2013-08-22 09:11:14 - Recently published research from Business Monitor International, "Iraq Infrastructure Report Q4 2013", is now available at Fast Market Research
Although the Iraqi construction sector is expected to benefit from a sizeable investment plan and an inflated budget, the worrying business environment will prevent the sector from growing to its full potential. Low completion rates are a result of government agencies' lack of accountability and lack of technical capacity, as well as frequent delays in the approval of projects and the transfer of funds by the central government pose significant risks to construction sector growth in the country. We accordingly forecast sector growth to be limited at a modest 7.4% year-on-year (y-o-y) in real terms between 2013 and 2017 - far from the impressive 24% y-o-y growth witnessed between 2008 and 2012.
Although much-delayed, the Iraqi parliament approved in a budget
for 2013 back in March. The budget outlines an 18.0% increase in spending compared to 2012, with investment expenditure increasing 49.0% yo- y - making up 40.0% of the total - while current expenditure will increase 4.4%. Of this, we see development spending increasing 28.0%.
Full Report Details at
- www.fastmr.com/prod/670568_iraq_infrastructure_report_q4_2013.as ..
The Ministry of Finance and the Ministry of Planning are looking to tackle the issue of low execution rates by making those with a rate of less than 25.0% liable for questioning by the parliament and the council of ministries. While such moves are encouraging for the construction sector, we believe the government's lack of control over local agencies and bureaucratic bottlenecks will impede the progress of development projects during the forecast period.
Despite lower growth estimates, the potential is definitely to the upside. Areas that show upside potential are as follows:
* As recently as February 2013, the Governor of Baghdad, Dr Salah Abdul-Razzaq. signed a US$40m agreement for Alstom to undertake detailed design studies for the first phase of an elevated metro to be built in the city. The development of the Grad Fao port near Basra will significantly boost construction in the region and has the potential to lead to Iraq becoming a major freight destination as companies may wish transport goods overland instead of the long voyage to Suez.
* Power: The government's focus has long been on improving the electricity supply in the country, as the unreliable and insufficient generation and transmission infrastructure has been one of the biggest obstacles to Iraq's reconstruction. We expect 2013 and 2014 to be something of a turning point for new capacity in Iraq as a result of the significant number of power plants awarded in 2011, 2012 and now in 2013. The trend has continued in 2013, with the Iraqi Ministry of Electricity outlining 11 new schemes to expand the electricity network in the Babel province alone during the year, as well as a US$1bn gas-fired station in Anbar awarded to Metka. Health care Capital Spending: We also expect to see opportunities within the healthcare sector due to spending on public services such as education and health increasing during 2013 as the government seeks to maintain public support amidst growing political instability. For instance, Salam al-Quraishi, an economic advisor to the government, said in April 2013 that the executive earmarked US$800mn for the country's pharmaceutical sector for the year. The funding will be used to establish new production lines for existing pharmaceutical facilities and training chemists, as well as the construction of new production units for high-demand medicines.
However, we highlight that the shaky political situation and growing instances of sectarian violence could yet again become a prohibitive concern for investors, despite there being a notable improvement over the past few years. At the same time, strategic infrastructure continues to be targeted, with multiple pipelines being bombed in 2013. Iraq's Infrastructure Risk/Reward Rating (RRR) has accordingly fallen from 54.9 (out of 100) last quarter to 48.5 this quarter. This places it in 10th position out of 14 countries in our Middle East and North Africa (MENA) regional rankings.
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