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OVERVIEWOFTHEIRAQOPPORTUNITYDoingBusinessinIraqAmman,5thJune2003AchmedAl-ShahrabaniMcKinsey&Company,Inc.AGENDA•OverviewIraq•EconomicscenariosforIraq•RequiredinvestmentsAGENDA•OverviewIraq•EconomicscenariosforIraq•RequiredinvestmentsTotalarea:437,000m2Limitedarableland•Arableland:11%•Permanentcrops:1%•Desert:88%Largestgovernates•Baghdad(8.0m)•Nineveh(2.1m)•Basra(2.0m)Varyingclimate(Baghdad)•Summertemp:35-50º•Wintertemp:5-15º•Rainfall:155mm/yearSource:CountryWatch,CIAworldfactbookCartransport•39,000kmpavedroads•765,000privatelyregisteredpassengercars•266,000privatelyregisteredtrucksAir•MajorairportsinBaghdad,BasraandMosulThreemajorrailwayroutes•Baghdad–Kirkuk–Irbil•Baghdad–Mosul–Yurubiyah•Baghdad–Maagal–UmmQasrTelecom•3%penetration,nomobilenetworkUtilities•250watertreatmentfacilities•Powergenerationcapacityof9500(pre1990),currentlyat1800MWGeographyandclimateInfrastructureThemajorityofIraqischaracterizedbydesertOVERVIEWIRAQIGEOGRAPHYSource:CIAworldfactbook100%=24.2mOthersArabs-ShiaMuslimsKurds–SunniMuslims46212Arabs–SunniMuslims22ESTIMATEPOPULATIONSIZEBYETHNICGROUPShiaMuslimsformIraq’sethnicmajority%Adultliteracyat54%(vs.75%inIran)*From6to23yearsSource:EIUcountryprofileIraq2002675019801998EDUCATIONENROLMENTRATIOFORALLAGES*-1980VS.1998AnincreasingnumberofchildrendoesnotreceiveformaleducationESTIMATESource:CountryWatch100110210ProvenreservesUnprovenpotentialTotal4.23.17.3GasTrillionm3,2001OilBillionbarrels,2001OVERVIEWOFIRAQ’SNATURALOILANDGASRESERVESIraqhasoneofthelargestnaturaloilandgasreserves…ESTIMATESource:BPStatisticalreview,20021.SaudiArabia2.Iraq3.UAE4.Kuwait5.IranOil,provedreservesBillionbarrels,2001Gas,provedreservesTrillionm3,20012629897901104823146631.Russia2.Iran3.Qatar4.SaudiArabia5.UAE10.IraqRANKINGOFBIGGESTNATURALOILANDGASRESERVESWORDWIDE…whicharethesecondlargestinoilandthetenthlargestingasESTIMATE*Purchasingpowerparitymethod,currentpricesSource:CIAWorldfactbook;CountryWatch;EIUcountryriskreportonIraq2003200250-6025-351980DEVELOPMENTOFIRAQ’SREALGDP*-1980TO2002Overthepastdecade,Iraq’srealGDPfellby50%…USDbillionESTIMATE-50%GDPestimatesfor2002subjecttowidevariation(USD24-60billion)*Purchasingpowerparitymethod,currentpricesSource:CIAWorldFactbook;CountryWatch20023.8-4.51.0-1.41980ESTIMATEDEVELOPMENTOFIRAQ’SREALGDP*PERCAPITA-1980TO2002…andpurchasingpowerparityonindividuallevelevenfurtherUSDthousandsGDP/capitaestimatessubjecttowidevariation(USD1.000-2.500)-70%*BasedonaGDPofUSD30billionandapopulationof24millionSource:EIUcountryprofileIraq1,1841,7301,2708,7301,150JordanIranIraqSaudiArabiaSyria*ESTIMATECOMPARISONOFGDPPERCAPITA-2002Iraq’scurrentGDPpercapitaiscomparabletoSyriaandIranUSDthousandsSource:EIUcountrydataExternaldebt$bn22.38.28.2IraqSyriaJordanIran230-4851091113%ofGPD60-130Maincausesofuncertaintyare•Accruedinterest•“Assistance”fundsinIran-Iraqwar•ClaimsfollowingGulfwar1991ESTIMATECOMPARISONOFEXTERNALLIABILITIES-2001IraqhassignificantliabilitiesandcanbeconsideredbankruptAGENDA•OverviewIraq•EconomicscenariosforIraq•RecentdevelopmentsSource:McKinsey“Goodstandard”1•Assumesthenon-oilsectorsoftheIraqieconomygrowsmodestlyataCAGRof3-5%overthenext10years(overallGDPgrowthincl.oil9-11%)“BestinClass”2•Assumesthenon-oilpartofthetheIraqieconomygrowsstronglyataCAGRof7-9%overthenext10years(overallGDPgrowthincl.oil11-13%)“Distinctive”3•Assumesthenon-oilsectorsoftheIraqieconomygrowsaggressivelyataCAGR12-15%overthenext10years(overallGDPgrowthincl.oil13-15%)ESTIMATEFORDISCUSSIONTHREEDEVELOPMENTSCENARIOSIraq’sInthe‘WorldClass’scenarioIraqiGDPpercapitacouldreach4,000USDby2013Non-oilSectors•Oilproductionlevel2008•Oilproductionlevel2013•4-5millionbarrelsperday•6-7millionbarrelsperdayOilSector+*)Populationin2003=24million,2008=29million,2013=33millionSource:McKinseyGDPdevelopment2003-2013(inbnUSD)GDPpercapita*2003-2013(in‘000USD)ESTIMATEFORDISCUSSIONTHREEPOTENTIALDEVELOPMENTSCENARIOSInthe‘distinctive’scenarioIraqiGDPpercapitacouldreach4,000USDby20131“GoodStandard”1.8-2.22.2-2.62003201320081.253-6373-862003201320083014%6%11%3%2“Bestinclass”2.0-2.32.5-2.92003201320081.257-6783-982003201320083016%8%12%5%3“Distinctive”2.2-2.63.1-3.82003201320081.263-75102-1262003201320083018%11%15%8%AGENDA•OverviewIraq•EconomicscenariosforIraq•Requiredinvestments*Assumingacapitalproductivityof0.2Source:McKinseyanalysisGDP2003(bnUSD)30200-300Investmentrequired*(bnUSD)1GDP2013(bnUSD)70-90Investmentrequired*(bnUSD)2250-350GDP2013(bnUSD)80-100Investmentrequired*(bnUSD)3350-500GDP2013bnUSD100-130ESTIMATEOFREQUIREDINVESTMENTSINTOIRAQOVERTHENEXTDECADEToachievethe‘WorldClass’scenarioIraq’seconomyrequiresUSD250-350billionininvestments,mostofwhichwillhavetobeFDI,overthenextdecadeESTIMATEFORDISCUSSIONAssuminganaveragecapitalproductivityof0.2Source:McKinseyOil&gas•Reestablishingandincreasingoilproductioncapacityto6-7millionbarrelsperdayby2010USD35-40billionUtilities•Re-constructionofbasicinfrastructuresuchastransportfacilities,telecommunicationsandutilities(powercapacitycurrentlyat1.800MWcomparedto9.500MWpre1990)USD10-15billionjustforelectricityandteleco