World Bank unit guarantees first Iraq investment

The World Bank said on Thursday it will insure for the first time an investment in Iraq, a sign that smaller private investors are seeing opportunities in a country still regarded as too risky for large investments.

The Bank's political risk insurance arm, the Multilateral Investment Guarantee Agency (MIGA), said the $5 million guarantee would cover a Turkish firm's investment in a plant that manufactures polyethylene terephthalate (Pet) preforms, the raw material used to manufacture plastic bottles.

The guarantee, for Karo Dis Ticaret ve Sanayi Ltd, insures the investment against expropriation, war and civil disturbance, and currency risks, Miga said. The project is located in an industrial zone some 17 kilometers southeast of the center of Baghdad.

Established in 1988, Miga promotes foreign direct investment in developing countries by guaranteeing investments through political risk insurance.

"It is a nice demonstration that you can do business in Iraq even with a security situation which is of concern to everyone and an environment that is not yet conducive to large projects," said James Bond, Miga's chief operations officer.

Bond acknowledged that the large power and oil investments Miga had hoped to support had not yet materialized, and big investors remained cautious about Iraq.

"We're doing projects that are generally not that large simply because there aren't that many big projects being done today," Bond said of investments in Iraq.

"What you're beginning to see, even though things are taking perhaps longer than we all would've liked to get the larger complex projects moved forward, is private investment of a smaller scale," he added.

Iraq is only now emerging from the violence following the 2003 US-led invasion. The country desperately needs investment in almost every sector as it seeks to rebuild after decades of war and international sanctions.

Regional partners Syria and Turkey have strong trade links with Iraq, but many international firms remain wary of security in the country, where bombs and attacks are daily occurrences.

The lack of a government seven months after an inconclusive parliamentary election has also raised concerns insurgents would try to exploit the power vacuum. Iraq's regulatory environment and issues like corruption also remain obstacles to investment, companies say.

Miga's underwriter for the Turkish investment, Noureddin Ennaboulssi, said the plant would reduce the need to import Pet into Iraq and therefore make the product available cheaper to consumers.

He said Miga was considering backing a second-phase of the project to expand the facility.

"Currently, nearly all Pet preforms are imported from neighboring countries," Ennaoullssi said. He said the investment was also a good example of so-called South-South investment from one emerging market to another.