Security, uncertainty, banking weaknesses hindering Kurdistan Region trade

ERBIL, Kurdistan Region - The level of trade between the Kurdistan Region and foreign countries such as the United Kingdom (UK) is challenged by security concerns, the lack of certainty in the current business environment, and the weaknesses of an underdeveloped banking system. 

Kurdish and Iraqi officials as well as experts, and the UK’s consul general to Erbil discussed the gaps in current trade between the UK and the Kurdistan Region during a forum organized by the Kurdistan Britain Business Council (KBBC). The council, led by Ashty Aladin, is aimed at providing a platform to connect the UK and the Region in terms of trade and business. 

Strong relations exist between the UK and the Kurdistan Region especially given that a large number of Kurds reside in the UK. “People to people links, societal links, historical links” between the two already exists but these need to be “built into a trade relationship,” David Hunt, UK Consul General to Erbil told Rudaw English at the forum. 

Hunt said that Iraq is the UK’s 91st trading partner and that while levels of trade with the Kurdistan Region are low, he sees the potential in the expansion of trade and expressed his hope that this could be achieved. “My honest view is that it could be so much more than it is.”

The main goods exported from the UK to Iraq consist of pharmaceutical and electric goods, beverages, and electric motors. In 2021, the total amount of exports amounted to 609 million pounds (under $739 million) which Hunt described as “disappointingly low” while praising the efforts that are underway to boost trade. 

“The business environment has got to be right for businesses to trade, export, invest,” the consul said adding that businesses seek certainty in order to minimise risk. Other key reassurances that British businesses look for are guarantees access to legal recourse, protection of intellectual property, and payment. 

The consul general supports the KRG’s efforts to create an environment where “companies can come to invest, export, and know that they have certainty that they will get paid, their intellectual property rights will be respected,” Hunt stated, noting that progress has been made and reforms are currently underway, but there is still more to do. 

On their official government website, the UK offers a guide to conducting trade in Iraq and the Kurdistan Region while also highlighting the main challenges businesses may confront. These include security concerns, lack of transparency, weak banking sector, and delays in payment. 

Iraq is ranked by Transparency International as the tenth most corrupt country worldwide, a position it shares with Zimbabwe, Cambodia, and Honduras. 

In addition to corruption, Iraq has been mired in decades of conflict and political instability. While it is recognized that the Kurdistan Region is relatively safer than Iraq, the same safety standards are applied. 

The current travel advice on the UK government website states that the “Foreign, Commonwealth & Development Office (FCDO) continues to advise against all travel to Iraq, including the Kurdistan Region of Iraq.” 

When asked about the travel advice and whether this prevents further British investment or business interests in the Region, the consul replied that it cannot be changed in order to facilitate business as it may put UK nationals at risk  and needs to be kept as accurate as possible, but trade is still encouraged in other ways. 

However, he added that the UK government constantly keeps its travel advice under review, adding that trade with the Kurdistan Region continues to be encouraged and facilitated through different events and forums. 

During the panel, Hunt stated that the KRG needs to continue enacting reforms in order to differentiate itself from Iraq and to be “more attractive to UK businesses.” 

In response to this, KRG’s Minister of Trade and Industry Kamal Muslim said that out around 4,000 foreign companies in the Region, only 151 are British which is “not up to our [KRG] ambitions.” The minister called on the UK consulate to convey the message to the UK that business in the Kurdistan Region is “safe,” adding that he hopes to “see greater participation of the UK.” He also urged for more visas to be granted to Kurdish businessmen so that they can travel to the UK for business. 

The lack of a banking sector and trade

The lack of an adequate banking sector in both Iraq and the Kurdistan Region was repeatedly identified as an obstacle to increases in trade throughout the forum. Muslim added that the lack of trust between investors and Iraqi as well as Kurdish banks is a major challenge. 

The banking system in Iraq is “dysfunctional, archaic, and paper-based” as Ahmed Tabaqchali, senior fellow at the Institute of Regional and International Studies (IRIS), bluntly told Rudaw English. 

The lack of a banking sector also means loans are not available for small businesses or start-ups, jeopardising the potential of new investment and trade in the country. 

Tabaqchali added that the current mindset in Iraq with regards to banking is “don’t break what is working,” so changes are not enacted. He added that the solution does not lie in change or reform. “The way to solve it is not reforming them [banks], but enlarging the whole banking system.” 

Although numerous banks exist across the Kurdistan Region and Iraq, daily affairs are predominantly conducted in cash and cards are mainly used for withdrawals as the ability to pay by card is not an option. 

“We store our wealth in paper not in banks because there is no trust in the banking system,” he added, echoing remarks made by the minister of trade. 

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