30 Apr 2012 (72 Pages)
Includes 3 FREE Quarterly Updates.
BMI View: According to the latest data released by the Central Organisation for Statistics, Iraq’s construction sector has been booming. The data confirms our optimistic outlook for the sector, and therefore we are maintaining our double digit growth estimate for 2011. However, delays in projects and rising security risks are weighing on our 2012 and 2013 outlook.
Iraq’s construction sector continues to grapple with the political and economic challenges of a post-war country. Despite a huge project pipeline, as the country tries 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 – US$33bn in infrastructure alone, and the very low base, is precipitating extremely high growth in the country’s construction sector, which, according to new data, saw 34% growth in 2009 and 65% growth in 2010.
Whilst we believe this will slow, this is due in part to base effects, as the overall industry value becomes more robust. However, as previously mentioned the obstacles to pushing projects through are hitting expected value creation. These are primarily political, economic and security related. The lack of sophisticate institutions and poor governance is impacting procurement. At the same time, rising security risks following the US withdrawal are threatening to destabilise the business environment. In the simplest form, security risks had receded from the primary risk associated with entering Iraq; however the growing instances of sectarian violence could see security concerns become paramount once again. At the same time, the instability and crippling lack of unity in the government is impacting policy creation. The government has struggled to pass a US$37bn infrastructure programme and further struggles to disperse funding for projects in a coherent manner.
The finance issue is both economic, the failure to restart oil production to the level desired, and delays in monetising gas, as well as bureaucratic. A lack of financing has derailed the Baghdad metro project and shortcomings in due diligence and governance resulted in contracts for power plants signed with unviable companies and the subsequent resignation of the electricity minister.