Iraq is not a place that immediately comes to mind when thinking of attractive investment opportunities. The country has faced difficulties in maintaining stability, especially after the invasion of Kuwait, the first and second Gulf wars, the 2003 regime change that overthrew Saddam Hussein, the civil war, and the presence of recuring extremists and terrorists groups. Iraq has also suffered severely from economic sanctions.

But investors like Geoffrey Batt, Managing Member of Euphrates Advisors, have been able to identify frontier markets like Iraq for high growth value investing.

“These markets can produce what are called historic equity re-ratings, where a stock market has its first ever bull market, really, and they tend to be extraordinary,” he says.

As the Civil War was coming to an end in 2007 between the Sunnis and Shias, he began to see indications of macroeconomic stability. The price of oil was rising, and the currency was strengthening against the dollar. He notes that it was “impossible to reconcile that data with this notion that Iraq was a failed state.”

“The investment is going to present itself a certain way, but to really find out if it is worthy of your money, to really find out if it is has the potential to give you the return that you are looking for, you have to look behind the veil and try and see the complexity for what it is so that you can truly, or at least better understand it,” he says.

The country has seen a massive oil production expansion and has grown to become the second biggest producer in OPEC. It’s GDP has seen double digit growth rate in recent years.

“There was this very wide gap between the perception of the country and the reality of the country,” he says. “That is where you find the very best investment and it’s a greater opportunity to make money because eventually that gap narrows. If you are right, people start to see that investment or that country in the way that you saw it initially, and that means more money flows in, and prices go up.”

Batt invests exclusively in Iraqi companies – from consumer-packaged goods and banks to telecommunications firms and e-commerce.

“Companies will high growth rates at much lower valuations because there is more risk,” he says.

Today, more than 100 companies are listed on the Iraq Stock Exchange. The Iraq Stock Exchange began in 2004, with help from the U.S. In 2009 it went electronic, attracting even more foreign investment to the cash-strapped economy.

For more than a decade he has seen the economy evolve and has recognized long-term capital appreciation. Specifically, with companies like Baghdad Soft Drinks, the Pepsi bottling and distribution company, of which he now owns 18% of it and sits on the board.

“When I first invested in 2008, sales were $64 million and this year, sales will be about $334 million. Sales have grown quite significantly over the last 12 years. Profit has grown even more,” he says. “Free cash flow generation has grown even more because the company has become more efficient, our margins have expanded by 1000 basis points over a decade.”

The coronavirus pandemic has no doubt exacerbated the oil-reliant economy. Iraq’s new Prime Minister released a white paper mapping out economic reform just last month, liberalizing their entire economy and highlighting the potential for its capital markets.

One of the ways in which he sees this transformation taking place already is with the widespread adoption of FinTech and e-commerce startups popping up. There’s a new generation of Iraqi citizens changing the shape of the country and the future of the economy.

Batt made an investment in a private tech startup last year called Miswag, which is attempting to be the e-commerce giant for the country.

“What you see in a lot of frontier markets and what you are beginning to see in Iraq are entrepreneurial people, both men and women, very much motivated by what they see happening in the United States, in Silicon Valley. Very tech savvy, intelligent young people in the country creating these clones,” he says.