Economy, Domestic Economy

Incentives to Promote Services Export to Iraq

Incentives to Promote Services Export to IraqIncentives to Promote Services Export to Iraq

Iran’s export of technical and engineering services to Iraq has been hit hard in recent years due to the security situation in the neighboring country and Baghdad’s credit crunch caused by falling oil prices.

After exporters of these services repeatedly called on the government for cash incentives to deal with their financial issues in implementing costly projects in Iraq, the government eventually allocated $100 million to support the traders.

“The government has ordered the Export Development Bank of Iran to provide the financial resources,” Mehr News Agency quoted Mohammad Reza Ansari, head of Iranian Technical and Engineering Services Exporters, as saying on Sunday.

The “important and historic” move, said the official, would be a big help to engineering companies that have been stuck in the Iraqi market amid the onslaught of IS militants in the country.

Facing a liquidity shortage, a majority of Iranian companies in Iraq have failed to pay the wages of their employees.

According to Ansari, 40 Iranian companies implementing technical and engineering projects in Iraq are in financial trouble, as the Iraqi government has failed to fulfill its financial obligations to those companies.

He warned the government that the engineering companies’ bad state, if not dealt with in the near future, will bring services exports to the country to a complete halt.

“The government’s move [in providing cash incentives], is not only aimed at saving those 40 companies, but to promote the export of technical and engineering services so that the private sector’s activities in that sector will not stop in the near future,” Ansari said.

Iraq accounts for 80% of Iran’s engineering services exports–almost half of Iran’s total exports to the country. Services exports to Iraq, according to many experts, are vital for saving the sector as Tehran lost 14 other engineering export markets in the past few years due to sanctions imposed by the West due to its nuclear energy program.

The $100-million credit, however, is half what the government had promised the exporters.

The government, according to Secretary-General of Iran-Iraq Chamber of Commerce Jahanbakhsh Sanjabi, had initially decided to allocate $200 million worth of loans from the Central Bank of Iran to engineering companies in Iraq. Nonetheless, the credit was later cut in half due to the government’s limited financial resources.

“The allocated credit will only cover a negligible amount of the contractors’ needs, as Baghdad owes nearly $1.5 billion to the contractors,” Sanjabi told the Persian daily Forsat-e Emrooz.

The government’s requirements for granting the loans have stoked concerns among exporters.

The loans will be granted to exporters with a clear financial background.

This is while, Sanjabi says, in the past, contractor companies mostly failed to adhere to their loan repayment, in view of the Iraqi government’s massive amounts of unpaid debts to those companies.

There are also issues regarding collaterals and interest rates, which still remain unresolved, leaving questions as to whether the move will be effective in saving the sector.