Government regulation and competition in Iraq's construction industry

Construction Industry in Iraq: Government Regulation and Competition

The construction industry in Iraq occupies a significant position in the economy of the country, especially with respect to employment creation and contribution to gross domestic product (GDP). The industry experienced tremendous growth from 2008 to 2012, the average growth being 22.4% annually (Business Monitor International, 2013). However, the industry has suffered immensely in the last three years, particularly owing to the country\'s severe security crisis. In 2014 and 2015, for instance, the industry registered a decline of 19% and 7.3% in real terms, respectively (PRNewswire, 2016). This has significantly undermined investor confidence, a challenge that has further been compounded by the drastic decline in oil prices since late 2014 as well as reduced government spending on the sector. Projections, however, indicate that the industry is recuperating, and is expected to grow by 3.3% in 2016 in real terms against the backdrop of improving security and political stability (PRNewswire, 2016).

Government regulation has historically been a major obstacle as far as the growth of the construction industry in Iraq is concerned. Prior to the U.S. invasion of Iraq in 2003, the country was predominantly characterized by a centrally planned economy. As a result, the federal government exercised considerable influence over the construction industry, with the Ministry of Construction and Housing, the Ministry of Planning, and the Central Bank of Iraq playing crucial roles. For instance, it was mandatory for foreign companies wishing to do business in the country to be approved by the Ministry of Planning. In addition, most entities were state-owned enterprises. Since 2003, however, remarkable progress has been made in terms of creating a favourable regulatory environment. The shift from a centrally planned economy to market liberalisation has specifically opened up competition in the construction sector and allowed 100% foreign ownership of domestic businesses (Mcelroy, 2012).

At present, the construction industry is Iraq is largely driven by the private sector. There are hundreds of foreign companies doing business in the country, majority of which are from Turkey and Iran (RTI International, 2008). The companies are involved in diverse construction projects ranging from housing and real estate to industrial and infrastructure projects. Local companies also have considerable influence in the industry. These include Salahaddin Holding, Nokan Group, Faruk Group, Zagros Group, Falcon Group, Qaiwan Group, Salaei Group, and Senk Group. Moreover, there are hundreds of small and medium players in the industry. In essence, the Iraqi construction industry is a highly competitive landscape.