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Iraq investment still hindered by politics, bureaucracy

* Investors still wary about Iraq despite riches

* Business climate needs legal, other reforms


By Missy Ryan and Khalid al-Ansary

BAGHDAD, Oct 7 (Reuters) - Political deadlock is undermining efforts to secure investment in Iraq, a top U.S. official said, just as Washington prepares to host a meeting aiming to put end to lingering business doubts about a nation studded with risk.

Patricia Haslach, who oversees U.S. efforts to transform Iraq's struggling economy, said the United States had provided $52 billion in civilian development aid to Iraq since 2003.

The Obama administration says it is time that a country with vast oil resources stand on its own two feet.

"The ball is in their court now. They can't just say, 'We want you to invest here,'" Haslach said in an interview.

"It's going to take a commitment from the government of Iraq to make the necessary changes ... that means the elected officials and the ministries have to make the hard decisions."

Over 300 Iraqi politicians and businessmen will gather in Washington on Oct. 20-21 for a conference sponsored in part by the Obama administration and the U.S. Chamber of Commerce.

Some 800 companies are expected to take part, said Sami al-Araji, head of Iraq's National Investment Commission.

"The goal is to show those outside Iraq that this country is rich with potential," Araji said.

It is not the first time, though, that investors have heard the pitch for Iraq, which U.S. officials predicted in 2003 would be awash with western firms hoping to exploit the world's third largest oil reserves and invest in housing, farming and more.

Almost 10 meetings have been held, most recently in London in April, since 2003 in hopes of drumming up investment needed to resurrect stagnant state industries and modernise an economy in shambles after decades of war, mismanagement and sanctions.

But six and a half years after the invasion, even as the bloodshed fades, strikingly little has changed.


Oil majors including Royal Dutch Shell (RDSa.L) and BP (BP.L) are hesitantly signing up to work in Iraq, but the opening up the oil sector has gone more slowly than hoped and it could be years before jobs and other benefits trickle down.

Outside of oil, there is very little western investment.

Swedish truck maker Scania (SCVb.ST) and German carmaker Daimler (DAIGn.DE) are taking steps to invest traditionally, but few foreign firms are on the ground in a country where western executives still require a pack of heavily armed bodyguards.

U.S. officials are keeping expectations about the conference modest, warning already there will be no announcement of major investment deals. Iraqi businessmen won't need much convincing.

"There have been a lot of speeches but not much action," said Abbas Shamara, owner of an Iraqi investment group.

Hameed al-Iqabi, head of a business union, said laws from Saddam Hussein's statist, centralized economy were a hindrance.

Nor do an opaque bureaucracy and widespread corruption help. Banks are not yet integrated globally and credit is scarce.

"Most companies do not cite security as their major impediment to investing here. They actually cite the investment climate," Haslach said. "Issues relating to land ownership, issues related to contracts, arbitration, all the basics."

Business-friendly changes to Iraq's investment legislation, allowing foreigners to own property in certain cases, are now being examined by lawmakers and could be voted on shortly.

Other legislation has stalled in parliament, where Arabs and Kurds battle over oil rights and a rift grows between majority Shi'ites loyal to Prime Minister Nuri al-Maliki and their peers.

Maliki recently assailed lawmakers for shooting down a $70 billion investment proposal in housing, hospitals and much more.

"We need to separate politics from the economy," Iqabi said.

Few expect politicians to make unpopular concessions before national elections in January 2010, so key laws will most likely wait for the next parliament to be formed, perhaps by spring.

Resource nationalism may figure prominently before the vote, which could heighten resistance from some quarters to weaning Iraq off decades of deep state involvement in the economy.

"Iraq is emerging from many years of isolation from the global economy," Haslach said. "We think the time is right for them to make some progress with regard to the private sector." (Editing by Toby Chopra)

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