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| World Marketplace |
Shifting Economic Sands
By Jean-Francois Seznec
04/01/2004
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Local Partners
Desperately short on capital and lacking a credit rating,
Iraq has no choice but to seek foreign direct investment to recharge its
economy. Under the laws of the Coalition Provisional Authority, the temporary
ruling body run by the United States, Iraq allows 100 percent foreign ownership
of a business, but the multinational companies that seek to develop the nation’s
blighted oil fields, not to mention its midsized manufacturers, will enhance
their long-term chances of stability by setting up joint ventures with local
partners. There are several dozen local merchant clans who survived the Ba’th
regime’s nationalization of private land, and have kept control over their
private stretches of paradise along the Tigris and Euphrates rivers. These clans
could be essential partners to foreign investors. They are likely to have an
important, although indirect, role in the oil industry, establishing companies
to provide peripheral services such as construction, trucking and food
processing.
Investors also need to understand that one of the greatest
threats to stability in postwar Iraq is unemployment. Some believe the
unemployment level may currently be as high as 50 percent. Nothing in the law
mandates local hiring, but clearly foreign companies will have to consider the
payoffs in terms of good will and local support.
Much needs to be done. The
economy has been in shambles since well before the April 2003 war and the U.S.
occupation. It has to overcome 11 years of tight sanctions, which followed the
invasion of Kuwait and Desert Storm. The bloody eight-year war with Iran in the
1980s took a huge toll. Iraq’s planned economy struggled under the pressure of
these events, but even if they had not occurred, its flaws—centralized
production, nationalized farms and industry—discouraged private enterprise. The
Soviet-style factories that made shoes, television sets and all manner of
appliances with no appeal outside the domestic market, will now most likely
close, adding to the dire unemployment picture.
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