Rebuilding Iraq

Infrastructure is the main focus of reconstruction efforts in Iraq, as the country grapples with electricity shortages and insufficient transport links. Improving core economic social infrastructure provision should help the country on the path to economic normalcy.

In May 2010, the government announced a new target for the electricity sector to generate 27,000 megawatts (MW) of electricity by 2013. With current nameplate capacity standing at around 15,000MW, this includes almost doubling capacity in three years. This target is ambitious to say the least. Tenders have been released to install 28 of the 72 gas turbines ordered in 2009, which is a good start in a sustainable solution.

During June 2010, the US$600 million Najaf Monorail was awarded, marking the first major infrastructure contract to be awarded since the U.S.-led invasion in 2003. The contract is part of plans to considerably expand the urban and national rail network in Iraq to aid with reconstruction efforts.

The government has announced plans to build two million housing units by 2014 to cater for growing demand for low income housing.

The focus on infrastructure will present substantial opportunities for those construction companies willing to enter the market. A lack of capacity and ability among local construction companies has the led the government to call for international participation in rebuilding Iraq's infrastructure. A few companies have entered the sector, most recently in August 2010, France's Alstom signed a memorandum of understanding (MoU) to help build electricity infrastructure.

BMI Q2 2010 report

In BMI's debut Iraq Infrastructure Report, the company takes a look at the country's infrastructure market in the context of a stabilising security situation, a growing economy and increasing interest from private sector players in investment opportunities. On the whole, BMI reports a country with a still precarious business environment. Whilst it notes that there are plenty of opportunities and that the government is keen to rehabilitate infrastructure, both through the budget and through private funding, there are a number of barriers to entry. The security situation is still perhaps the biggest concern; however, regulatory, legal and financial structures are also areas of concern.

In BMI's new data for the Iraq construction industry, the company is forecasting construction industry value growth of 4.44% year-on-year (y-o-y) in 2010, to reach a nominal value of IQD6,579 billion (US$5.62 billion). There are both upside and downside risks to this forecast.

On the positive front, the World Bank and the IMF have both approved loans to help plug an anticipated budget deficit of 14% of GDP, according to government forecasts. Both these loans should ensure that the US$20.2 billion capital expenditure allocation in the government's budget has the best chance of being invested.

On the negative side, the government has a poor track record of mobilising capital expenditure budget allocations to actual projects. Another issue is the March 2010 elections (under way as the report went to press). Although the outcome of the elections is unclear as we go to press, what is painfully obvious is the increased level of violence, which has accompanied the process, and may continue to be provoked by the outcome.

Over recent years, construction industry growth in the country has been extremely volatile, in line with the fragile security situation. The U.S.-led invasion in 2003, decimated construction industry value; however, in 2004 and 2005 value growth was remarkably high, likely to be linked to initial reconstruction efforts and industry value destruction in 2003. Inflation and deflation have also been present over recent years in Iraq, making real growth all the more volatile.

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