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Financing Growth: Foreign Investment and the Private Sector
from 2019 Sulaimani Forum
by Awder4
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Grant Felgenhauer Euphrates Fund Taha Abdulsalam Director, Iraq Stock Exchange Shwan Taha Chairman of Rabee Securities, AUIS Board of Trustees
6TH SULAIMANI FORUM
DAY TWO
Ahmad Tabaqchali is also a non-resident fellow at IRIS, serving as a board member of the Credit Bank of Iraq with over 25 years of experience in US and Middle East and North Africa (MENA) markets. He formerly served as the Executive Director of NBK Capital, the investment banking arm of the National Bank of Kuwait, as well as Managing Director and Head of International Sales at WR Hambrecht +Cp based in London, New York, and San Francisco.
Tabaqchali emphasized that the financial sector is rarely spoken about when considering the reconstruction of Iraq. In particular, capital markets and their positive role to raise or save capital are treated marginally. As a result, he was pleased to begin the second day of the conference with a panel that sought to address these issues.
Grant Felgenhauer Euphrates Fund
Felgenhauer began by saying that the Iraqi private sector needs growth and that it was common knowledge that the state payroll is overblown. However, until now there has been no conversation on this pressing need for private sector growth. He stressed that the Iraqi private sector needs to develop alone, absent from the directives of the central government, and that Iraq’s central challenge lies in capital formation and creation. Iraq has oil revenue that enters the local economy and then is spent, leaving no multiplier in the local economy such as a self-sustaining capital cycle. There is an urgent need for a domestic capital market that can support foreign investment and develop a capital cycle. An organic capital market, in which individuals and companies invest in the products or services of their choice, is ideal. Thankfully, he argued, Iraq’s financial problems are not intractable, and examples throughout history can positively illustrate how best to move forward.
“Iraq’s central challenge is capital formation and capital creation. “
Taha Abdulsalam Director, Iraq Stock Exchange
Abdulsalam agreed that the Iraqi Stock Exchange has faced many struggles in Iraq, within both the financial and banking systems. In fact, the entire economic system comes into play. Every country’s stock exchange has building capacities that go beyond trading systems. The regulations currently in place, which were made ten years ago, are dependent on trade. However, the items in the stock exchange only include shares for Iraqi companies. Moreover, there are insufficient regulations to encourage and attract investment in Iraq’s economy and products. One challenge is custody, whereby both global and Iraqi banks would help each other to persuade foreigners and Iraqi expatriates to invest in the stock exchange. While there are many good relationships and partnerships with foreign banks, there is still no chain of custody. Foreign banks struggle to put their trust in the Iraqi economy and stock exchange. Iraqi banks must say to foreign investors and banks that their securities and shares are safe, which is not currently the case as their relationship with global banks is weak. He argued that it is these global banks who must support the Iraq Stock Exchange to find solutions, which would not involve the implementation of large services or be costly. However, there are other areas of the Iraqi economy to invest in, mainly the oil and gas sectors, which are equally significant.
“Till now, we don’t have many regulations that help us to encourage investors to invest in Iraq’s economy, products, and stock exchange. “
Taha commented that Iraq has now reached the point where people, such as himself, must convince the government that capital markets and the stock exchange are important. Despite public discourse, there is no confidence in the private sector. The solutions are basic, with Iraq needing to form businesses which can be properly financed. Without financial backing, the economy is a body without a skeletal structure, without blood flow, and incapable of movement. He emphasized that no one in the executive branch of government has ever been involved in successful business endeavors under their own name, without the backing of political parties or wasta, meaning ‘connections’. Over politics, investment in the private sector is critical for progress and development in Iraq.
“We are reaching a point where we need to tell the government [of] the importance of the stock exchange, the importance of capital markets. “
