2013-12-05 19:48:22 - Fast Market Research recommends "Iraq Infrastructure Report Q1 2014" from Business Monitor International, now available
The reconstruction of Iraq's infrastructure continues and the construction industry will benefit from a sizeable investment plan and an inflated budget. However, the country's poor business environment will prevent the sector's promise from being fully realised. Low project completion rates are a result of government agencies' lack of accountability and technical capacity, as well as frequent delays in the approval of projects and the transfer of funds by the central government. We accordingly forecast sector growth to be at 8.1% 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 had large sums
earmarked for investment into the power, housing and transport sectors. However, Iraq's poor business environment results in the large sums of money being promised rarely being fully utilised. Although the poor security situation in Iraq continues to deter foreign involvement in the market, more endemic problems such as corruption, a lack of institutional capacity and poor technical ability severely dent growth. To address these endemic problems 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.
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Developments which are underpinning our outlook for this quarter include:
* 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 to transport goods overland instead of undergoing the long voyage to Suez.
* Air and sea ports continue to garner investment. Japan has offered loans of about JPY120bn (US$1.24bn) to Iraq to build a new refinery and rebuild the port of Khor Al-Zubair. Both loans will have a term of 40 years and JGC Corp. and Chiyoda Corp. are expected to bid for the Rumaila refinery project, while Toyota Tsusho, Toyo Construction and Toa Corp are expected to bid for the Khor Al-Zubair rebuilding project.
* Plans are under way to build an international airport to serve the provinces of Karbala and Najaf. In September, the Iraqi government invited bidders to the first phase. This new 20mn passenger airport -which will become an important hub for Iraqi Airways - is expected to enter the first phase of development in October 2013. In terms of financial resources, private capital is welcome but the project already has the full support of the government. There are plans to offer the airport as a build-operate-transfer (BOT) with an operation period of 15 years.
* The utilities sector is supporting growth as investment flows in to expanding capacity in the oil and gas sectors. BP alone has committed to investing upwards of US$2.85bn annually to boost its Rumaila oil field from 1.35mn b/d to 2-2.8mn b/d by 2016. China National Petroleum Corporation (CNPC), parent company of PetroChina, has announced that it has begun work on the second phase of its Halfaya development, the company's landmark oil project in the southeast Missan province of Iraq. The second phase of the project will see the construction of a crude oil pipeline stretching 272 kilometres (km) from the Missan province to the port of Faw. Elesewhere, the Iraqi government hopes to attract foreign contractors to build projects coming from an annual investment of US$1.5bn in water projects for the next two to three years.
* 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.
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) is 49.6 this quarter. This places it in ninth position out of 14 countries in our Middle East and North Africa regional rankings
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