The case for a Special Economic Zone in Erbil, Kurdistan
Iraq’s semi–autonomous Kurdistan Region, which was once seen as a beacon of prosperity and promise in the troubled country, faces numerous challenges. The region and it’s people are suffering from a severe economic crisis amid wrangling between the Kurdistan Regional Government (KRG) and federal Iraqi authorities over control of the region’s oil revenues.
In March 2023, the oil pipeline which flowed delivered monthly revenues of nearly $1 billion to the KRG and oil companies in the region was closed, thereby crippling the Kurdish economy and fomenting a crisis of confidence among international investors. The strangulation of Kurdistan’s energy sector — which funds some 80% of the government’s budget and has been described as “Erbil’s only economic lifeline” — has left the KRG unable to pay the salaries of teachers, police officers and other civil servants in the region’s public sector and has fanned the flames of political infighting.
Furthermore, the KRG’s near complete reliance on oil exports is a double edged sword in that it counterintuitively serves to stifle Kurdish independence. This is due to the KRG being landlocked and relying on it’s neighbors, in particular Turkey, in order to export oil. The unfortunate geographic position of the KRG makes it susceptible to coercion if Kurdish independence movements in Turkey or Iran gain traction.
The political elite in the KRG have taken notice of their own overreliance on oil exports, however their actions have not led to any actual change or development which could wean the KRG off of it’s single minded focus on energy exports. Instead, they have doubled down on extremely suspect real estate ventures which in a state of delusion, seek to create a part of Dubai or Qatar without the basic legal foundations to insure that investor money isn’t stolen and that entire projects don’t end up vanishing into the desert.
A notable example of such delusional real estate developments is the Pavilion Erbil, which is supposed to elevate Erbil to the level of the UAE or Qatar. This is despite an ongoing drought in the region and increasing difficulties that citizens have in accessing clean drinking water. Furthermore, investors are skeptical due to past real estate ventures in the KRG having imploded or the founder’s vanishing thereby robbing their foreign investors of their money and leaving carcasses of buildings and projects scattered throughout Erbil. This wariness on the part of foreign investors as well as the lack of an independent judicial system to settle disputes will likely stall the Pavilion Erbil despite it already being in advanced stages of construction.
In June 2023, not long after the closure of the Ceyhan pipeline, Nechirvan Barzani launched Invest Kurdistan, an FDI–attraction platform with a vision “to make Kurdistan a premier investment destination in the Middle East.” Armed with expertly designed brochures promising a “land of untold opportunities,” delegates from the KRG and Invest Kurdistan set up shop in Davos this year at the World Economic Forum on a quest to court international investors.
Despite this coordinated public relations push, Iraqi Kurdistan faces its fair share of challenges to make this vision a reality. Most worrying for prospective investors, is the prevalence of corruption and disregard for the rule of law among the region’s political and economic elite — many of whom serve as the would–be business partners for foreign investors. A 2022 U.S. State Department report warns that “KRG officials frequently engaged in corrupt practices with impunity,” while a second U.S. State Department 2023 report highlights “domination of the economy by politically powerful families.” This same report laments the “lack of contract sanctity” that has led some international oil companies to abandon their production efforts in Iraq, including the 2023 International Chamber of Commerce ruling that KRG oil exports had violated the Iraq–Turkey treaty.
Beyond this report, there are further examples of investor mistreatment at the hands of Kurdistan’s ruling elite. It has been over a year since a Paris arbitration tribunal ruled that Kurdish company Korek Telecom and its owner Sirwan Barzani, the Prime Minister’s cousin and commander of the region’s Peshmerga armed forces of the KDP, had coordinated with Iraqi authorities to illegally expropriate assets owned by French telecommunications company Orange and its joint venture partner, Kuwaiti firm Agility. The tribunal awarded $1.65 billion in damages to the two foreign investors, but Barzani and Korek have continued to vigorously contest the ruling, showing no intention to part with their ill–gotten gains.
These instances lay suspicion on the disregard held for the rule of law by the Barzani family and the government they control. As far back as 2006, leaked diplomatic cables from the U.S. State Department speak to how the ruling parties’ domination of the political system “lets corruption flourish” in the region. More recently, a 2024 UK parliamentary research report mentions the continued intimidation and indefinite detention faced by journalists in the region.
