This article was originally published in Arabian Gulf Business Insight on 06 December 2022.
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Flush with oil and boasting one of the Middle East’s largest and youngest populations, war-blighted Iraq could yet be the region’s next big investment destination.
Many of the apparent disadvantages of Iraq, such as being a cash-based society and low startup valuations, present opportunities for the right investors looking to use their cash for maximum impact at a lower cost, according to experts.
Glyn Gibbs, regional head of business development for investment firm Apex Global, says Iraq is the “hidden gem” of the tech startup world.
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“It’s more stable than people think and it needs investment, especially tech investment,” Gibbs told AGBI.
“Assuming that the status quo remains, you may see more [VC and startup] investment into Iraq than has hitherto been the case for the last 10 years.”
Wamda, the platform which helps entrepreneurs in the Mena region, says that Iraqi firms raised only $4 million in investments in 2021. To put that into context, Saudi Arabian businesses raised $647 million. Companies in the UAE have raised $1.47 billion this year.
But for Dr. Mohammad Jamal, research and development manager at tech incubator Kapita, Iraq represents a fast-growing opportunity.
“The great shift in the market started when Careem entered Iraq,” he said.
Ride hailing app Careem’s entry forced a shift and adaptation in consumer behaviour. “They need to install an app, and interact in a modern way,” Jamal explained. “Careem had major growth here. It made others see that it’s possible to open startups here.
“Now we have startups in many sectors — most notably e-commerce and food delivery.”
Examples include Miswag, Iraq’s largest e-commerce platform that raised $1.6 million in pre-seed funding in September 2021.
A report by Statista shows that revenue in the Iraqi e-commerce market is projected to reach £4.1 billion ($5 billion) in 2022 and could hit £8.5 billion by 2027.
Orisdi, an e-commerce competitor to Miswag, has partnered with Iraq’s Al Sharqiya TV Group, one of the largest broadcasters in the country, to advertise its services on that channel.
The problem for Iraq is that investments in these companies are always limited to relatively small amounts. Jamal said this is because of perceptions around risk in the Iraqi market.
“The risk of investment is perceived to be high,” he said. “But actually, the market opportunity is big.
“We’re talking about a 42 million population with a middle income. It’s an oil country, but the valuation of businesses is low and the opportunity to attract investment is limited.”
But Jamal argues that Iraq represents a great opportunity because of the low valuations that businesses receive and because the market is currently lacking major consolidated players.
He paints a rosy picture of the investment opportunities at play in Iraq, but recognises that there are major challenges in “policy, logistics and online payments”.
These, he added, are “opportunities, too” for the right people to come in and advance or fix.
But to ensure that growth continues, another expert says the Iraqi government must push forward its reforms to laws and regulations governing the country’s nascent startup ecosystem.
Anja Engen, policy analyst for emerging markets at consultancy Access Partnership, said that Iraq has a way to go before its policy and regulatory framework is ready to cater for a tech boom.
“Overall, the regulatory environment is nascent. They have the Iraq 2030 Vision that highlights the government’s commitment to diversifying Iraq’s economy,” she said.
“The 2030 Vision signals a shift towards where Iraq wants to be in the future — it wants to become less dependent on oil, it wants to embrace digital transformation as part of diversification, just like we see in Saudi and the UAE.”
But on the policy side, she thinks more work is needed. “As of today, there is no privacy or data protection framework. We see some provisions in the civil code, but it is not enough to actually safeguard data,” Engen said.
“We also have general regulatory frameworks on cybercrime, media and broadcasting e-signatures and e-transactions, so we’re still in the very early stages.”
But there are positive signs, Engen said. The country’s regulator, the Communications and Media Commission (CMC), announced in June that it was beginning a public consultation on a data classification policy — potential legislation that Access Partnership called “a significant development in Iraq’s regulatory ecosystem”.
Iraq’s Cloud Computing Policy – which mandates that cloud providers manage data more closely in line with expected international standards – is also a step in the right direction toward ensuring the regulatory environment does not deter potential investors or entrepreneurs.
Engen said that the CMC is currently looking into regulating digital content for social media which could examine how to tackle disinformation, misinformation and online harms.
“There’s definitely a will and interest to develop this, but it’s still in its early stages,” she said.
“The CMC is really keen on developing policies, strategies and lots of regulations for the sector, but due to political instability at the higher levels it’s hard to get things through.”