Kuwait: Business with Iraq on the up

A landmark flight from Baghdad that touched down in late February at Kuwait International Airport looks set to usher in a new era of stronger economic ties between the two Gulf neighbours. The resumption of direct air-travel between Iraq's capital and Kuwait, which is building on a steadily rising flow of traffic between the two countries, spells good news for business leaders.

The arrival of the Iraqi Airways Airbus 320 in Kuwait on February 27 signalled the continuation of regular air links between the two countries after a break of more than two decades dating back to the 1990-91 Gulf War. Kuwait-based Jazeera Airways first resumed air travel between Kuwait and Iraq in April 2012 when it began flying to and from Al Najah International Airport.

Relations, which have warmed considerably over the past year, moved up a level in January when the Kuwaiti parliament agreed to a compensation payment of KD142m ($498m) from Iraq for damage and losses incurred by its national carrier Kuwait Airways during the invasion and occupation.

Kuwait initially sought up to KD340m ($1.2bn) to cover the loss of 10 aircraft and ground-based equipment in a reparation claim that dragged on long after a number of other disputes dating back to the Saddam Hussein-era had been settled. Its willingness to accept a lower figure is seen by many as an indication that Kuwait is keen to open up to Iraq and explore new business links with its neighbour.

In a reciprocal move, Kuwait Airways has indicated it is considering resuming flights to Iraq. The airline plans to add to its fleet ahead of a proposed partial privatisation by buying or leasing up to 21 new aircraft over the next two years, which will enable it to serve new routes.

Similar expansion plans are planned for a number of other firms, including telecommunications giant Zain and finance house National Bank of Kuwait (NBK), which are both well established in the Iraqi market through their local majority-owned subsidiaries.

Zain Iraq plans to launch an initial public offering (IPO) on the Iraq Stock Exchange (ISE), which will see the parent company sell-off 25% of its 76% stake in the Iraqi operation. The sale forms part of the conditions of Zain’s licence agreement, although the Kuwaiti firm will retain a controlling interest in the mobile phone service provider, which made a profit of KD104.9m ($368m) last year. Some of the proceeds from the IPO are expected to be used to expand Zain Iraq’s operations, which could include obtaining more bandwidth for 3G services.

The IPO, which local media reports have said will likely be concluded by the middle of this year, should attract plenty of interest, with observers expecting it to net Zain significantly more than the partial float of its rival, Asiacell, in February. That IPO was the largest in Iraq to date and raised $1.27bn.

NBK is also boosting its operations in Iraq through its subsidiary, the Credit Bank of Iraq. In a move seen as key for the expansion of the Iraqi stock market, Credit Bank was given authorisation in January to act as a custodian bank, permitting it to manage settlements, receive or deliver securities purchased or sold and report on clients’ marketable securities and funds. NBK, which holds an 80% stake in Credit Bank and is acting as advisor to Zain, will be well placed to take advantage of the expected rise in activity on the ISE, which is likely to be fuelled, in part, by the mobile phone IPOs.

Independent oil producer Kuwait Energy is also actively participating in the Iraqi economy, most recently by laying the groundwork to develop a number of blocks in the south of the country. In a recent interview with news agency Reuters, the company’s CEO, Sara Akbar, said maintaining close ties with the central government in Baghdad was key to the firm’s operations.

“From the beginning, our ambition was to be able to develop gas in Iraq and to export some of that gas to Kuwait,” she said. Akbar added that closer economic ties between Kuwait and Iraq, including plans to open up a gas field close to the border with Kuwait, made sound business sense, saying, “From an economic point of view, it’s a very logical project that will tie the two countries together.”

Even though continued unrest in Iraq still gives cause for concern, the outlook for the country appears promising, with the IMF forecasting economic growth of 14.7% this year, up from 10.2% in 2012. Kuwaiti businesses will be aware that its neighbour’s ongoing development, together with improved bilateral relations, puts them in a favourable position as Iraq edges towards greater participation in the regional and international market.