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Dear Investor,

The AFC Iraq Fund was up 3.0% in July 2025, outperforming its benchmark, the Rabee Securities U.S. Dollar Equity Index (RSISX USD Index), which was up 1.3%. For the year, the AFC Iraq Fund is up 9.5%, while its benchmark is up 0.2%.

The RSISX USD Index continued with the process of consolidating its gains that started in December 2024, following a blistering 35.9% three-month rally. While this consolidation could continue over the next few weeks, the market’s technical picture continues to be positive, and the likely consolidation or pullback should be within its multi-month uptrend. Trading volumes continue to support this thesis, as the average daily turnover for the month followed the patterns discussed in “Trading Volumes Support Market’s Uptrend” (chart below).

Rabee Securities U.S. Dollar Equity Index and Daily Turnover

More of Iraq, as seen through a visitor’s eyes

As first mentioned two months ago, Thomas Hugger visited Iraq at the end of May, and with me, embarked on a tour of the country that included business visits, cultural, and historic tours. Last month, we reviewed our visit to the ISX, the Bank of Baghdad, and Baghdad Soft Drinks, which were also featured during the AFC Iraq Fund section of Asia Frontier Capital’s latest quarterly webinar on 24^th July 2025, providing its regular “Asian Frontier Markets Update”. This month reviews our visit to some of Baghdad’s old districts (Al-Madrasa Al-Mustansiriya, Al-Mutanabbi Street, and Al-Shawaka), the ancient cities of Babylon, and Ctesiphon. Next month, will review our visit to the ancient city of Ur, the Marshes, the meeting point of the Tigris and Euphrates rivers forming Shatt Al Arab at Al-Qurnah, and Iraq’s third largest city, Basra.

Our plan for the tour of some of Baghdad’s old districts was for a walkabout that would start with a visit to “Al-Qasr Al-Abbasi (the Abbasid Palace)”, a magnificent structure built in the 12^th century and one of the oldest historic buildings, left standing, in Baghdad which itself was built in the 8^th century, but many of its buildings and structures no-longer exist due to a repeating pattern of destroying the old to build the new throughout the city’s history, many times using the old structures as building materials for the new. However, upon arrival, we found the site to be closed. Most of Iraq’s historic attractions’ opening hours aren’t consistent with tourism, in that they tend to follow official working hours, and so aren’t aligned with the likely schedules of tourists, foreign or domestic, especially during evenings, weekends, or holidays. Thus, highlighting the need for a mindset shift to embrace tourism, and unlock its values in contributing to job creations, and economic growth given the breadth and richness of the country history –“In the landscape of recorded history, Iraq is Everest: just as Everest makes other mountains seem small, Iraq makes ancient history seem recent by comparison”. The increasing influx of tourists encouraged by the relative stability that the country has been enjoying over the last few years, has acted as a catalyst for such a shift. The first to respond has been the private sector with the construction of hotels and of those in the other sectors within the broader hospitality and tourism industry. Baghdad alone has over 20 new ongoing hotel and resort developments, in addition to those built recently and those that are being renovated, such that of the Ishtar hotel that we reported on last month.

On the potential economic growth that tourism can provide, based on the experience of visiting AFC’s investable universe, that include hidden gems for investment and tourist attractions, Thomas notes: “ As we all know from our history classes, Mesopotamia, which is basically the region around the Tigris and Euphrates rivers, was already settled 10,000 years BC and considered one of the earliest civilisations. It was also the region where the wheel was invented and scripts, mathematics, astronomy and agriculture were developed. Needless to say, there are so many interesting places to see in an area multiple times bigger than, for example, the famous UNESCO World Heritage of Angkor Wat in Siem Reap, Cambodia, which attracts each year about 2.5 million tourists. I can easily imagine that, in the future, thanks to the stability in Iraq, more tourists will visit this country full of history, and the tourist arrivals will beat the figure of Angkor Wat, which is beautiful but much smaller than the entire Mesopotamia region.”

While we were disappointed with the closure of Al-Qasr Al-Abassi, we were glad that the next item on our walkabout, “Al-Madrasa Al-Mustansiriya”, located within walking distance, was open. Al-Madrasa is an Abbasid era scholarly complex, built in the 13^th century, which, in addition to Islamic religious studies, taught mathematics, astronomy, medicine, and philosophy. We were almost alone throughout the visit, with the exception of a few visitors, most of whom were foreign, who arrived just as we were leaving. While not my first visit, I was still impressed by the splendid architecture and the water-powered clock in the middle of the courtyard, that sadly is no-longer in operation; while Thomas notes: “The complex reminded me of the architecture in places like Bukhara, Khiva and Samarqand in Uzbekistan. All of them are impressive and beautiful but in contrast to its Uzbek counterparts, hardly any visitors were to be seen in Baghdad. I am sure that will change soon.” Supporting Thomas’s last comment, such a change, overtime, could lead to Iraq being a major historical and cultural tourist attraction, that coupled with the current, major but underutilized religious tourism, would support economic diversification and growth.

