DUBAI, 22 September 2003 — Iraq is open for business with the implementation of liberal new rules governing foreign investment, banking and taxes, Iraqi Finance Minister Kamel Al-Gailani said yesterday.
“These reforms will significantly advance efforts to build a free and open market economy in Iraq, promote Iraq’s future economic growth, accelerate Iraq’s re-entry into the international economy and reintegration with other countries,” Al-Gailani said in a speech before a committee of International Monetary Fund governors on the sidelines of the IMF/World Bank annual meetings.
The investment rules, signed into law Saturday by Paul Bremer, head of the US-led Coalition Provisional Authority in Iraq, provide the first legal framework for foreign investment outside the US-led reconstruction effort since the war’s end.
Although the investment framework, one of the world’s most friendly to foreign investors, had the imprint of US economic advisers, US officials said Iraq’s 25-member governing council was heavily involved in drafting the laws.
“The governing council had significant engagement in the wording of the rules,” a senior US official involved in the reconstruction told reporters.
Iraqis supported opening their economy so dramatically because they feel it is the only way to attract the capital needed to create jobs, the US official said. He cited World Bank figures showing that out of $140 billion of capital invested in developing countries in 2002, the Middle East attracted only $3.0 billion almost all concentrated in the energy sector. Even sub-Saharan Africa received $7.0 billion worth of investment during that year.
The investment framework opens up every sector of Iraqi business to 100 percent foreign ownership, except for natural resources. Iraqi oil officials have said the oil and gas exploration and production sector will remain under public ownership.
The framework treats foreign firms as equal to Iraqi firms, permits full and immediate repatriation of profits and omits both local content requirements and clearing committees for foreign investment, according to an overview of the legislation provided by the US-led Coalition Provisional Authority.
“Our main objective is to promote economic growth and raise living standards as soon as possible by building a free and market-oriented economy,” Al-Gailani later told a financial conference elsewhere in Dubai.
Until the economy can stand on its own feet, however, Al-Gailani appealed for the international community to provide funds for the reconstruction effort.
“We ask the world to help us,” he said. “Seize this opportunity.”
US officials acknowledged that foreign companies aren’t likely to rush into Iraq as long as security remains such a large problem. But they said it is important to get laws in place so companies can begin planning for a time when violence subsides. “A decision to invest by a company of any account is a decision that you need to plan usually over a period of time,” the US official said. The banking sector is a main focus of the legislation, opening the sector to foreign bank branches, units, representative offices and joint ventures with local banks.
Six foreign banks will be allowed to purchase up to 100 percent of local banks within the next five years. Two of these six banks will be allowed to a “fast track” entry process, under which prompt and substantial lending will be key criteria.
After five years, there will be no limits on foreign bank entry, according to an overview provided by the US-led Coalition Provisional Authority.
Any number of foreign banks can purchase up to 50 percent of local banks.
A $25 million capital requirement will be imposed on foreign majority-owned units, though not foreign branches.
Iraq will introduce a simple tax system, capping corporate and personal income tax at 15 percent, to stimulate economic growth. “This will create a strong incentive for savings and job creation,” said al-Gailani. Iraq will also keep import duties low, he said.
From Jan. 1, 2004, the current, temporary suspension of import duties will be replaced by a 5 percent duty on most imports, except for humanitarian goods, such as food, medicine, clothing and books, which will remain exempt from the tariff.
