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Iraq economic revival faces headwinds

10 May 2024

 

The ambitious new $17bn Iraq Development Road project, linking Basra to Turkiye’s Mersin port, puts the country’s economic trajectory on a long-term geopolitical setting that will aim to take full advantage of Iraq’s position as a key link in trade routes between Asia and the Mediterranean.

But before this vaunted plan takes root, Prime Minister Shia Al Sudani’s government faces a host of knotty economic challenges, not least a challenging fiscal position aggravated by the expansionary budget announced in 2023.

Lack of parliamentary consent has largely insulated the country from the negative impacts of that $153bn budget. That has meant large amounts of planned state spending have not been disbursed, leaving the state finances in better shape than they would have been otherwise.

Fitch Ratings expects that low execution of capital spending and limited transfers to the Kurdistan region will help limit the size of the deficit.

“We expect growth to rebound in 2024 (1.2%), driven by public spending under the expansionary three-year budget and continued recovery in non-oil GDP. We expect non-oil growth to benefit from stronger private consumption, as inflation edges down,” says Mohamed Afifi, Fitch Ratings’ primary analyst for Iraq.

Budget deficit

Even so, reduced oil revenues have impacted Iraq’s economy, turning a budget surplus of 10.8% of GDP in 2022 into a deficit of 1.9% of GDP in 2023. Fitch sees the fiscal deficit widening, reaching 3.7% in 2024 as declining oil prices and Opec-imposed production cuts drive oil revenue down, while a heavier wage bill pushes expenditure.

The government’s debt-to-GDP ratio is also likely to rise in 2024-25, from 43.4% in 2023 to 48.7%, with Fitch attributing this to larger budget deficits that will be funded from borrowing and deposit drawdowns. However, these figures include some $40bn of legacy debt that Iraq faces no pressure to service.

The big concern is that the 2023-25 budget programme will add hundreds of thousands of workers to an already bloated public sector payroll, crowding out the private sector.

“We estimate that the expansionary three-year budget will hinder the private sector’s development by providing a sharp increase in the public workforce,” says Afifi.

“We estimate that the budget will add 600,000 employees, most of which are currently working under temporary contracts, to the public sector payroll. This would bring the public sector wage bill (salaries and pensions) to 25.8% of GDP by 2025, from 15% in 2022.”

As the IMF warned in a March 2024 commentary, higher economic growth will be needed to absorb the rapidly expanding labour force, boost non-oil exports and broaden the tax base.

In this context, urged the Fund, the Iraqi authorities should seek to enable private sector development, including through labour market reforms, modernisation of the financial sector and restructuring of state-owned banks, pension and electricity sector reforms, and continued efforts to improve governance and reduce corruption.    

That is a hefty checklist for a country that is still facing myriad security, political and developmental challenges.

Al Sudani can at least counter the gloomier prognoses with the revival in non-oil sector growth, and lower inflation. Real non-oil GDP is estimated to have grown by 6% in 2023. Headline inflation declined from a high of 7.5% in January 2023 to 4% by year-end, reflecting lower international food and energy prices, and the impact of the February 2023 currency revaluation, according to the IMF.

International reserves increased to $112bn in 2023. Fitch sees FX reserves providing payment coverage above 12 months and a substantial financial buffer until the end of 2025.

Other positives will come through increased foreign direct investment, notably from the Gulf states. Saudi Arabia’s Public Investment Fund allocated $3bn for Iraqi investments last year, while Qatar’s Estithmar signed a series of memorandums of understanding worth $7bn in June 2023, covering hotel, real estate and healthcare projects.

Banking reform

One area of focus for the government is its banking sector, which remains underdeveloped and largely unfit for purpose, dominated by state-owned banks with opaque finances.

As Aysegul Ozgur, head of research at Iraq-focused Rabee Securities, says, 93.7% of currency issued was outside banks in Iraq at the end of 2022.

But, says Ozgur, the Central Bank of Iraq (CBI) is looking to strengthen financial inclusion and increase the cash inside the financial system through a series of projects.

“The salary domiciliation project of 2017 is the most prominent one among them, aiming for public sector employees to transfer their salaries to bank accounts by enabling them to receive and withdraw salaries easily through available payment channels (bank branches, ATMs and POS) and providing the ability to obtain credit facilities and bank loans by showing their salaries as collateral,” she says.

