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Iraq Business
3 days ago
- Business
- Iraq Business
Tabaqchali: A Tour of Baghdad, Babylon, and Ctesiphon
By Ahmed Tabaqchali, Chief Strategist of AFC Iraq Fund. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News . "A tour of Baghdad, Babylon, and Ctesiphon" The market, as measured by the Rabee Securities U.S. Dollar Equity Index (RSISX USD Index), was up 1.3% for the month and 0.25% for the year, following increases in 44.8% and 97.2% in 2024 and 2023 respectively. The RSISX USD Index continued with the process of consolidating its gains that started in December, following a blistering 35.9% three-month rally. While this consolidation could continue over the next few weeks, the market's technical picture continues to be positive, and the likely consolidation or pullback should be within its multi-month uptrend. Trading volumes continue to support this thesis, as the average daily turnover for the month followed the patterns discussed in "Trading Volumes Support Market's Uptrend" (chart below). Rabee Securities U.S. Dollar Equity Index and Daily Turnover ( Source: ISX, Rabee Securities, AFC Research, daily data as of July 31st. Note: turnover adjusted for block trades ) More of Iraq, as seen through a visitor's eyes As mentioned, two months ago, my friend and colleague Thomas Hugger, CEO of Asia Frontier Capital's (AFC), visited Iraq at the end of May, and with me, embarked on a tour of the country that included business visits, cultural, and historic tours. Last month, we reviewed our visit to the ISX, the Bank of Baghdad, and Baghdad Soft Drinks. This month reviews our visit to some of Baghdad's old districts (Al-Madrasa Al-Mustansiriya, Al-Mutanabbi Street, and Al-Shawaka), the ancient cities of Babylon, and Ctesiphon. Next month, will review our visit to the ancient city of Ur, the Marshes, the meeting point of the Tigris and Euphrates rivers forming Shatt Al Arab at Al-Qurnah, and Iraq's third largest city, Basra. Our plan for the tour of some of Baghdad's old districts was for a walkabout that would start with a visit to "Qasr Al-Abbasi (the Abbasid Palace)", a magnificent structure built in the 12th century and one of the oldest historic buildings, left standing, in Baghdad -itself built in the 8th century, but many of its buildings and structures no-longer exist due to a repeating pattern of destroying the old to build the new throughout the city's history, often using the old as building materials for the new. However, upon arrival, we found the site to be closed. Most of Iraq's historic attractions' opening hours aren't consistent with tourism, in that they tend to follow official working hours, and so aren't aligned with the likely schedules of tourists, foreign or domestic, especially during evenings, weekends, or holidays. Thus, highlighting the need for a mindset shift to embrace tourism, and unlock its values in contributing to job creations, and economic growth given the breadth and richness of the country's history -"In the landscape of recorded history, Iraq is Everest: just as Everest makes other mountains seem small, Iraq makes ancient history seem recent by comparison". The increasing influx of tourists encouraged by the relative stability that the country has been enjoying over the last few years, has acted as a catalyst for such a shift. The first to respond has been the private sector with the construction of hotels and of those within the other sectors in the broader hospitality and tourism industry. Baghdad alone has over 20 new ongoing hotel and resort developments, in addition to those built recently and those that are being renovated, such that of the Ishtar hotel that we reported on last month. On the potential economic growth that tourism can provide, based on the experience of visiting AFC's investable universe, that include hidden gems for investment and tourist attractions, Thomas notes: "As we all know from our history classes, Mesopotamia, which is basically the region around the Tigris and Euphrates rivers, was already settled 10,000 years BC and considered one of the earliest civilisations. It was also the region where the wheel was invented and scripts, mathematics, astronomy and agriculture were developed. Needless to say, there are so many interesting places to see in an area multiple times bigger than, for example, the famous UNESCO World Heritage of Angkor Wat in Siem Reap, Cambodia, which attracts each year about 2.5 million tourists. I can easily imagine that, in the future, thanks to the stability in Iraq, more tourists will visit this country full of history, and the tourist arrivals will beat the figure of Angkor Wat, which is beautiful but much smaller than the entire Mesopotamia region." While we were disappointed with the closure of Qasr Al-Abassi, we were glad that the next item on our walkabout, "Al-Madrasa Al-Mustansiriya", located within walking distance, was open. Al-Madrasa is an Abbasid era scholarly complex, built in the 13th century, which, in addition to Islamic religious studies, taught mathematics, astronomy, medicine, and philosophy. We were almost alone throughout the visit, with the exception of a few visitors, most of whom were foreign, who arrived just as we were leaving. While not my first visit, I was still impressed by the splendid architecture and the water-powered clock in the middle of the courtyard, that sadly is no-longer in operation; while Thomas notes: "The complex reminded me of the architecture in places like Bukhara, Khiva and Samarqand in Uzbekistan. All of them are impressive and beautiful but in contrast to its Uzbek counterparts, hardly any visitors were to be seen in Baghdad. I am sure that will change soon." Supporting Thomas's last comment, such a change, overtime, could lead to Iraq being a major historical and cultural tourist attraction, that coupled with the current, major but underutilized religious tourism, would support economic diversification and growth. Al-Madrasa Al-Mustansiriya ( Source: AFC Research ) Soon after that, we crossed the street into "Souq Al-Saray" whose other entrance is connected to "Al-Mutanabbi Street", which is more than just a street, as it more of an intellectual, literary, and cultural complex composed of the street itself, the "Baghdadi Cultural Centre", and "Al-Qishla" compound. Sadly, the last two were closed just like Al-Qasr Al Abassi, however, they were covered in the mid-2022 market report "Sandstorms, and a stroll down Al-Mutanabbi Street" with plenty of photos with a brief history of each. Al-Mutanabbi, is jam-packed with traditional booksellers displaying all kinds of books both in outdoor stalls and in bookstores -an embodiment of