The other Iraq battles to lure post-war investment
September 7, 2008
By Missy Ryan
Kurdish officials dream big, speaking of bringing Europeans to ski the region's snow-capped peaks, building modern schools and hospitals and rejuvenating the thirsty wheat fields.
In Arbil, the Kurdish capital 310km north of Baghdad, the streets buzz with activity. Several upmarket hotels and housing projects are going up on the outskirts of town. Direct flights arrive from Europe and Westerners are a common sight in the city centre's booked hotels.
Baqi Salaye, a Kurdish businessman, says: "We have many things: oil, iron and phosphate."
Yet Salaye, who dabbles in aviation, tourism and other businesses, echoes widely felt frustration when he bemoans the muddled perceptions of outsiders, who often fail to notice that Kurdistan has largely been spared the bloodshed in Iraq.
Kurdistan has been closely allied with Washington for years and seemed poised to flourish after the 2003 American-led invasion toppled President Saddam Hussein, who had slaughtered Kurdish civilians.
Since a new investment law was issued in 2006, giving investors a 10-year exemption from non-customs taxes, Kurdistan has licensed over 100 investment projects, says Nawroz Muhammad Amin, a senior official at the region's investment board.
Investments in housing, tourism, industry and other sectors - excluding oil and natural resources - have totalled about $16 billion (R125 billion) from 2006 through the middle of this year, she says.
About 16 percent of that was foreign investment, while 25 percent consisted of partnerships between Iraqis and foreigners, with the rest being local. Among outsiders, Arab companies have so far led the pack.
Damac, a developer from the United Arab Emirates, plans to begin work this year on a small city of residential, commercial and recreational properties near Arbil worth at least $6 billion, aiming to attract returning Iraqi exiles.
But Western investors are arriving more slowly, which frustrates Muhammad Amin.
"We visit different countries. We have an investment law. We have the government website, and ads on Arabic channels," she says, throwing up her hands.
Even before violence in Iraq dropped sharply in the past year, the Kurdish government aggressively courted investors, branding itself as "the other Iraq" and wooing clients in foreign capitals.
Timothy Mills, the president of the American Chamber of Commerce Iraq, says most US companies have so far stayed away from Kurdistan because they do not fully understand the balance of risks and benefits of doing business there.
"The perception in American boardrooms is informed by the [US state department] travel advisory, by what is seen on TV," Mills says.
Another red flag is the fighting between Kurdish PKK rebels near Kurdistan's northern edge and Turkish forces across the border.
Abdul Karim Sultan Sinjari, the minister of state for the Kurdistan interior, says: "The Kurdish government is trying a lot, but some things are not in our hands."
He has urged the US and UK to relax their travel policies.
The US state department, in its most recent advisory, strongly warns US citizens against travelling to Iraq, ticking off a litany of threats: rocket attacks, kidnappers, thugs - and the PKK, which Washington considers a terrorist group.
Sinjari hopes a change in such policies, at least for Kurdistan, would encourage business travellers and tourists.
US officials say foreign investment across Iraq has also been hindered by a lack of confidence in its overall regulatory regime.
They expect major change with the passage of a new oil law in Iraq, which has the world's third-largest proven reserves of crude.
The Iraqi cabinet passed a draft of the law last year, but a final version has been bogged down in a number of disputes, including whether Kurdistan will have the power to sign oil contracts on its own and who will control reserves there.
Also contentious is the status of oil contracts the Kurdish government has already signed, which Baghdad deems illegal.
Many have also long dreamed of making the oil-rich city of Kirkuk, just to the south, part of Kurdistan.
Officials say Kurdish oil reserves amount to about 45 billion barrels, but the political disputes have stopped the major multinational oil companies from investing in the region's oil and gas sector, for fear that Baghdad will blacklist them from deals in the rest of the country.
Earlier this year, the central government halted oil exports to Austria's OMV and South Korea's SK Energy after the companies signed oil deals with Kurdistan.
Privately, Western officials also point to another deterrent - fear of corruption and lack of trust in contracts signed with local partners.
Indeed, many businessmen mutter complaints about the formidable sway of Kurdistan's KDP and PUK parties in the private sector. Each party controls a swath of the region around Arbil and Sulaimaniya.
Yet Mills says local officials are mindful of the need "for Western companies to adhere to anti-corruption standards".
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