Foreign Direct Investment and Economic Revitalization Can Help Stabilize Iraq

The successful reduction of violence in Iraq has led to increased investment and opportunities for economic growth.

by Kevin Reichelt

Now that Iraq is more stable, focus is shifting from security to economic revitalization and integration into the international economic community. Bilateral commercial ties help bridge cultural and sectarian barriers, create jobs, produce wealth, facilitate the transfer of technology, and encourage modern business operations and best practices. But most of all, economic revitalization creates a feeling of hope, which benefits Iraq and the United States.

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Jawad al-Maliki (third from right), Iraq’s prime minister, and John Krenicki (second from right), vice chair of General Electric (GE) and president and chief executive officer of GE Energy, at the signing of GE’s $2.7 billion contract with Iraq’s Ministry of Electricity. GE is just one of many U.S. firms finding lucrative investment opportunities in Iraq. (photo courtesy of GE Energy)

 

“Iraq—now more than ever—is at a critical period in developing its economy,” said Susan Hamrock Mann, director of the Iraq and Afghanistan Investment and Reconstruction Task Force. “Significant U.S. commitment at all levels—whether via diplomacy or U.S. private-sector investment—is essential to signal our longstanding commitment to our ally. This is essential not only to stabilize the nation, but to open new markets for global trade.”

Strategic Framework Agreement

As the U.S. relationship with Iraq continues to develop, international and regional economic integration will become more important. On November 27, 2008, the United States finalized a long-term cooperative agreement with Iraq on future joint economic, legal, and security relations. The Strategic Framework Agreement outlines how Iraq and the United States can cooperate to revitalize Iraq’s private sector and create a vibrant free market economy in Iraq.

Iraq is increasingly becoming a market of opportunity because of its natural resources, 80 percent literacy rate, and extensive human capital. With an enhanced capacity for self-governance, competent security forces, and a growing economy, Iraq can develop into a source of economic and social stability in the Middle East. However, those achievements can be realized only with continued trade and economic engagement with the United States and the international community.

Declining Violence, Increasing Investment

In 2006, economic principles reversed what was a declining security situation. U.S. and coalition military commanders, who recognized the importance of alternative, non-combat means to end violence, began the successful “Sons of Iraq” campaign. The campaign provides economic alternatives to Iraqis who might otherwise support a violent insurgency or join al-Qaeda. Violence in what were some of Iraq’s most war-torn provinces has decreased to historic lows. Consequently, today’s efforts are focused on strengthening government institutions, the business environment, and the private sector. Those efforts will, in turn, create jobs and build on the success and reduction in violence from previous programs.

Successful Foreign Direct Investment

In the early phases of the U.S. engagement in Iraq, most U.S. companies found business through U.S. government-funded projects. Today, U.S. business strategies have shifted. Iraq has an investment law that is favorable to foreign direct investment, has greatly strengthened ministries with large procurement budgets, and has an emerging private sector. Many U.S. companies now find opportunities by investing directly, by partnering with Iraqi companies, and by engaging in procurement contracts with the Iraqi government. For example, General Electric recently signed a $2.7 billion sales contract with Iraq’s Ministry of Electricity for 9E turbines, and Boeing signed a $5.0 billion commercial aircraft deal.

As this year unfolds, the Iraq and Afghanistan Investment and Reconstruction Task Force, in conjunction with the U.S. and Foreign Commercial Service in Baghdad, will continue to disseminate market information to U.S. companies, to describe the investment and business opportunities Iraq offers, and to help U.S. companies gain access to the Iraqi market. The Department of Commerce will continue to support U.S.–Iraq commercial ties through trade missions, business matchmaking, capacity development programs, and commercial policy dialogues.

For more information, please visit www.trade.gov/iraq.

Kevin Reichelt is an international trade specialist with the International Trade Administration’s Market Access and Compliance unit and works with the Iraq and Afghanistan Investment and Reconstruction Task Force.