How to invest in frontier countries (part 3): Iraq
11 June 2021
A frontier market that is showing signs of life again
Any analysis of the Iraqi stock market needs to take into consideration just how underdeveloped the country is. It is a frontier country in the true sense of the word.
- Since the 1980s, Iraq's capital Baghdad has grown from 2m people and an estimated 150,000 cars to nearly 10m people and probably closer to 2m cars today.
Its infrastructure remains a mess, though, with almost no investment having taken place since the 1980s.
- 80% of the population don't have a bank account, and 90% of the economy is based on cash.
This may seem surprising, given the large number of banks operating in the country – 42 of the 103 publicly-listed companies are banks!
Rather than serving Iraqi consumers, though, these banks primarily act as service providers for areas such as trade finance.
By Western standards, Iraq is stuck in a time warp. The country is decades behind.
Yet, I also detected some exciting signs.
The stock market's rally from January until May 2021 was driven mainly by local retail investors and foreign investors.
It's a good sign that it wasn't just a single group driving the market.
In case you wonder, domestic institutional investors didn't contribute to the rise – simply because there are no domestic institutional investors (yet)!
I managed to speak to Aysegul Ozge Ozgur, Head of Research at Rabee Securities, the leading brokerage firm in the country. She told me the following about the current activity in Iraq's corporate sector
"We see such acquisitions rarely in Iraq; however, such movements help the corporates to save time and money by considering the difficulties in Iraq for establishing a new factory, a branch, or even at the first step to find the right location and the suitable land to do that.
While such acquisitions create some optimism in the market, the main triggering factors for the stock market will be the establishment of a custodian, listing of oil-related sector companies,
because there are no oil sector companies listed on the ISX,
listing newly established companies mainly the high-tech companies, and listing some state banks that are the major players in the Iraqi banking sector.