Kuwait-Iraq Economic Ties On Revival Course

Cos Eye Expansion

KUWAIT CITY, April 4

A landmark flight from Iraq 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 the countries,
which is building on a steadily rising flow of traffic from Kuwait to
Baghdad, spells good news for business leaders.

The arrival of
the Iraqi Airways Airbus 320 in Kuwait on Feb 27 signalled the
resumption of regular air links between the two countries after a break
of more than two decades dating back to the 1990-91 Gulf War.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 KD 142m ($498m) from Iraq for damage and losses incurred by its national carrier
Kuwait Airways during the invasion and occupation.

Kuwait initially sought up
to KD 340m ($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 a number of new routes.

Similar expansion plans are also 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 KD 104.9m ($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 ground work 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.





© Arab Times 2013