Iraq; financing terms will play a key role in awarding foreign firms contracts - includes related article on the Baghdad International Fair

Business America, July 7, 1986

IRAQ

U.S. exports to Iraq declined sharply in 1985 from their prior year level, largely due to the strength of the dollar in the first half of the year which hurt the competitiveness of U.S. goods. The sharp depreciation of the dollar against the currencies of Iraq's other major trading partners that has taken place since September 1985 has greatly improved the price competitiveness of U.S. goods. Nevertheless, the decline in Iraq's oil revenues will almost certainly result in the government continuing its austerity programs in 1986, which will limit the prospects for immediate sales.

In addition, the Iraqi government's policy of requiring deferred payment terms on virtually all commercial imports will be an almost insurmountable obstacle to sales for those firms that are unable to offer financing. As a result of this situation, in 1986, as in the prior three years, agricultural products will dominate U.S. exports to Iraq. The U.S. Department of Agriculture's Commodity Credit Corporation guaranteed $430 million of credit in 1983, $684 million in 1984, $340 million in 1985, and has announced $500 million so far in fiscal year 1986 for the sale of wheat, rice, and many other agricultural commodities to Iraq. To date only short-term credits are available from the U.S. Export-Import Bank for funding sales of nonagricultural goods to Iraq because of continuing problems in negotiating a mutually acceptable agreement that would allow Eximbank to offer a limited amount of medium-term credits.

It is unfortunate that the downturn in the Iraqi market coincides with a significant improvement in the commercial climate for American companies. In 1982 American companies participated in their own pavilion at the Baghdad International Fair for the first time since Iraq broke diplomatic relations with the United States in 1967. American companies again participated in the 1983 and 1984 fairs and in 1985, after restoration of formal diplomatic relations between the United States and Iraq in November 1984, a record 22 companies exhibited at the first official American pavilion at the Baghdad Fair. Senior Iraqi government officials have made it clear that they are eager to have American companies participate. This is especially important in Iraq, where the public sector accounts for 90 percent of foreign trade. American products and technology enjoy a solid reputation in Iraq, and those American companies which establish themselves during the current period could enjoy improved commercial prospects at the end of Iraq's war with Iran, when the Iraqi government hopes the economy will substantially recover.

The following sectors of Iraq's economy appear to offer the best prospects for sales of U.S. equipment, supplies and services.

Agriculture--Iraq is a good client for U.S. seeds, and, as the land tenure pattern allows for somewhat larger holdings, it should also become a good market for equipment suppliers. The country has already made widespread use of tractors and harvesters, but it has yet to increase the use of specialized appliances and equipment.

Industry--While the government continues to accord this sector a high priority, financial constraints imposed by the war with Iran and, more recently, the reduced oil revenues are hindering development. During the last few years, the government has concentrated its efforts on commissioning previously initiated projects. Among such projects are the giant phosphate fertilizer complex in the Western Desert. Some modernization of existing industrial plants is proceeding despite the serious shortage of foreign exchange. The slowdown of new project starts is being used as a time to "rationalize' planning and management of the industrial sectors. The government has largely determined roles for both the public and private sectors. Public-sector projects will, in general, concentrate on providing basic products. The mixed public and private sector will produce consumer durables and some other consumer products while the private sector will devote its energies to small-scale projects. According to guidelines for 1986 investment, new projects will be largely confined to those which rely heavily on local raw materials and either result in significant import substitution or earn foreign exchange. One of the new projects that meets these criteria and is liable to go ahead will be a new million ton-per-year ammonia-based fertilizer plant in north Iraq. The mixed-sector is expected to add air-conditioners and confectionary to its production list.

Transport and Communications-- This was the first sector to suffer from the country's foreign exchange austerity program. The 1,200 kilometer Expressway No. 1--linking Baghdad with the Jordanian, Kuwaiti and Syrian borders--is still under construction but at a slowed pace. Although some sections may be started during 1986, best estimates for completion of the entire project are now for sometime in 1988. Internal roads, both rural and urban, continue to be built, primarily because of their very low foreign exchange requirement. No bridge worth mentioning is to be tendered in 1986. However, design work for some tunnels under the Tigris River in Baghdad may be put out to bid. Expressway No. 2, linking Baghdad with Turkey, has not yet been tendered.