How large a role do you think banking can play in diversifying the investment climate here in the Kurdistan Region?
When we identified shortages in the investment climate, according to our observations, there were still shortages in the financial sector. These shortages had nothing to do with the Kurdistan Regional Government (KRG). According to the Federal Constitution, both the financial sector and the overall financial policies must be developed by the central government, and this cannot even be done in coordination with the different regions. So, in the Kurdistan Region, we cannot license any bank unless the Central Bank of Iraq (CBI) licenses it.
How helpful has the CBI been in terms of implementing policies to aid in the development of the financial sector in the Kurdistan Region?
Frankly speaking, the CBI was never cooperative with us, at least in terms of opening a branch of the bank in this region. They still don’t have a branch in the Kurdistan Region. Secondly, for the past few years, we’ve been facing a very big challenge from the CBI, specifically in that they were offering 22% interest on any deposit. So, people were coming to me and asking, “Why should I bother with you? You’re asking me to do lots of paperwork and take risks. I can get a 22% rate of interest simply by putting my money in the bank.” This is a logical question; it makes sense. However, just putting money in a bank doesn’t help create opportunities or investment. So, that was another challenge for us.
With those issues in mind, what are your thoughts on the present banking system operating in the Kurdistan Region?
Despite all the banks and branches that exist in Erbil, I still do not see a sophisticated banking system in operation. When we got support from the government to develop this sector, we had meetings with many bankers here in Erbil. We came up with the plan to develop a corporation and we agreed to contribute a certain amount for its development. We asked these banks to contribute financially [to the corporation] and then manage it. We felt we didn’t need to manage it; we wanted to remove it from governmental control. However, after many long debates, we could not reach an agreement. The reason for that may be some of our legislation or it may be restrictions from the CBI. So, bankers are now focused on providing support and assistance to small projects, and this is a very positive development. We shouldn’t only be talking about mega projects. I’m very interested in giving lots of attention to the small projects and small enterprises that can be enhanced with our support. However, I still don’t see very significant positive or tangible intervention from the banks in the investment sector.
So, there is obviously room for growth in the banking sector, but that seems to depend, to some extent, on Baghdad. Let’s talk about the investment areas that the Board of Investment (BOI) has prioritized: industry, agriculture, and tourism. What is the BOI doing to encourage involvement in those areas?
We have changed the investment process. The investment policy remains the same, but the process is different. The first step we took was to gather many different suggestions regarding how to review the Investment Law. According to our direct observation of the law, we thought it was a little out of order and a little outdated. It was fantastic for a certain period of time, but now the situation is totally different.
Now, we have identified almost 30 projects in the preliminary stage as ready-made or tailor-made projects. These are ready, and we are ready to discuss them with a potential investor who wants to come here and be directed to a specific sector.
Can you talk a little bit about the differences and how the proposed changes reflect that difference?
With the first law, we were providing incentives to all sectors equally, because we had no specific priorities. Everything was our priority! Now, the situation is different. We have piles of proposed projects in which investors have applied for housing. However, we’ve suspended housing projects for now. In 2008, we would have to go and convince investors to submit a proposal for a housing project. Now, we have almost 100 requests for hotels. Not long ago, we were requested for investors to come and build hotels. However, over that same time period, we have had fewer requests for projects relating to industry and agriculture. So, we have proposed that we should concentrate on these three areas: industry, agriculture, and tourism. We believe these areas will be useful in terms of both generating income and engaging foreign and local investors in the Kurdistan Region long term. We’ve highlighted areas and projects for these sectors. More importantly, we’re not waiting for investors to come and give us their proposals. We know what we need and we are instead delivering our projects to them. Now, we have identified almost 30 projects in the preliminary stage as ready-made or tailor-made projects. These are ready, and we are ready to discuss them with a potential investor who wants to come here and be directed to a specific sector. This applies to the three sectors across the entire Kurdistan Region, not just in one area.
What steps is the BOI or the KRG taking to incentivize that involvement?
We are waiting to see how the new Investment Law will be processed. We have submitted a proposal that requests that more incentives be given to these sectors and to raise the limit of these incentives. There is a very important article in the law that will give us the authority to discuss and negotiate incentives beyond what is indicated in the current Investment Law. Of course, for transparency measures, we requested that these changes be discussed at the Supreme Board of Investment that is chaired by Prime Minister and includes seven ministers representing the private sector. These changes will most likely apply to mega projects or other strategic projects that will have an impact on the economic status of the region. So, we have full authorization to work jointly with the private sector and help companies that are concentrating on any of these three areas.