Boston, MA -- (SBWIRE) -- 08/23/2013 -- Although the Iraqi construction sector is expected to benefit from a sizeable investment plan and an inflated budget, the worrying business environment will prevent the sector from growing to its full potential. Low completion rates are a result of government agencies' lack of accountability and lack of technical capacity, as well as frequent delays in the approval of projects and the transfer of funds by the central government pose significant risks to construction sector growth in the country. We accordingly forecast sector growth to be limited at a modest 7.4% year-on-year (y-o-y) in real terms between 2013 and 2017 - far from the impressive 24% y-o-y growth witnessed between 2008 and 2012.

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Although much-delayed, the Iraqi parliament approved in a budget for 2013 back in March. The budget outlines an 18.0% increase in spending compared to 2012, with investment expenditure increasing 49.0% yo- y - making up 40.0% of the total - while current expenditure will increase 4.4%. Of this, we see development spending increasing 28.0%.

The Ministry of Finance and the Ministry of Planning are looking to tackle the issue of low execution rates by making those with a rate of less than 25.0% liable for questioning by the parliament and the council of ministries. While such moves are encouraging for the construction sector, we believe the government's lack of control over local agencies and bureaucratic bottlenecks will impede the progress of development projects during the forecast period.

Despite lower growth estimates, the potential is definitely to the upside. Areas that show upside potential are as follows:

- As recently as February 2013, the Governor of Baghdad, Dr Salah Abdul-Razzaq. signed a US$40m agreement for Alstom to undertake detailed design studies for the first phase of an elevated metro to be built in the city. The development of the Grad Fao port near Basra will significantly boost construction in the region and has the potential to lead to Iraq becoming a major freight destination as companies may wish transport goods overland instead of the long voyage to Suez.

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