Iraq: An Untapped Gold Mine

Qualified Iraqi investors are looking to structure deals.

By Mais Abbas Abousy

When you think of franchising in the Middle East, the last place you would probably consider is Iraq. Instead, you are likely to fix your eyes on United Arab Emirates. And while UAE may ultimately open the doors to neighboring states, you will face fierce competition in the already saturated food and beverage sector. The time is ripe to reevaluate your expansion strategy to the hidden and unexplored markets in Iraq.

Your instincts may be telling you that the legal, financial, and security environment is light years away from any Hardee's in sight.

Think again. The burger has landed, and so have fried chicken and pizza. To date, KFC, Hardee’s, ACE Hardware, Nestle Tollhouse Café, Texas Chicken, Cinnabon, Pizza Hut, Tutti Fruiti, Paul Smith, City Center and Mango have all hit the ground and are expanding operations through Iraq.

Is Iraq safe? There is no doubt the war on ISIS is still on. However, the distinguishing feature of Iraqis is to roll with the punches, sometimes literally. With a population that has endured 40-plus years of conflict and turmoil, Iraqis have learned to enjoy the present and appreciate life’s experiences. 

Each Thursday through Saturday, the official weekend in Iraq, a significant portion of the 70 percent of the population that is under the age of 35, spend their time at secure indoor shopping malls and restaurants. The weekend is when Iraqi families take a break from the daily grind and spend time making memories with their loved ones, usually over a unique, exotic and special meal. For Iraqis, U.S. franchises represent places where you can experience the world without leaving your home. 

Even during these trying times in Iraq, well-known franchises are steadily there, for the following reasons:

Consumer Demand Yields Steady Profits

With a population of more than 37 million, of whom 7 million are in Baghdad, 3 million in Basrah, and over 1 million in Erbil, the market is significantly larger than its neighboring countries.

In the past four years alone, six secured shopping malls opened throughout Baghdad. At peak times, during the weekend, the Mansour Mall in Baghdad gets an estimated 60,000-plus visitors per day. On a regular day, more than 30,000 visitors shop on three levels of the estimated 12,000-square-meter mall. At least three more malls are opening soon in the heart of Baghdad. This includes the Iraqco Company’s Babylon Mall, which is looking for prime brands and is offering a wide variety of options for potential retailers.

In Basrah, the newly opened world-class Basrah Times Square Mall, developed and managed by the Al Dayer Company, welcomes more than 20,000 visitors a day over the weekend. These numbers may, at a glance, not seem significant compared to the Persian Gulf. However, Iraqis have embraced this new concept that has significantly increased consumer demand for luxury and quality goods bearing a stamp of international recognition. 

Legal-ease

Home of the earliest codes of law in recorded history — the Hammurabi Code — Iraq has a long and rich legal history. It has a comprehensive commercial code, supplemented by statutes and regulations, where the basic elements of contract law run parallel to those found in the rest of the world. 

Iraq also has a comprehensive set of intellectual property laws covering the basics of patents, trademarks and copyrights. It is a member of various Internet Protocol treaties, such as the Singapore Treaty on the Law of Trademarks. IP protection is guaranteed and penalties for violations are high. Both Ice Pak and KFC were recently able to sue brand infringers and achieve swift settlements.

For the past several years, the government has pushed to develop laws, in hopes of opening Iraq to the world. This year, Iraq became a signatory to the International Convention of Settlements of Investment Disputes and passed a robust investment law. While the process is still underway for Iraq to become a signatory of the New York Convention, Iraq maintains membership in regional arbitration conventions, and international arbitration is used in various commercial contracts. Iraq has specialized commercial courts that fast-track cases involving a foreign party.

Similar to its neighbors, Iraq does not have a specific franchise law, but has a commercial agency law and a set of complementary regulations.

However, structuring versatile licensing agreements is not as complex as in the Gulf, particularly in the area of operation and termination. And while the registration process will take time, with good legal counsel, it can be done within six months to a year.

Rapidly Developing Sector

Early investors that tapped into this market have illustrated steady growth in profits.  One of the fastest growing franchisees in Iraq is the Rawnaq Aldur Group, which operates six popular food and beverage brands throughout the country. The group took an initial $30,000 investment and turned it into a business generating $10 million in annual sales. Hadi Laith, CEO of Rawnaq Aldur Group, claims that with the right partner and a practical customized development plan, franchisees can estimate a return on their profits within a year. 

Texas Chicken (known as Church's in the U.S.), which started Iraq operations in 2010, opened initially in the Kurdish Region. At first, profits were booming, but then declined drastically during the recent security crisis. However, with a new store in Basrah Times Square and a revised development strategy, profits have come back steadily. 

Recipes for Success 

Franchisors should customize development plans to Iraq’s environment. For instance, in Baghdad, secured shopping malls are prime sites and not local open market centers like the recently targeted Karrada Center. Franchisors should also consider consistently secure and overlooked growing markets such as Karbala, Najaf, Basrah, and Suleymania.

Training local Iraqi staff will take more time than usual. While it may be easier to manage and operate units with experience and skilled foreign labor, investing in local staff pays off in the end. Once trained, knowledge is transferrable to new employees and units. Moreover, Iraqi customers are more willing to accept a concept if they see local staff behind the counter.

Since franchising is still new to Iraq’s private sector, it is rare to find traditional investor profiles with franchise experience. Rather, reputable Iraq investors are experienced in other industries including energy, manufacturing, and distribution, and are looking to expand into franchises. Therefore, other important qualifying criteria would apply, such as command of supply chain management, and knowledge of local market and legal environment.

Qualified Iraqi investors are looking to structure a deal that will be practically successful. They want to ensure calculated success and will propose slow and steady expansion plans rather than guarantee 10 units within five years. Since it is difficult to get statistical data on market outlooks beyond one to two years, forecasting 10-year profits will be difficult. Alternatively, royalty fees can be structured in parallel to sales, so that brand expansion follows a logical progression and financial risks are minimized. 

Traveling the country, it is clear to see how franchising is lending to Iraq’s economic development. With each new unit that opens, you are offering new jobs, technology, and life for Iraqis. Each franchise transforms positive attitudes about Western culture, it is commercial diplomacy at its best.

It is time to take a new fresh look at Iraq.

Mais Abbas Abousy is an International Attorney-Advisor with the Commercial Law Development Program of the U.S. Department of Commerce, Office of the General Counsel. She can be reached at [email protected].