the old Arab saying, "Egyptians write, Lebanese publish, Iraqis read"; which to me brings back fond memories of my youth spent searching for books to satisfy my thirst, after devouring my grandfather's huge library. Despite the closure of the Baghdadi Cultural Centre, and Al-Qishla, we had tea at the famous "Al-Shabandar Café" (such places primarily serve tea, but coffee also, although I have never seen coffee served nor heard anyone asking for coffee) which was first covered in AFC's August 2019 "Iraq travel report: Significant social and economic transformation", then writing "... the Café personifies the street and Iraq's revival -in 2010 a car bomb almost destroyed the café, killing thirty people including the owner's four sons and grandson. However, Mohammad Al-Khashali, reopened the café soon after and insisted on maintaining its open-minded culture as a home to Iraqi writers and intellectuals from all faiths for generations, even during the darkest years of sectarian warfare". Sadly, we weren't able to meet Mohammad al-Khashali, who had died in January 2025 at the age of 93, and for me, his daily presence at the café was sorely missed. We had the traditional Iraqi style tea, or "Chai", a staple of Iraqis that keeps us going throughout the day from morning to night, and while Thomas tasted it on the first day, the chai at Al-Shabandar feels different, at least to me. Thomas notes: "The café was very crowded, and we were lucky to find a space to sit. Immediately thereafter, a waiter came with chai on a tray. The chai was, as usual in Iraq, very sweet and extremely hot. It took some time until I could touch the immensely hot glass and enjoy the first sip of tea. In the meantime, my neighbour started talking to me and, to my surprise, he switched to German after he found out that I am originally from Switzerland. His German was great despite the fact that he was never in a German-speaking country in his life, and he told me, to my surprise, that he learned it from reading books and newspapers. The atmosphere in the teahouse is iconic and the walls are lined with old photographs, books and paintings. It was very lively, and guests were discussing very loudly, and some of them were smoking shisha or cigarettes in the café, which is still very typical in the Middle East." Al-Shabandar, Al-Sarai, and across the Tigris ( Source: AFC Research ) Following that, we turned to "Zuqaq Al-Sarai (Al-Sarai Street)", whose many historic buildings, including Al-Qishla, recently underwent a major restoration as part of the "Pulse of Baghdad" initiative. After which we crossed the Tigris by boat to the Karkh side of the city, and the short walk to "Souq Al-Shawka", heading for its famous "Masgouf" shops. Masgouf, is a uniquely Iraqi way of grilling fish that dates back over four and a half thousand years to the Sumerians, and doesn't seem to have changed much since then according to Sumerian texts. After Thomas choose our fish from the fish pool of one of the Masgouf shops, we went to the adjacent tea house, that served also as a restaurant for the Masgouf shops as none of them had its own eating area, and enjoyed a few rounds of chai, "Chai Hamouth" -made and served like chai, but using Basra dried limes instead of tea leaves, and soft drinks. After an hour's wait, we feasted on the delicious fish, served with plates of red rice -cooking the fish takes an hour or so as it is cooked standing vertically, in a ring with other such fish, around the fire. Thomas, who is not a big fish fan, nevertheless enjoyed it, and he notes: "When I was mentally preparing what do expect and experience from this trip to Iraq, I never expected that I will eat fish three days in a row in Iraq since I was thinking kebab will be the staple meal, but I was proved wrong! The masgouf fish was tasty and interestingly, Ahmed's brother helped me to choose a male fish since some part of it seems to be tastier and richer in protein compared with a female fish! It was also the place where Ahmed and his brother decided to address me going forward with "Abu Debbie" (father of Debbie) since parents in Iraq are called after their first child's name within friends and families, and I really enjoyed being called like this while in Iraq!". Masgouf at Al-Shawka ( Source: AFC Research ) The next day, we started early for the drive to Babylon, followed by a drive to Ctesiphon. Our guide, Ali Ghanem Sarhan, was one of my students at Baghdad Business School (BBS), who is now an independent freelance tour guide specialising in cultural and historical tours. His rich Instagram account (@alighanim.1) chronicles him criss-crossing the country with tourists from across the world. Babylon, believed to be home to the "Tower of Babel" and the 'Hanging Gardens" of legend, is one of the most magnificent cities of ancient Iraq, and founded over four thousand years ago. The Babylonians, and before them, the Sumerians and Akkadians, made use of the rich muddy sediments deposited over centuries by the flooding of the Tigris and Euphrates, by employing mudbricks in the construction of the ancient cities, Babylon included. They fitted Mesopotamia's environment perfectly and provided great insulation in the country's extremes of heat and cold; however, many have not survived the thousands of years unscathed due to the combination of the effects of the natural elements, neglect, conflict, and looting. Babylon's fate was no different, as many of its palaces, temples, statues, and other structures were eroded; most of what remains from them are low walls, featureless remains of great budlings, and foundations of gateways -especially, that of the great procession street, that ran through the heart of the city connecting the Ishtar Gate to the temple of city's main god "Marduk". What was left standing, was stolen by looters, their bricks used as building material for nearby cities including Baghdad, and partly or wholly taken by foreign archaeologists to their home countries' museums. In particular, the Ishtar Gate, dedicated to the Babylonian goddess Ishtar, built around 575 BC by King Nebuchadnezzar II, lies in Berlin's Pergamon Museum. If that was not enough, the prior regime during the Iran-Iraq war, embarked on the reconstruction of Babylon's palaces, temples, structures, and followed the habit of Babylonian kings by inscribing the president's name on many of the new bricks. As an icing on the cake, built an opulent palace, styled on the ancient palaces, on top of a hill overlooking the ruins of the city. Adding insult to injury, was the damage following the invasion of Iraq in 2003, when the ancient site itself was used as a military depot by US and Polish forces in the first two years following