DUBAI, 9 March 2004 — Iraq and its investment outlook were in the spotlight yesterday at the fifth International Islamic Finance Forum in Dubai. The three-day forum, under the patronage of General Sheikh Mohamed ibn Rashid Al-Maktoum, Crown Prince of Dubai and the United Arab Emirates minister of defense, is being attended by 400 senior executives from the Islamic finance sector in some 40 countries.
The global director of Dow Jones Islamic Indexes, Rushdi Siddiqui, said Iraq was now competing with Eastern Europe, South and Central America, Asia, China and sub-Saharan Africa for foreign investment. “I believe the fundamentals exist for the creation of institutions for capital market integration,” he said, “but the story is not getting out.” He estimated investment wealth in the Middle East at $2 trillion.
Dr. Zaha Rina Zahari of the Kuala Lumpur Stock Exchange — now the Bursa Malaysia — told forum delegates that 703 of the 916 companies listed on the exchange were Shariah-compliant. “Companies that are Shariah-compliant from the start attract more investors.” She said Islamic unit trust companies controlled $6.5 billion in funds.
Ms. Maria-Gabriella Khoury, head of research at Atlas Investment Group in Jordan, estimated Iraq’s real GDP growth at 45 percent for 2004 and 25 percent for 2005.
“Iraq is rich in resources but has been held back by sanctions,” she said. The former Baghdad Stock Exchange had only 114 companies listed in four sectors and most of them were government owned.
Investment incentives now include tax breaks from dividends and capital gains. The exchange, now known as the Iraq Stock Exchange, plans to begin trading in the next few weeks. “Shares held by the old regime will be put on hold and then sold at public auction,” Dr. Zahari said, adding that the exchange’s 11-member board had been replaced. She said the future of the exchange centered on “security, security, security.” Directives issued by the Coalition Provisional Authority (CPA) have introduced new foreign investment laws that, among other things, allow “up to 100 percent foreign ownership and repatriation of gains.” With the launching of a new currency for Iraq, three major banks are already licensed there. Emphasizing Iraq’s investment potential, Dr. Zahari said market capitalization had until now represented a mere 0.1 percent of GDP. Privatization of state owned enterprises will involve 192 companies but has not yet begun.
Discussing law in Iraq was Muneer Khan of the legal firm of Clyde & Company in Dubai. He said Iraq had been subject to numerous constitutions but the 1990 constitution had never been formally adopted. Iraq’s new company law which took effect three days ago affects private (and not public) companies, he said. Tax rates effective in Iraq from Jan. 1 this year are a maximum 15 percent income tax on individuals and the same on companies. The new foreign investment law introduced by the CPA has caused “confusion,” even though the Civil Code of 1953 and the Commercial Code of 1984 are still the main sources of Iraqi commercial law. The CPA’s Order 40, now the “banking law” in Iraq, permits international banks to operate in Iraq. But, he warned, “Laws introduced by the CPA may be reversed when the Iraqi government makes its own constitution.”