Tech Investors are gradually waking up to the potential of Iraq, a market that has so far remained relatively untapped.

Despite the global uncertainty caused by the pandemic, while the world attempts to emerge from the economic shock it has caused, a start-up environment is taking shape in Iraq.

KAPITA, sponsored by the German government, launched last month as its first angel investor network.

Start-up funding is trickling in, notably from venture capital firm Iraq Tech Ventures, and super app contender Lezzoo received funding from Northern Gulf Partners and Pay it Forward.

Lezzoo landed a seven-figure funding deal in July following graduation from accelerator Y Combinator. The firm was founded by Yadgar Marani, in Erbil, Kurdistan, which is seeing increasing support from non-government organisations (NGOs),

Iraq Tech Ventures recently carried out a funding round with Shwan Ibrahim Taha, Chairman of Rabee Securities, along with other investors including Rawaz Rauf, New Venture Manager for Hiwa Rauf Group; Bassam Falah, founder and Managing Partner of Innovest ME; and Subhi Khudairi, President of Khudairi Group.

The funding was for a combined value of close to $1.5 million to three Baghdad-based companies, food delivery app Alsaree3, and last mile deliveries company Al Zajel, both founded by Bassam Al-Ateia, and e-commerce company Miswag.

Digital focus

The early success of these app-based companies is attributable to the country’s move towards embracing technology. Out of Iraq’s 40 million population, 29.82 million were internet users, as of January 2020, according to Datareportal – an increase of 55 percent from 2019.

Internet penetration was at 75 percent, and there are 40.89 million mobile phone users in Iraq – equivalent to 103 percent of the population.

“Iraq has a huge market size, and WiFi and smartphones and digital literacy are growing at really exciting rates,” said Laura Olivier Khudairi, executive director, Iraq Tech Ventures.

“Besides philanthropic reasons of wanting to help better Iraq, it is also a tremendous business opportunity. If we can figure this out, this investor security piece, it is going to be potentially very lucrative for our investments, if we can help these entrepreneurs scale their businesses.”

Beyond oil and gas

Iraq faces the common Middle Eastern economic quandary - how to move beyond dependence on oil and gas, with the sector accounting for 60 percent of the country’s gross domestic product (GDP) and 99 percent of exports.

And, as with the rest of the region, that quandary has been thrown into sharper relief by COVID-19, which brought about unprecedented oil price decreases. At the same time, infrastructure remains an issue.

Globally, the same story is being told over and over, that economic devastation of traditional businesses by COVID-19 has seen a surge in digital alternatives, providing services to people isolating or under government-imposed lockdowns. Iraq is no exception.

“Many Iraqis have used technology services for the first time. Grocery deliveries grew because everyone was on lockdown. Because COVID-19 has changed the way people go about their lives, hopefully you will see more money spent on tech companies,” said Olivier Khudairi.

Philip Bahoshy, CEO and founder of Dubai-based MENA start-up platform, MAGNiTT, which compiles data on entrepreneurs, start-ups and funding across the region, said: “The Iraqi tech start-up and venture investor space is relatively small when compared with the rest of the MENA region, however we have seen continued growth and interest from across the region.”

“Through 2020, we have seen the beginnings of some promising ecosystem development activities specifically driven by angel investors from within the country and expats abroad,” he added.

But there are challenges faced by tech entrepreneurs operating in the country, aside from the well documented security situation.

There is currently no specific system for registering a tech-based company, entrepreneurs must instead register as a traditional business.

While there is recognition of the need to invest in tech by the Iraqi government, not much concrete action has been taken. 

Recruiting talent may also be an issue, said Olivier Khudiari. “The entrepreneurs that you meet in the GCC may have worked for a multinational and have experience. In Iraq, many of the entrepreneurs are in the early stages of their business, because Iraq has systemic problems such as unemployment,” she said.

“Where we have seen the most successful tech-based companies are people who have had businesses before or have worked for multinationals or other companies,” she added. 

Need for Infrastructure investment

There is also the question of infrastructure investment: “Given the size of the population, the need for continued infrastructure development, and high digital penetration, Iraq is ripe for technological development,” said Bahoshy.

“Many pain points can be solved with the use of technology. However, to enable this, investment is required in telecommunication and network development to enable the use of such tools.”

Given Iraq’s recent history, the foremost question in the mind of any investor is likely to be the safety of investing there at all.

Olivier Khudairi concedes that investors must be ‘comfortable with a bit of risk’, as the infrastructure to protect investments is in development.  International agreements, like that used in the UK or USA, are signed, and shareholders have registered on the country’s official commercial register, she said.

The security situation will be unresolvable for many, as UK and US governments currently advise against all travel to the country, and the Indian government advises that its citizens should only go to certain provinces.

COVID-19 in Iraq

Iraq Worldometer statistics on Sunday showed that Iraq had had 402,330 cases of COVID-19, and 9,852 deaths.

The UAE’s Ministry of Foreign Affairs and International Cooperation has advised that those considering travel to Iraq must abide by measures including a 14-day quarantine on arrival, and measures similar to the UAE, including wearing masks in public, and a ban on gatherings. 

The USA’s Centers for Disease Control and Prevention (CDC) currently categorises Iraq as warning level 3 for COVID-19 - avoid non-essential travel.

(Reporting by Imogen Lillywhite; editing by Seban Scaria)

(imogen.lillywhite@refinitiv.com)

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© ZAWYA 2020