the invasion. Despite all of that, the remains of Babylon were magnificent to behold, and the feeling of walking among the wonderous ruins is awesome, despite the many times I have been there. Thomas notes: "I really enjoyed walking through the remains of Babylon despite the immense heat, and in my head, was always Boney M.'s famous song 'Rivers of Babylon' which I fancied so much when I was a teenager. Now I was finally there -but the Euphrates river we were only able to see when climbing up a hill. I hope that UNESCO or the Iraqi Government will continue to protect this historical place and continue with the extraction since there must be much more of these ancient buildings in the surroundings." Babylon ( Source: AFC Research ) The final part of the day's tour was a visit to "Taq Kasra", the only surviving structure of the ancient city of "Ctesiphon", once the capital of the Parthian and Sassanid empires from the second century BC to the seventh century AD. Taq Kasra, or the Arch of Ctesiphon, is the pre-modern world's largest single-spanning brick vault, which makes it not only historically and culturally significant, but also significant in the history of structural engineering. However, years of neglect, especially following the 2003 invasion, have led to partial collapses of the brick vault in 2019 and 2020; while its structures were cracked from the passage of time and from the effect of the elements. Fortunately, in 2020, a great conservation project began, led by the University of Pennsylvania and the Consultancy for Conservation and Development. Taq Kasra was closed to the public due to the conservation project, but fortunately, the closeness of the fence surrounding it allowed us to get very close to it and marvel at its beauty. While it was disappointing not be able to walk underneath the arch as I had done before, I was very glad to see the visible effects of the conservation project and admire the scaffolding installed in late 2021 -later on, I learned that it was designed specifically for the arch, purpose built and came with sensors to monitor cracks. Thomas notes: "I again hope that the Iraqi Government will continue to protect ancient structures like "Taq Kasra" and hopefully will restore and reopen the supporting infrastructure for visitors, which seemed to be in place some time ago. Taq Kasra ( Source: AFC Research ) Please click here to download Ahmed Tabaqchali's full report in pdf format . Mr Tabaqchali ( @AMTabaqchali ) is the Chief Strategist of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years' experience in US and MENA markets. He is a Visiting Fellow at the LSE Middle East Centre, Senior Fellow at the Institute of Regional and International Studies (IRIS), and a Senior Non-resident Fellow at the Atlantic Council. His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.
Iraq Business
10-07-2025
- Business
- Iraq Business
Tabaqchali: Ten-Year Anniversary & a First Visit to Iraq
By Ahmed Tabaqchali, Chief Strategist of AFC Iraq Fund. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News . "Ten-year Anniversary & a First Visit to Iraq" The market, as measured by the Rabee Securities U.S. Dollar Equity Index (RSISX USD Index), was down 4.8% for the month and 1.1% for the year, following increases in 44.8% and 97.2% in 2024 and 2023 respectively. Iraq, then and now June marks the ten-year anniversary of the AFC Iraq Fund, launched June 26th, 2015, a year after it was conceived amidst the perfect storm of ISIS's take-over of the city of Mosul, threatening Iraq's breakup, and the crash in oil prices piling on the misery by adding its potential bankruptcy in the process. It seems almost fitting that, yet another perfect storm was marking its ten-year anniversary, in which the Israel-Iran war, brewing for over 18 months, risked igniting a much-feared wider regional war that could have engulfed Iraq. However, unlike then, the storm dissipated in 12 days, or at least for the time being, as both antagonists have sought ways to end it, that seems to have been found through a U.S. mediation made possible by an orchestrated and symbolic attack on an empty U.S. military base and sealed in a theatrical ceasefire announcement. However, while the risks of the Israel-Iran war erupting once again are real, Iraq and its economy are very different from ten years ago, helping it to weather the war's worst consequences, and to continue with its economic transformation. As discussed here over the last few years, especially in the outlook for 2025 in "What Next After Two Gangbuster Years?" Iraq's economy is undergoing a long-term economic transformation brought on by two key dynamics, which are in the early stages of driving this transformation. The first of which is the cumulative positive effects of the relative stability that the country has enjoyed over the past few years, that provided a stable and predictable macroeconomic framework for businesses to operate in and to plan for capital investments on a scale not seen in the prior decades. While the second is the significant structural fundamental developments accelerating the adoption of banking and bringing about a transformation of the sector and its role in the economy. Iraq's equity market's performance has mirrored the country's tribulations and its ongoing transformation, in which its pre-ISIS peak in January 2014, was followed by a brutal seven-year bear market with the RSISX USD Index down 25.4% in 2014, 22.7% in 2015, 17.4% in 2016%, 11.8% in 2017, 15.0% in 2018, 1.3% in 2019, and 5.4% in 2020 -for a cumulative decline of 66.6%; followed by a recovery of 21.4% in 2021, a decline of 3.8% in 2022, an increase of 97.2% in 2023, and a further increase of 44.8% in 2024. Underscoring the early stages of the market's recovery, is that the RSISX USD Index only surpassed its 2014 peak over a decade later in October 2024. Rabee Securities U.S. Dollar Equity Index ( Source: Iraq Stock Exchange, Rabee Securities, AFC Research, monthly data as of June 30th ) Iraq, as seen through a visitor's eyes My friend and colleague, Thomas Hugger, CEO of Asia Frontier Capital's (AFC), visited Iraq at the end of May, and with me, embarked on a tour of the country that included business visits to companies such as the Bank of Baghdad (BBOB), and Baghdad Soft Drinks (IBSD), the Iraq Stock Exchange (ISX); cultural tours starting with Baghdad's old districts (Mutanabbi Street, Mustansiriyya Madrasa, Al-Shawaka), and its modern districts; the ancient cities of Babylon, Ctesiphon, Ur; the Marshes; the meeting point of the Tigris and Euphrates rivers forming Shatt Al Arab at Al-Qurnah,; and Iraq's third largest city Basra. This month's report will review our visit to the ISX, the