The world’s perception of Iraq is one that frequently portrays a war-torn country, devastated by conflict and corruption. But amid the decades of turmoil, the country’s youth have stayed resilient, facing a future they themselves wish to build. Relying on public sector jobs therefore is no longer realistic and many are pursuing entrepreneurship as a means of not only self-empowerment, but economic development too.

Wider segments of society are beginning to understand the value of entrepreneurship, especially now after the pandemic, which has highlighted the need for greater digitisation. Over the past few years startups have begun to emerge, focused mostly on the business-to-consumer sector including e-commerce, online food and grocery delivery as well as digital payment solutions.

With a population that exceeds 40 million, of whom half are under the age of 19 according to the United Nations (UN), rising mobile internet penetration rates and a lack of online services, Iraq’s market is ripe for disruption.

“There is a huge opportunity in Iraq; the GDP per capita is almost $6,000 ($5,955), more than other countries in the region like Jordan ($4,405) and Egypt ($3,019). The mobile penetration rate is 101 per cent and 53 per cent of the population use social media,” says Ali Al Suhail, managing director of investments at KAPITA, the country's first angel investor network which aims to support home-grown entrepreneurs.

It is a sentiment that Mehmet Cedit, chief product officer and marketing manager of Tip Top, a food delivery app launched last February in Erbil (Kurdistan) also feels.  

“There is a very promising emerging market in Iraq. Last year, we saw some investments pouring into the market for other startups, which means the possibility exists. That’s why I believe the market is recovering and growing over time,” he says.

Access to capital

In the first quarter of this year, four startups raised $1.8 million, a 500 per cent increase from the first quarter of 2020. This was driven primarily by food delivery app Alsaree3 and its sister company, last-mile logistics platform Al Zajel, which together raised over $1 million in a bridge round in April.

Iraq’s banking sector has also made attempts to improve access to finance for small businesses.

“The Iraqi economy depends on the SME projects built by youth,” Ammar Hamad Khalaf, the vice governor at the Central Bank of Iraq (CBI), stated during a live panel hosted by Iraqprenuers in March, pointing out that the CBI has escalated its SME funding from IQD 73 billion dinars ($50 million) to IQD 443 billion in two years with up to IQD 1 billion available as loans.

At the same panel, Nour Al Handhal, a board member at Ashur International Bank in Iraq, claimed that startups were more vital to the economy than traditional businesses and that the bank provides facilities for youth applying for small-to-no-interest loans.

“We want to concentrate on digital-focused projects to improve the Iraqi market,” said Al Handhal. “Startups survived during the pandemic, not the hyper companies, due to their limited staff capacity and their limited budget.”

But despite such initiatives, access to capital remains one of the biggest setbacks facing entrepreneurs. International investors are hesitant to invest in a country where corruption is rife and getting things done requires “wasta” or the right connections. Government laws and regulations are either missing or easily disregarded when it comes to business registration and licensing.

“There are a lot of requirements for startups to receive funds or even withdraw cash from the bank, it is quite difficult,” said Al Suhail.

For Azad Hassan, founder of Eduba, an educational platform providing e-learning technology for students and teachers, the banking system is “awful” and in need of a “tremendous” revolution in terms of services, loans regulations and financial inclusion. Hassan also claims the lengthy process of company registration to receive a loan from a private bank is “a nightmare” in Iraq, under the complicated regulations set by the CBI.

In response to the complaints regarding the convoluted rules set by the private-sector banks, Khalaf confirmed on the panel that the CBI does not interfere in the banks’ required guarantees for loans.

“It [the rules] depends on the bank’s assessment; they have the right to eliminate their risks upon the loan’s amount, especially when it’s above a billion dinars,” Khalaf explained. He added that the CBI cooperates with international organisations to support the entrepreneurs, who provide them with the necessary guarantee, especially displaced citizens, who receive the loan directly from the CBI.

All the entrepreneurs that Wamda interviewed had bootstrapped their startups and avoided dealing with the banks.

“People have no trust in the country’s banking system, and we can see it in the poor percentage of people holding bank accounts in Iraq,” says Hassan. 

Just 23 per cent of adult Iraqis hold a bank account, according to the World Bank, however, e-wallets are on the rise.

“We are using different payment methods starting from cash on delivery, POS payments to online payments by e-wallets, where we are discussing an integration deal between Tip Top and an online payment company to handle it since we are seeking to change the customers’ behaviour and turn it more digital,” says Cedit.  

More challenges

Iraq’s ecosystem lacks in other aspects too, digital infrastructure is lacking, the regulatory and legal landscape is difficult for startups to navigate and government support rarely goes beyond lip service.

According to the World Bank’s Ease of Doing Business report 2020, Iraq ranks 172^nd out of 190 countries. Registering a business in the country takes 26 days, a modest improvement when compared to 2015 with 34.4 days.

“It costs a lot of money to register a company in Iraq, up to $4000-5000,” says Hassan, proposing an integration between the private and public sectors, to help the government accelerate the registration and funding process.

“The other challenges lie in the infrastructure of the country, such as the poor internet connection; it is weak in most of the country,” says Al Suhail.

This means that services like Google Maps do not work properly in Iraq, which has a knock-on effect on couriers who face trouble locating customers.  

“Most of the challenges are legal ones, for example, we faced difficulties in licensing the captains’ [couriers] motorcycles, because there are no specific rules set by the Iraqi government for the safety of the drivers,” says Kerem Aksoy, founder of Tip Top.

Some entrepreneurs have turned to incubators and accelerator programmes to launch their startups, like Ali Alkhazaj, the founder of the health tech startup Razi (formerly Tabib Baghdad) who joined ScaleUp Academy, the accelerator programme run by KAPITA where the company received training in preparation for its fundraising process.

“I am a doctor, not a businessman or a programmer, I have limited experience in the fields of technology and finances, therefore, I was looking for a partnership, not loans, as I need more than funding, I need connections and my startup needs mentorship,” says Alkhazaj.

Over the past few years, several incubators and accelerators have emerged in the country, including FasterCapital, Top Mountain, Five One Labs, Takween Accelerator, Orange Corners Baghdad and Response Innovation Lab, who provide the necessary mentorship and have contributed to the development of talent too.

“We are seeing a light at the end of the tunnel,” says Al Suhail. “Iraq will receive much more attention in the upcoming months and years and despite the difficulties, we have very talented entrepreneurs who will overcome them and will prove their competitiveness, even regionally.”