Between February 12th and 14th, the Kuwait International Conference for the Reconstruction of Iraq took place.
Chaired by Iraq and Kuwait, and with representation from the United Nations, World Bank, European Union, individual donor states, NGOs and companies looking to invest in the region, the conference discussed the extent of the damage done in the aftermath of the conflict with Islamic State, projects to support stability and community reconciliation in Iraq, discussions on how to create a suitable climate for investment through the showcasing of projects that currently exist in sectors of the Iraqi economy, and also coincided with the conference “Invest in Iraq” and a ministerial meeting of the Anti-IS Coalition governments.
In total, delegates from over 100 countries and an additional 1850 private sector representatives attended the talks. The Invest In Iraq talks were attended by Burgan Bank, the Kuwait Projects Company and Bank of Baghdad officials.
Better than expected, but less than needed
According to Iraqi officials the country needs $88 billion to fully fund its reconstruction efforts, $23 billion for the short-term, and the remaining $65 million in the medium term. On the final day of the summit, the total amount of money pledged ended up totalling $30 billion, in a combination of loans, guarantees and direct investment which clearly falls short of the needed overall amount, even when taking into account internal investment from Iraqi oil and gas revenues.
However, this is above the $20 billion goal that was originally set for the conference, and subsequently revised down to $5 billion, showing that confidence in the Iraqi government is higher than was expected. There were also uncertainties regarding the amount the Gulf states would be able to pledge, between the low oil prices of recent years and the ongoing conflict in Yemen the ability of Saudi Arabia and the United Arab Emirates in particular to contribute was under doubt.
Another issue that may have been a factor is that of the upcoming Iraqi elections. With the composition of the next government still unclear, donors are likely reluctant to make pledges at this time due to this baseline level of political uncertainty.
Seeking funds from the private sector
Iraq is also seeking to cover some of the reconstruction cost through investment from the private sector, an approach promoted in part by the USA in lieu of pledging its own money. Here, however, Iraq is likely to have more problems.
Among the chief of these is the issue of corruption. Iraq is ranked 169 out of 180 countries by Transparency International, and corruption is pervasive at all levels of government, and especially with regards to government contracts. To mitigate this, the Iraqi government has appointed the respected former parliamentarian, Mustafa al-Hiti, to head the reconstruction efforts and Prime Minister al-Abadi has promised that the government is in the process of laying down a legal framework to prevent corruption and protect investors.
Besides corruption, the main concern for companies seeking to invest in Iraq is that of security. Despite the defeat of ISIS, the perceived risk is still high and security costs for operating in some parts of Iraq can exceed $10,000 a day, a sum that deters all but the largest of multinational companies from doing business in those areas.
Regional tensions may complicate efforts
The tense regional rivalries are also a factor to consider with regards to reconstruction funding. According to some European diplomats, one reason Saudi Arabia was wary about pledging a large sum was Prime Minister al-Abadi’s electoral alliance with the Iranian backed Popular Mobilisation Units – an alliance which has since fallen through. Nevertheless, the spectre of Iranian influence in Iraq could spur the Gulf states to greater spending and diplomatic efforts to counteract it – or it may cause them to reconsider precisely how much they want to commit to a country whose alliances run counter to Saudi-Gulf interests. Iran itself has said it intends to help fund the reconstruction via the private sector instead of pledging money (which itself raises questions about how many of these companies may be linked to Iran’s Revolutionary Guard, which is a significant player in Iran’s economy and under sanction from the United States).
On a lesser level, there is also the ongoing tensions between Qatar, backed by Turkey, and Saudi Arabia and the rest of the Gulf Cooperation Group. It is notable that combined Qatar and Turkey were by far the largest state donors to the Iraqi rebuilding efforts, pledging $6 billion in total.
It is undoubtedly the case that all the surrounding states are taking advantage of this situation to create opportunities for increasing their influence within Iraq, and how that plays out will almost certainly have a large impact on future funding.
The Iraqi government expects to hold talks in March to follow up on the Kuwait conference, though few details are known at this time.
Marc Simms is an occasional blogger for Proelium Law LLP. Marc holds a MLitt in Terrorism Studies and a Masters in International Relations, both from St Andrews. His particular interests are in emerging international security issues, unconventional warfare and terrorism.
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