Foreign investment is known as the WTO as a direct investment occurs when an investor , a resident in his mother country has a productive assets in another country (the host country); for the purpose of its administration so this kind of investments are described as they are long-term investments .
Direct Foreign Investments play a role in the economies of the host countries, especially developing as an important source of funding, and it is also an effective means to transfer technology and exploitation of natural resources, and the development of new methods of production and the development of modern methods and ways of economic management, and break the local monopoly, and enhancing national competitive ability by stimulating exports and open up new markets abroad.
And foreign investments contribute to raise the economic growth rates and increasing employment opportunities in the host country’s economy, which helps in the national effort to reduce the unemployment rate; therefore a competition between countries was grown up to attract the direct foreign investment , but foreign investment alone can not create sustainable economic development that its success depends on creating real development and availability of a number of data, the most important is the stability of macroeconomic components of the host country, such as policies associated with the liberalization of trade and exchange rate , and the availability of the structure of the stimulating level of investment .
the Foreign Investment Law No. 13/2006 on Iraq reflects its investment policy to encourage and organize Arab and foreign funds in the context of public policy in the state and in line with the objectives and priorities of the national development strategy for the years 2004-2007, and the highlights of the law: the formation of a body called – a commission for the investment – has legal personality, represented by the President of the Commission or the entitled person by him , and the commision has a chairman of the rank of minister and deputy with a rank of Deputy Minister, strengthen confidence in the investment environment, identifying investment opportunities and stimulating investment in it and promotion for it.
And it includes the Simplification of the procedures for registration and license for investment projects and follow up on existing projects and giving them priority in processing with the official authorities and obtaining the required approvals and to advise and provide data and information to investors and to facilitate allocation of needed land and leasing of it for the establishment of the project with a wage determined by the Commission .
The law allowed the possibility of extracting capital and returns, introduced by the investor to Iraq provided it does not conflict with the provisions of the law and custom and tax procedures, and that the project enjoy which has obtained an investment license from the Commission , with tax and fees exemption for a period of five years from the start date of commercial operation at different rates of between 25 % -75% according to the areas prescribed by law a-b-c according to the economic development and the nature of the activity.
The investor is not subject to the provisions of the law if he had invested in the extraction and production of oil and gas and investment in the sectors of banks and insurance companies.
And here specialists arise an important question : Is the encouragement of foreign investment in Iraq at the required level, and why foreign companied prefer the investment in the UAE, Lebanon or Jordan or Malaysia …. Instead of investing in Iraq?
There are in the Iraqi environment limitations and constraints and problem expelling the direct foreign investment, including the deterioration of infrastructure since the nineties of the last century as a result of the war and the siege imposed on Iraq, and the deterioration of the comprehensive and systematic destruction that took place after the events of 2003; to paralyze the economy, for example:
- The sector of Electricity: Statistics and estimates indicate the need for Iraq to 15 thousand MW and available now does not exceed (5.7)
thousand megawatts and this means that there is a gap of more than 50%, despite the size of investment allocations for the period 2006- in 2012 , but the added power did not exceed a thousand megawatts, reflecting the state of the administrative and financial corruption in the electricity sector , which is defined as the lifeblood and economic development.
– Drinking water: Most reports indicate that 79% of Iraq ‘s population have access to improved water , which is a very low rate, and that most of Iraq ‘s rural population does not get potable water , clean of salt and contaminants in addition to the 20% of the urban population does not have access to pure water. Reports also indicate weakness in the piped water networks, making the citizen depends on electric pumps.
– Sewage networks: numerous reports and studies confirm that 73% of Iraq ‘s population have access to sanitation services and this is a very low rate and this means that there is 27% of the population have not benefited from sanitation services, and if we take into account cities , including Baghdad residents the large number of them suffer poor sanitation services. And sewage networks suffer from many problems, especially the cracks because of their age and the misuse and lack of maintenance and lack of cooperation by the citizen making the water floating on the streets and parks , leaving a disease that cause more damage by the constant power outages and the resulting stop for sewage pumps and other problems.
– Airports: Airports of Iraq suffer the lack of a fleet of modern aircraft and still most of leased aircraft remains ancient, which reflected negatively on the movement of tourism and investment and thus on the national economy, as well as the lack of airports in several provinces.
– Rail: any development did not happen in the field of railway or renewal of train or services, whether passengers or the transfer of goods and services. the Iraqi railways cover about 1906 kilometers and exploiter of which 104 kilometers as double rails and the age of most of these rail production between 60 to 80 years, except for two railing lines already established between 1978 and 1987, and at the present time, there is one service line for travelers between Baghdad and Basra.And because of the bad conditions of the rails and locomotives of the railways, the average speed of 50 km / h, and oil products and wheat and military equipment are dominated on shipping by rail, which the deviation outside the railway track are common in the network run by the Iraqi railways company, despite that restrictions on speed.
– Methods of Transportation: Most of the roads are suffering within cities and between provinces of cracks due to their age and poor maintenance, as well as being made when the number of Iraq ‘s population does not exceed 12 million ,and the volume of trade services is limited, according to the limited size of the population , but now the number of the population is more than (32) million.
