* $7 bln of private investment expected in 2012
* Up from $3 bln in 2011
* Plans gradual privatisation of all govt factories
By Aseel Kami
BAGHDAD, Nov 19 Iraqi industry is beginning to shake off the legacy of years of violence and economic decline, with private investment in the sector expected to reach as much as $7 billion this year, up from $3 billion in 2011.
Though political instability and security issues remain, Adel Karim, the deputy industry minister, said that the country is reaping the rewards of opening up its financial and industrial sectors and luring foreign investment and expertise to revive its dilapidated factories.
"Iraq is still attracting foreign investment despite political problems and terrorist attacks," Karim told Reuters on Monday.
"If things continue as they are now, it is possible to exceed $7 billion in 2013. And if the political crisis eases, there will be a jump in investment."
Since the last U.S. troops left in December 2011, Prime Minister Nuri al-Maliki's Shi'ite-led government has been politically deadlocked and insurgents have continued to carry out attacks.
Many of Iraq's 260 factories were either looted in the aftermath of the U.S. invasion in 2003 or are outdated or located in restive areas.
Iraq needs investment in every sector, Karim said, and has an ample enough budget to enable it to rebuild. Were it not for the unstable political and security climate, investment in industry might have been double the $7 billion figure.
The country's industrial sector currently contributes a mere 2 percent to the country's gross domestic product (GDP), according to central bank data. That figure could and should be higher, Karim said.
"Our contribution (to GDP) should be no less than 20 to 25 percent. I believe, if the political and the security situation calmed down, it would be possible to reach that figure in three or four years easily."
Karim said the ultimate goal was the gradual privatisation of all 260 government factories, which are run by more than 70 state-owned companies. For now, however, the ministry plans to continue to grant production-sharing agreements to protect ministry employees.
"Our main goal is to hand over our companies to the private sector, because the private sector is more active ... but our first step is production-sharing deals," Karim said
The ministry has signed between 40 and 50 production-sharing contracts with local and foreign companies over the past two years, the deputy minister said. These have included German, French and Turkish companies.
It recently signed a $1 billion contract with Turkey's UB Holding to restore an iron and steel factory that was looted during the 2003 invasion in the southern province of Basra.
Karim also said the ministry is close to signing contracts worth a combined $1 billion with three Turkish companies to restore three cement factories in northern and southern Iraq.
(Editing by David Goodman)