Bauble of Baathist regime transformed into an Iraq success



The sound of shelling and gunfire had barely subsided in the streets of Baghdad when a high-level meeting took place between officials of the Iraq Stock Exchange and the US Embassy.

Now that the invasion was over they were on a mission to reopen the exchange as soon as possible. That was in November 2003, just six months after the end of major combat operations by US forces. The market opened in the third quarter of 2004.

With the country and its people battle-weary and living under occupation, talk of buying and selling stocks might have seemed crass and irrelevant to most. But getting the market up and running was a priority for Iraqis and Americans alike.

Because of that, 10 years on, the exchange has managed to achieve something rare in Iraq.

The country has struggled to establish any of the institutions of a democratic state. From the coalition's Provisional Authority to the elected parliament, all sides have been dogged with sectarian tension and fraught by an absolute lack of progress.

Not so the Iraq Stock Exchange. It is far from perfect, but on Iraqi terms, the ISX is a paragon of institution building.

There had been a stock exchange in Baghdad since 1997, but under the dictatorship of Saddam Hussein its membership was tiny, trade was minimal and its purpose was unclear. Iraq was a centralised economy and most foreign investors were barred under US sanctions. The exchange was more or less a casino. A bauble of the Baathist regime.

In the decade that has passed since invasion the fortunes of the exchange, and the fortunes of most Iraqis, have changed immeasurably.

Back in 1997, according to brokers who were around at the time, the combined market capitalisation of listed companies was about 1 trillion Iraqi dinars (Dh3.17 billion). Today the combined market cap fluctuates between 5tn and 7tn dinars.

When it reopened under occupation in 2004 there were just 15 companies listed on the market. There are now 88.

Today trading takes place electronically on a proper exchange housed in its own building, two hours a day, five days a week. In 2004, when trading began again, brokers who were present recall assembling chairs in front of a white board at a Chinese restaurant adjacent to the Mansoor Melia Hotel. They worked just six hours a week.

Since 2007, foreign investors have been allowed to trade and now make up about 30 per cent of volumes. Last month, Asiacell, a mobile phone operator majority owned by Ooredoo (formerly Qatar Telecom), listed on the ISX. Some 67.5 billion shares were sold at 22 dinars each. Brokers in Baghdad say that more than 60 per cent of shares were sold to foreign investors. There were a few technical glitches, mainly matching buyers with orders that delayed trading by several days, but in all the listing was a success.

The company raised more than US$1bn (Dh3.67bn) and the share price shot up by daily allowed limits immediately after the listing.

Since then I have encountered fund managers from as far afield as Singapore, New York and London trudging from bank to bank around the world with slideshows showing an apparently foolproof case for investment in the ISX. They show very optimistic data for Iraqi GDP growth and massive share-price upside on the exchange.

They are right, of course, that Iraq is an emerging market with abundant oil revenues and is likely to show impressive growth for a few more years to come. They are also right that fledgling companies will show equally impressive earnings growth as they tap a new market. As more Iraqis are employed and wage inflation continues on its current steep trajectory, earnings will improve even more.

The local Pepsi bottler is a shining example with earnings growth of more than 400 per cent last year. Many of the banks on the exchange have shown earnings growth in excess of 100 per cent for the past two years.

There are obvious caveats. Principally a lack of liquidity as daily turnover is only around $5 million, and the absence of a third party custodian. But one can safely assume that as more companies choose to operate in Iraq, both of these problems will evaporate.

Nobody would suggest the ISX has miraculously become the next S&P, but perhaps the market can be described in a similar vein to Russia in the early 1990s as it emerged from decades of Soviet rule. Who would not wish to have discovered the "R" in Brics 20 years ago.

As the 10th anniversary of the US invasion comes around, the Iraqi business community can declare a victory with the ISX.

Every day the broking community shows up to work and the market functions exactly as it should - more than can be said for the country's institutions of government.

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U19 WORLD CUP, WEST INDIES

UAE group fixtures (all in St Kitts)
Saturday 15 January: v Canada
Thursday 20 January: v England
Saturday 22 January: v Bangladesh

UAE squad
Alishan Sharafu (captain), Shival Bawa, Jash Giyanani, Sailles Jaishankar, Nilansh Keswani, Aayan Khan, Punya Mehra, Ali Naseer, Ronak Panoly, Dhruv Parashar, Vinayak Raghavan, Soorya Sathish, Aryansh Sharma, Adithya Shetty, Kai Smith

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The Indoor Cricket World Cup

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Indoor cricket World Cup:
Insportz, Dubai, September 16-23

UAE fixtures:
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Saturday, September 16 – 1.45pm, v New Zealand
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ICC Intercontinental Cup

UAE squad Rohan Mustafa (captain), Chirag Suri, Shaiman Anwar, Rameez Shahzad, Mohammed Usman, Adnan Mufti, Saqlain Haider, Ahmed Raza, Mohammed Naveed, Imran Haider, Qadeer Ahmed, Mohammed Boota, Amir Hayat, Ashfaq Ahmed

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