A number of other developments underscore the CBI’s concerted efforts to modernise Iraq’s financial landscape and promote economic stability.

“As a measure to control the FX flow into the banking system, the CBI now allows a limited number of banks to participate in the CBI foreign currency window and engage in US dollar transactions,” says Ozgur. “Due to the restricted number of banks permitted to engage in such activities, they benefit from an expanded market share in US dollar transactions.”

The Central Bank has also moved towards tougher oversight of the country’s 61 commercial banking institutions, made up of 54 private banks and seven state banks.

Since the CBI revised the guidelines for foreign currency transactions across borders to curb illicit financial flows in February 2023, says Ozgur, the banks that have direct correspondent banking relationships have played an active role in international money transfers and increased their commission and FX income significantly.

“The outstanding growth in current account deposits with these transfers resulted in significant growth in assets. Bank of Baghdad, National Bank of Iraq and Al-Mansour Bank are among the banks benefiting the most from these developments due to having direct correspondent banking relationships,” says Ozgur.

In February 2024, eight local commercial banks were banned from engaging in US dollar transactions, in a move to reduce fraud, money laundering and other illegal uses of the greenback. This followed a visit to Baghdad by a senior US Treasury official to Baghdad.

Such moves should, over time, help restore confidence in the financial system and – crucially – help build local insinuations that are credible players in the local economy, able to facilitate Iraq’s private sector growth ambitions, whether domestically or as part of the Iraq Development Road projects.

Al Sudani struggles to maintain Iraq’s political stability

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James Gavin

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    8 July 2025

     

    Morocco’s construction sector is gearing up for billions of dollars in projects as the North African nation continues to award contracts for building infrastructure for the 2030 Fifa World Cup, which it is co-hosting with Spain and Portugal.

    Experience from past tournaments suggests that governments often leverage such events to advance broader economic goals. The World Cup brings fans from around the globe to enjoy a month-long festival of football.

    After the 2022 tournament, Qatar reported that more than 1.4 million fans had visited the country during the event.

    Morocco has made a strong head start in ensuring that the necessary infrastructure is ready for the tournament. According to data from regional project tracker MEED Projects, 2024 was the best year in the past decade for construction and transport contract awards in Morocco, with contracts worth over $3.6bn signed with local construction firms and international companies from South Korea, China, France and Spain.

    So far this year, Morocco has already awarded $1.6bn-worth of contracts and appears to be on track to surpass last year’s figures. Projects worth over $3.5bn are currently in the bidding stage and are expected to be awarded by the end of the year.

    Infrastructure development

    Morocco was effectively confirmed as a host nation for the 2030 Fifa World Cup – alongside Spain and Portugal – in October 2023, after the trio emerged as the sole bidders for the event. The official selection was announced in December of the same year.

    To prepare for the tournament, the Moroccan government quickly drafted plans to upgrade nationwide infrastructure, including airports, roads and the railway network.

    Following the award of multimillion-dollar civil works contracts for the Kenitra-Marrakech high-speed railway network last year, Morocco’s minister of transport and logistics unveiled a MD96bn ($9.5bn) investment plan earlier this year to transform the country’s rail infrastructure by 2030.

    In another major development, the ministry announced in January that Morocco will invest approximately MD42bn ($4.1bn) in airport expansion projects by 2030. The most immediate of these is the construction of a new terminal at the country’s largest airport – Mohammed V International airport in Casablanca – at an estimated cost of MD15bn ($1.6bn).

    In June, 28 local and international firms expressed interest in the contract to build the new terminal.

    The planned expansion will increase the airport’s capacity to 30 million passengers a year.

    Additional investments are planned to modernise other airports – including those in Rabat, Tangier, Marrakesh, Fez, Tetouan and Agadir – in anticipation of increased passenger traffic during the 2030 World Cup.

    Significant funding is also being directed towards improving the country’s road network. In March, Morocco announced plans to invest MD12.5bn ($1.2bn) in highway development projects across the country.

    This announcement followed the award of approximately MD5bn ($540m) in contracts for nine construction packages related to the Rabat-Casablanca continental expressway.

