GroFin - Why Iraq makes a compelling case for Impact Investments

Why Iraq makes a compelling case for Impact Investments

In December 2017, Iraq confirmed it had defeated the Islamic State in Iraq and Syria (ISIS) group, three years after the jihadi group swept through the country, seizing some of its largest cities and wreaking havoc on the local population.

Now, authorities estimate Iraq needs nearly US$90 billion to restore the country that has been reeling under the impact of occupation by the ISIS. While the 10-year reconstruction plan will cost US$88.2 billion, at least a quarter, US$22 billion, is required immediately.

Of this, Iraqi officials state that at least US$17 billion will go toward rebuilding homes. The United Nations estimates 40,000 homes need to be rebuilt in Mosul alone. A major city in northern Iraq, Mosul was affected most deeply by ISIS extremists who devastated homes, schools, hospitals and economic infrastructure, displacing millions of people.

GroFin Iraq Client - Basra Driving Institute

And the turmoil in Mosul is just the tip of the iceberg. Across the nation, the war against the ISIS displaced more than 5 million people – of which less than half have returned to their hometowns in Iraq. Moreover, more than 4 million children are in need of humanitarian assistance with 3 million unable to regularly attend school in Iraq, according to UNICEF statistics. As many as one in four Iraqi children live in poverty in the nation of 37 million.

Also, as OPEC’s second-largest crude producer and home to the world’s fifth-largest known reserves, Iraq needs up to US$7 billion to repair its oil and gas fields as it is currently struggling to pay the international firms running them. Against this backdrop, the Middle East as a whole, especially countries like Kuwait whose deep pockets rely on oil production, have taken a hit in recent years as energy prices crashed and only recently began regaining ground.

Given the enormity of the humanitarian and economic crisis that is threatening to engulf the Middle East as a whole, governments from around the world have pledged billions of dollars in loans and investment for the reconstruction of Iraq. Indeed, Iraq secured nearly US$25 billion in investment and credit during an international donors’ conference in Kuwait City, with Britain and Turkey leading the charge.

While some observers question the rationale for investment instead of aid, it cannot be denied that having a long-term stake in Iraq – as is implied by an investment over a prolonged period of time – promises sustained and targeted engagement and interest in the country. Long-term investments are most certainly the need of the hour, with schools, sanitation and basic health care all sorely needed in areas devastated by the ISIS.

Such infrastructure projects could well be undertaken by private sector companies, backed by the World Bank or external donors. Indeed, to support rebuilding efforts in Iraq by attracting investors, World Bank officials have been pointing to legal guarantees available in post-ISIS Iraq, courtesy an investment law that offers ownership, unlimited cash transfers and tax breaks, among other benefits.

GroFin Iraq Client - Al Majal Technical Services (AMTS)

However, officials acknowledge a feeling of fatigue from international donors, especially since the ISIS occupation has sparked the biggest mass migration since World War II. Moreover, ennui has set in, as this is the second time in less than two decades that Iraq has turned to the international investor community and government allies for support in nation rebuilding, the last time being the aftermath of the 2003 war.

At this critical juncture, Iraq needs a concerted focus to rebuild the nation by raising funds from right-minded and long-term investors in a manner that is sustainable and inclusive. It is here that impact investors, with their sense of mission, emphasis on blended returns instead of purely financial returns, and focus on developing vital needs sectors such as schools, hospitals and energy, have an important role to play.

Within the impact investing arena, pioneering organisations such as GroFin that have an entrenched presence in the Middle East, can lead the way for the investor community as a whole. GroFin’s dedicated Nomou Iraq Fund supports 81 local entrepreneurs and has extended funding of US$ 4.9 mn to 9 homegrown SMEs that sustain a total of 657 jobs and support 3,285 livelihoods per annum (all figures as at end of 2017). Moreover, Nomou Iraq’s finance and support touches many lives at the base of the pyramid (BoP), with 46% of all employees at investee SMEs comprising low-to-semi-skilled workers, while 700 customers served per annum belong to BoP households.

Ultimately, impact investments are the need of the hour for Iraq as the war-torn nation grapples with an uncertain future in the absence of the required funding to build basic infrastructure for its residents, currently counting as many as 3 million internally displaced persons. If you are an investor seeking to make a difference in the Middle East, GroFin Iraq would be happy to partner with you and enable you to reach out to local entrepreneurs whose businesses are generating employment at scale and touching multiple lives.