: 2.3]
  • ISX will suspend trading of Al-Mansour Bank (BMNS) starting Mar. 11, 2019 due to the AGM* that will be held on Mar. 14, 2019 to discuss and approve 2018 annual financial results.
  • Commercial Bank of Iraq (BCOI) announced that it will start distributing 3.5% cash dividend (IQD0.035 dividend per share) starting Mar. 3, 2019.
  • AL- Kindi of Veterinary Vaccines (IKLV) announced that it will start distributing 4% cash dividend (IQD0.04 dividend per share) starting Mar. 3, 2019.
  • Middle East Producing & Marketing – Fish (AMEF) announced that it will start distributing 20% cash dividend (IQD0.20 dividend per share) for the year ending Mar. 31, 2017 starting Mar. 3, 2019.
  • ISC sent a letter to North Bank (BNOR), Modern Paint Industries (IMPI), Electronic Industries (IELI), Al-Hilal Industries (IHLI), Iraqi Carton Manufactures (IICM), AL-Badia for General Trans (SBAG) and Iraqi Land Transport (SILT) to ask for the disclosure of requested financial results.
  • ISX sent a letter to United Bank (BUND) to disclose AGM* minutes which was held on Feb. 20, 2019.
  • ISC sent a letter to Union Bank of Iraq (BUOI), Al-Qabedh Islamic Bank (BQAB) and Al-Khair Financial Investment (VKHF) on Feb. 26, 2019 asking the disclosure of their 2016 and 2017 annual financial results because they didn’t reply ISC’s previous letters.

Iranian President Hassan Rouhani will travel to Iraq on March 11 for an official visit.

Heading a high-ranking delegation, the Iranian president will be visiting the Arab country at the official invitation of Baghdad.

It will be Rouhani’s first official visit to Iraq during his tenure.

On Monday, Iranian Deputy Foreign Minister Abbas Araqchi met with Prime Minister of Iraq Adil Abdul-Mahdi in Baghdad to make arrangements for Rouhani’s forthcoming trip.

The Iranian president’s visit would come against the backdrop of Tehran’s efforts to boost its foreign trade in the US sanctions era.

Iraq’s foreign minister said recently that his country is “not obliged” to abide by sanctions imposed by the US against Iran and would be pursuing options to continue bilateral trade.

President of Iraq Barham Salih paid a visit to Tehran in November 2018 with a ranking delegation for a series of political and economic talks.

Speaking at a joint press conference with his Iraqi counterpart at that time, Rouhani said the value of trade and economic interaction between Tehran and Baghdad stood at around $12 billion, adding that the two neighbors have the potential for a $20-billion trade target.

Earlier this month, governors of the central banks of Iran and Iraq signed an agreement to develop a payment mechanism aimed at facilitating banking ties between the two neighboring countries.

According to governor of the Central Bank of Iran Abdolnaser Hemmati, Iran is going to open euro and dinar-based accounts to process transactions for trade in oil and gas.

Describing Iraq as Iran’s major partner, Hemmati said the two countries have agreed to make the banking ties much stronger.

He also stated that Iraqi companies can reciprocally open accounts in Iranian banks and conduct transactions in dinar.

In December 2018, Chairman of Iran-Iraq Chamber of Commerce Yahya Ale-Eshaq said the central banks of Iran and Iraq were finalizing negotiations to begin trade in their own currencies.

Iraq’s Foreign Minister Mohamed Ali Alhakim has made it clear that his country cannot cut off trade ties with Iran under the US sanctions.

(Source: Tasnim, under Creative Commons licence)

The National Investment Commission (NIC) and the Iraqi Civil Aviation Authority (ICAA) have announced the investment opportunity to build Nasriya International Airport.

The airport is located to the south–west of Imam Ali (PBUH) air force base in Thi Qar province.

The area of the passengers terminal is 3000m².

Interested foreign and local companies can apply by filling the investment licenses available on our website and submit all required documents to our email address info@investpromo.gov.iq within 45 days from the date of announcing this advertisement.

For more information, please contact the Civil Aviation Authority headquarters:

Baghdad International Airport/ third floor

info@icaa.gov.iq

P.O Box: 23006 BIAP

(Source: NIC)

By John Lee.

The National Investment Commission (NIC), along with investment commissions in the provinces, granted 257 investment licenses during 2018.

According to a statement from the NIC, this represents a combined investment of more than 8 billion dollars in the Iraqi economy.

Four of these licenses were issued for strategic projects at a cost of more than 3 billion dollars.

Of the total of 257 licences, 88 were granted directly by the NIC, and these were spread over 12 sectors as follows: Trade sector, 21 investment licences; Entertainment sector, 1 investment licence; Telecommunication sector, 1 investment licence; Education sector, 6 investment licences; Services sector, 4 investment licences; Sport sector, 4 investment licences; Agriculture sector, 3 investment licences; Housing sector, 8 investment licences; Tourism sector, 4 investment licences; Health sector, 6 investment licences; Industrial sector, 16 investment licences, Electricity sector, 14 investment licences (2 for power stations, 12 for charging).

The source pointed out that the number of licenses granted by the investment commissions in the provinces other than the provinces of Kurdistan Region was (169) investment licenses. – 12 investment licenses for Anbar- 66 investment licenses for Baghdad- 10 investment licenses for Holly Karbala- 26 investment licenses for Wasit- 32 investment licenses for Muthana- 15 investment licenses for Kirkuk.

(Source: NIC)

UK Export Finance (UKEF) will support a €30.2 million contract for the refurbishment of Al Mussaib power station in southern Iraq, the UK government has announced.

The support will enable the rehabilitation of a 320 megawatt (MW) turbine, that will help improve the overall efficiency and output at the power station.

Al Mussaib power station, located close to Baghdad, is one of the main providers of electricity for the city. Increasing its output will help secure the supply of basic electricity to Baghdad residents.

Minister of State for Trade and Export Promotion, Baroness Fairhead (pictured) said:

I am delighted that UK Export Finance is supporting the first phase of the refurbishment, which will have such a significant impact on the supply and security of electricity in southern Iraq.

“The demand for UK expertise on complex projects like this highlights the UK’s leadership in this sector and I am delighted that UK Export Finance is supporting projects that will have such a direct impact on improving the country’s infrastructure and the lives of the Iraqi people.

“I encourage likeminded businesses to get in touch with UKEF to learn more about the kind of financial support we can provide.”

This announcement follows the agreement between the governments of the UK and Iraq signed in March 2017, which re-affirmed the UK’s commitment to Iraq’s continued economic development.

Darren Davidson, Managing Director – Power Generation Services, Power & Gas, Siemens UK said:

“The refurbishment of the Al Mussaib power plant will be hugely important both for the citizens of Baghdad and for our international business. UKEF’s support demonstrates the UK government’s commitment to improving Iraq’s infrastructure and the UK’s energy sector.”

(Source: UKEF)