    This project is part of Morocco’s broader plan to upgrade public infrastructure in preparation for co-hosting the World Cup. The programme includes the expansion of over 1,000 kilometres of highways.

    Stadium upgrades

    Morocco began construction on its Grand Stade Hassan II stadium last year, awarding a $35m early works contract to local firm Societe Generale des Travaux du Maroc (SGTM). The stadium, with an estimated capacity of 115,000 seats, will be one of the venues for the 2030 Fifa World Cup.

    In June, the client awarded a further $320m contract for the next phase of construction. The contract went to a joint venture of Travaux Generaux de Construction de Casablanca and SGTM.

    The stadium is being built on a 100-hectare site in the El-Mansouria area of Benslimane Province, 38 kilometres north of Casablanca.

    Several other stadium projects are also in the pipeline for upgrades ahead of the tournament. These include the renovation of six existing stadiums in Agadir, Casablanca, Fez, Marrakech, Rabat and Tangier.

    Additionally, Morocco’s construction sector has a pipeline of over $2bn-worth of projects, with major developments in the hospitality sector. Notable schemes include the St Regis Marrakech Resort, Citadines Bab Hotel in Tangier, Hampton by Hilton Fes Golf and the Mogador Resort.

    With construction and transport projects worth over $17bn currently in the pipeline, Morocco is expected to invest tens of billions of dollars in the near term to ensure the necessary infrastructure is in place for the 2030 Fifa World Cup.

    The scale of the construction programme is set to provide substantial opportunities for contractors in the coming years. The initiative will also require close collaboration between local firms and experienced international contractors willing to participate in the effort.

    MEED’s August 2025 report on the Maghreb also includes:

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  • Diriyah prepares more superblock tenders

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    Saudi gigaproject developer Diriyah Company is preparing to tender more superblock packages this quarter, following the receipt of prequalification statements from interested firms last week.

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  • Algeria’s industrial strategy builds momentum

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    Project activity across Algeria’s energy, industrial and manufacturing sectors is steadily building as the country focuses on a vertically integrated strategy that leverages the exploitation of its natural resources.

    The country is making steady progress on projects to extract deposits of gas, lithium, iron and phosphates.

    At the same time, it is progressing projects that use these natural resources to produce high-value products within the country, rather than simply exporting the raw materials.

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    The companies that were awarded blocks included France’s TotalEnergies, state-owned QatarEnergy, Italy’s Eni and PTTEP of Thailand.

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    The latest bid round was the first to be held under Law 13-19, Algeria’s current oil and gas investment law, which was issued on 11 December 2019.

    The 2019 law replaced a previous law created in 2005, which governed the last bid round in 2014.

    During the previous bid round, only four blocks were awarded out of the 31 offered.

    If the 2024 bidding round had been unsuccessful like the 2014 bidding round, this would have been a major setback to the country’s oil and gas strategy and raised significant concerns about the suitability of the 2019 law that governs licensing deals.

    The latest licensing round was followed by meetings between Algeria’s President Abdelmadjid Tebboune and delegations from US-based oil and gas companies ExxonMobil and Chevron.

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    Successfully engaging with large international oil companies that have significant technical and financial resources is a big step forward for Algeria’s oil and gas sector
    Industry source

    Phosphates push

    Extractive projects in Algeria’s mining sector are also making steady progress.

    One of the biggest mining projects in the country is the Bled El-Hadba phosphate project, which is estimated to be worth $7bn.

    The Bled El-Hadba phosphate mine has over 1.2 billion tonnes of estimated total reserves, including 800 million tonnes of estimated exploitable reserves, making it one of the biggest mines of its kind in the world.

    A joint venture deal to develop the project was signed in March 2022 between four Algerian and Chinese companies.

    The resulting joint-stock company is called Algerian Chinese Fertilisers Company (ACFC) and the project is expected to ultimately produce 5.4 million tonnes of fertilisers a year from the Bled El-Hadba phosphate mine in the eastern Algerian region of Tebessa.

    ACFC was established by the Algerian companies Asmidal and Manadjim El-Djazair (Manal), which own a 56% stake in the company, and the Chinese groups Wuhuan and Tianan, which hold the remaining 44% stake.

