Gold rush

The violence still plaguing Baghdad has done little to deter a brave band of entrepreneurs – many of whom are Lebanese – to march into the capital and snap up lucrative post-war contracts with the coalition forces. Free trade and privatization, forbidden under Saddam Hussein, has plenty of opportunists biting.

“Before the war there was no chance for foreigners to invest. It was a scary regime. Who would have dared come here and try?” said Lebanese businessman George Chahine, who has a contract to maintain three US military bases with Kellogg Brown & Root (KBR), a subsidiary of Halliburton.

With $18.6 billion pledged by the American government for post-war reconstruction next year, alongside over $13 billion in loans and donations from donor countries secured recently in Madrid, the contracts – worth anywhere between $100,000 to $30 million – have overwhelming appeal. “As long as I’m happy with the contract, I don’t mind doing business in Angola or Afghanistan,” said Michel, who comes from Beirut and has a contract with KBR to supply mobile homes to the American camp at Baghdad International Airport.

Yet he was not so blasé about the dangers involved. American military convoys are often targeted by explosive devices on the road to the airport, which also comes under regular mortar attack. “The biggest risk is getting to the camp and back on the road. Also being at the airport, if the camp is shelled who knows what’s going to happen?” he said.

Despite these risks, Michel considers the contract “worth it,” although he, like most of the other contractors in Iraq has no insurance. “What insurance?” he said incredulously.

“You can get insurance but I don’t think it’s worth much because this is war. Who’s going to cover FORCE MAJEURE?”

While one upside to this is no taxes, the lack of insurance for consignments in a war zone can be costly. Chahine is constantly losing freight on the road from Kuwait to Baghdad, where his goods, accompanied by military vehicles, are inevitably targeted by looters. When a truck comes under fire, the driver detaches his load and keeps on driving.

“If I have a valuable consignment in transit, I’m always worried about it until it reaches its location because it’s my money after all,” he said.

While the security situation across Iraq is far from ideal, Yousif Abdul-Rahman, the senior advisor to the Iraqi trade minister is naturally bullish, predicting that business opportunities will abound when the situation stabilizes.

“When security prevails we expect there will be big opportunities in business in Iraq, whether in construction or in supplying commodities. The sooner companies get here, the better,” he said.

This optimism is underpinned by a burgeoning form of economic liberalization that has taken hold under the neo-liberal policies of the Coalition Provisional Authority (CPA).

“A new investment law will be issued to encourage foreigners to come and invest in Iraq,” said Abdul-Rahman of the new law currently being drafted and soon to be issued by the Iraqi Ruling Council.

Previously, state-owned businesses, from factories to the infamous Al-Rashid hotel in Baghdad – are also under review for privatization. “Each ministry is negotiating which projects need to be privatized and which need to be controlled by the government,” said Abdul-Rahman, touting the example of previously state-owned shopping malls. “We plan that in the future, these shopping centers will be rented to the private sector, renovated and redeveloped [to resemble] major chains, such as Safeways. The private sector can deal better than the government in certain areas.”

Nonetheless Abdul-Rahman acknowledged that privatization must happen slowly to ease the social fallout likely to occur if more Iraqi workers lose their jobs. This is nowhere more sensitive than in the manufacturing sector, where some 200 state-owned companies formed the largest employers outside central government – with more than 500,000 workers on their payrolls. “The unemployment rate exceeds 60%. If we speed up privatization this will have a negative impact,” he said.

With privatization is a key economic goal for the new Iraqi government, and the main focus of the trade ministry is free trade, said Abdul-Rahman. This is a sharp shift for a ministry whose former function was to control the rationing system of the UN oil-for-food-program.

“The outlook for the government is free trade, so there will be a very big support for the private sector to participate in the economy of Iraq,” said Abdul-Rahman, highlighting the ease of registration for foreign companies.

Free trade is nowhere more evident than in Iraq today. When the war ended, the CPA froze customs duties on goods entering Iraq, heralding an unprecedented opportunity for trade with neighboring countries. The streets of once-sanctions ravaged Baghdad are flooded with cheap electrical products from Turkey and food from Iran, distributed through Kurdistan. A fleet of used-cars has also made its way into Iraq through the Jordanian port of Aqaba.

This will change on January 1, 2004, when a reconstruction levy of 5% will be imposed on the total taxable customs value of all goods imported into Iraq, besides medicines, food, clothing and humanitarian goods.

While Jordanians have profited from trade with Iraq, Chahine sees the Kurds as the “biggest winners” of the post-war free market.

“The private sector is being controlled mainly by the Kurds, due to the fact that Northern Iraq wasn’t under any embargo and the Kurds, because of their territorial location on the Turkish and Iranian border, have experience with trading transactions and have already established their contracts with manufacturers abroad,” he said. “They were the first to flood the market with satellite dishes, a day after the liberation.” While most trade is coming through the ports of Aqaba, Tartoos and Um Qasr, some businessmen are choosing to ship their consignments through Beirut to avoid delays. “We have to depend on Beirut, because Aqaba is congested and there is a delay in delivering the consignments in Kuwait,” said Chahine who has a consignment soon to be delivered through Beirut.

While years of sanctions would suggest that Iraqis have poor purchasing power to take advantage of new products, Chahine believes otherwise. “Iraqis are buying. They were thirsty for everything,” he said of the country with a population of over 24 million.

Khalid Al-Helou, an Iraqi businessman agreed: “Under sanctions there was nothing to spend your money on. We couldn’t travel or buy new things, so we just saved it.”

Landlords are also cashing in. Since the end of the war, property prices have risen by 300%. “They are asking $2,000 per square meter for prime locations along the Tigris River,” said Chahine, obviously unimpressed at having to pay $20,000 to rent a home. “The price of land is grossly exaggerated. Why? The Iraqis believe that the price they set now is the one they will realize in the future.”

While trade and real estate present long-term opportunities in Iraq, the best money to be made right now is through American contracts, said Chahine. He said Lebanese businessmen have a clear advantage in doing business in Iraq. “The advantage the Lebanese have is that they are multi-lingual. It makes it easier for them to communicate with the locals and the internationals, and coordinate with the local market and abroad,” he said.

“I also feel at home here,” said Michel, of his experience of doing business in a war zone.

Yet despite the many business opportunities, the dangers of doing business in Iraq cannot be underestimated. Chahine drives a beat-up, dirty Toyota Corolla through the streets of Baghdad to avoid standing out, employs an armed gunman to guard his house – and admits he feels anything but secure. “But no risk, no money,” he smiled, noting the importance of gaining a foothold in Iraq now.

“To be here at this time, to become familiar with the market is very important,” he said. “This is just the beginning.”