Al-Madrasa Al-Mustansiriya

Soon after that, we crossed the street into “Souq Al-Saray” whose other entrance is connected to "Al-Mutanabbi Street", which is more than just a street, as it more of an intellectual, literary, and cultural complex composed of the street itself, the "Baghdadi Cultural Centre", and "Al-Qishla" compound. Sadly, the last two were closed just like Al-Qasr Al Abassi, however, they were covered in the mid-2022 market report “Sandstorms, and a stroll down Al-Mutanabbi Street” with plenty of photos with a brief history of each. Al-Mutanabbi, is jam-packed with traditional booksellers displaying all kinds of books both in outdoor stalls and in bookstores –an embodiment of the old Arab saying, “Egyptians write, Lebanese publish, Iraqis read”; which to me brings back fond memories of my youth spent searching for books to satisfy my thirst, after devouring my grandfather’s huge library.

Despite the closure of the Baghdadi Cultural Centre, and Al-Qishla, we had tea at the famous "Al-Shabandar Café" (such places primarily serve tea, but coffee also, although I have never seen coffee served nor heard anyone asking for coffee) which was first covered in AFC’s August 2019 "Iraq travel report: Significant social and economic transformation”, then writing “... the Café personifies the street and Iraq’s revival - in 2010 a car bomb almost destroyed the café, killing thirty people including the owner’s four sons and grandson. However, Mohammad Al-Khashali, reopened the café soon after and insisted on maintaining its open-minded culture as a home to Iraqi writers and intellectuals from all faiths for generations, even during the darkest years of sectarian warfare”. Sadly, we weren’t able to meet Mohammad al-Khashali, who had died in January 2025 at the age of 93, and for me, his daily presence at the café was sorely missed. We had the traditional Iraqi style tea, or “Chai”, a staple of Iraqis that keeps us going throughout the day from morning to night, and while Thomas tasted it on the first day, the chai at Al-Shabandar feels different, at least to me. Thomas notes: “The Café was very crowded and we were lucky to find a space to sit. Immediately thereafter, a waiter came with chai on a tray. The chai was, as usual in Iraq, very sweet and extremely hot. It took some time until I could touch the immensely hot glass and enjoy the first sip of tea. In the meantime, my neighbour started talking to me and, to my surprise, he switched to German after he found out that I am originally from Switzerland. His German was great despite the fact that he was never in a German-speaking country in his life, and he told me, to my surprise, that he learned it from reading books and newspapers. The atmosphere in the teahouse is iconic and the walls are lined with old photographs, books and paintings. It was very lively and guests were discussing very loudly, and some of them were smoking shisha or cigarettes in the café, which is still very typical in the Middle East.”

Al-Shabandar, Al-Sarai, and across the Tigris

Following that, we turned to “Zuqaq Al-Sarai (Al-Sarai Street)”, whose many historic buildings, including Al-Qishla, recently underwent a major restoration  as part of the “Pulse of Baghdad” initiative. After which we crossed the Tigris by boat to the Karkh side of the city, and the short walk to "Souq Al-Shawka", heading for its famous “Masgouf” shops. Masgouf, is a uniquely Iraqi way of grilling fish that dates back over four and a half thousand years to the Sumerians, and doesn’t seem to have changed much since then according to Sumerian texts. After Thomas choose our fish from the fish pool of one of the Masgouf shops, we went to the adjacent tea house, that served also as a restaurant for the Masgouf shops as none of them had its own eating area, and enjoyed a few rounds of chai, “Chai Hamouth” –made and served like chai, but using Basra dried limes instead of tea leaves, and soft drinks. After an hour’s wait, we feasted on the delicious fish, served with plates of red rice –cooking the fish takes an hour or so as it is cooked standing vertically, in a ring with other such fish, around the fire. Thomas, who is not a big fish fan, nevertheless enjoyed it, and he notes: “When I was mentally preparing what do expect and experience from this trip to Iraq I never expected that I will eat fish three days in a row in Iraq since I was thinking kebab will be the staple meal but I was proved wrong! The masgouf fish was tasty and interestingly, Ahmed’s brother helped me to choose a male fish since some part of it seems to be tastier and richer in protein compared with a female fish! It was also the place where Ahmed and his brother decided to address me going forward with “Abu Debbie” (father of Debbie) since parents in Iraq are called after their first child’s name within friends and families, and I really enjoyed being called like this while in Iraq!”.

