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Government funding insufficient to meet Iraq infrastructure demands

Iraq is facing a housing crisis, and is expected to complete only 5% of the 2.5 million homes it needs to build by 2016 to meet demand, the Minister for Construction and Housing said, informed a Reuters report.

The private sector could account for up to four-fifths of the new projects in the country, but doubts are raised as to whether the foreign investment required for this will be available given the investors’ challenges with bureaucracy and government inefficiency, besides a turbulent security situation.

Iraq needs to build 2.5 million new housing units by the end of 2016, said Mohammed Al-Daraji, Iraq Minister of Construction and Housing at the conference held in Dubai, but he estimates only 130,000 of those will actually get built, with the private sector building 100,000 of those.

“That’s why I say it’s a crisis,” said Daraji. “Unless there’s direct investment from foreign investors there won’t be a solution. We’ve had a problem for the last 40 years. I’m not going to solve it in 2-3 years”, he added.

Acquiring mortgages at reasonable interest rates from commercial lenders continues to bother potential home-owners, and under-funded state-backed finance schemes, insufficient to meet the demand, are adding to the crisis in the country. Foreign direct investment was about 1 percent of gross domestic product in 2012, according to a July report by the International Monetary Fund, the Reuters report added.

With an annual budget of only $43 million, “which covers nothing” according to general manager Hussein Tohme, the state-run Real Estate Bank’s home-financing is also a weak alternative in the market.

The government raised the bank’s budget to $86 million for 2012 and 2013, but the extra funding never materialised, Tohme said.

“Our capital should be around $430.80 million – $86 million and $172.19 million will not do anything”, he added, “With the current funds we can only cover 1,000 houses (yearly).”

Aside from housing, Iraq’s infrastructure is also in dire shape. Daraji estimates the country needs to build 500 new bridges, which would raise its total to 1,700, while it also requires 7,000 kilometres of new roads, said the report.

“The previous regime spent all Iraq’s resources on the military. That’s why there’s a lack of infrastructure,” said Daraji. “We can’t use all the available land because there’s no infrastructure. We need to spend more money on sewage and water. We have problems with maintenance.”

“Unless we attract foreign companies we don’t know when this crisis will end,” said Daraji. “Some provinces haven’t spent more than 25% of their budget because of a lack of contractors. The number of contractors is limited and the amount of work is more than they can take. It’s a golden opportunity to enter Iraq.”

The number of foreign firms have been willing to build in Iraq remains small nevertheless, owing more to bureaucracy than increasing sectarian violence, according to Amar Shubar, a partner at Dubai-based consultancy Management Partners.

“The biggest concern for international companies wanting to enter Iraq are the bureaucratic, administrative and contractual hurdles to work with the government,” said Shubar. “The Iraqi government lacks the skills and experience to properly manage large and complex projects to an international standard.”

Construction in Iraq is a tenth of the target rate, said Shubar, with foreign developers usually uninterested in building low-margin, low-cost housing. “The biggest need is in the lower-mid and low income segment,” he added.

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