    Since the deal was signed, the project has seen good progress.

    Last month, Saipem was awarded the front-end engineering and design (feed) contract related to the project.

    Additionally, the Oued Keberit phosphate production and processing complex, which forms part of the $7bn project and will process phosphates extracted from the mine, is on track to come online in 2027, according to industry sources.

    Iron mining

    Another key mining project in the country is the Gara Djebilet iron ore mine in Algeria’s western Tindouf province.

    The Gara Djebilet mine was commissioned in July 2022, with plans to produce 2 million tonnes a year (t/y) by 2026.

    Officials have said they want to boost this to 50 million tonnes of iron ore annually by 2040.

    It is expected that boosting production at the facility could require between $7bn and $10bn in investment.

    Gara Djebilet is understood to hold the world’s largest iron ore reserves, with an estimated 3.5 billion tonnes at the location, of which around 1.7 billion tonnes are available for exploitation.

    The mine is expected to bolster Algeria’s steel industry by reducing the need for iron imports.

    Car manufacturing

    Low-cost steel is expected to support the country’s expanding automotive sector, which uses steel to produce parts.

    In March 2025, Great Wall Motor, one of China’s top 10 car manufacturers, announced plans to build its first factory in Algeria, joining other companies in the country, including Fiat, Peugeot and Kia.

    Last November, the Algerian Ministry of Industry & Pharmaceutical Production announced that it had granted permits for six new vehicle manufacturing factories in the country.

    In March 2023, the carmaker Stellantis announced plans to spend more than €200m ($213m) to manufacture several Fiat models in Algeria.

    The plans involved the construction of a plant, which is yet to come online.

    Stellantis stated that it anticipates the plant will generate nearly 2,000 local jobs and have an annual production capacity of 90,000 vehicles upon completion.

    Petrochemicals production

    Algeria’s growing automotive industry is also expected to use plastics derived from petrochemicals that are produced in the country using Algerian natural gas as a feedstock.

    UK-based engineering contractor Petrofac and its partner China Huanqiu Contracting & Engineering Corporation (HQCEC) are currently executing a petrochemicals project in Algeria, which is valued at approximately $1.5bn.

    Petrofac and HQCEC signed the engineering, procurement and construction (EPC) contract for the Algerian petrochemicals project in June 2023.

    The project is being developed in the Arzew Industrial Zone to the west of Algiers and the contract was signed with STEP Polymers, a wholly owned subsidiary of Algeria’s state-owned oil and gas company Sonatrach.

    When the contract was signed, Petrofac said that its portion of the project was valued at about $1bn.

    The project’s scope includes designing and building two major integrated processing units.

    It includes the delivery of a new propane dehydrogenation (PDH) unit and polypropylene production unit, as well as associated utilities and infrastructure for the site.

    It is expected to produce 550,000 tonnes of polypropylene a year.

    Additionally, plans are being developed for zinc production projects in the country.

    In November last year, Western Mediterranean Zinc (WMZ), an Algerian-Australian joint venture, signed a $336m contract with Sinosteel Equipment & Engineering Company (Sinosteel MECC) to develop the Tala Hamza zinc project in Algeria’s Bejaia Province.

    WMZ is a joint venture of Australian Securities Exchange (ASX)-listed Terramin, which has a 49% stake, and Algerian state-owned companies Enterprise Nationale des Produits Miniers Non-Ferreux et des Substances Utiles, which owns 48.5%, and Office National de Recherche Geologique et Miniere, which owns 2.5%.

    The project scope included the development of a mine with the capacity to produce two million tonnes a year of zinc and a processing plant with the capacity to process the same volume of material.

    It is expected that the production of zinc will support the country’s battery manufacturing industry, which in turn will support the production of electric cars.

    Fertiliser focus

    The country’s fertiliser sector is expected to expand as phosphate production is ramped up.

    Earlier this month, MEED revealed that Sonatrach was developing a project that will expand the country’s fertiliser plant located in Arzew.

    Sonatrach has not publicly said when it expects to issue the invitation to bid for the main contract for the project.

    The original $2.4bn contract to develop the Arzew fertiliser complex was executed by a joint venture of South Korea’s Daewoo E&C and Japan’s Mitsubishi Corporation.

