What activities and investments is Definitus engaged in?
In the truest possible sense, we are a private equity firm in that we seek to invest our own private capital into projects here. In terms of strategy, we look to relatively small, low capital, low profile projects in Kurdistan. In an environment teeming with shopping malls, five star hotels and real estate developments, our portfolio might be described as unusual or even unexciting. This allows us to manage volatility and risk perhaps more easily than those involved in higher profile ventures. If one is investing in construction materials production facilities, for example, it does not matter if the final venture is a roaring success, a moderate success, or a complete failure; whether the mall is full or empty, or whether the houses are sold off plan or sitting empty. Basic goods such as adhesives, silicones and insulation must be bought regardless, and when gaps in the local market for production and manufacturing of such goods can be found, they can be stable, profitable ventures.

What investments does Definitus currently have in place in Kurdistan?
Currently, our largest investment in Kurdistan is in agribusiness. We invest in the land of local farmers and landowners who may have the land but not the cash resources to develop and improve their farmland. We work with them to grow wheat and corn, and are exploring other cereals also. In terms of value-add, we have invested in the development of artesian wells, land and infrastructure improvements and irrigation technology to allow for year-round farming and more intensive, effective use of the land. This sort of venture is not particularly flashy; it is low profile and low tech. However, by growing wheat and corn, the venture benefits the overall food security in Kurdistan and Iraq, it re-irrigates land that was previously unfarmed, which cuts down on dust, and it sits in the relatively low capital, low profile bracket that our portfolio targets. This also demonstrates that we intend to remain in this market for the long term, as investments in agriculture are invariably longer-term investments.

What are some of the challenges that local firms or foreign firms expanding into the Region face?
Finance is the fundamental challenge. Particularly when smaller companies enter the market, banks tend to be hesitant to lend capital to investors coming to Iraq. There is very little understanding and empathy for ventures in Iraq. It is assumed, sometimes for good reason, that it is a high-risk investment environment. Even when the businesses themselves are quite capable, the perception is that the business landscape is difficult to navigate, that there is significant political risk, or that bureaucracy and red tape will increase costs. So, there are many challenges, some perhaps exaggerated, that make would-be lenders hesitant to lend capital.

Contributing to this problem is that western banks are slow to enter the market. This might be starting to change; some banks are coming here, such Standard Chartered. But, many banks still do not want to deal with Iraqi business, whether that is an Iraqi company or a foreign company doing work in Iraq.

What role are local banks playing in the Region’s financial development?
Attaining financing from local banks is possible, but also carries its challenges. Local banks are wedded to the idea of using land as collateral for the loans they extend. That is very problematic for foreign companies expanding here, because land ownership is quite difficult for foreigners. Some banks, in very limited circumstances have deviated from this, which is encouraging. For major projects, for example, there can be a degree of confidence that encourages banks to lend. For day-to-day business, however, loans are available but often challenging to acquire. Additionally, lending periods are short and interest rates tend to be very high.

We anticipate continued growth in the next several years, but also, as success stories of recent growth in the past few years reach global investors, we anticipate that more capital will be drawn to the Kurdistan Region. In this regard, we believe that there is significant upside to investing here.

Are there any up-and-coming sectors that you might point investors in the Region to?
We think that much new growth will come from Agriculture. Growth in the sector is not simple; there are issues with technology transfer, and getting people interested in it. However, to address the challenges, we keep our investment simple, in corn and wheat. In addition to its simplicity, there is major potential for expansion in the sector. There is a lot of flat plain land, especially south of Erbil, that is astonishingly empty. It does not require a new economy or new markets; people will always eat, regardless of oil exports or other economic factors. It will also underpin food security for the Iraqi population. Additionally, once demand is met within Iraq, there is significant potential for exports to Iraq's neighbors who do not have the arable land that Kurdistan has, such as Saudi Arabia, Qatar, and Kuwait. Gulf countries are buying large tracts of land in Eastern Europe and Africa to ensure their food security, but with Kurdistan as a much nearer neighbor, it could be a much more strategic source for imports or investment. An enormous amount of grain is shipped daily to the gulf countries from around the world. However, if it came from Kurdistan it would reduce shipping costs, and at times of pinched supply, decrease the risk that shipments are diverted.

How would you assess the liquidity of the Iraqi private equity market?
I would describe the market as surprisingly liquid. While most of the businesses operating here today are too small to employ major investment banks to be value them, to raise capital for them or to deal with mergers and acquisitions for them, there are investors out there to buy stakes in firms. However, we are mindful of the fact that if our firm wanted to sell a business today, it would take time to complete the transaction, because Kurdistan is such a niche market, and the market still does not have a lot of visibility to global investors. Despite this, we are quite comfortable with the investment environment here, and we are optimistic that Kurdistan will become increasingly competitive and garner increasing attention from international investors. We find that the discount on equity, caused by the lack of competition here, makes the Region a very worthwhile place to invest. We anticipate continued growth in the next several years, but also, as success stories of recent growth in the past few years reach global investors, we anticipate that more capital will be drawn to the Region. In this regard, we believe that there is significant upside to investing here.