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THE BOOM OUTSIDE BAGHDAD
by Amir Taheri
New York Post
December 26, 2006

December 26, 2006 -- UMQASR, IRAQ

WHILE the American political elite is using Iraq as an ex cuse for fighting internal political wars, a different reality is taking shape in parts of this war-torn nation. Wherever some measure of security is assured - that is to say in more than 80 percent of Iraq - towns and villages long left to die a slow death are creeping back to life.

Nowhere is this slow but steady return to life more startling than in Um Qasr, in the southeast extremity of Iraq on the Persian Gulf. Four years ago, this was a jumble of rusting quays, abandoned houses and gutted buildings. By the spring of 2003, its population had dwindled to a few dozen, along with hundreds of stray dogs. There was even talk of abandoning it altogether.

Today, however, Um Qasr is back in business as a port with commercial and military functions. Hundreds of families that had left after the first Gulf War in 1991 have returned - joining many more who have come from all over Iraq.

The boom in Um Qasr is part of a broader picture that also includes Basra (the sprawling metropolis of southern Iraq), the Shi'ite "holy" cities of Najaf and Karbala, Mandali on the Iranian border and much of Baghdad.

When the International Monetary Fund and the World Bank reported two years ago that the Iraqi economy was heading for a boom, skeptics dismissed it as misplaced optimism. Now, however, even some of those who opposed the toppling of Saddam Hussein admit that many Iraqis share that optimism.

Newsweek has just hailed the emergence of a booming market economy in Iraq as "the mother of all surprises," noting that "Iraqis are more optimistic about the future than most Americans are." The reason, of course, is that Iraqis know what is going on in their country while Americans are fed a diet of exclusively negative reporting from Iraq.

The growing dynamism of the Iraqi economy is reflected in the steady increase in the value of the national currency, the dinar, against the three currencies in direct competition with it in the Iraqi marketplace: the Iranian rial, the Kuwaiti dinar and the U.S. dollar, since January 2006.

No doubt, part of the dinar's strength reflects the rise in Iraq's income from oil exports to almost $40 billion in 2006, an all-time record. But oil alone does not explain all, since both Iran and Kuwait are bigger exporters than Iraq.

The fact that civil-servant salaries have increased by almost 30 percent, with a further 30 percent due to come into effect early next year, also has helped boost demand.

But a good part of the boom is due to an unexpected flow of foreign capital. This has been facilitated by the prospect of a liberal law on direct foreign investments, which exists only in such free-trade parts of the region as Dubai and Bahrain. None of Iraq's six neighbors offers such guarantee for the free flow of capital to and from the country.

Since the fall of Saddam Hussein in 2003, the number of private companies in Iraq has increased from a mere 8,000 to more than 35,000 this year. Each week an average of 60 new companies spring up in Iraq's booming areas. A good part of the investment in southern Iraq, including in Um Qasr, comes from Kuwait and the United Arab Emirates.

"Whatever happens, Iraq is Iraq," says a Kuwaiti businessman, building hotels in the south. "Iraq will always remain the country with the world's largest oil reserves and the Middle East's biggest resources of water."

One hears similar comments from local and foreign businessmen investing in real estate in Najaf and Karbala. Over 200 million Shiite Muslims regard the cities as holy. Najaf and Karbala have always been dream destinations for pilgrims. Under Saddam Hussein, however, few foreign pilgrims were allowed. With the despot gone, pilgrims are pouring in - and with them the fresh money.

That good business is possible in Iraq is reflected in the performance of new companies, most of which did not exist three years ago. One privately owned mobile phone company is expected to report revenues of more than $500 million this year, a sevenfold increase in three years. Another private firm marketing soft drinks has seen profits double since the end of 2003. The number of luxury cars imported has risen from a few hundred in 2002 to more than 20,000 this year.

But what about continued terrorist attacks? Most foreign investors coming to make money in Iraq shrug their shoulders. "Doing business in any Arab country is always risky," says a Turkish investor who has set up a trucking company and a taxi service. "In some Arab countries, you risk nationalization or straight confiscation by the ruler. In other Arab countries, you must give a cut to one of the emirs. Here, you face possible terrorist attacks. But such attacks are transitory."

The relatively low cost of labor is another attraction to investors. Wages in Iraq, where unemployment is over 30 percent, are less than a quarter of the going rates in Kuwait. Nevertheless, the Iraqi boom appears to be attracting some Iranian laborers from areas close to the border - people who come in for a few days to make some money before returning home.

Although Prime Minister Nouri al-Maliki's government has slowed down the pace of privatization, the foundations of the command economy created by Saddam continue to crumble.

The transition from a rentier economy - in which virtually the whole of the population depended on government handouts - to a free-market capitalist one entails much hardship for some segments of society. Many pensioners and some civil servants find it hard to make ends meet as prices rise across the board. The end of government subsidies on virtually everything - from bread and sugar to gasoline and water - is also causing hardship.

But, judging by the talk in teahouses and the debate in Iraq's new and pluralist media, most people welcome the switch to capitalism and regard it as an exciting adventure.

As trucks are loaded with a variety of imports destined for Baghdad, I ask the drivers what they think would happen if the multi-national force, led by the United States, left Iraq soon. Most shrug their shoulders.

"Why leave?" one driver asks. "Do I abandon the goods that have come from such a long way before they reach their destination?"

This amounts to a plea to "stay the course." The man in Um Qasr does not know that in the United States the phrase "staying the course" drives so many up the wall.

Amir Taheri is a member of Benador Associates.

 

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