    The joint venture won the contract in April 2008 and completed the facility in April 2013.

    Steady development

    By making steady progress with an integrated strategy that leverages the exploitation of raw materials to support the production of higher-value exports, Algeria is creating an industrial environment that presents significant opportunities for companies across multiple sectors.

    If the country’s relative political stability continues, more foreign investors will likely become involved in projects within the country, and the country’s project market will continue to expand.

    MEED’s August 2025 report on the Maghreb also includes:

    > ECONOMY: Maghreb economies battle trading headwinds
    > POWER & WATER: Slow year for Maghreb power and water awards

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    Wil Crisp
  • Maghreb economies battle trading headwinds

    8 July 2025

     

    Investors in Morocco’s stock market are enjoying a strong bull run. In the first six months of this year, the Moroccan All Shares Index gained 24%, following a 22% rise last year. It hit a record close of 18,690 points in early June this year and, after a brief dip, was growing strongly again in early July, threatening to break through the 19,000-point barrier for the first time.

    A combination of low interest rates and strong performances from local companies is helping to boost the market. There is also optimism sparked by the country’s role as a co-host of the 2030 football World Cup (alongside Spain and Portugal) and all the infrastructure spending that will flow from that.

    The country’s relative economic strength is also reflected in project activity. Of the 749 projects currently planned or under way across the Maghreb region, 322 are in Morocco, according to data from MEED Projects. The leading sectors are power and water, transport and construction.

    There are, though, reasons for caution. While Morocco’s stock market traders may have been doing well, all the Maghreb economies are facing some tricky international trading conditions, which could become more severe in the coming months and years.

    Of the 749 projects currently planned or under way across the Maghreb region, 322 are in Morocco, according to data from MEED Projects

    Global headwinds

    Weak economic conditions in Europe, the region’s most important trading partner, pose a particular threat. Key markets, such as France, Germany and Italy, are experiencing anaemic growth rates, which could lead to softer demand for the Maghreb region’s exports, as well as weaker tourism and investment flows across the Mediterranean.

    The imposition of tariffs by US President Donald Trump is also having a negative impact. However, the chaotic way in which the policy is being enacted means it is unclear just how much pain the duties might ultimately cause. Algeria, Libya and Tunisia look set to be worst affected, with tariff rates of 28-31% on their exports to the US, compared to 10% for Morocco.

    The region’s direct trade with the US is relatively limited, but if higher tariffs dent global demand, that could have a larger impact on more export-oriented economies such as Morocco and Tunisia.

    Oil market trends are likely to add to the pressure on Algeria and Libya this year, as producers continue to ramp up output. On 5 July, the eight Opec+ countries – which include Algeria, Saudi Arabia and the UAE – agreed to produce an additional 548,000 b/d from August. That will put further downward pressure on oil prices.

    “A sharp drop in activity in emerging markets will be a negative for global oil demand for the rest of 2025 and into 2026,” said Edward Bell, chief economist of the Dubai-based bank Emirates NBD on 7 July. “Just the fear of policy uncertainty will be enough to limit investment.”

    Other issues are also hard for the Maghreb countries to control. For example, the frequent droughts of recent years have dented agricultural activity and exports.

    Among other challenges, most governments are running budget deficits and are struggling to create enough jobs for their growing populations. Unemployment in Morocco remains at around 13%, according to the IMF. It is in double figures in neighbouring countries too, according to the International Labour Organisation; Libya’s unemployment rate is probably nearer 20%.

    Inward FDI into Algeria rose by 18% last year to reach $1.4bn, while in Tunisia it was up 21% to $936m and in Morocco it increased 55% to $1.6bn

    Rising resilience

    The Maghreb region is nevertheless showing signs of resilience, despite the various negative pressures. Inflation has been easing back in most countries in recent years and foreign direct investment (FDI) has been growing strongly.

    According to the latest Unctad World Investment Report, inward FDI into Algeria rose by 18% last year to reach $1.4bn, while in Tunisia it was up 21% to $936m and in Morocco it increased 55% to $1.6bn.

