2012-11-17 07:33:20 - Recently published research from Business Monitor International, "Iraq Infrastructure Report Q4 2012", is now available at Fast Market Research
Despite an investment focused and inflated budget for 2012 and a US$250bn-US$275bn investment plan for the five years following (2013-2017), we are maintaining our outlook for growth in Iraq's construction sector to underperform potential, with an annual average growth rate of 7.7% anticipated between 2012 and 2016. In order to incorporate these spending plans fully into our forecast we would need to see improvements in political relations, institutional capacity, budget execution rates and regulations. Until this point investment plans announced will be unlikely to be translated into industry value creation.
Full Report Details at
- www.fastmr.com/prod/499794_iraq_infrastructure_report_q4_2012.as ..
Iraq's construction sector continues to grapple with the political and economic challenges of a post-war country. Despite a huge project pipeline - with the country
attempting to mend its war-torn infrastructure and make up for decades of underinvestment - the business environment, economy and political climate continue to present challenges. The sheer number of projects under way and in the pipeline, including US$35bn in infrastructure alone, and the very low base, is precipitating high growth in the country's construction sector.
The government has repeatedly announced its intention to focus on infrastructure, especially electricity investments and housing, for which it has handed out multiple contracts. The 2012 budget (passed in February 2012) highlights this focus. The US$100bn budget is 21% larger than the budget of 2011, and includes US$32bn for investment projects. Investment into the electricity sector will increase 31% to US$5.6bn and spending on housing is up 10% to US$976mn.
Infrastructure allocations are expected to continue to be strong, following the announcement in September of a US$250-275bn investment plan to take place between 2013 and 2017. With limited details on financing or projects we have refrained from incorporating the announcement into our forecast. It does however present upside potential to our outlook over the medium term.
The potential for the infrastructure focused spending plans to make a tangible impact on our growth forecasts is uncertain. Whilst some sectors are seeing contracts progress and construction commence (housing in particular and lately electricity projects), others are seeing little to no progress (transport projects are at a standstill).
The key drags on the sector are:
* Political risk: the political situation is rapidly deteriorating and there are growing instances of sectarian violence, the issue of security could yet again become a prohibitive concern for investors, despite there being a notable improvement over recent years.
* Lack of institutions and poor regulatory environment: regulatory obstacles are often cited by investors as being the main hurdle that has to be overcome when looking to invest in the country. The country's institutions lack the organisation and strength to procure the projects that they are in charge of. The electricity ministry has been through multiple ministers and its incapacity was highlighted by the failure of billion-dollar contracts for power plants in 2011. With growing political turmoil resulting in instability in the highest levels of government, the ability to really refine institutions is absent.
* Oil industry disputes: The stale-mate over oil sharing revenues between KRG and Iraq, as well as the inability to provide attractive contracts to IOCs is threatening the country's ability to capitalise on oil reserves and boost production in line with potential has implications wider than just the oil sector. The disputes are damaging for the infrastructure sector, as funding is almost entirely reliant on fiscal spending, and with oil revenues not reaching expectations ability to invest in projects could be hindered. We have seen some sign that reform is on the agenda with plans for the fifth licensing round (for gas blocks) to see completely different contract terms. This could hold potential for future oil licensing to see more attractive terms; however, we also need to see a revenue sharing agreement between Erbil and Baghdad in order for oil majors to be enticed back to non-KRG Iraq.
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