A smart bet on the future of Iraq's economy

As security improves and investors eye opportunities in Iraq, the focus must be on sustained efforts to ensure long-term economic stability.

The sprawling residential complex in Karbala being built by Bloom Properties, an Abu Dhabi-based property developer, serves as a potent symbol of Iraq's recent economic trajectory. As one local property executive told reporters last year: "It's high risk, high reward. If you get it right ... and everything is going ok, invest a little bit of money because the rewards are high."

These days, many others believe that the rewards of investing in Iraq are greater than the risks.

As we reported yesterday, Iraqi officials are close to an agreement with Royal Dutch Shell for a gas contract worth an estimated $12 billion. While the deal still needs approval from the Iraqi cabinet, analysts are upbeat that it will spur both electricity production and investor confidence.

Security concerns have kept many foreign investors away from projects south of Kirkuk. But that seems to be changing. The Royal Dutch Shell deal, for one, centres around a cluster of super-giant oil fields near Basra, once an important trading centre for the greater Gulf, which has seen its reach diminished, particularly after the US-led invasion in 2003.

Nor are energy giants the only ones going out on a limb. Regional investors are pouring money into real estate and power plant projects; a Jordanian firm is partnering with GE to bring power to Iraq's north, for instance. These and other efforts contributed to Iraq's $10 billion in foreign direct investment last year alone.

The UAE, with other Gulf states, is playing a key role in the revival of Iraq's economic fortunes. As Mohammed al Hashemi, the head of assessment management for Abu Dhabi's Invest AD, told journalists in October: "Iraq is a country emerging from a difficult period" and it "cannot be allowed not to succeed".

And yet, charting Iraq's economic rebound will take more than pledges. While Iraq's recent budget projections are bolstered by a rise in oil prices, political uncertainty and lingering security challenges remain real issues for long-term stability. An even bigger challenge for development may be infrastructure improvements, from better roads to increased power production, but that too can be an opportunity.

As the Royal Dutch Shell deal illustrates, Iraq is, at long last, emerging from a war-ravaged economic blackout. For investor confidence to remain high, and great cities like Basra to return to prominence, investment will have to be met with sustained efforts to ensure stability and security. Only through this dynamic will the risks be minimal, and the returns be truly spectacular.