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December 15, 2011 7:27 pm Spoils of Iraq war evade US and UK By Lina Saigol in London
After almost nine years, $1tn spent and 4,487 American and 179 British lives lost, the US is withdrawing from Iraq, leaving the country’s vast economic spoils to nations that neither supported nor participated in the US-led invasion that toppled Saddam Hussein. Turkey, Iran, China, South Korea and Arab states have already invested billions in Iraq, far outpacing their US and UK counterparts in every non-oil sector from transport and telecoms to housing and construction.
American and British firms won early lucrative contracts in oil and gas, including ExxonMobil and Royal Dutch Shell’s bid to develop Iraq’s giant West Qurna oilfield. Beyond energy, however, investment is modest and Iraqi officials have expressed disappointment in private sector interest from the two countries that ended a dictatorship and cracked open its free market. “We are not satisfied with the number of American companies in Iraq,” the prime minister, Nouri al-Maliki, told the US Chamber of Commerce this month. A former US diplomat in Baghdad described the investment landscape this way: “There appears to be almost no correlation between the countries which participated in the war and those now trying to develop the country.” To cash in on Iraq, companies have to navigate a maze of bureaucracy, violence and corruption. Still, the French, who vehemently opposed the war, in which tens of thousands of Iraqis lost their lives, have not blinked at the challenges. As well as investing in telecoms and building two automobile factories, French building materials maker Lafarge now produces 60 per cent of the cement sold in Iraq. Gala Riani, IHS Global Insight senior analyst for the Middle East, said US companies have held back because of on-the-ground risks and lingering sensitivities about the origins of the March 2003 invasion. “The US government did not push hard enough for American companies to invest,” Ms Riani said, because Washington was seeking to dispel suggestions that the war had commercial ends.
Carne Ross, a former UK diplomat who heads up the non-profit advisory group Independent Diplomat, said some investment in Iraq signalled a fresh approach. The Iraqis are pursuing economic relations with countries like Iran that had been enemies but are now close trading partners. “In a sense, this represents Iraq ‘binding itself’ into the region. If the neocons hoped for long-lasting preference for US business, they have been proved wrong,” Mr Ross said, referring to the cadre of advisers around former president George W. Bush. Both US and British governments have stepped up efforts to encourage investment with a series of high-profile trade delegations and business conferences. British companies, still, have cited excess red tape and slow decision-making by Iraq’s 18 governorates and provinces as impediments. “We have had difficulties getting decisions out of ministers,” said Michael Shipster, a director at Rolls-Royce who has studied entry into the Iraqi market for almost two years. Stuart Bowen, the special inspector general for Iraq reconstruction, noted that even at two recent trade fairs in the northern semi-autonomous region of Kurdistan, where business is safer and easier to do, there was not a single US company. “There is a huge lag in US investment,” Mr Bowen told the Financial Times. “But why would you invest in a country where there are so many problems with the infrastructure?” Almost all sectors of Iraq’s economy need to be rebuilt, from housing and industry to telecommunications and financial services, in order to restore basic services to the country. Iraq’s five-year national development plan includes more than 2,700 projects with a total value of around $186bn. Kurdistan – largely because it is much safer than the rest of the country – has attracted the bulk of investment, to the frustration of the central authorities in Baghdad. Electricity shortages are still one of the biggest impediments to attracting private investment, with the national grid still supplying only a few hours a day. And the Iraqi government has not helped the situation improve. The electricity minister resigned in August on the request of the prime minister for not following correct procedures in signing contracts after irregularities worth $1.7bn were uncovered in deals with two foreign firms. So far, Turkish, Asian, French and Italian companies have dominated investment in this sector, bidding for government services contracts and building billion-dollar power plants. South Korea’s STX Heavy Industries won a $2.77bn contract to build 25 diesel power plants in May. In November, French engineering group Alstom won a $550m bid to build the al-Mansuriya gas-fired power plant in the Diyala province, north-east of Baghdad.
These countries have also been capitalising on Iraq’s acute housing shortage. Officials estimate that between 2m and 3m houses need to be built to meet the demands of the growing population. A Turkish consortium, which includes Kazova and Kocolu Tarma, won an $11.3bn bid for Baghdad’s Sadr City area, which involves building 75,000 housing units to accommodate up to 600,000 people. Another investment required more patience: Turkish construction firm Nursoy negotiated for four years before wrapping up $600m deal to build 1,600 flats in central Baghdad. The size of these mandates dwarf the ones being picked up by British and American firms. Copperchase, a UK company based in Dorset, secured only a $160m contract to build 3,000 low-cost housing units for private sale in the province of al-Najaf. Many potential investors are cautious about what will happen once Iraq troops and police are fully in charge – and security concern remains paramount. In November alone, 200 people were killed and more than 560 injured, while in early December there was a rare attack inside Baghdad’s heavily fortified Green Zone a day before a visit by the US vice-president, Joe Biden. Experts estimate that companies spend an average of 20 to 25 per cent of their operating costs on security, which can significantly reduce their return on investment. Some countries, like France, moved quickly to allay security fears of French companies by building a heavily fortified business centre and hotel as early as July 2010 – allowing businesses to sleep, eat and work in safety. Gavin Jones, partner at Edinburgh-based consultancy Upper Quartile, which is advising companies on Iraq, said the British missed an opportunity to invest early because of years-old debates on the war itself. He noted that the British government appointed a former civil servant, John Chilcot, to hold an inquiry into Britain’s role in the war “just as the Iraq economy was opening up in 2009”. That, he said, deterred ”any companies from moving in’.’