Bank of Baghdad, and focus on one of Iraq's best consumer companies, Baghdad Soft Drinks, and its state-of-the-art production plant, the largest of its kind in the Middle East. Other parts of the tour will feature in the upcoming market reports over the next few months. This was Thomas' first visit to Iraq, 13 years after AFC started investing in the country. Arriving in Baghdad at 00:30 in the early morning, he was greeted by the driver of "Al-Mosafer Taxi", who took him to a hotel in the neighbourhood of Arasat Al Hindia, in Karada. For Thomas, having just concluded an investor tour in Uzbekistan, arriving on Turkish Airlines from Istanbul, the experience was no different than almost any country among AFC's investable universe that he has travelled to, in such a contrast to the usual Iraq travel advice warnings of the dangers, that are still reflecting Iraq's dark days of conflict that ended years ago. Thomas notes: "Airport immigration was relatively quick and simple: Most foreigners can now apply for an E-visa online and just before going to the immigration counter simply pick up their visa after the helpful staff at the E-visa counter take their mugshots. The airport is still tiny for such an economy, and I assume that a new passenger terminal will be added in the future. I was also impressed by the quality of the brand new three-lane highway leading from the airport to the city centre of Baghdad. Despite the late time of 01:30 am, there was still some traffic. Judging from the style of driving, I would not be surprised that a future Formula-1 driver will be coming soon from Iraq! The emotional and visual highlight though was the crossing of the Tigris River which splits Baghdad into its western part, Karkh, and its eastern part, Rusafa." The next day, we visited the Iraq Stock Exchange (ISX), situated in the Alwiya area in Karada, in Rusafa, which fortunately happened to be the last trading day of the month, as it allowed us to watch the market's close on the floor of the exchange, after a meeting with the CEO of the Stock Exchange. With the advent of electronic trading in 2009, most investors migrated from watching and trading at the exchange to brokers' offices. However, old habits die hard, and a number of regulars still come to the exchange's floor to meet, gossip, and trade. We chatted with some of them and joined them like two old timers fixated on the trading screens. At the Iraq Stock Exchange (ISX) ( Source: AFC Research ) May ended on a strong note with heavy activity in some of the leadings stocks such as Asiacell Communications (TASC), Baghdad Soft Drinks (IBSD), Bank of Baghdad (BBOB), Mansour Bank (BMNS), and the National Bank of Iraq (BNOI), in which the five accounted for over 90% of the trading value on the last day of the month -the day ended up among the highest turnover days of the year, at over one and a half times the year to date's average daily trading value. These five companies' market leadership stems from the high quality of their business models, quality of management, and multi-year earnings growth, especially over the last two years, as highlighted last month. All five companies are major constituents of the Rabee Securities U.S. Dollar Equity Index. Afterwards, we left to visit the Bank of Baghdad, but not before visiting the beautiful Church of Our Lady of Salvation, which is located right across the street from the stock exchange. Our Lady of Salvation is an Assyrian Christian church that survived terrible attacks during Iraq's darkest years of civil war, particularly the attacks in 2004 and 2010. In 2010, there was a twin attack that started at the ISX and was followed by another at the Church with an attack at Sunday Mass. The attackers clearly aimed for maximum damage as Sunday is also the first day of the business week, and so the death toll was 52 worshippers at the church, and four guards at the ISX. In a spirit that is typical of Iraqis, the ISX family went to work the next day as if nothing had happened. The Church of Our Lady of Salvation Bank of Baghdad's head office ( Source: AFC Research ) We met Bank of Baghdad's outgoing CEO, who successfully managed the bank's turnaround from mid-2016, and its resumption of growth as highlighted in "Banks and the Predictability of Earnings". After discussing the banking scene in Iraq, he introduced us to the incoming CEO, who shared his strategic plans for the development of the bank in the near future. Afterwards, we had lunch at one of the best grill houses in Iraq, Zarzour on the National Theatre roundabout, and enjoyed a feast of kebab, tikka, liver, hearts and kidneys. Iraqi red meat grills are almost always made of domestic lamb, which are accompanied by high amounts of fat: kebabs have up to 20% of fat content; tikka, liver, hearts and kidneys come with cubes of fat; and for those who want more, restaurants serve skewers of fat cubes as a stand-alone item. Local sheep breeds are mostly Awassi, followed by Arab and Hamdani sheep, which are broad-tailed breeds with fat tails -they are so prized that successive governments have prohibited their export. Lunch at Zarour, the National Theatre Roundabout ( Source: AFC Research ) In the evening, we went on a walkabout on one of the liveliest streets in Baghdad, Yarmouk district's "Four Streets", in the Karkh side of Baghdad. Being a Thursday, which is the last of the Iraqi work week, it was full of people, of all walks of life, brimming with energy, movement and whose lively conversations filled the space. Not satisfied with just one grilled meat feast a few hours earlier, we enjoyed another tasty grilled dinner, repeating the same choices, in one of the many restaurants left and right of the buzzing street where entire families walked by or drove in their SUVs, most of which were brand new. Four Streets, Yarmouk, Karada, Baghdad ( Source: AFC Research ) On Baghdad, Thomas notes: "I noticed that the western part of the city is seeing a lot of construction activity since I assume this part is newer and was therefore less developed a few years ago compared with the eastern part of the city which is very crowded and overbuilt with mostly two to three stories buildings and hosting the older residential and commercial aeras including the historical centre "Olds Rusafa" which is dating back over 1,000 years. I had the feeling that the construction boom and urbanisation of Baghdad were just starting. I was impressed by some huge mixed property developments (residential combined with retail space) -something which could be easily also found in any other place like in the U.A.E., Kuwait, or Qatar. The traffic early in the morning was easy, but later in the day became much more congested, leading