PepsiCo bets on Iraq as Middle East manufacturing hub despite regional challenges

PepsiCo is betting that Iraq can become a serious manufacturing hub for the Middle East, even as the region grapples with the ongoing war in Iran just across the border. The beverage giant has signed two major agreements this year with Iraqi partners, signaling confidence that the country—despite its troubled recent history—has the raw materials, geography, and workforce to support large-scale food and drink production.

The calculus is straightforward on paper. Iraq sits in what was once the agricultural heartland of the region, with access to dates, fruits, tomatoes, potatoes, and animal protein that the United Nations Food and Agriculture Organisation confirms are grown locally in abundance. The country has a young population and sits at a geographic crossroads that could make it a natural distribution point for goods moving through the Middle East. For a company like PepsiCo, these advantages are hard to ignore, especially as it looks to diversify its production footprint across the region.

The first agreement came with the Baghdad Soft Drinks Company, a partner PepsiCo has worked with since 1984. The new memorandum of understanding aims to expand local beverage production capacity beyond 250 million cases annually, with a focus on modernizing manufacturing facilities, developing skilled workers, and deepening investment in Iraq's industrial base. Ahmed Elsheikh, PepsiCo's regional foods chief, framed the move as part of a larger vision to support Iraq's agricultural and industrial potential. "Strong food manufacturing begins with strong agriculture," he said during the US-Iraq High Level Business Summit, emphasizing that the company sees opportunity in building across the entire value chain—from farms to factories to export.

The second agreement targets food manufacturing more broadly, positioning Iraq as a potential export hub for the wider region. Again, the language from PepsiCo stressed partnership and long-term commitment. Mohamed Shelbaya, the company's beverage operations chief for the Middle East and Africa, noted that the relationship with Baghdad Soft Drinks had been built over decades, and that this new step reflected genuine confidence in Iraq's future. "The strongest partnerships are built over time," he said.

But confidence and reality are not the same thing. Iraq faces substantial obstacles that could derail these ambitions. The World Bank's recent report on the country identifies critical infrastructure gaps as the primary barrier to manufacturing growth: cold storage facilities are inadequate, electrical supply is unreliable, and transportation logistics are hampered by poor border management and road conditions. The report notes, with some irony, that while Iraq's geography positions it to be a regional transit hub, its actual logistics performance is weaker than every neighboring country, making it a bottleneck rather than a gateway.

These are not minor inconveniences. A beverage company needs reliable electricity to run production lines and refrigeration to preserve product. It needs predictable shipping routes and border crossings to move goods efficiently. Without these basics, even the best agricultural resources and lowest labor costs cannot compensate. The World Bank does offer a path forward: if Iraq can improve domestic security, modernize its trade policies, and invest in infrastructure, the country could unlock significant export potential and raise living standards for its own population. For now, though, PepsiCo's bet on Iraq remains a bet on potential—on what the country could become if the pieces fall into place.