    A few industries are attracting some large investment deals, with Gulf money often to the fore. The UAE, for example, is helping to finance a 7,000-kilometre, $25bn gas pipeline from Nigeria to Morocco. A consortium of the UAE-based Masdar, Egypt’s Infinity and Germany’s Conjuncta is also backing a $34bn green hydrogen project in neighbouring Mauritania.

    More recently, albeit on a far smaller scale, the Saudi Fund for Development signed a $38m loan agreement on 27 June this year to set up the Oasis Hub Project in southern Tunisia, which includes rural housing, infrastructure and agriculture schemes.

    Some big projects have come unstuck, though. A plan by UK-based Xlinks to export power from Morocco to the UK via a 4,000km subsea cable has lost the support of the London government. On 26 June, junior energy minister Michael Shanks told the UK parliament it had decided the project was “not in the UK national interest at this time”.

    There was disappointment in Morocco at the turn of events. In the short term, however, economic growth this year is expected to be a healthy 3.9% in Morocco and 3.5% in Algeria – equal to or better than last year, according to IMF data. Mauritania is expected to grow by 4.4%, which is less than in recent years, but still ahead of its neighbours.  

    Tunisia is expected to lag behind, at just 1.4%, as the country’s authoritarian leadership struggles to come up with a viable economic model. A draft of the 2026-30 development plan has been promised before the end of the year by the Ministry of Economy and Planning secretary-general, Faouzi Ghrab. Libya’s outlook depends on domestic political factors that look as far from resolution as ever.

    Morocco, meanwhile, is intent on solidifying its position as a regional industrial and financial hub, with its thriving stock market serving as an important lever. It is still ranked as a frontier market by index company MSCI, but is hoping for promotion to emerging market status.

    The launch of derivatives trading in May is part of efforts to attract more liquidity and secure that higher ranking. Some simpler reforms might also be useful – MSCI pointed out in a June report that stock market information was not always readily available in English, which hindered its accessibility.

    Yet, if the market continues to grow as rapidly as it has recently, investors are likely to find a way to address such shortcomings.

    Slow year for Maghreb power and water awards

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    Dominic Dudley
  • Developers prepare Jordan solar EoIs

    8 July 2025

     

    The Jordanian Ministry of Energy & Mineral Resources has extended the deadline to 12 August for the submission of expressions of interest (EoIs) for a contract to build and operate a new 200MW solar plant.

    The solicitation of interest was issued by the ministry in mid-May with an original deadline of July. 

    It is unclear why the deadline has been extended, given the relative conciseness of the required documents. However, it is likely that the interested developers are still forming joint ventures in advance of submitting any EoI.

    The photovoltaic facility’s procurement is unusual in that no specific land allocation has yet been set by the government. Instead, approved applicants will sign an initial memorandum of understanding (MoU) with the ministry, under which they will be requested to identify a suitable site within a designated location in advance of final proposal preparation and submission.

    In parallel, the MoU calls for them to proceed with measurement campaigns, feasibility studies, technical integration plans for connecting to the transmission network, as well as other preparatory and due diligence work, such as negotiating access to land and financing for the proposed project.

    Proposed projects must cover local electricity demand only, with no provision for electricity export.

    The developer or developer group which subsequently submits the lowest proposed tariff will be named the preferred bidder for the independent power plant (IPP) project, which has a concession period of between 20 and 25 years under the build-own-operate (BOO) contractual model.

    Jordan has a total electricity generation installed capacity of about 7.1GW as of 2023, according to data published by the International Renewable Energy Agency (Irena).

    Solar and wind power plants account for over 30 per cent of the total installed capacity, which is one of the highest, if not the highest, renewable energy installed capacities in the Middle East and North Africa region, compared to overall generation capacity.

    Work has been under way to enable the successful integration of renewable power into the electricity grid. 

    According to MEED Projects data, roughly $3.3bn-worth of power projects are under way or planned in Jordan, with generation facilities accounting for 59% of the total.

    MEED’s July 2025 report on Jordan includes:

    > ECONOMY: Jordan economy nears inflection point
    > GAS: Jordan pushes ahead with gas plans 
    > POWER & WATER: Record-breaking year for Jordan’s water sector
    > CONSTRUCTION: PPP schemes to drive Jordan construction
    > DATABANK: Jordan’s economy holds pace, for now

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    Edward James