to traffic jams into the evening hours (or early morning the next day). It was striking for me that most of the cars seem to be quite new (with the exception of the many yellow taxis) and also that the Dodge "Challenger" is used as a family car in Iraq and seems to be very popular with the local drivers. I was also surprised to learn that the gasoline price in Iraq is about USD 0.65 (850 IQD), which is certainly much cheaper than in Europe, but considerably higher compared with other oil-producing countries." Construction activity in Baghdad ( Source: AFC Research ) The tour of Iraq's last day ended in Baghdad, with a visit to Baghdad Soft Drinks' (IBSD) head office and its world-class production plant in Al-Za'franiya on the outskirts of Baghdad, which is the largest and best of its kind in the Middle East. IBSD is Iraq's main PepsiCo franchise and has grown organically by expanding the Pepsi Cola line, and strategic acquisitions such as that of the Aquafina (mineral water) licence holder "Ynabee' Al Zawraa Company". As of 2024, IBSD has 15 Pepsi production lines, three Aquafina water production lines, and five juice production lines, with total production growing by about 14% year over year. Complimenting these, were milk products that were introduced in 2024, and a refrigerated hall for milk storage was completed, that while an insignificant part of IBSD's business, nevertheless, Rabee Securities notes that is "... a positive development supporting the expected growth in milk sales" -much like in the rest of the Middle East, fresh milk consumption is on the rise. IBSD's consistent earnings and revenue growth since 2011, were negatively affected twice in these years. The first business decline was in 2014, following the fall of Mosul and the ensuing conflict, but growth soon resumed in 2015. The second was in 2021-22 when its profit margins took a hit from the significant price rises of commodities, in particular aluminium and sugar, as brought on by the double whammy of the disruptions to supply chains in the wake of the emergence from Covid-19's induced lockdowns, and of the invasion of Ukraine. These higher expenses, while negatively affecting profit margins, were temporary and one-off in nature, the high year-over-year cost increases moderated significantly and eventually declined; while sales momentum continued to accelerate supported organically by its strong product line-up, as well as by the line-ups from is recent acquisitions -a point made in "Winter Flash Floods" when discussing IBSD, and other top companies following their sharp prices drops in late 2021. The consequences of the cumulative positive effects of the relative stability that the country enjoyed is evident in the acceleration in growth of the last two years. The company's confidence about its future was evident in its latest dividend declaration, at the end of June, in which it increased the cash payout from 0.29 to 0.36 IQD per share, or an increase of 24.2%, resulting in a dividend yield of 7.5%. IBSD's revenues and earnings margins 2011-2024 ( Source: Rabee Securities, company filings, AFC Research, annual data as of 2024 ) What is noteworthy, and part of the attractiveness of the Iraq investment story, is that despite the market's strong performance over the last few years, valuation disparities continue to offer investment opportunities. A case in point is IBSD's valuation disparity with emerging market PepsiCo, and Coca-Cola bottlers (table below) as an example of Iraq's value proposition, and a demonstration of AFC's investment thesis of arbitraging the delta between Iraq's real risk and perceived risk -while a disparity should exist given different market sizes, and other market dynamic differences, yet surely not on such a scale. Table: Bottler comparisons ( Source: Bloomberg, data as of July 4th ) On the company, Thomas notes: "We were able to visit the impressive plant factory of Baghdad Soft Drinks in Al-Za'franiya on the outskirts of Baghdad. The plant manager showed us around various buildings where Pepsi, mineral water, and other soft drinks were produced and packaged. The bottling lines did not differ from any soft drink bottling plant in a developed country. Almost all of the machinery was from Germany and hardly any people were doing manual work (except for the forklift drivers moving around the huge piles of bottles or cans) since most of the jobs are computerised or done by robots. Needless to say, the factory was spotlessly clean. We also saw workers from Turkey installing the newest machinery from Germany for the new production lines". IBSD Production Plant ( Source: AFC Research ) We were taken there by Wassim Al Jzrawy, the CEO of Karmal Brokerage, a colleague and a friend with whom the relationship goes back to 2013, when work first started on the Iraq investment thesis. The visit continued thereafter by touring through Ishtar Sheraton Hotel, sandwiched between the picturesque Tigris River, and "Firdos Square" which became world famous on April 9th, 2003, when the toppling of Saddam Hussein's statue at that time was shown live on CNN. The hotel is currently undergoing a major refurbishment to meet the strong demand for hotel rooms in Baghdad, as the country's stability, subsequent rebuilding and its booming economy are attracting foreigners, particularly regional businesses investors seeking economic opportunities -or "Go East, young person", a modern day version of "Go West, young man" in the U.S. in the 19th century, that embodied the massive economic opportunities during the westward expansion in the U.S. So much so, that planes arriving today in Baghdad from Amman, Istanbul, Dubai, or Doha, (some of which have multiple daily flights now), are normally full irrespective of the time of arrival. Increasingly, the inflow of tourists, with the potential economic implications to cater for them, is taking place, as will be covered in the travel reports of our tour of historic Iraq. View from Ishtar Sheraton Hotel ( Source: AFC Research, left Ishtar Sheraton Hotel, top right Rusafa, bottom right Karkh -both as viewed from the roof of Ishtar Sheraton ) Firdos Square, Karada, Baghdad ( Source: AFC Research, as viewed from the roof of Ishtar Sheraton ) Please click here to download Ahmed Tabaqchali's full report in pdf format . Mr Tabaqchali ( @AMTabaqchali ) is the Chief Strategist of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years' experience in US and MENA markets. He is a Visiting Fellow at the LSE Middle East Centre, Senior Fellow at the Institute of Regional and International Studies (IRIS), and a Senior Non-resident Fellow at the Atlantic Council. His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.
