Iraq’s finance minister unveiled sweeping investment laws last week to give foreign companies unprecedented access to the Iraqi firms that are to be sold off in a privatisation windfall.
Under the rules, announced by Kamil Mubdir al-Gailani in Dubai, foreign firms will have the right to wholly own Iraqi companies, except those in the oil, gas and mineral industries. There will be no restrictions on the amount of profits that can be repatriated or on using local products. Corporate tax will be set at just 15%.
Gailani said a free and open market was the quickest route to prosperity. ”Our objective is simple to state: promote Iraqi economic growth and raise the living standards of all Iraqis as soon as possible.”
The reforms won the backing of the United States Treasury secretary, John Snow, who said they were ”policies that make sense … that offer real promise”.
The rules give foreign firms greater access to business in Iraq than in most developing countries, where local industries are often shielded from overseas buyers. For some Iraqis, such unfettered access is a concern, yet the privatisation of Iraq’s 192 public sector companies is not up for debate.
The most valuable contracts on offer have already gone to US corporate giants.
Kellogg, Brown and Root — a subsidiary of Halliburton, which was once run by US Vice-President Dick Cheney — won a contract worth up to $7-billion to repair Iraq’s oil infrastructure.
Bechtel, a San Francisco-based firm, won the $680-million chief contract to start rebuilding essentials such as roads and schools.
One of the most high-profile contracts still up for grabs — for cellphone licences — is still to be announced. Fifteen bids have been put forward, including some from Iraqi businessmen who plan to involve more Iraqis in the business of reconstruction.
”There is a big business class of Iraqis that we haven’t seen yet. We want to get them back doing things for their own economy,” said Mohamed Shaboot, an Iraqi educated in the US, who has spent the past decade living in Baghdad.
Shaboot and several other Iraqis have put together a consortium, called Zagil, made up largely of Iraqi investors. Zagil has submitted a bid to run one of three new cellphone networks and has several other projects lined up to employ hundreds of Iraqi professionals.
The consortium’s proposal for the licence includes a commitment to sell off half the company to ordinary Iraqis.
Shaboot said: ”We are trying to get Iraqi investors to put some of the money that they have made abroad back into their country. This is the first step towards really rebuilding.”
There are few cellphone contracts left in the world that offer such potential. Many expect up to 700 000 subscribers within the first year, rising quickly to at least two million. But the licence, worth at least $200-million, will not be won easily. The US-led authority in Iraq, the coalition provisional authority (CPA), stipulated that bidders must have run cellphone networks in many other countries.
The US also appeared to open the door to American telecoms giants by insisting the licence would be ”technology neutral”, meaning it could go either to a firm proposing to use the GSM phones used across the Arab world, Asia and Europe, or to one that offers the CDMA technology, which works only in the US.
An initial cellphone contract for the military and the CPA in Baghdad went to MCI, the American firm that, as WorldCom, went bankrupt. A second contract in Basra, where the British military is based, went to MTC-Vodafone, a Kuwaiti-British venture.
Some argue that key contracts should be reserved for Iraqis. ”There is a political dimension to this,” said Basil al-Nakeeb, an Iraqi investment banker with First Investment, who has been meeting businessmen and US officials. ”I am interested in seeing that the Iraqis have a decent go at the investment opportunities.”
Among the old guard in Iraq’s business circles, some are already struggling to adapt to the new business climate.
Farouk al-Obeidi, vice-president of al-Maimana group, one of the country’s most established construction and trading firms, has a thick file containing some of the CPA’s requests for bids to provide equipment. Several offers required bids to be submitted within days, some within a matter of hours.
”This is a chaotic situation. Out of these 50 offers I’ve only been able to submit proposals for three, and none of them has won,” he said.
”They are acting like it is the American market, where you can buy anything locally, but here you cannot get anything that quickly.”
Senior officials in the CPA insist that Iraqi firms are benefiting from reconstruction projects: several sub-contracts under the Bechtel project have gone to Iraqi firms.
But they say Iraq’s private sector is so flimsy after years of a corrupt, state-run economy that it needs considerable support from abroad before it can stand on its own.
”What people will look at is what is going to make this economy grow, and if there is adequate capital in Iraq to finance whatever Iraq needs from the private sector,” said Tarek Ben Halim, the CPA’s deputy director of private sector development. ”I suspect over time that the ownership issue will become less emotive.” — Â