The Challenges of the Free Zone in Iraq

The free zones in many countries of the world are forming of great importance because they can affect attracting foreign investments, bring capital and collect foreign currencies. These investments in the free zones have the most important role as a first step to developing and flourishing the countries by using technology.

In spite of this positivity, some researchers see these regions as a competitor to the local markets because they can glut the market with bad goods, threatening the national industry to abstain Iraqi consumers from buying these local goods.

Because of the importance of the geographical location of Iraq which has large areas and is occupying a significant role in the Middle East as a point of crossing commercial transactions, we have to go back a little bit to point out that law number 3 for the year 1998 was the starting point to establish “General Commission for Free Zones” in three areas; they are Khor Al-Zubair, Free Zone in Nineveh and Alqa’im Border Crossing in Anbar. In this report, we are focusing on the Khor Al-Zubair Free Zone which forms one of the most significant points in Iraq.

Khor Alzubair is the first free zone which was established in May 1997 according to a custom statement of provision 122 number 23 for the year 1984. This area has great importance because it lies in the Arab Gulf, and it is considered a connection point between the Arab Gulf States and international navigation for commercial transactions with Asian countries. Moreover, this area connects the Safwan border crossing with Kuwait and Shilamchah border crossing with Iran. The decision of establishing the free zones focused on setting a free zone in the south of Iraq, especially Khor Al-Zubair port where the piers (1, 2, 3, 4) are the determined area, reaching its waterfront which is 1000 meters with depth to Um Qasar street 7 km. This area can increase from 3 km towards 7 km on the condition not to interfere with the facilities of other countries.

As a first step, the area begins with 1000 X 10000 meters mentioned above, with annexing (3-4) stored near the location with an area of 3000 meters. The borders of the area begin from the east where the Khor Abdullah navigational canal and piers numbered (1, 2, 3, 4) begin from Khor Al-Zubair. To the north, the area extends from the port of Khor Al-Zubair border and the railway leading to the concrete piers in the port to the cement factory in Khor Al-Zubair. To the south, there are empty areas, the port of the liquefied gas and the way leading to it. To the west, there are empty areas following it the highway (Basra-Khor Al-Zubair- Um Qasar).

It is important to remind that the implementation of the law in this area was carried out according to the rules of the fourth chapter (123-136), the amended custom law numbered 23 for the year 1984.

Before discussing the challenges which the free zone confronts, the most significant challenges and the obstacles which Iraq faced in transforming to the free market, in general, must be discussed.

One of the obstacles which prevent Iraq to transform into a free market economy is the structure of the Iraqi economy which suffers from problems and the weakness of implementation. Nevertheless, the infrastructure in Iraq weakens the role of the free economy entirely, taking into consideration that the factors of production and its revenue suffer from weakness and collapse. Within all these problems, we don’t see a movement to employ human development which is characterized by weakness and incompatibility with the development of the bordered countries. With lacking clear data, this weakness has consolidated a great gap in ICT between Iraq and other countries. Administrative and financial corruption, lack of transparency of working and lack of citizenship feeling are the main reasons which hinder the transformation to a free economy in Iraq.

In spite of Khor Al-Zubair in Basra being a free zone and forming a point for commercial transactions and investments, it suffers from the weakness of expertise which contributes to hindering the development of the area. Moreover, the infrastructure in Khor Al-Zubair is still incomplete and suffering from low standards of work. To keep the continuity of this vital area, the necessary expertise and good infrastructure must be available to ensure the development of the region and consolidation of its presence among the free zones of the region.

The free zone in Khor Al-Zubair shares with the rest of the free zones in Iraq with the problem of not giving the foreign investor entire freedom to transform the capital and revenue of business outside of Iraq. This point affects the companies to invest inside Iraq, as well as the instability of Basra’s situation which affects very much the confidence of the investor to bring the capital and start investing. Thus, facilities must be provided to the investors to invest smoothly ensuring security and stability.

To solve these challenges and problems, the Iraqi legislator must have entire transparency to the fact that the legislation of the free zones is unclear, and the foreign investor always intends to know more about these regions and their laws. In another word, new amended, clear and broad legislation must be issued to cover all these matters which are related to the investment of the free zones generally.

To consolidate the free zone in Basra, the building of Al-Faw port can contribute to widening the free zones as a future plan and connecting each other, sustaining the economic importance of the region. Building this port in the free zone can support the sea sources to the fact that Khor Al-Zubair can consolidate the industry of building boats and yachts. This will result in developing the free zone and attracting investors to give them new opportunities to start their projects which will help the commercial transaction and employ the capital to the country.

The free zone in Basra can be developed also by industry and tourism; modern buildings and factories can be built to the fact that it can contribute to the process of local investment. Through these factories, new fields can be opened in the scope of industry to consolidate its presence and encourage investors to invest in these areas and make additional benefits to the Iraqi revenue. As tourism, with the beauty of nature of the Iraqi marshes, this free zone can be developed vividly by building hotels, restaurants, streets and modes of transportation, supporting the continuity of flourishing the region and opening restores and developing entertainment cities used to tourism and built on the coast of Khor Al-Zubair canal.

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