The Arab Spring for many has meant a huge financial blow. From foreign investors to local businesses, almost no one has remained unscathed from the uprisings. At the start of 2011 Egypt had a predicted economic growth of 7%. Now it is expected to grow no more than 1.5%, and foreign investment is all but kaput. Syria was expected to grow at 3%, but is now forecasted to grow by only half as much. Its tourism sector, which last year accounted for 12% of Gross Domestic Product, has evaporated as state-sponsored violence has spread across the country. Tourists and investors alike are spooked by regional instability.
But Iraq is singing a different song – one of economic diversification and modernization. Iraq is seeing foreign investment as the key to saving state-owned factories, industries and companies. As of right now, only 60,000 of its 200,000 employees at state owned factories are needed. To help solve that problem Iraq has invited 7 new foreign investors to rehabilitate and grow its state-owned industries.
From 2010 to 2011, foreign ownership of shares in the Iraq Stock Exchange rose from 3% to 15%. Investments were not limited to the oil sector. In fact, real estate proved to be a main attraction for foreign investment – $14 billion foreign dollars went into real estate in 2010 compared to $5 billion into the oil sector. This shows that not only is Iraq appearing to be more stable, but its economy is diversifying and modernizing beyond the energy sector. This week at the 7th International Islamic Conference, Iraq’s deputy Prime Minister Roz Nouri Shawes called for de-centralization and more privatization in Iraq’s economy. While other economic sectors like real estate are flourishing, the oil industry still accounts for 90% of Iraq’s hard-currency earnings and 95% of the government’s revenue. Iraq’s 6 state-owned banks account for 93% of the assets in Iraq’s banking system. In short, Iraq needs to spread the wealth around. Political and economic stability are needed to encourage Iraqis to deposit and invest in any of Iraq’s 36 private banks.
But if foreign investment is an indicator of economic health, Iraq seems to be on the mend. Last year 156 companies from 34 countries invested a total of $43 billion dollars in Iraq. Compare that to the 2003 figure of a mere $ 4 billion. Before 2003, Iraq was almost completely isolated from the global banking community thanks to UN-backed sanctions against Iraq that were activated in 1990.
Iraq’s plan to redenominate its currency also indicates that the central government is undertaking fiscal responsibility and making the Iraqi economy a safe place for outside investors. This redenomination means that the Iraqi Central Bank will take off three zeros from the dinar. The goal: make banking transactions easier and have less cash in circulation. As of earlier this year, 80% of Iraq’s money supply was in circulation – some 25 trillion dinars. Compare that to the total amount of US dollars circulating around world-wide – $829 billion. Redenomination is often a signal that developing nations are maturing into a modern, competitive economy. Since 1960, governments of developing nations have redenominated currency over 70 times. Turkey, Iraq’s biggest foreign investor, redenominated its currency in 2005.