Iraq: open for business?

Iraq: open for business?
Published: 09 September 2011

Iraq’s mining, minerals and materials resources are substantial, the economy is open to investors, and those who come first will benefit the most. These were the key messages from Iraq Mining 2011, a major international conference seeking to focus investor attention to the huge potential for investment that exists outside of the hydrocarbon sector.

For the cement industry, the potential in Iraq is indisputable. Extensive war damage has left Iraq with a massive need for comprehensive reconstruction of infrastructure, industry and housing. Cement demand is rising rapidly, and the current government estimates that cement requirements in coming years will be between 25-30Mt, equivalent to 1250kg per capita assumption.

Demand will be driven by government plans to build 1m houses by 2015, pump up to US$20bn investment into electricity generation, and carry out vital strategic infrastructure investment such as the US$6bn port investment at Al Faw, in addition to ongoing work at Umm Qasr, Iraq’s only deep sea port.

On the supply side, Iraq’s production base consists of a total of 19 plants with a nominal capacity of 19.62Mta. However, most plants are operating well below nominal capacity, and the country is currently sucking in exports from the surplus volumes in the surrounding region. There is an urgent need for investment, hence the government’s eagerness to attract inward investment into this important sector, on which the reconstruction of the country so relies.

Speakers at the meeting were keen to stress that Iraq is open for business. The demand for cement is proven, the limestone reserves are abundant, and there are opportunities for both greenfield and rehabilitation projects.

The government is committed to establishing a free market economy, and has adopted a policy of encouraging foreign investment, as evidenced by measures taken to modernise the country’s legal framework and investment laws to allow foreign capital to move uninhibited into Iraq.

However, power and security remain the key concerns for cement investors. Iraq faces chronic power shortages and while the country consumes 7000MW per day, it will require double that to achieve a 24-hour service. Cement producers therefore have to rely on their own power sources, substantially increasing capital costs of establishing a plant.

Security remains a genuine concern, with regular newsflow highlighting continued instability in the country. Speaking to International Cement Review, Dr Rowsch Nouri Shawis, Deputy Prime Minister of Iraq, insisted that the situation is stable and improving: “We have had tangible achievements reflecting positively on construction. I assure investors that the situation has improved.” Moreover, he stressed: “The forecast need for cement will increase exponentially. Who comes first will gain more”.

Iraq will probably be the biggest emerging market in the Middle East for the next 20 years. As the global majors reorientate their assets towards the emerging markets, they cannot afford to ignore this promising market. Lafarge, the pioneer, has shown that it is possible to operate effectively in Iraq, and manage the security risks appropriately. The company is now working on its third facility at Karbala which will give the French group 6.6Mta capacity locally and a dominant position in this dynamic country. Can the others afford to miss out?