After well over a decade, Turkish President Recep Erdoğan is slated for an official state visit to Iraq in April, with talks set to address crucial regional issues amid an attempted easing of bilateral tensions. Ankara’s immediate priority will be securing Baghdad’s green light for a military intervention in northern Iraq against Kurdistan Workers’ Party (PKK) militants,– viewed as a shared security threat. Iraq’s $17 billion Development Road project to boost connectivity with Turkey will feature as the headline economic agenda item.
Both issues are intricately linked, as Turkey’s impending anti-PKK military operation largely aims at securing the Development Road’s 1,200 kilometers of highway and railway infrastructure expected to underpin regional economic growth and establish the Middle East as a vital trade interconnector between Europe and Asia. Yet to unlock the project’s potential, Iraq will need to tackle the significant domestic corruption and security challenges that have long impeded its economic recovery.
Iraq’s nascent economic hope
Coming on the heels of decades-long conflict, Iraq’s Development Road initiative reflects its emerging economic ambition and improved security situation, both of which are laying the ground for enhanced international cooperation. Unveiled at a conference last May attended by officials from Saudi Arabia, the UAE, Jordan and Qatar amongst other regional countries, Iraqi Prime Minister Mohamed Shia al-Sudani hailed the project as “a pillar of a sustainable non-oil economy,” and economic integration.
Over the past year, Iraq has established itself as a centrepiece of the regional integration agenda, and heavyweights Qatar, Saudi Arabia and the UAE have announced investments of over $10 billion in Iraq’s private sector. Spanning energy and hospitality to real estate and infrastructure, this soaring inward investment has a critical role to play in accelerating Baghdad’s faltering economic diversification efforts. According to the World Bank, oil revenues accounted for more than 99% of Iraqi exports and 85% of the government’s budget over the past decade.
As such, the Development Road project should be seen as a central component of Iraq’s push to usher in a new economic model fueled by “open markets…and the expansion of service sectors.” Through its transport infrastructure, logistics hubs and industrial complexes running from Iraq’s Persian Gulf coast to southern Turkey, the project could generate $4 billion in annual returns and at least 100,000 new jobs, helping to unlock what Oxford Economics consultant Graham Robinson has described as Iraq’s “very high growth” potential.
Corruption darkens the investment climate
Yet, despite this fledgling promise, experts agree that Iraq’s ongoing governance problems pose major obstacles for its unfolding economic path. Reflecting the country’s dismal assessment in Transparency International’s Corruption Perception Index, a recently-published paper on the project highlights the “rampant corruption in Iraqi state institutions” while another expert has similarly pointed out how “institutional weakness and security of funding remains a significant concern” for foreign investors exploring Iraq’s compelling growth opportunities.
Kuwaiti logistics firm Agility features among the high-profile foreign companies that has found itself on the receiving end of Iraq’s endemic graft. Along with French telco giant Orange, Agility invested $810 million in the Iraqi Kurdistan (KRI)-based Korek Telecom in 2011, only for Baghdad’s Communications and Media Commission (CMC) to render its investment and shareholding null and void three years later in a dubious ruling prompting corruption allegations.
The subsequent seizure of Agility’s Korek investment is suspected to have been sparked by the bribery of the federal CMC by the KRI’s ruling Barzani family – Prime Minister Masrour Barzani’s first cousin, Sirwan Barzani, is Korek’s managing director and majority shareholder post-expropriation.
Arriving seven years after Agility filed its $380 million legal claim with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) against the Iraqi government, the ICSID annulment committee’s favourable verdict in February has given the company another opportunity to pursue its case, notably reversing the tribunal’s initial dismissal of its claim in 2021.
Lingering regional security menaces
Unfortunately, the growth-hindering corruption embodied by the Agility-Korek saga is far from being the only barrier to Iraq’s Development Road-driven transformation. Compared to the devastating years of conflict and chaos sparked by the US invasion in 2003, Iraq currently enjoys a state of relative calm. However, as Hasan has rightly stressed, its “political and security situation is far from stable,” representing a potentially significant deterrent for the foreign investors needed to deliver the $17 billion megaproject, with a range of vexing security dilemmas converging in the economically-crucial KRI and surrounding areas.
The first is directly of Baghdad own’s making – excluding the region from the Development Road. Citing economic efficiency and topographical factors, the Iraqi Government’s official rhetoric masks cynical political motives, with this decision the latest in series of anti-KRI infrastructure policy moves widely interpreted by analysts as Baghdad’s revenge for the region’s 2017 secession referendum. Unsurprisingly, the KRI Government has voiced firm opposition to the Development Road, while the region’s political parties have the capacity to mount a credible security threat and – at the very least – impede construction.
Moreover, the Kurdish PKK militants based throughout the Iraqi-Turkish border region pose an even more immediate security risk to the project, particularly given their strong presence in Nineveh Governate, which Baghdad is using to bypass the KRI. Making matters worse is the growing footprint of pro-Iran armed groups in northern Iraq, whose militants cooperate with the PKK and share a fierce opposition to Turkey’s military incursions in the region – not to mention their alliance with a Tehran quietly hostile to the Development Road.
Before Iraq can capitalise on the economic opportunities that this hugely ambitious initiative could deliver, it must urgently tackle these complex security and corruption demons. Mending relations with Turkey and progressing shared priorities would be a good start in bolstering its investment climate – with Erdoğan’s visit looming, Baghdad and Ankara will need to ensure these high-level meetings act as a crucial first step in building a regional engine of sustainable growth.