Masgouf at Al-Shawka

The next day, we started early for the drive to Babylon, followed by a drive to Ctesiphon. Our guide, Ali Ghanem Sarhan, was one of my students at Baghdad Business School (BBS), who is now an independent freelance tour guide specialising in cultural and historical tours. His rich Instagram account (@alighanim.1) chronicles him criss-crossing the country with tourists from across the world.

Babylon, believed to be home to the “Tower of Babel” and the ‘Hanging Gardens” of legend, is one of the most magnificent cities of ancient Iraq, and founded over four thousand years ago. The Babylonians, and before them, the Sumerians and Akkadians, made use of the rich muddy sediments deposited over centuries by the flooding of the Tigris and Euphrates, by employing mudbricks in the construction of the ancient cities, Babylon included. They fitted Mesopotamia’s environment perfectly and provided great insulation in the country’s extremes of heat and cold; however, many have not survived the thousands of years unscathed due to the combination of the effects of the natural elements, neglect, conflict, and looting. Babylon’s fate was no different, as many of its palaces, temples, statues, and other structures were eroded; most of what remains from them are low walls, featureless remains of great budlings, and foundations of gateways –especially, that of the great procession street, that ran through the heart of the city connecting the Ishtar Gate to the temple of city’s main goad “Marduk”. What was left standing, was stolen by looters, their bricks used as building material for nearby cities including Baghdad, and partly or wholly taken by foreign archaeologists to their home countries’ museums. In particular, the Ishtar Gate, dedicated to the Babylonian goddess Ishtar, built around 575 BC by King Nebuchadnezzar II, lies in Berlin’s Pergamon Museum. If that was not enough, the prior regime during the Iran-Iraq war, embarked on the reconstruction of Babylon’s palaces, temples, structures, and followed the habit of Babylonian kings by inscribing the president’s name on many of the new bricks. As an icing on the cake, built an opulent palace, styled on the ancient palaces, on top of a hill overlooking the ruins of the city. Adding insult to injury, was the damage following the invasion of Iraq in 2003, when the ancient site itself was used as a military depot by US and Polish forces in the first two years following the invasion.

Despite all of that, the remains of Babylon were magnificent to behold, and the feeling of walking among the wonderous ruins is awesome, despite the many times I have been there. Thomas notes: “I really enjoyed walking through the remains of Babylon despite the immense heat, and in my head, was always Boney M.’s famous song ‘Rivers of Babylon‘, which I fancied so much when I was a teenager. Now I was finally there –but the Euphrates river we were only able to see when climbing up a hill. I hope that UNESCO or the Iraqi Government will continue to protect this historical place and continue with the extraction since there must be much more of these ancient buildings in the surroundings.”

Babylon

The final part of the day’s tour was a visit to “Taq Kasra”, the only surviving structure of the ancient city of “Ctesiphon”, once the capital of the Parthian and Sassanid empires from the second century BC to the seventh century AD. Taq Kasra, or the Arch of Ctesiphon, is the pre-modern world’s largest single-spanning brick vault, which makes it not only historically and culturally significant, but also significant in the history of structural engineering. However, years of neglect, especially following the 2003 invasion, have led to partial collapses of the brick vault  in 2019 and 2020; while its structures were cracked from the passage of time and from the effect of the elements. Fortunately, in 2020, a great conservation project began, led by the University of Pennsylvania and the Consultancy for Conservation and Development.

Taq Kasra was closed to the public due to the conservation project, but fortunately, the closeness of the fence surrounding it allowed us to get very close to it and marvel at its beauty. While it was disappointing not be able to walk underneath the arch as I had done before, I was very glad to see the visible effects of the conservation project and admire the scaffolding installed in late 2021 –later on, I learned that it was designed specifically for the arch, purpose built and came with sensors to monitor cracks. Thomas notes: “I again hope that the Iraqi Government will continue to protect ancient structures like “Taq Kasra” and hopefully will restore and reopen the supporting infrastructure for visitors, which seemed to be in place some time ago.

Taq Kasra

AFC Iraq Fund Marketing Information as of 30^th June 2025

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NAV as of 31^st July 2025 and performance table since inception

Regards
 
Ahmed Tabaqchali
Chief Strategist AFC Iraq Fund
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