Shwan Ibrahim Taha
Inayat-ur-Rahman, Business Editor
Iraq is truly a goldmine for investments. Sixty per cent of the Iraqi population is below the age of 25, making the country particularly advantageous due to its youthful demographic. Iraq also possesses abundant natural resources, including valuable and fertile agricultural land, as well as a geo-politically strategic location.
This was stated recently by Shwan Ibrahim Taha, Founder and Chairman of Rabee Securities, during an exclusive interview with Gulf Today.
He noted that a key contributing factor is the Government of Iraq enacting good laws and procedures to encourage investments and infrastructure projects. Regional support has also been significant, exemplified by the Saudi Arabia Public Investment Fund (PIF) heavily supporting investments in Iraq through the Iraq Development Fund.
To a question about the impact of recent geopolitical changes in the region on investment opportunities and market volatility, Taha added that the current high price of oil is consistently advantageous for Iraq. Over the past 20 years, Iraq has successfully modernized its oil industry, potentially allowing for around 5 million barrels for exports per day. As the oil price continues to rise, currency flows into the country.
“Another contributing factor is the current peaceful geopolitical climate in Iraq; there has been no civil unrest for the last few years, instilling confidence in the country. Today, Baghdad, Iraq’s capital, stands out as one of the most vibrant in the region. Citizens are spending money, enjoying dining in restaurants, having fun, and investors are finding opportunities to invest. The combination of the high oil prices and this newfound consumer confidence are the two key factors influencing the trend towards investing in Iraq.”
“Additional factors include the current government’s efforts to modernize laws, incorporating changes in the tax system and investment laws. These initiatives are encouraging both foreign and local investors to continue their investment activities.”
Taha echoed that high inflation and elevated interest rates impact not only Iraq but are observable globally, as indicated by reports worldwide.
“In a scenario where a bank offers an individual a 6% interest rate rather than 0.5%, even with an inflation rate of 8%, the individual might still opt for the 6% option rather than investing in something potentially yielding 10%, given the higher risk. Despite the fact that keeping money in the bank results in a loss due to inflation, the perceived risk of alternative investments influences this decision. While high interest rates pose challenges to Iraq and investments in general, a distinctive aspect for Iraq is its overall low level of national and individual debt. Unlike other countries or companies, Iraqis do not heavily rely on debt.”
“Although the high-interest rate hasn’t significantly affected current businesses in Iraq, leveraging at present, especially with high interest rates, proves challenging for businesses. Nevertheless, if businesses leverage with a flexible interest rate, they can still generate profits, as Iraq boasts high profit margins. Consequently, businesses in Iraq may not be deterred by a 10% interest rate, whereas in the US, such a rate would be a considerable concern. Surviving and even thriving despite borrowing at a high interest rate is plausible, and as interest rates decrease in the future, profitability is expected to improve, following a cyclic pattern”
“Our index, known as the RSIX index, is currently utilized by numerous investors. We exclude companies from this index if they cease to be liquid or stop trading for any reason, employing specific liquidity parameters before admitting companies into the index.”
“Irrespective of the sector, we remove companies from the index when the trading and liquidity of their shares, both on the index and the stock exchange, have been lower than other companies over the past six months,” Taha added.
“Typically, every six months, we undergo a rebalancing of the index. During these rebalancing periods, there are instances where no changes are made, especially when there have been no significant changes in the larger companies. Occasionally, we may remove one or two companies, replacing them with others that are not currently indexed. We promptly communicate these adjustments to our clients and the market.”
“In Iraq, the stocks we aim to purchase are in reputable banks because we perceive the banking system in Iraq to be relatively small, and the primary avenue for these banks is growth. The largest private bank in Iraq has an estimated value of around $600 - $700 million. This bank generates a 50% return on its capital annually, whereas the largest banks in the region, whether in Turkey or Saudi Arabia with multiples of billion dollars, offer returns on capital below 20%. It is this disparity that attracts us to invest in local banks.” Taha concluded.
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