Automakers eye next huge market: Iraq

While many have been extolling the huge market potential for autos in China, a few automakers have set their sights in what is quickly becoming the fastest growing market for autos in the world – Iraq. This is certainly good news for all of the OEM manufacturers for AC compressors and air conditioning parts. They have the fifth-largest oil reserves in the world, and a population bigger than Saudi Arabia’s. Western vehicles were banned while Saddam Hussein was in power, but with that issue taken care of, VW GM and Ford have flooded in to provide vehicles for an expanding market.

 Rising incomes and declining violence are the main factors affecting this huge change in lifestyle for Iraqis. Although things are better than they were six years go, 1500 people were killed last year because of bombs, sniper ambushes, and other related violence. That is shocking, but compared to the 34,500 death toll in 2006, the improvement is felt in the quality of daily life for Iraqi citizens.

Iraq’s economy is set to grow by over 10% this year as oil revenues and foreign investment boost the economy. Minimum wage has risen from $2.60 a month during Saddam Hussein to $400 a month now. Rising incomes combined with a population of more than 30 million people create a very attractive potential market for automakers.

Underpass in Baghdad

 There are still many hurdles to overcome before Iraq’s market potential can be realized however. Poverty and violence still persist. Iraq’s economy will probably grow to the equivalent of $3528 per person this year; compare this with Saudia Arabia’s $20214 per year and you understand how far Iraq still has to go. Unemployment is an alarming 40%, four times higher than the official report of 11% according to the World Bank.

Even so, things are definitely looking up and automakers are trying to get in on the ground floor. As Iraq’s economy continues to rise VW, GM, and Ford will be poised to take advantage of a growing middle class in Iraq.

Source: Bloomberg