Iraq shapes up as a destination for UAE investors

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• Investment protection due under treaty
• Iraq’s potential ‘remains untapped’
• But country ‘carries significant risk’

Emirati investors may be increasingly tempted to look at Iraq after additional safeguards are introduced under a new bilateral investment treaty, observers believe.

The treaty between Iraq and the UAE was signed in October 2021 and ratified by both states last year. All that is left now is for the instruments of ratification to be exchanged.

When this happens new investment protection will be available to investors a month from the date of the exchange.

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Ali Metwally, director of economic intelligence at ITI Consulting, told AGBI that would-be investors from the UAE were likely to find encouragement in the treaty. 

“Despite Iraq’s long-standing economic and financial potential, much of it remains untapped, making this partnership all the more compelling,” he said.

Sami Tannous, a Dubai-based partner at the law firm Freshfields Bruckhaus Deringer, said in a research note that Iraq had historically been a challenging market for investors. 

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The latest Corruption Perceptions Index by Transparency International ranked Iraq 154th out of 180 countries.

Transparency International, which is based in Berlin, said Iraq’s efforts to tackle corruption were undermined by weak political structures. Iraq held its first local elections in over a decade in December, though one of the main political parties boycotted the election altogether.

However according to fDi Markets, part of the Financial Times Group, Iraq was the third-best performing country in the world, with $24 billion of foreign direct investment in the first eight months of 2022. This is six times the annual average recorded between 2010 and 2019. 

This was largely down to major projects in the fossil fuel sector, including investments from Shell in the UK, United Energy Group of Hong Kong and the UAE’s Crescent Group.

Investments in the fields of oil and gas extraction and production are excluded from protection under the bilateral investment treaty, a sign of Iraq’s desire to maintain full sovereignty over the sector, Tannous said. 

Iraq is the second largest crude producer in Opec, pumping 4.3 million barrels per day in January.

Tannous said that while the treaty is a step in the right direction investors will need to carefully examine the protections granted.

“Investment in Iraq inherently carries significant risks and the potential access to investment treaty protections will be important to existing and potential future investors as well as to political risk insurers,” he said.

Investors will need to carefully examine the protections granted. Investment in Iraq inherently carries significant risks

Sami Tannous, Freshfields Bruckhaus Deringer

Earlier this month, Abu Dhabi Ports Group entered into a preliminary agreement with the General Company for Ports of Iraq to establish a joint venture to develop Al-Faw Grand Port and its economic zone. 

Razzaq Muhaibas Al-Saadawi, Iraq’s minister of transport, said: “We have provided all the necessary solutions to ensure the success of the project.”

Last year, DP World also launched the first direct freight service between the UAE and Iraq to make the flow of goods between the two countries faster.

Iraq is the sixth largest trading partner for the UAE, with bilateral trade volumes exceeding $28 billion in 2023, up 13 percent compared to 2022.

Metwally cautioned that several challenges will persist in the near term, including the security situation, political instability and bureaucratic obstacles. 

“While the treaty offers additional protection for investors, addressing these fundamental challenges is imperative to fully capitalise on the potential of the UAE-Iraq economic partnership,” he said.

Iraq’s ambitious goal to generate 12GW of electricity through solar by 2030 also presents compelling opportunities for UAE investors. 

“Given the UAE’s commitment to renewable energy and its proficiency in the field, these projects hold notable appeal for Emirati companies,” Metwally said.

According to Freshfields Bruckhaus Deringer, Iraq has only five treaties in force and a further four signed, while the UAE has signed more than 100, with 73 in force.