Iraq Business
09-06-2025
- Business
- Iraq Business
Tabaqchali: Humongous Dividends Boost the Iraqi Market
By Ahmed Tabaqchali, Chief Strategist of AFC Iraq Fund. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News . "Humongous Dividends Boost the Market" The market, as measured by the Rabee Securities U. S. Dollar Equity Index (RSISX USD Index), closed at an all-time high for May, with an increase of 0.7%, and is up 4.0% for the year. However, there is more to the Index's 0.7% increase than meets the eye due to the nature of the index's market value-weighted calculation that incorporates stock price changes, but not dividends, that negatively affected the index's monthly performance far more than in the prior years. The culprits were two humongous dividend announcements of 14.5% and 11.5% by two of its ten components, the Bank of Baghdad (BBOB) and Asiacell Communications (TASC), respectively, with a 28.6% and 10.6% index weighting at the end of April. If these two dividends, as well as another component's 0.3% dividend, were incorporated in the index's calculations, then it would have been up 6.4% for the month. Preceding TASC's and BBOB's dividend announcements, a few weeks earlier was the National Bank of Iraq (BNOI), another major component of the index with a 22.3% weighting at end of April, which declared a 4.9% per share cash dividend and a 30% share dividend. The combination was effectively equivalent to a 12.3% dividend yield. The two bank's oversized dividends follow from the outstanding earnings and book value growth enjoyed by the top banks in the country over the last two years, as reported here in "Banks End a Second Year with a Bang", in which the earnings two-year compounded annual growth rate (CAGR) was 203% for BNOI and 104% for BBOB (table below). For TASC, its dividend increased by 50% year-over-year, from Iraqi Dinar (IQD) 1.0 to IQD 1.50 per share, with the dividend payout ratio increasing to 118% from 88%, reflecting the ongoing growth in the company's earnings over the last two years with a 22% CAGR (table below), and its cash generating model that resulted in the build-up of huge reserves over the last few years. The market, while expecting such a high dividend, nevertheless received it enthusiastically on the day the stock went ex-dividend. According to the Iraq Stock Exchange (ISX) trading regulations, the ISX sets the stock lower by the amount of the dividend payout on the ex-dividend date; in other words, it lowered the stock's price by IQD 1.50, yet this was completely reversed, on a high trading volume, with the stock ending at the same price that it was before it went ex-dividend. As such, effectively rallying 13% versus the ISX's ex-dividend price adjustment. Promisingly, it increased by a further 3% again on high trading volumes by month's close, in the process reflecting the market's expectation for further strong earnings growth for the company, and continued high dividends. Earnings and Book Values for Selected Companies ( Source: Rabee Securities, company reports, and AFC Research. Unaudited data as of end 2024* ) The backdrop to the strong growth enjoyed by the country's top companies, as reflected in declared dividends, stems from the relative stability that the country enjoyed over the last few years; that provided a stable and predictable macroeconomic framework for businesses and individuals to operate in and to plan for capital investments on a scale not seen in the prior decades of conflict. The stock market's upside potential in discounting these developments was the focus of a recent report, "Investing in Iraq, yet more gain to come" by Undervalued Shares " itself a second report on Iraq after the initial report four years ago, with the RSISX USD index increasing by 179% between the two reports, i.e. between June 2021 and May 2025. The over-arching theme, as discussed in "What Next After Two Gangbuster Years?" is that both of the two key dynamics discussed here in the past -the cumulative positive effects of the relative stability and structural banking developments- are in the early stages of their transformation of the Iraqi economy, a process that would unfold over the next few years, bringing with it high economic growth that would feed into higher corporate earnings, and ultimately higher stock market returns. Nonetheless, as discussed last month in "Market at an All-time High, Oil Prices Crashing, What Gives?", the negative effects of lower oil prices on the economy will become a headwind, reversing the positive tailwind of the past two years. Yet, the secular positives of the economic transformation should overcome the drag from the cyclical negatives and thus continue to drive the market's direction. The equity market, as measured by the Rabee Securities U. S. Dollar Equity Index (RSISX USD Index), having surpassed its 2014 peak by 11.1% by the end of May, has the potential to rally further reflecting the powerful dynamics discussed here over the last few months. However, risks remain given Iraq's recent history of conflict, extreme leverage to volatile oil prices, especially in the current uncertain global environment, as well as the risk that a widening of the current Middle East conflict will not be contained and evolve to destabilise the region. Notes: * Using unaudited quarterly data, and earnings are net profit after tax. IBSD's net profit for 2024 is arrived at after accounting for the company's tax rate. Please click here to download Ahmed Tabaqchali's full report in pdf format . Mr Tabaqchali ( @AMTabaqchali ) is the Chief Strategist of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years' experience in US and MENA markets. He is a Visiting Fellow at the LSE Middle East Centre, Senior Fellow at the Institute of Regional and International Studies (IRIS), and a Senior Non-resident Fellow at the Atlantic Council. His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.
Iraq Business
07-05-2025
- Business
- Iraq Business
Tabaqchali: Market at an All-time High, Oil Prices Crashing, What Gives?
