Question

evaluate the impact of foreign direct investment (FDI) in the oil and gas industry to the economy of kurdistan region/iraq.

write more than 1000 words

Answer 1

Iraq has the second largest oil resource in the world, presenting good business opportunities or foreign investors. However, foreign investors have avoided the country due to its on going unrest. This includes two wars (the Iran-Iraq war from 1980 to 1988, then the Gulf war in 1991), followed by United Nations (UN) sanctions, and most recently, since 2003 the country has become a battle ground for terrorists and insurgents in most parts of the country.Kurdistan Region is a safe and sustainable part of Iraq compared to the rest of the country.Itsrich natural resources (oil and gas)and competitive investment laws are expected to attractforeign direct investment (FDI) into the Region.However, despite Kurdistan Regional Government’s(KRG) massive advertising campaign internationally, and the many incentives offered to foreigners to invest in the Region, there is little evidence of foreign multinational companies’ willingness to commit to long term investment in Kurdistan Region.

Kurdistan Region presents good business opportunities for FDI, investing in the Region is closely associated with political and market risks. These risks are a result of Iraq’s recent history of violence, the current conflict between different ethnic groups over power and authority, and the Region’s uncertain long term political risks which are affecting multinational companies’ (MNC) modes of entry and preventing high-resource commitments (Uppsala theory).Region’s market attractiveness for FDI consideration are influenced by their own experiences, and the participants of this study play encouraging role in MNCs’ decisions to enter the Region.Kurdistan Region is an autonomous region in the north of Federal Iraq. It borders Syria to the west, Iran to the east, and Turkey to the north.Iraq has a central location throughout history in the Arabian Gulf and the Middle East. It has ports and airports of strategic importance and can prove that it is in a distribution and trading location at a lower cost. Iraq's strategic location, population, and competitive costs make it an excellent location for export to the region and the world. However, we all know that most of the goods sold in Iraq today are imported goods. Iraq's local market of 34 million offers a clear opportunity to produce and sell goods and services to provide import alternative.Iraq has one of the largest reserves of hydrocarbons in the world. Iraq has proven reserves are 143 billion barrels, and Iraq has undiscovered oil reserves, the world's second largest, are estimated at about 300 billion barrels. It also has gas reserves of about 127 trillion cubic meters and Iraq is rich in other minerals such as sulphur, phosphate, and iron.

There are investment needs in all sectors of the Iraqi economy where theIraqigovernment put more than 500 investment opportunities in various sectors according to the investment map prepared until 2013 according to the statistics of the Iraqi Investment Commission, including construction, industry, agriculture, tourism, housing, communications, and health care. Most of these investments are available on-line and more details can be obtained by contacting the National Investment Authority.The workforce in Iraq has a good education, with 21% of the population being graduates of the preparatory school and colleges and 14% of the technical and academic qualifications.Iraq is rich in certain disciplines such as engineering, medicine and agriculture as well as a large number of administrative and organizational skills. The youth population was approximately 9.3 million.Iraq provides exemption from all taxes for 10 years for investors, including company tax and fees. This period can be extended to another 15 years if the project is shared with a majority of Iraqi shareholders. There are more incentives that include the right to reattract investment and profits resulting from investment and the right to employ foreign workers when needed and three years exemption from import duties of equipment required and the Iraqi government to ensure the nationalization or confiscation of investments.Investors benefit from the low tax rate on companies in Iraq even after the end of the period of tax havens, where the ratio is only 15%, which is one of the most competitive rates in the region and the world. Both the tax-free period and the low rate thereafter will help the investor to make a quick profit and encourage reinvestment.And Kurdistan as part of the federal Iraq, which includes the three provinces.

FDI can drastically change the oil and gas industry in the region and its situation of the host countries in many ways as it changes the existing patterns of investments and this steers the economy into new directions (Krstevksa & Petrovska, 2012).Therefore, one can conceptualize FDI as a form of developmental tool that can create social and political impacts. That is to say FDI can be seen as a parallel for the one of the tools of the Washington Consensus on the developmental state theory which requires a heavy state intervention in the market and society in order to guarantee that the strategic and sustainable developmental goals are met. Economic development means is an integrated process which means that it has many components that come together and if it was considered separately one would inter the realm of error. This would mean, methodologically, that one has to control variables that are essential in the process of accounting for the impact of FDI (Ahrend, 2000). This research aims to investigate the nature of impact FDI has caused on the KR-I. It will contend that the distribution of FDI is not uniform across the KR-I and this has created some implications for the society. In addition, it will be argued that the improvement of FDI to better achieve its intended purpose is hindered by the inefficiencies in the KR-I state, market and society.