The road network in Iraq is by 53,000 kilometers, and the highways and main roads are representing by 23% of them, and the bulk of the network has been built in the seventies and eighties of the twentieth century and did not then subject to any maintenance work.
As for the legal side in Iraq, it suffers from the weakness of legal environment due to the lack of laws and weakness or disable other laws as the law of competition and prevent monopoly, the National Product Protection Act, the Consumer Protection Act, the tariff composting ownership law, export subsidies law, trademark law, law of registration of companies and laws for standardization and quality control and quality, as well as the law of protection of intellectual property . This package of laws when it is not activated and legislated , it will give negative signals to foreign investors not to move towards the Iraqi environment.
Comparing between the Interim Constitution of 1968 and the new constitution of 2006, we find that Article 12 of Chapter Two in the Interim Constitution of 1968 states that the economic system aims to achieve socialism, Article 14 of Chapter II indicates that the natural resources owned by the state, Article 15 the second chapter indicates to the use of capital in serving the national economy that its use is not inconsistent with the the common good of the people.
Article 17 of Chapter II indicates that private property is inviolable and the law regulates the performance of its social function, and Article 18 of the same chapter indicates that the law sets the upper limit of agriculture ownership and accrues to the country what was increased to the upper limit. Article 35 of Chapter II says that the right to education for all Iraqis guaranteed by the State to establish schools, colleges and universities and cultural and educational institutions. Article 37 of the same chapter indicates that health care is a right guaranteed by the state to establish hospitals and health institutions.
The new constitution of 2006 that the Article 112 stipulates Second “to rely on the latest techniques of market principles and encouraging investment, and Article 111 says : The oil and gas are the property of all the Iraqi people in all the regions and provinces.
According to Article 25 that the state shall guarantee the reforming of the Iraqi economy according to modern economic bases, in a way that ensures complete investment of its resources, diversifying its sources and encouraging and developing the private sector, while article 26 indicates that the state guarantee the encouragement of investment in different sectors, and is regulated by law.
The Article 23 says: that private property is inviolable and the owner is entitled to use , exploit and dispose of it, Article 23 says Second , it is not permitted to the expropriation except for the public benefit in return for just compensation.
While Article 23 Third confirms : The Iraqi has the right to own property anywhere in Iraq Article 34 IV stipulates “that the private and public education is guaranteed and regulated by a law , Article 31 Second indicates : Individuals and entities have the right to build hospitals and clinics , or special treatment … this will result in a comprehensive vision of the image which the form of investment will take in the future in Iraq and which can be summarized by the following :
1 – economic system, from socialism to capitalism.
An important turning point in the goal that investment will seek to achieve and that at the national level and this goal will be to move towards the free capitalist market economics self controlled by supply and demand mechanisms in exchange for reducing the state ‘s role in the intervention of economic life (relying on the latest techniques of the market- principles Article 109 Second ” -), and here, the Constitution tells us to stay away from the realization of socialism and move closer to market principles.
2 – wealth from state ownership to the people , the vision of the
permanent Iraqi constitution to the subject of the ownership of major natural resources , (oil and gas) with a different vision to the vision at the Constitution of 1968, as the new constitution indicates that the oil and gas belongs to the people – Article 108. While the major wealth was belong to the State and this means that there is a change in the vision of State to the property, from state ownership to individuals as if the Constitution is trying to give us the introductions for the transition from a totalitarian economic system to the economic system approaching from individual systems, as it means to move away from state control on resources and economic life and approaching to the economic system based on individual initiative and allow market forces to take the largest space in contributing to the allocation of resources.
3 – investment, according to a market economy.
Constitution addressed the issue of investment in the permanent constitution in a different manner to the Constitution of 1968, where the new constitution referred to the phrase ( the state shall guarantee the reforming of the Iraqi economy according to modern economic bases, in a way that ensures complete investment of its resources, diversifying its sources and encouraging and developing the private sector).
The analysis of this article means that the state is determined that the the investment to be for the whole of Iraq ‘s economic resources according to the principles of market economy, which means that the state will not do the investment process mainly but that this task will be guaranteed to the private sector so that it will be the state ‘s role is supportive of investment – and will be through the private sector and not the role of the making the investment.
4 – the domestic and foreign investment is unbridled
This reference seems unclear in the new constitution and these relate to invest in different sectors ( the state guarantees to encourage investment in various sectors -Article 26) This means that there is no constitutional objection to invest in all sectors , including strategic ones as well as, there is no constitutional objection to investment whether local or foreign, in other words , it does not hurt to do foreign investment in the economy.
5 – the private sector, leading the economic reform process.
Constitution focused on the important issue is the role of the private sector in carrying out the reform of the Iraqi economy, the introduction of a new term which is a term the economic reform, which has to do with the market economy based on the private sector .
