The Road to New Revenues – Rebuilding the Transportation and Logistics Industry
Thanks to its strategic geographical location, Iraq’s transportation and logistics industries could become the nation’s second leading sources of revenue and most certainly will enhance the country’s ability to trade with its neighbors and the world beyond.
Iraq is a “land bridge” or “dry channel” for Eastern Mediterranean ports in Turkey. Merchants and manufacturers who send their shipments by land via inter-modal systems to Iraq’s port at Umm Qasr rather than the Suez Canal – Red Sea route, will not only save transit time but an estimated $12 million to $15 million per ship load in transport fees.
Prevailing winds and “great circle” routing make Iraq’s airspace an equally attractive transit option as the “land bridge” not only for cargo but as a hub for passengers as well.
Iraq understands the importance of this opportunity. It has already experienced the challenges associated with being principally reliant on oil revenues and is committed to providing world class transportation and logistics systems to exploit the potential of this market.
Iraq’s Priorities – Investor’s Opportunities
The responsibility for upgrading and renovating Iraq’s transportation system falls to two ministries, the Ministry of Transport (MoT) and the Ministry of Construction and Housing (MoCH). The MoT is responsible for ports, railways and airports while the MoCH oversees the rehabilitation and new construction of roads and bridges.
Combined, their immediate priorities for the country are:
- Improving the facilities and services at the nation’s main airports particularly at Bagdad and Basra.
- Construction of a massive new deep water port at El Faw.
- Improving the safety and efficiency of the national railroad system.
- Upgrading the country’s roads.
To give you a feel of what “upgrading the country’s roads” entails, Iraq has approximately 38,000 km of paved roads and 7,000 km of unpaved roads. The paved roads were built in the 70s and 80s and were designed to have a 20 year service life. There has been little to no maintenance done on this system and the roads show it. The “land bridge” cannot become a reality until modern highways capable of handling inter-modal transport are in place.
Using the standard of $1 million per km as the construction cost, “upgrading the country’s roads” could run upwards to $40 billion.
The new port at El Faw is another massive project estimated to cost up to $14 billion. The port is envisioned as a 2010 design capable of handling eighth generation container ships and ultimately will include up to 50 berths making it the largest modern port in the region. When El Faw is completed it will replace Umm Qasr as the principal terminus making the land bridge even more attractive to shippers.
The nation’s rail system has already been made safer and more efficient thanks to a contract completed by NewComm Technologies that provides real time digital data and voice communication. The system, known as Digital Microwave Radio Communications Network, allows for complete centralized control and scheduling of the rail system. Sponsored by the U.S. Department of Transportation, the project is viewed as a huge improvement in Iraq’s capability to move people and cargo by rail.
While the DMRCN is an important accomplishment, Iraq’s rolling stock is in need of repair and/or replacement and represents another investment opportunity that will arise in the short term.
List of Iraqi Transportation Contractors Reads Like Who’s Who of Global Investing
With the establishment of stability and security, Iraq has been successful in attracting the world’s foremost transportation and logistics organizations to join them in rebuilding the country’s industry.
Here’s a quick sampling of recent events:
- Swedish truck builder Scania has announced that it has taken a majority position in its Iraqi distributor. Iraq has always been a good customer for Scandia who has sold over 20,000 heavy trucks there since the 1960’s. Increasing its corporate presence will allow the company to focus on Basra province where, according to Country Manager Gustaf Sundell, “there is rapidly increasing demand for transport services from international companies.”
- Sixteen firms have submitted bids on the $412 million El Faw breakwater project. Among the finalists in the competition are Hyundai Engineering and Construction, Daewoo Engineering and Construction, China Communications Construction Company and Al Habtoor Leighton Group. An award decision is expected in the early Fall of 2012.
- And representing the consumer interest in improving transportation systems, Toyota announced its desire to open a sales and service center in Basra. Saleh Rauf, the Executive Director of Toyota, said: “The Company has an earnest and ambitious plan to start this investment project including establishing a sales and spare parts center in Basra. Basra province is one of our main [target markets because of its] ongoing economic development and favorable environment for businesses in the region and its security stability. “
Elsewhere improvements are being made in the human element of the transportation and logistics industry. Scandia has opened the Swedish Academy of Training in Erbil to provide educational resources for those hired as drivers and maintenance technicians for heavy trucks. UAE based Arabian Reach has announced it will be providing training in both international air operations and international logistics standards.
This is a sector of Iraq’s economy that is truly a win-win for both investors and Iraq. Expenditures on transportation not only improve Iraq’s ability to earn foreign trade but provides jobs, training and new business opportunities for Iraqi companies. If you’d like to learn more about the investment possibilities in this exciting part of Iraq’s redevelopment feel free to contact us for detailed information.