Washington: Corruption hinders investment in Iraq despite promising opportunities

Washington: Corruption hinders investment in Iraq despite promising opportunities

2026-10-17

Shafaq News – Washington
On Friday evening, the Bureau of Economic, Energy and Business Affairs at the U.S. State Department issued a report on the investment climate in Iraq for 2026, concluding that corruption, bureaucracy, weak financing and security challenges top the list of obstacles to investment, while noting that the energy, agriculture, industry and technology sectors stand out as the most promising opportunities.

The US State Department, in a lengthy report seen by Shafaq News Agency, indicated that the new Iraqi government, headed by Ali al-Zaidi, has placed diversifying revenues and strengthening trade relations with American and Western companies among its priorities, but turning these trends into tangible results is still contingent on broad administrative, legal and financial reforms.

The report identified a number of obstacles facing foreign investors, foremost among them corruption and bureaucracy, frequent changes in legislation and instructions, complex procedures for company registration and customs clearance, as well as high tax burdens and weak mechanisms for settling commercial disputes.

The report also noted that limited access to finance, electricity shortages, and security risks pose additional challenges to the expansion of foreign companies, adding that weak regulatory transparency and overlapping government powers could delay projects and increase their implementation costs, particularly in government contracts and infrastructure projects.

Corruption remains one of the most significant factors affecting investment decisions, particularly in the areas of licensing, government procurement, import and export, with ongoing concerns about bribery, nepotism and unequal opportunities among companies, according to the report.

He added that despite Iraq having large reserves of oil and natural gas, it is still unable to produce sufficient quantities of electricity to meet domestic demand, and this reality provides ample opportunities for foreign companies to contribute to the development of power plants, improve transmission and distribution networks, and provide the gas needed to operate power generation plants.

Natural gas stands out as one of the promising sectors, especially in the Kurdistan Region, which has large reserves and potential for expanding production and infrastructure. However, according to the report, investing in this potential requires greater legal clarity, settling disputes between the federal government and the regional government, as well as ensuring regular payments to companies operating in the sector.

The opportunities are not limited to energy, but also include agriculture, industry, tourism, health, education and digital services, in addition to transportation and logistics projects. The report also indicated that Iraq imported $1.7 billion worth of American goods during 2025, including agricultural products, machinery, consumer goods, aircraft and defense equipment.

The report noted that the Iraqi Investment Law provides incentives for projects that meet the conditions, including tax exemptions that may reach up to ten years, and customs exemptions on equipment and materials necessary for the projects. The income tax for public companies is 15%, while it usually reaches 35% for companies operating in oil activities.

However, the report pointed out that the existence of legal incentives does not guarantee their practical benefit, as some companies face difficulties in obtaining appropriate tax treatment and transferring profits and capital abroad, as a result of administrative procedures and banking compliance requirements.

Regarding foreign ownership, he said that the rules in place in federal Iraq generally allow ownership of up to 49% in locally established companies, with sectoral exceptions. As for the Kurdistan Region, it allows full foreign ownership in many eligible projects and companies, making it relatively more open to investors in some areas.

However, the region is not without challenges, most notably financial and customs disputes with Baghdad, delays in payments to companies, and difficulties related to labor and licenses. The region’s policy also stipulates that local residents must constitute about 75% of the workforce in investment projects, with the possibility of exceptions in specific cases.

Weak bank financing is one of the main constraints on the growth of the private sector, given the Iraqi economy’s heavy reliance on cash transactions and the dominance of government banks over a large portion of the sector’s assets.

The report also noted the continued efforts to reform banks, strengthen electronic payment systems, and comply with anti-money laundering and counter-terrorism financing standards, but the re-inclusion of Iraq on the Financial Action Task Force’s grey list in June 2026 confirms the continued shortcomings in this area, which may affect international banking relations and the costs of transfers and financing.

The report warned that security risks, including terrorist attacks and the activity of armed groups, continue to affect the business climate, noting that foreign interests, companies and vital facilities were exposed to attacks during the regional escalation in 2026.

Likewise, the limited enforcement of intellectual property laws raises concerns about the spread of counterfeit goods and digital piracy, while arbitration and dispute resolution problems and weak contract enforcement increase the legal risks facing investors.

The report concluded that Iraq possesses important assets for attracting foreign investment, benefiting from its natural resources and its need to modernize infrastructure and diversify the economy. However, investing in these assets requires moving from announcing reforms to implementing them, through combating corruption, simplifying government procedures, strengthening the independence of the judiciary, developing the banking sector, ensuring the stability of legislation, and fulfilling contractual obligations.

shafaq.com