Business is growing in Iraq but problems remain

While much of the world is reeling from a credit crisis, Iraq's government is awash in cash to spur the economy.

By ASSOCIATED PRESS
Iraqi business dude (photo credit: Karim Kadim)
Iraqi business dude
(photo credit: Karim Kadim)
BAGHDAD - When Nadhim Faisal's company began building three schools in Baghdad last year, he figured it would take six months to finish them. But nearly a year later, construction continues. The delays, he says, stem from one major problem: the government's inability to pay installments in a timely fashion. Sometimes, he says, a "courtesy gift" is needed to speed up getting the cash. Improved security is making it possible for companies and investors to do business again in Iraq. But a labyrinth of red tape and corruption is replacing truck bombs and kidnappings as the major roadblocks to rebuilding the country. While much of the world is reeling from a credit crisis, Iraq's government is awash in cash to spur the economy. According to a report by US congressional auditors, the Iraqi government could end this year with as much as a $79 billion budget surplus due to high oil revenues and leftover income the country still hasn't spent on reconstruction. But the government lacks enough trained officials to spend the money fast enough, the US General Accounting Office said in a recent report. "The delay in payment causes a delay in finishing the projects," Faisal said. " If we were paid installments earlier, we would have finished the work in six months. But now, we will finish at the end of the year." The news isn't all bad. The International Monetary Fund said in a September report that economic prospects were improving in Iraq, but cautioned that success hinges on continued improvement in security, sound management of oil money and structural reforms. To encourage business growth, Iraq's government established an investment commission late last year in an effort to streamline the often cumbersome process of starting a business. The National Investment Commission says that over the past five months, Iraq has earmarked $74b. worth of investment projects - including those approved and others still in the proposal stage. "In the past, all international countries and even Iraqis were afraid to come to Iraq and do business because of the security situation. But now as security has been achieved... companies have started to come and express readiness to start investment projects," commission chief Ahmed Radhi said. Nevertheless, Iraq stands at 152 out of 181 countries measured for the overall ease of doing business, according to recent World Bank surveys. The country was ranked No. 197 out of 201 countries in the Transparency International index of corruption, just below Haiti and above Myanmar. "We face a lot of obstacles in our work and on top of all of them is the corruption that has become a phenomena in all governmental ministries. We have to pay for everything," said Iraqi businessman Muhannad Muhsin, who operates contracting and waterservices companies. There is no shortage of project proposals. In addition to schools, roads and its electricity grid - which still only provides a few hours of power a day in Baghdad - Iraq is developing pie-in-the-sky projects such as a giant Ferris wheel dubbed the "Baghdad Eye," a five-star hotel, an 18-hole golf course and a honeymoon resort on an island in the capital. "There seems that there are a lot of headlines but no action," said Raad Ommar, the CEO of the IraqiAmerican Chamber of Commerce and Industry, which has been organizing a series trade shows at the national and local levels this year to help stimulate businesses. One of the larger projects - worth $13b. - is a plan to build a port in the southern coastal city of Basra, Radhi said. That project, which the commission approved, has been sent to Iraq's cabinet for final approval, he said. Another project, worth $17b. and requiring cabinet approval, is a plan to upgrade Baghdad's international airport. The commission also is studying a $5b. project to build an industrial city in Wasit province, about 160 kilometers southeast of Baghdad, he said. Radhi acknowledged some difficulties remain. Leasing land in certain areas of Iraq is a problem because some municipalities are not eager make the process a smooth one and internal regulations differ between ministries, he said. Despite the difficulties, Faisal, the construction contractor, is not complaining too much. Two years ago, the 41-year-old father of three was kidnapped at gunpoint while working on a project in the northern oil-rich city of Kirkuk. He was held for a month before a $200,000 ransom was paid for his release. The devastating violence kept his employees at home, too scared to travel. Work abruptly halted, he hired security guards and the cost of doing business soared. But "in the middle of 2007, things started to change... We started to work freely without fear from militants and militiamen," Faisal said. Now his company employs 500 people. When he first started his business after the 2003 US-led invasion, most of his projects were in the northern areas of Iraq, which were considered safer. But now he's doing a lot of business in and around Baghdad. His company is building three schools in the city, a Shi'ite mosque and a hospital in Wasit province. "The reason we are successful is because we believe in rebuilding," Faisal said as he stood next to his company's booth at a recent local trade show in Baghdad.