By Ahmed Tabaqchali, Chief Strategist of AFC Iraq Fund. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News . Market at an All-time High, Oil Prices Crashing, What Gives? The market, as measured by the Rabee Securities U. S. Dollar Equity Index (RSISX USD Index), closed at an all-time high for the month, with a 3.0% increase, and is up 3.3% for the year. The market was closed in the first week of the month in observance of the Eid holidays, and so it missed out on the global market mayhem in response to the unveiling of the U.S.'s "reciprocal" tariffs on its trading partners. Once trading resumed, it, to some extent, joined its global peers in being down 1.0% for two days until the announcement of the 90-day suspension of tariffs, after which it ticked upwards to close at an all-time monthly high -although the all-time daily high was mid-month (chart below). The market's technical picture continues to be positive, and the consolidation of the last few weeks is likely to continue for some time, given the uncertainty over the direction of the world's economy from the evolving U.S. sanctions -a great deal of uncertainty remains, in which the positives of the 90-day tariff suspension, might be replaced by a U.S.-China trade war, or the 90 days will lapse before enough "beautiful" deals are agreed on. Rabee Securities U.S. Dollar Equity Index and Daily Turnover ( Source: Iraq Stock Exchange, Rabee Securities, AFC Research, daily data as of April 30th. Note: daily turnover adjusted for block trades1 ) The market's action in closing at an all-time-high, stands in sharp contrast to those of other global markets, which have recouped their "liberation day" losses, yet remain down year to date. Moreover, it is remarkable considering the potential negative effects from Iraq's leverage to global oil demand. As argued in "Tariffs, Oil Prices, and the Budget", irrespective of the evolving U.S. tariff policy, their direct impact on Iraq is almost zero, as oil constitutes almost all of its exports to the U.S., which are exempt from reciprocal tariffs, but, the impact will be indirect and felt through a lower Iraqi oil price as a consequence of expected lower global demand for oil. On the one hand, this negative is aggravated by increased supply in the form of OPEC+'s aggressive unwinding of its prior production cuts for May and June, that probably will be repeated for the next few months as well. On the other hand, the positives are the U.S.'s increasing tough line against Iranian oil (crude, and products) exports to China, which would more than offset OPEC+'s increased production, should they be fully implemented, so is the potential decline of high-cost U.S. shale production, as well as the low levels of global oil stocks. However, there is a great deal of uncertainty over how these factors will play out as well as on the direction of the global economy, with the result that oil markets are in unchartered territory, and so oil prices continue to head lower, with Brent crude trading at four-year lows. Mirroring these concerns, the IMF, as part of lowering its global growth forecasts for 2025-26 in response to the U.S.'s tariffs, lowered those for oil exporters even more reflecting the added effects of lower oil prices, with its forecasts for Iraq lowered more than those of its peers among oil exporters (table below). IMF's Iraq's growth forecasts for 2025-26 versus growth figures for 2023-24 (Source: IMF May 2025 Regional Economic Outlook for the Middle East and Central Asia; old forecast refers to IMF's October 2024 forecast, while new forecast is that of May 2025) The obvious question is: what gives? Especially considering that investors on the Iraq Stock Exchange (ISX), whether locals or the handful of foreigners, are fully aware of the effects of lower prices on Iraq, and should have reacted negatively without waiting for the oil market's weird dynamics or for the IMF's forecast downgrade. The logical answer, as asserted here in the past, most recently in "What Next After Two Gangbuster Years?", is that Iraq's economy is undergoing a significant structural transformation, following the country's decades of conflict, driven by two key dynamics -the cumulative positive effects of the country's relative stability and the acceleration of banking adoption instead of cash and informality that dominated the economy, that are in the early stages of their transformation of the economy. One such manifestation of the increased adoption of banking, last discussed under a year ago in "An Unfolding Structural Economic Transformation", is the significant growth, year-over-year and month-over-month, in the monthly values of Iraqi Dinar (IQD) transactions through cards (prepaid, debit, and credit) and e-wallets (chart below). These are at the early stages of the transition to the use of the banking system in the payments for transactions, and while from a small base, the trends are clear and mirror, with a time lag, those that took place elsewhere in emerging and frontier economies. It is this increased adoption of banking, that stands out as a positive in the IMF's updated forecasts, as seen through the figures for broad money growth (table above). While they were lowered from 6.4% to 4.3%, they still show solid growth as a reflection of the increased adoption of banking and the role that banks play in the expansion of the money supply. Card and E-wallet Monthly IQD Transactions (Source: CBI, AFC Research, data as of the end of December 2024) Finally, the market's positive performance, despite such negatives, should be seen in the context of a market that last peaked in January 2014, followed by a brutal seven-year bear market in which the RSISX USD Index was down 25.4% in 2014, 22.7% in 2015, 17.4% in 2016%, 11.8% in 2017, 15.0% in 2018, 1.3% in 2019, and 5.4% in 2020 -for a cumulative decline of 66.6%; and only surpassed the 2014 peak over a decade later in October 2024. Nevertheless, the negative effects of lower oil prices on the economy will become a negative headwind, reversing the positive tailwind of the past two years. Yet, the secular positives of the economic transformation should overcome the drag from the cyclical negatives and thus continue to drive the market's direction. The equity market, as measured by the Rabee Securities U. S. Dollar Equity Index (RSISX USD Index), having surpassed its 2014 peak by 10.3% by the end of April, has the potential to rally further reflecting the powerful dynamics discussed here over the last few months. However, risks remain given Iraq's recent history of conflict, extreme leverage to volatile oil prices, especially in the current uncertain global environment, as well as the risk that a widening of the current Middle East conflict will not be contained and evolve to destabilise the region. Notes: Daily market turnover is first adjusted by removing block, pre-arranged trades conducted during the special session following the regular trading session; subsequently, it is adjusted further by removing high-volume trades during regular market hours that show a pattern consistent with those of pre-arranged trades. High-volume trades are defined as those that are significantly higher than a given stock's average daily turnover; and as such are subjective. Moreover, trading volumes, and trading turnovers are used interchangeably here, and defined as the values of trading turnovers in Iraqi dinars (IQD) Please click here to download Ahmed Tabaqchali's full report in pdf format . Mr Tabaqchali ( @AMTabaqchali ) is the Chief Strategist of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years' experience in US and MENA markets. He is a Visiting Fellow at the LSE Middle East Centre, Senior Fellow at the Institute of Regional and International Studies (IRIS), and a Senior Non-resident Fellow at the Atlantic Council. His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.
