After the bombs stop, the bankers move in

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More financial professionals are risking life and limb to move into frontier markets in the Middle East like Iraq and Libya in an attempt to grab an early foothold in these potentially massive markets.

Such a move is not for the faint-hearted; roadside bombings and kidnapping of foreign businessmen are still common in Iraq where sectarian politics and insurgent violence persist a year after the withdrawal of US troops. Meanwhile, militant attacks continue in Libya, particularly in the city of Benghazi where there’s a “specific and imminent threat to Westerners”, according to the British foreign office.

But for those willing to take the risk, the rewards can – in the long-term at least – be great. Ziad Makkawi is an investment banking and private equity veteran who has worked for Middle Eastern firms Algebra Capital, Dubai Bank and Shuaa Capital, as well as in New York. He recently set up private equity firm Blue Gate Capital Partners to capitalise on Iraq’s plans for reviving its economy and the growth potential of  post-revolution Libya.

“There are a lot of challenges in places like Libya and Iraq; they’re unsophisticated markets where corruption is rife and there are security challenges and physical dangers, so it’s by no means for everyone,” he said. “However, if you’re cognizant of those risks, there’s the lure of high growth and bigger returns.”

Iraq is one of the fastest growing countries in the world, according to new World Bank figures. GDP increased by 11.1% in 2012, and is expected to grow by 13.5% after oil exports have returned to pre-war levels. Libya also relies heavily on its hydrocarbon wealth and its economy turned around rapidly last year, growing by 121.9% after a contraction of nearly 60% in 2011, according to the International Monetary Fund.

Some international investment banks have attempted to make inroads in Iraq – Morgan Stanley, Goldman Sachs, HSBC, Citigroup and BNP Paribas have all flocked to the country in an attempt to advise on lucrative infrastructure and project finance work. However, there were just nine deals announced last year, according to figures from Dealogic.  What’s more, the largest – a $1.5bn initial public offering by Iraqi telco company Asiacell – has been beset by problems and Morgan Stanley eventually quit the flotation.

“Investment banking is still vastly underdeveloped in places like Iraq and Libya, but financial professionals are increasingly pursuing new opportunities in these frontier markets,” said Shane Phillips, managing director of Dubai-based headhunters Shane Phillips Consultants. “This is less about banks hiring or expanding in these countries, but more financial services professionals who have grown frustrated with shaky job prospects and low levels of growth in more developed markets pursuing new ventures and using their expertise to develop new business.”

Unfortunately, it’s not possible to be a suitcase banker if you want to operate in Iraq or Libya. “Building relationships on-the-ground is absolutely vital to success in Iraq and Libya, you can’t just fly in and out, because people want to see commitment. It’s very difficult to gain an edge in these markets unless you have the right connections,” said Makkawi. “Companies that are developing a local presence are recruiting from all over the world – people from the US, Europe and the Middle East are moving there.”

There are also signs that Middle Eastern investment banks are eyeing opportunities in Iraq. Abu Dhabi Investment Bank became the first UAE institution to receive a full banking licence from the Iraqi Central Bank last year, and plans to expand its investment banking in the country. The joint venture between regional investment banks EFG Hermes and QInvest will eventually mean expansion into Iraq and Libya, it said.

Lebanese firms Bank Audi and Byblos Bank are also launching operations in Libya and Iraq to offset declines in business in their home countries. Sami Haddad, general manager of Byblos Bank, told Reuters that Iraq was under-banked and that “you would have to be stupid not to make money”.

However, Makkawi believes that Libya will offer the better opportunities in the short-term. “Libya doesn’t have the same simmering tensions as Iraq, has a smaller population and a lot of wealth. There are obviously regional concerns, but essentially it’s ground zero there now, so it’s the right time to invest.”