Eight years after the American-led invasion of Iraq, the country’s business climate seems to finally be showing some substantive improvements. Granted, the essential quality for the country to re-emerge as a target for investors is physical safety and stability, and on that score the numbers at first sight don’t appear encouraging; the level of violence in Iraq in March more than doubled compared with February. According to statistics from official Iraqi sources, in March, 136 civilians and 111 Iraqi police and soldiers died in attacks across the country; in Baghdad alone, 79 civilians and 31 security personnel were killed: more than twice the previous month’s total. The current level of violence is, however, still far below what Iraq saw during the sectarian warfare peak of 2006-2007; and a suggestion as to why the violence grew recently is that relaxed security forces, over-confident that the situation is calm, are making their searches less vigilant. Hopefully, neither this nonchalance nor the violence will become a trend.
Despite the security slips in Iraq of late, in recent months there have been rising numbers of international organizations and foreign businesses heading for the country’s capital to set up shop. Among the former is the United Nations Development Program for Iraq — previously based in Amman — which is due to begin relocation to Baghdad this month. And the lifting of a travel ban to Iraq on officials of the Paris-based Organization of Economic Co-operation and Development (OECD) is a further indication of a potential ‘Baghdad Spring.’ In the private sector, interest in Iraq on the part of big multinational banks is also growing: at an OECD workshop on Iraqi infrastructure development, held in Jordan in March, the Hong Kong and Shanghai Banking Corporation (HSBC) Group, Citibank and J.P. Morgan showed a keen interest in doing more business in Iraq. HSBC is already in the country through a majority holding in a local bank, and Citi has also been focusing more on Baghdad in the past few months.
Whatever political contortions and security issues may arise in Iraq, more business is certainly coming to the country. For example, the OECD event looked at vast projects to be undertaken, including an Iraqi Ministry of Agriculture plan to set up market complexes for the storage and distribution of farm produce. The recent announcement of an Islamic Development Bank grant for a feasibility study indicates that the project is under serious consideration.
Agriculture in particular could be the country’s new center of business attention (after the always-present focus on oil). Recovery in Iraq generally has not been matched by a revival of agriculture, once a mainstay of the country’s rural economy. Government wholesaling through the country’s creaky public distribution system is now increasingly recognized as problematic and technology, human capital and machinery in the sector lag behind as well. The scope for Iraq’s food production is enormous, and a focus on this kind of business would provide attractive solutions to internal migration, among other key issues plaguing the country.
Though a full recovery is not going to happen automatically or overnight, indications are now positive for the first time in decades — and certainly since the US invasion of Iraq in 2003 — that an improved business climate in the country is beginning to attract interest in non-oil investment, which in turn will help businesses to prosper and reinforce a positive cycle. Physical security is of course crucial, so before rushing to book a flight to Baghdad (where planes no longer land in a “corkscrew” pattern dictated by security concerns) one must remember that this is still no Disney Land. However, the recent economic and political momentum means that the risks of doing business in Iraq are slowly being outweighed by the potentially enormous benefits. Investment climate tipping-points are difficult to spot and to analyze but Baghdad is now heading in the right direction.
Riad al Khouri is dean of the business school at the Lebanese French University in Erbil, Iraq, and a senior economist at the William Davidson Institute in the Ross School of Business of the University of Michigan, Ann Arbor