Iraq Business
07-04-2025
- Business
- Iraq Business
Tabaqchali: Tariffs, Oil Prices, and the Budget
By Ahmed Tabaqchali, Chief Strategist of AFC Iraq Fund. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News . Tariffs, Oil Prices, and the Budget The market, as measured by the Rabee Securities U. S. Dollar Equity Index (RSISX USD Index), was up 1.6% for the month, and 0.2% for the year. The market continued with the process of consolidating its gains that started in December, following a blistering 35.9% rally since late August, and just as in the past two months, spent the month in a tight range of -2.3% and +1.8% around its prior month's close. While, this consolidation could continue over the next few weeks, the market's technical picture continues to be positive, and the likely consolidation or pullback should be within its multi-month uptrend (chart below). Nevertheless, the process of consolidation could extend towards the lower band of the uptrend, due to the uncertainty over the health of the global economy following the unveiling of the U.S.'s radical tariffs on its trading partners. The tariff's direct impact on Iraq is almost zero, since oil constitutes almost all of its exports to the U.S., which are exempt from reciprocal tariffs, however, the impact will be indirect and felt through a lower oil price as a consequence of expected lower global demand for oil. Rabee Securities U.S. Dollar Equity Index and Daily Turnover ( Source: Iraq Stock Exchange, Rabee Securities, AFC Research, daily data as of March 27th. Note: daily turnover adjusted for block trades 1) This lower global demand for oil, was compounded by supply increases as a result of the unexpected OPEC+ announcement in the wake of the U.S.'s unveiling of tariffs, that the group will triple its planned production increase in May. The actual increase will in fact be much less as a function of over-production by some group members, and the tripling of production, so far, is planned only for May. Nevertheless, the clear implication is that the group's planned unwinding of prior production cuts will proceed even in the face of the expected weaker demand for oil -versus the market's prior expectations that OPEC+ will delay the unwinding of production cuts when demand is weak. This might seem illogical at first sight, but it will soften the tariffs and potential counter tariffs blow to the world economy, make up for the potential loss of Iranian oil from the U.S.'s tough measures, and help in stimulating the eventual global recovery. However, it's negative for medium-term oil prices which, as measured by Brent crude futures contracts as of April 4th, have shifted (orange line, chart below) to the lower end of a three-year range -marked on the upper end by those of supply fears following the invasion of Ukraine (red line, chart below), and on the lower end by those following the emergence from COVID-19 at the end of 2021 (grey line, chart below). Market Expectations for Future Oil Prices As measured by Brent Futures Contacts (USD per barrel) ( Source: , AFC Research, as of April 4th; U.S. Energy Information Administration ( EIA ), as of March 31st ) This decline in expectations for future oil prices (orange line, chart above), has negative implications for Iraq's oil export revenues which in 2025 could translate to IQD 17.3 tn (USD 13.3 bn), or 16%, in less oil revenues than in 2024.2 Notwithstanding this, it was argued here in "Market Review for 2021 and Outlook for 2022" when expectations for future oil prices at the time were at the lower of this range (grey line, chart above), that they were positive for the country's financial position in that they provide the government with the wherewithal to continue with expansionary economic policies. While prices at the upper end of the range allow for the accumulations of budget surpluses, and at the lower end require the issuance of domestic debt to fund budget deficits, yet the overarching theme was, and remains, is that over the next few years, the direction is for decreasing oil prices. Thus, as reasoned in "What Next after Two Gangbuster Years", this implies increased debt issuance to augment government spending, that will play a big role in developing the country's bond market, which, in turn, with the growth of the equity market, will contribute to the evolution of the country's capital markets. The government is yet to submit the updated budget tables for 2025 as part of the expansionary three-year 2023-25 budget. However, the projections should be for slightly increased expenditures and decreased revenues in 2025 over 2024 in line with the changes of 2024 over 2023; and as such would lead to a deficit of Iraqi dinar (IQD) 65.0-67.0 tn (USD 50.0-51.5 bn, based on the official exchange rate of USD = IQD 1,300). However, in practice, there is a world of difference between budget projections and actual budget executions, mostly due to the historically low execution rates of investment spending and the plodding pace of the Iraqi bureaucratic machine. In both 2023 and 2024, the budget called for a deficit of around IQD 64.0 tn (USD 49.3 bn), however, the actual budget execution was vastly different. Actual deficits were significantly lower than projected, and were financed by the cash balances at the Ministry of Finance's (MoF) account at the Central of Iraq (table below). Actual Budget Data 2022-2024 ( Notes and data sources3 ) Accordingly, estimating actual budget execution for 2025 can be made by using current market projections for oil prices2, and assuming actual expenditures would be 10% higher than those for 2024, which implies a budget deficit of IQD 35.8 tn (USD 28.0 bn). This would be easily financed through the issuance of domestic debt, increasing domestic sovereign debt from IQD 83.1 tn (USD 63.9 bn) at the end 2024 up to IQD 118.9 tn (USD 91.5 bn) by the end of 2025 -a better outlook than initially estimated a few months ago, primarily due to better than expected budget performance in 2024. The 2025 budget, like that of 2023 and 2024, should continue to support the two key dynamics driving the transformation of the Iraqi economy, and subsequently the equity market. The first is the cumulative positive effects of the relative stability that the country has enjoyed over the past few years, which created a stable and predictable macroeconomic framework for businesses and individuals to operate in and to plan for capital investments on a scale last seen in the 1970's and early 1980's before the onset of the decades of conflict. The second is the significant structural fundamental development accelerating the adoption of banking and bringing about a transformation of the sector and its role in the economy. The equity market, as measured by the Rabee Securities U. S. Dollar Equity Index (RSISX USD Index), having surpassed its 2014 peak by 7.1% by the end of March, has the potential to rally further reflecting the powerful dynamics discussed here over the last few months. However, significant risks remain given Iraq's recent history of conflict, extreme leverage to volatile oil prices, as well as the risk that the widening of the current Middle East conflict will not be contained and evolve to destabilise the region Notes: Daily market turnover is first adjusted by removing block, pre-arranged trades conducted during the special session following the regular trading session; subsequently, it is adjusted further by removing high-volume trades during regular market hours that show a pattern consistent with those of pre-arranged trades. High-volume trades are defined as those that are significantly higher than a given stock's average daily turnover; and as such are subjective. Moreover, trading volumes, and trading turnovers are used interchangeably here, and defined as the values of trading turnovers in Iraqi dinars (IQD). The figure is highly dependent on actual oil exports, which can vary depending on Iraq's compliance with production agreements made by OPEC+, which in turn are likely to change further in 2025 depending on evolving oil market dynamics. Budget data, budget specifics, and sources are based on "Iraq's 2024 budget: Not what it appears when it first meets the eye", Ahmed Tabaqchali, The Atlantic Council, November 6th, 2024. Data for budget execution for 2024 has been updated since then using actual MoF data up to November 2024 and making estimates for December 2024. Please click here to download Ahmed Tabaqchali's full report in pdf format . Mr Tabaqchali ( @AMTabaqchali ) is the Chief Strategist of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years' experience in US and MENA markets. He is a Visiting Fellow at the LSE Middle East Centre, Senior Fellow at the Institute of Regional and International Studies (IRIS), and a Senior Non-resident Fellow at the Atlantic Council. His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.
