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War and Corruption Inhibit Foreign Investment in Iraq

As it seeks to rebuild politically, Iraq remains a war-torn country that lacks any serious foreign investment in its economy, though it has garnered modest interest from a few Middle Eastern investors. VOA's Peter Fedynsky looks at the source of these investments and at some of the impediments to the flow of capital into Iraq.

More than 400 foreign contractors have been killed in Iraq since March 2003, so war is the obvious reason that the country is a risky place to invest in. Nonetheless, Iraq is in the midst of a construction boom. Accordingly, one of the largest cement plants in the world is being rebuilt in the northern Iraqi city of Sulamaniyah.

One of the investors in the project is Egyptian businessman Alaa Abdullah. "Call it the land of wealth. In my personal opinion, there is great opportunity."

In the northern city of Irbil, Turkish investors are building a massive new residential neighborhood. And in the southern port city of Basra, investors from Dubai have broken ground on a $1 billion chemical factory. However, Keith Crane, a senior economist with the think tank, says outside investors tend to have close personal ties in Iraq.

"Most of these are kind of Gulf Arab or some Iraqi money that has come back in, even though it's direct investment,” said Mr. Crane. “I would call it ‘more Iraqi,’ because it’s friends of the family outside Iraq, or expatriate Iraqis."

The U.S. State Department website says Iraq has bright, hardworking and resourceful people that make the country a "uniquely attractive place to do business in the Middle East." However, Keith Crane says that overstates Iraq's investment potential, adding that widespread corruption inhibits foreign interest.

"Corruption, you kind of have to break down into different forms,” he said. “There is skimming from the oil wealth, there are people demanding bribes or kickbacks from contracting, and then there is the classic: people demanding bribes in order to get permits or work through the bureaucracy."

Mr. Crane says Iraq's most attractive investment opportunity, oil, remains off limits because of the security situation and Iraqi hesitancy to allow Western companies into the business.

Though Iraq lacks significant outside investment, President Bush recently noted that coalition forces provided $21 million in micro-credit and small business loans to Iraqi entrepreneurs, and helped Iraqis introduce a new currency and re-open their stock exchange.

The president said, "As a result of these efforts and Iraq's newfound freedom, more than 30,000 new Iraqi businesses have registered since liberation. And according to a recent survey, more than three quarters of Iraqi business-owners anticipate growth in the national economy over the next two years."

Economist Keith Crane says foreign direct investment in Iraq can no more be expected to instantly materialize than a toddler can become a professional football player in 18 months. Mr. Crane says outside investments in post-conflict societies usually come several years after the domestic economy settles down.

"It's more important to have the Iraqis find it easy to open up a business, than for somebody from the outside. And if that takes off, then sometime down the road you might see some foreign direct investment."

Mr. Crane says it is important for Iraqis to focus now on the country's legal underpinnings to make it easy for anybody, Iraqis and foreigners alike, to open a business in Iraq.