Doing business in Iraq: Tread carefully

Oil, security, infrastructure, corruption, getting paid - all of these are factors to be weighed in the scales when deciding whether to do business in Iraq. Ten years after the 2003 invasion where is the country now, in terms of opportunity, risk and law for the UK construction industry?

UK investment?

In 2010, according to a report of the National Investment Commission, in association with UK Trade and Investment, published by Allurentis, the value of the UK’s commercial activity in Iraq was $1,215m (£794m), 2.8% of foreign commercial activity by value.

Way out ahead of the UK was Turkey – with its obvious geographical logistical advantage – at 34.9%. Another seven countries also sit in front of the UK, including, in descending order, Italy, France, South Korea and the US.

What are the opportunities?

Iraq has massive oil reserves. It has budgeted for exporting 2.9 million barrels a day this year and its aim of producing 12 million barrels a day by 2017 would make it a very major player among producers. But getting to this target requires infrastructure.

The oil will have to pay for this infrastrucutre - dams, railways, bridges, airports, hotels, and millions of homes (200,000 units each year for a decade), plus roads, sewers and services to support them. It amounts to a lot of work that should last for years.

Even if an arbitration award is obtained, there remains the question of enforcement

The risks?

Security is an obvious risk, as we are constantly reminded by the press headlines. Corruption is another. Iraq was ranked 169 out of 176 countries in the Transparency International 2012 Corruption Perceptions Index.

And Iraq was ranked 165 out of 185 in the World Bank 2013 ease of doing business tables. Time, energy and patience are required to make progress through the bureaucracy.

And the legal framework?

Investment is governed by Investment Law 13 of 2006 as amended by law No. 2 of 2010 and foreigners can take a 100% stake in an Iraq company.

For those used to doing business in the Middle East, the law in Iraq will look familiar. The Iraq Civil Code, influenced, like other Arab codes, by the Egyptian Civil Code, takes precedence over, for instance, Shari’a. Iraq cannot compete, however, with the more advanced approach of Dubai and its International Financial Centre, to dispute resolution.

Foreign arbitration is the usual contract dispute resolution route that sidesteps any concerns about the speed, expertise or impartiality of local courts and the Iraqi courts have recently adopted a welcome hands-off approach to foreign arbitrations.

But even if an arbitration award is obtained, there remains the important question of enforcement. Iraq is not yet a signatory to the New York Convention (although this may change before too long). A possible alternative is enforcement of an award in Iraq under the Riyadh Convention, perhaps through the courts in Jordan.

All of which makes it important to take local legal advice in getting over legal and administrative obstacles.

What about contracts?

Iraqi law provides provisions relating to construction contracts in Articles 864-890 of the Iraqi Civil Code. These provide a framework for the main requirements for contracts of works. There are three key obligations:

• Work should be in accordance with the provisions of the construction contract between the parties
• The contractor should deliver the works on completion
• The contractor is liable for complete or partial collapse of the building.

This is a joint liability imposed on the contractor and designer for certain building defects, known as decennial liability. This is similar to strict liability but is applied to construction projects. This joint liability lasts for 10 years from completion and means contractor and designer are jointly and severely liable for structural defects in the works.

The next decade in Iraq for UK construction companies

Pass the crystal ball. As risks lessen, or are successfully managed, the opportunities presented by Iraq become more attractive, but not,
of course, just to the UK industry.

Less risk is likely to mean more competition. So - swings and roundabouts. But perhaps it is also worth remembering the phrase “fortune favours the brave”.

Raid Abu-Manneh is a partner in the Construction and Engineering team at Mayer Brown International and heads the International Arbitration Group in London