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Lebanonwire, January 27, 2004

The Daily Star

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Iraqi firms suspicious, confused by new economy
Securing US contracts proves difficult

American firms often choose to deal with those they have successfully worked with in the past - frustrating many local business

Andrew Butters
Special to The Daily Star

BAGHDAD: For a reminder of the challenges that Iraqi businesses face in the post-Saddam economy, the average Baghdadi need only look at the walls with which American companies and officials have fortified their hotels, compounds, and bases.
“Bremer walls” ­ the concrete slabs that protect against explosions and obstruct car bombers ­ have sprung up all over Baghdad as terrorist attacks have become more frequent in the past month. One popular rumor is that the Americans have been paying up to $1,000 for each of the three-meter high walls, named after the top US overseer here.
But the boom in Bremer walls hasn’t been good news for Iraqi manufacturers of concrete and cement. There is little if any Iraqi cement in a Bremer wall, and many of the concrete companies that supply the walls are either foreign or from Kurdish Northern Iraq.
That is hard on Iraq’s three cement companies, all state-owned and internationally known for their quality product. It also galls Arab Iraqi concrete makers, who suspect that contracts given to Iraqi Kurds, who supported the US during the war, are part of the spoils.
“Even if there is a better Iraqi company, the Americans would not give them the business,” said Faro al-Khaffaf, the chief executive of concrete manufacturer Al-Khaffaf Co., who said he could produce a Bremer wall for $100.
But is the suspicion that US contracts are unfairly out of reach of average Iraqi companies warranted?
Foreign and Kurdish firms got the jump on the wall contracts after the war because the US-led temporary government, the Coalition Provisional Authority (CPA), needed the walls in a rush and Iraqi industry south of the Kurdish controlled regions, including all three Iraqi state-owned cement companies, was at a standstill.
The actual price paid for a Bremer wall is an elusive figure. But the rushed nature of the contracts and the continued risk of fulfiling them would justify a high price tag, according to international construction experts in Iraq. And while prices have fallen substantially in the months since the invasion, truck convoys carrying the walls are often attacked by insurgents.
The Bremer wall imbalance will probably sort itself out ­ Iraqi cement plants may soon overcome electrical problems and begin producing again ­ but the suspicion and confusion represented by the Bremer walls will not go away so easily. That is because after decades in isolation, cut off from foreign standards, investment, and competition, Iraqis have suddenly come face to face with the global economy, and the experience is not what they expected.
“The Iraqi people expected great things from America, that America has magic, that what it wants is done,” said Sadoun al-Dulame, executive director of the Iraq Center for Research and Strategic Studies, an independent think tank in Baghdad. “But it’s not easy to rebuild the damage of 30 years.”
That damage is visible throughout the country. Iraq suffered from the depredations of three major wars, inept central planning, and the systematic looting of the country ­ both by its leaders and the mobs that hit the streets when those leaders vanished. Unemployment runs somewhere between 50 and 75 percent, according to various estimates. Its per-capita production of $2,400 ranked 162nd worldwide in 2002, according to the CIA World Factbook, and the nation’s economy may have shrunk since then, though in the absence of accurate statistics, the rate of growth is anyone’s guess.
Less visible is the damage done to Iraq’s human capital. The systematic ideological and criminal degradation of Iraqis destroyed the educational achievements of what was once one of the most advanced countries in the Middle East.
“Most Iraqis coming back from abroad expected to find the same educational standards that they had left in the 70s or 80s, but unfortunately that’s not the case” said Sabah Khesbak, a communications engineer who left Iraq in 1978 to get a doctorate in the US and returned to Iraq this year as an American citizen.
Khesbak said that he saw the effects of totalitarian rule on the professional habits of his Iraqi colleagues.
“They have no initiative, they don’t show up on time, or dress properly. They skip workdays with the most improbable excuses. They’re closed-minded and they seem to be helpless and hopeless,” he said.
Iraqi professionals often have little knowledge of international business standards, according to American officials, who offer training to local businesses on such subjects as how to write resumes and business plans. Bids submitted to Americans are often hand-written, in Arabic.
Even for the most conscientious firms distributing US aid, spreading contracts among many Iraqi businesses is difficult. Iraqis will misrepresent their ability to perform contracts, according to a US Army officer who deals Iraqi businesses.
“A lot of them lie. They’ll tell you they can do anything. They say they can get 100 generators tomorrow and they can’t,” he said speaking on the condition of anonymity. In a dangerous environment where speed and reliability is of the essence, US firms tend to reward those ones with whom they’ve done business successfully in the past, he said.
This gives an advantage to foreign businesses, especially those from Iraq’s neighboring countries where Arabic is spoken and which have proven track records and know what Americans expect.
While many of these foreign firms will immediately turn around and hire Iraqi companies to do the work and split the profits, there is a growing feeling among Iraqis that the country is being deprived of its economic self-determination. And the recent decision by the CPA, the American-led acting government in Iraq, to open the country to foreign investment in all sectors except oil and to slash import duties, has increased that sense of vulnerability.
“We don’t want to refuse foreign assistance or investment,” said Dulame, of the Iraq Center for Research and Strategic Studies. “But Iraqis don’t want to put Iraq up for sale.”
It may be a while, however, before anyone wants to buy Iraq. Aside from rumors about South Koreans and expatriate Iraqi Jews snapping up Baghdadi real estate, foreign investors are for the most part noticeable only by their absence. Ongoing security problems, and the impossibility of getting business insurance in such a climate have kept many away. And American inspired investment laws might not last once Iraqis become self-governing.
But if and when international private capital arrives en masse, the shakeout of the Iraqi economy could have serious social implications. The most vulnerable sector of the economy is manufacturing, where Iraq’s 200-odd state-owned firms dominate. These companies, with over 500,000 workers on their payrolls, are the largest employers outside the central government. Just as disbanding the Iraqi Army and the instant creation of 400,000 angry unemployed soldiers escalated the country’s security problems, workers laid off from manufacturing jobs will not be raging at impersonal market forces. They’ll be angry at America.
While KBR just began holding weekly meetings to announce contract tenders to small Iraqi businesses, and there is no single place, either on the internet or on some sort of bulletin board, where all American tenders are listed. This gives the well-connected an advantage, and fueling suspicion among those outside the loop that they are purposefully being kept in the dark. Nor is their a list of contract winners.
This is for security reasons, according to American officials, who worry that those businessmen will be the victims of reprisals or crime. But the lack of transparency allows all kinds of accusations about corruption and cronyism to go unchallenged.
And while Iraqis may have had unreal expectations about the rosy future after American liberation, American officials made similar predictions to the American people.
“Politicians from abroad are dreamers. They make a lot of promises. But you cannot change things overnight,” Dulame said. “I wish I could hear that from George W.  Bush or Paul Bremer. If there are problems, let the Iraqi people know these problems.”

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