Establishing a special economic zone (SEZ) around Erbil International Airport (EIA) could be a transformative step for Iraq’s Kurdistan Region, providing an investment-friendly oasis within a challenging environment. Kurdistan, once a beacon of stability and economic growth in Iraq, has struggled with persistent challenges that hinder its potential to attract substantial foreign direct investment (FDI).
The closure of a critical oil pipeline in 2023, which slashed nearly $1 billion in monthly revenue for the Kurdistan Regional Government (KRG), underscored the urgency of building a resilient economy not solely based on oil exports. Kurdistan’s heavy dependence on oil, which comprises about 80% of its budget, has left it extremely vulnerable, especially given that the Kurdistan Regional Government is landlocked and depends on the goodwill and stability of it’s neighbors in order to export oil. Establishing an SEZ would help reduce reliance on oil by fostering a business ecosystem that could attract investors in diverse sectors, such as logistics, tourism, technology, and finance.
The SEZ model has a proven track record in regions with challenging political and economic conditions. A SEZ around Erbil International Airport could offer clear legal protections, tax incentives, and simplified regulations that limit the influence of political elites and other would be gatekeepers. The SEZ could have an autonomous regulatory authority with clear, legally binding rules that override local political interference, creating a level playing field for all businesses in a manner similar to that of Dubai’s DIFC which is aligned with the English common law system.
Moreover, this SEZ would benefit from its strategic location near Erbil International Airport, making it a natural hub for logistics and trade. Given the proximity to key international markets and established flight routes, this location could streamline supply chains, reduce logistical costs, and attract businesses dependent on rapid transport. Kurdistan’s government could also use the SEZ to offer streamlined visa and residency processes for skilled expatriates, helping attract global talent to support a thriving, diversified economy.
Several special economic zones (SEZs) around the world — and particularly in the Middle East — serve as models for what an SEZ in and around Erbil International Airport in Kurdistan could resemble. These zones have successfully attracted foreign direct investment, diversified economies, and generated employment by offering clear regulations, tax incentives, and other investor protections. Here are two notable examples:
1. Dubai International Financial Centre (DIFC), United Arab Emirates
- Overview: DIFC is a well-established financial free zone in Dubai, created to attract international finance and commerce. It operates under an independent regulatory and judicial framework based on international law, which provides a high level of transparency and investor protection.
- Benefits: The zone offers 100% foreign ownership, no restrictions on capital repatriation, tax exemptions, and streamlined regulations. It also has its own courts to handle commercial disputes and is aligned with the English common law system.
- Relevance to Kurdistan: An SEZ in Erbil could similarly benefit from an independent regulatory and judicial framework to protect investors from the risks associated with local political dynamics.
2. Qatar Financial Centre (QFC), Qatar
- Overview: QFC is a business and financial center established in Doha, which aims to attract companies in finance, insurance, and professional services. It offers a robust regulatory framework and operates independently from Qatari civil and commercial law.
- Benefits: QFC provides tax incentives, a reliable legal framework, and 100% foreign ownership rights. It is specifically designed to offer international standards of governance, reducing investor risk.
- Relevance to Kurdistan: For Kurdistan’s SEZ, the QFC model highlights the advantages of a stable legal framework and streamlined regulations that cater to international standards, attracting global financial and professional services firms.
Key Takeaways for Kurdistan’s SEZ:
- Independent Regulatory Framework: Establishing a separate regulatory and legal framework in the SEZ, akin to the DIFC or QFC, would help reduce political interference, increase transparency, and enhance investor confidence.
- Sectoral Diversification: Kurdistan could design the SEZ to attract specific industries, such as logistics, technology, and finance in order to reduce its economic dependence on oil. Thereby increasing political autonomy and resiliency.
- Strategic Location and Logistics: In a similar fashion to, JAFZA and Sohar Freezone, Kurdistan’s SEZ could leverage its proximity to Erbil International Airport, making it a hub for trade and logistics in Iraq and the surrounding region.
By modeling Kurdistan’s SEZ after these successful examples, the region could create an environment that curbs corruption, protects investors, and diversifies its economy, setting a new trajectory for growth and a greater degree of political maneuverability and independence which is more resilient to political pressure from Turkey, Iran and the Iraqi Federal Government.
