FMCG Sector in Iraq: Insights and Overview

1. Industry Overview and Historical Context

Iraq used to be one of the countries that international companies recognizes as high-risk places to invest in, but after many years of Iraq’s tumultuous circumstances and conflicts, the country is finally having governmental and economic stability, and most importantly a positive security change. This has led many regional and international companies to have an interest in opening branches or franchises and generously investing within the country.

Despite the negative stereotypical image of Iraq, no one can deny the huge opportunities that lie within the country. With the absence of local food brands; almost fully dependent on imported goods; and Iraq’s population of 42 million, this made the country one of the most consuming importing goods in the region.  Iraq has seen significant economic growth of 8.9% in 2022, and the GDP has notably improved reaching $7,000 in 2022 compared to only $4,100 in 2020, being the highest growth in the Middle East and Arab World which is a very good motivator for investors (TWB, 2020) (IMF, 2022).

FMCG accounts for almost 10% of Iraq’s total imports of $46.7 billion for 2020 (OEC, 2022), an indicator of surging consumer spending. For the last twenty years, Iraq has been the main target of international exporters and investors as the country is considered an emerging market with great potential for investors’ investment portfolios. Iraq’s market growth has attracted many companies from neighbouring countries mostly Turkey, Iran, and GCC, making half of the country’s imports from the countries mentioned above. Turkish brands like Ulker, ETI, and Yaşar Holding have a significant presence in the marketplace, in addition to Iranian brands like Kalleh, and Saudi brands like Al Marai. Iraq has been a market growth leader in the Levant and Middle East region. Coca-Cola Içecek which operates in 11 countries stated that Iraq is by far their strongest international growth and it consists of up to 15% of their international sales volume as of 2012 (MP, 2013).

Iraq’s oldest international FMCG Company is Nestle, the company’s operations go back to 1946 when Nestle established its agency in Lebanon to oversee its operation in the Middle East including Iraq (Nestle, 2022). The company held its sales during Iraq’s sanctions in the 90s and resumed its operation in 2001. Unilever entered Iraq in 2003 and its products have seen great success within the market. Local FMCG companies like the state-owned “Abu Ghraib Dairy Factories” and Kanoon and many more have been dominating the Iraqi market since the 1950s, but after 2003, their market share dropped significantly as the country’s economy became more open and higher number of international brands entered the market.

2. Iraq’s Economy and Food Security

Imported FMCG is estimated to be $4.7 billion in 2020 (OEC, 2022). Iraq is facing serious challenges within its agriculture sector, as evident climate change has constrained agricultural production due to the severe drought that devastated crops which 70% are rainfall reliable, In addition to the decline of water resources causing an increase in the geographic area of the drylands (Jardat, 2002). This has caused a significant increase in imported food goods to cover domestic needs.

For the last few years, the food security situation in Iraq has been much more aggravated, as the regional conflicts and pandemics have caused a surge in prices and scarcity in resources. The conflict between Ukraine and Russia has affected many countries including Iraq that depends on imported wheat and sunflower oil, as the previous countries are the biggest exporters of those commodities (Qureshi and Raza, 2022).

3. Main Players in the FMCG Sector in Iraq

Most of the products in the Iraqi market are imported from regional and international companies, especially from Turkey and GCC, and their operations are being carried by local investors and distributors. In recent years, many companies and investors have opened a branch or a franchise inside the country investing hundreds of millions of dollars in the Iraqi emerging market like Lays, Rani, Kalleh, Mersin, Danone, Pepsi and Coca-Cola. Well-known local companies also have significant market shares like Fusteka, Karwanchi, Hello, and Etihad but foreign brands are still dominating the market in other food segments, as people prefer higher quality foreign brands over less quality Iraqi products, thus we only see a few Iraqi brands that have succeeded to overthrow imported products in their market share.

Companies used to struggle tremendously to distribute their products, especially after 2003, as there are more than 110,000 small outlets spread over Iraqi cities (MP, 2013). Nowadays, well-established hypermarkets are emerging in the market with each one having multiple branches in different places within the same city or a different governorate. One of the most famous local supermarkets in Baghdad is Waffir.

4. Major Challenges and Potential Opportunities in the FMCG Sector in Iraq

Challenges:

–      One of the major challenges in the FMCG sector in Iraq is distribution channels. There are over 110,000 outlets in Iraq with 35% of them situated in the capital Baghdad (MP, 2013). This has been a major issue in many industries, especially in the F&B sector in the country, as the industry has thousands of items with tens of thousands of fragmented outlets to cover.

–      Another challenge is grey and counterfeit products. Until now Iraq doesn’t have any effective regulations against those issues, and finding a counterfeit product even in the food industry is evident in small outlets that don’t deal with official distributors. About 35% of FMCG products can be counterfeit as customs clearance control is relatively poor and have no direct relationships with the official companies, as well the poor public awareness to differentiate the original products from counterfeits (Arabian Business, 2006).

–      General issues that might affect investors may also include political and security instability, absence of trade agreements, Corruption, poor purchasing power, and currency fluctuation.

Opportunities:

–      Iraq has an emerging FMCG marketplace with great growth potential for the next years.

–      High country economic growth with a population of 42 million and an undersaturated market.

–      Few major players in the hypermarket sector with already established local brands that can be acquired.

–      Well-established wholesalers and distributors with solid market knowledge.

–      More international brands entering the market and establishing their manufacturing plants, an indicator of great market potential with a high return on investment.

–      No tax on sales (VAT), in addition to the low import duties in comparison to other countries.

–      Absence of many international brands that can successfully penetrate the market.

5. The Iraqi Start-up Scenery within the FMCG Sector

Iraqi start-up scenery goes way back to the early twentieth century. Families like Al Bunnia started their entrepreneurship journey since 1910 by creating a diversified portfolio of investments which included the food industry sector. Kanoon is one of their dairy brands that was established in the 1950s and one of the most successful ones too that exists until this day with a very well reputation for high-quality products, other food products of the company’s group included sweets and commodities (Al Bunnia Group, 2022).

Another well known family group of businesses in the market is Khudairi Group, their story also goes back more than 100 years ago, as one of the most prominent business families in Iraq. They have more than fifty years of experience in the FMCG sector, being a market leader in the distribution and marketing of wide variety of brands (Al Nadir, 2022).

Al Waha situated in Babylon, Iraq is also a well-known company established in the 1990s that specialised in beverages. Their group was sold to Coca-Cola Icecek that currently produces Coca-Cola and Al Waha bottled water. The same previous Iraqi investors of Al Waha established their new company called Etihad Food Industries, Etihad is now produces sugar and sunflower oil that covers most of the market.

One of the most successful food companies in Basra is Fusteka. The company was established in the 1990s but it has lately joined the food production industry by specialising in frozen food and ice cream production. Their ice cream factory consist of German technology and expertise, and their products’ quality is considered top of the line in comparison to other locally produced products.

Small Iraqi start-ups have been emerging in recent years with professional management by the youth founders. One of the successful start-ups is Berhyah. It was founded in 2018 in Basra, Iraq and has selling points in Baghdad and Erbil. Berhyah is selling a wide collection of premium date sweets. With its high quality and eye-catching packaging, it has successfully managed to export its products to other countries like Canada by signing a contract with ICCCI (Iraqi Canadian Chamber of Commerce & Industry) that will be responsible for marketing and selling its products through the Chamber’s platforms and sales channels (ICCCI, 2021).