All of these reasons are a barrier that made of Iraq ‘s economic environment is not favorable for investment
and concerning the self – reasons associated with developed countries , and its monopoly companies which are preventing the coming of foreign investment :
1.Most of the developed countries and its companies suffer from the monopoly of the large surplus in production, which is searching for markets for their surplus, and Iraq, one of the important markets of consumer nature of the Iraqi people and the size of the population, as well as high purchasing power, so how investments to go to Iraq and produce goods and services that could compete with goods produced in developed countries.
- the direct foreign investment will not enter to the agricultural sector to produce food for political and economic monopoly reasons, in order to keep Iraq as well as developing countries in need of food imported from developed produced countries , as the monopolistic companies suffer a great surplus of food , and searching for markets to dispose of it , so how can they come to Iraq and produces food.
- for political considerations , the direct foreign investments will not go to Iraq to keep its political dependency to the Western countries, particularly the United States.
- Iraq is the second country in terms of oil reserves, estimated at 145 billion barrels, so The plan is to keep Iraq to export oil and imports of food and everything needed of goods and services. And manpower in Iraq is unemployed workforce and possess the skills and competencies and experience what it makes it qualified to work for foreign companies and low wages compared to labor inflows from abroad, and the best example of one of the mobile phone companies that give the Egyptian engineer (800-1000) per month excluding housing while Iraqi engineer earns (300-400) per month.
In spite of all mentioned about that the Iraqi environment is not favorable and encouraging for the direct foreign d investment, which means it repulsive to it , due to lack of infrastructure, which leads to higher costs of production and lower quantities , administrative and financial corruption, which complicates things and raise costs in the shadow of the absence of legal environment, and the lack of some of the laws and the weakness of the other, and the weakness of the effectiveness of economic policies and the lack of clarity in the economic program of the government, all of this will lead to increase the risk on the one hand, and low return on investment on the other.
The investment in Jordan , we find there are many pull factors, including:
the Investment Promotion Law and the treatment of the non -jordanian investor like the treatment of the Jordanian investor giving him the right to invest in the Kingdom of ownership or to participate or contribute in any economic project, it is not permissible to own the entire project within a certain business services sectors and construction contracting, and investor has absolute right to the management of his project in the manner he sees and with persons who are selected by him for this administration.
The Investment Promotion Law No. (16) of Jordan ‘s 1995 is an appropriate legislative framework to attract foreign investment and domestic stimulus, that includes the benefits, incentives and guarantees for investment laws at the regional level, providing customs and tax exemptions for investment projects within the following sectors: industry, agriculture, hotels, hospitals, maritime transport, railways, cities entertainment and leisure tourism and convention centers.
In Dubai, the success of investments due to several factors , including Decree No. 2 of 2002 , the establishment of Dubai authority to attract investment and development as it was established more than 34 free trade zone in the UAE that attract investors from around the world, including the free zone of Jebel Ali , one of the fastest global growth as one of the fastest free zones which is growing on a global level, as provided incentives that achieved successes during the past years where it recorded a growth in the base of customers reached 60% during the past four years, also recorded an average growth of 34% per year in revenue, in addition to providing more than 160 thousand jobs for the Emirates economy, and the flow of direct foreign investments to the UAE.
Free zones for investors in the UAE provides a range of important facilities sought by most of them, namely:
- anabsolute ownership to foreign companies, tax exemptions on imports and exports, and the lack of restrictions on the currency and the free movement of capital, and also provides a transaction procedures to obtain authorization within 24 hours,
and provide the best terms and ideal conditions for the business and enterprise, distinctive infrastructure facilities, facilitating sponsorship and visas procedures for all employees and staff , and the completion of the transaction as soon as possible through a single window, allowing for products that produce in free zones to be traded in the domestic market through a proxy. These are all considered to attract factors for the investment into the country .
And here we get to conclude that the Iraqi government has to review of the proposed strategy for 2006 to attract foreign investments to the country in which they can convert the investment environment in Iraq from the expelling environment for investments into an attractive environment by the organization of the legal environment and to reconsider legislation that existed before the occupation with the abolition of (Bremer law ) for the Investment and legislation of new investment laws that encourage direct national, Arab and foreign investment, as well as legislation of a package of laws such as the protection of physical and intellectual property rights, consumer protection, competition and prevent monopoly , tariffs, export subsidies and trade mark law in order to ensure the state of reassurance for the investor on the one hand and preserving the national and economic aspects .
Shatha Khalil
Translated by : Mudhaffar Alkusairi
Unit Economic Studies
Alroa duck Center for Research and Strategic Studies
Sources:
1. The Republic of Iraq, the Council of Ministers, the Constitution of the Republic ofIraq, 2nd Floor, in April 2006 pages sporadic magazine Baghdad College ofEconomic Sciences University’s College Conference number (54) 2013
2. invest in within the United Arab Emirates. Http://ae.fbsemirates.com
3- News News.
4. The official website of the government electronic / Hashemite Kingdom of Jordan , political analyzes.
5. The role of foreign direct investment in the Iraqi economy
(importance and opportunities) m. Obeis Karim Hassan al – Azzawi (search)
Rawabet Center for Research and Strategic Studies