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Rebuilding Its Economy, Iraq Shuns U.S. Businesses

By ROD NORDLAND Published: November 12, 2009

BAGHDAD — Iraq’s Baghdad Trade Fair ended Tuesday, six years and a trillion dollars after the American invasion that toppled Saddam Hussein, and one country was conspicuously absent.

That would be the country that spent a trillion dollars — on the invasion and occupation, but also on training and equipping Iraqi security forces, and on ambitious reconstruction projects in every province aimed at rebuilding the country and restarting the economy.

Yet when the post-Saddam Iraqi government swept out its old commercial fairgrounds and invited companies from around the world, the United States was not much in evidence among the 32 nations represented. Of the 396 companies that exhibited their wares, “there are two or three American participants, but I can’t remember their names,” said Hashem Mohammed Haten, director general of Iraq’s state fair company. A pair of missiles atop a ceremonial gateway to the fairgrounds recalled an era when Saddam Hussein had pretensions, if not weapons, of mass destruction.

The trade fair is a telling indication of an uncomfortable truth: America’s war in Iraq has been good for business in Iraq — but not necessarily for American business.

American companies are not seeing much lasting benefit from their country’s investment in Iraq. Some American businesses have calculated that the high security costs and fear of violence make Iraq a business no-go area. Even those who are interested and want to come are hampered by American companies’ reputation here for overcharging and shoddy workmanship, an outgrowth of the first years of the occupation, and a lasting and widespread anti-Americanism.

While Iraq’s imports nearly doubled in 2008, to $43.5 billion from $25.67 billion in 2007, imports from American companies stayed flat at $2 billion over that period. Among investors, the United Arab Emirates leads the field, with $31 billion invested in Iraq, most of that in 2008, compared to only about $400 million from American companies when United States government reconstruction spending is excluded, according to Dunia Frontier Consultants, a emerging-market analyst. “Following this initial U.S.-dominated reconstruction phase, U.S. private investors have become negligible players in Iraq,” Dunia said in a report.

Indeed, even those companies that prospered during the war and occupation, including many of the big military contractors, will simply leave with the United States military as it completes its pullout over the next two years.

KBR was among the earliest contractors in Iraq and has $33 billion in contracts to support American bases. Yet it has not had any contracts with the Iraqi government to support those facilities when they’re handed over — or for that matter, to build anything else in the country.

“KBR is currently assessing the business environment in Iraq in order to make an informed decision regarding potential government contract opportunities there,” said a spokesperson, Heather Browne.

A few big American multinationals, like Bechtel, will still be in the midst of long-term projects like power plants and waterworks — but those were five- and 10-year undertakings kick-started with American reconstruction aid.

Now, Iraq is doling out its own oil-financed funds for capital projects, and American companies have so far received surprisingly little of it. Sports City, a billion-dollar complex of stadiums and housing in Basra planned for the Gulf Games in 2013, was awarded to an Iraqi general contractor, Al Jiburi Construction, over 60 other bidders, many of them American.

“We have a couple American companies as our subcontractors,” said Adai al-Sultani, an assistant to the firm’s owner, with evident pride. When the transportation ministry put up more than $30 billion in railroad expansion contracts recently, they went to Czech, British and Italian companies.

Those nations had been members of the coalition led by the United States, although all pulled outlong before the United States. But one of the biggest beneficiaries of Iraqi contract money is Turkey, which wouldn’t allow American warplanes to use its airbases during the invasion of Iraq, followed closely by Iran.

Turkey has gone from almost no legal trade with Iraq before the war to $10 billion in exports last year, five times as much as the United States. Turkey’s trade minister, Kursad Tuzmen, predicted that number would triple in the next couple years.

Both Turkey and Iran had huge pavilions at the trade fair, crowded with businessmen discussing deals. So did France and Brazil, also not coalition countries.

Last month, FedEx, which had been flying packages in and out of Iraq since 2004, announced it was suspending its operations. The reason is that Iraqi officials gave RusAir, a Russian airline, exclusive rights to cargo flights.

FedEx was one of the very few American businesses that braved the risks of working not only on American bases but also in the Red Zone, back when it was particularly dangerous to do so. Now that the danger is much less, its business is being thwarted by an upstart Russian come-lately.

“FedEx Express has had no choice but to use Rus and, as a result, the reliability of our service to Iraq has been substantially degraded,” the company said in a statement about the suspension.

It is almost an article of faith among many Iraqis, judging from opinion polls, that the United States invaded Iraq not to topple Saddam Hussein, but to get their country’s oil.

If true, then the war failed in even more ways than some critics charge.

It wasn’t until last week that the first major oil field exploitation contract was signed with a foreign company — BP, in a joint deal with China’s state-run China National Petroleum Corporation.

Exxon Mobil, an American company, has an oil field deal awaiting final approval from Iraq’s oil ministry. The Italian oil giant Eni, whose junior partner is the American-owned Occidental Petroleum, is expected to sign a similar deal. These, however, are service contracts, so the foreign oil companies don’t actually own rights to any new oil they may find.

The newest edition of the Iraqi Yellow Pages, a business-to-business directory, doesn’t have a single ad from an American company.

American officials, who spoke on the condition of anonymity because they were not authorized to comment on the record, disputed that United States companies were having a difficult time in the Iraqi free market. “I wouldn’t read too much into American presence or lack of it at the trade fair as a bellwether,” one official said. “I would say the future is very positive.”

Another official pointed out that a recent Iraqi-American investment conference held in Washington stirred up enormous interest among American companies. “We had to turn away several hundred companies that wanted to come,” he said, adding that the embassy in Baghdad has had many subsequent inquiries from firms. That interest has not translated into action yet.

“After the conference in Washington, I’m surprised you can get on a flight here considering all the opportunities,” said Mike Pullen, a lawyer at the British-American firm DLA Piper, who works in Iraq.

“It’s a pity we can’t get more people to come,” he said. “They’re losing out to Turkish companies, Russian companies.”

“Turkish companies are acceptable to all different Iraqi ethnic groups, because they are not an occupier, and they can implement big reconstruction projects at a lower cost,” said an executive of a leading Iraqi construction firm that often works with the Turks. He did not wish to be identified for fear of offending American clients.

Even Iraqi Kurds, many of whom are politically at odds with Turkey, seem to get along with the Turks when it comes to business.

“Turkish companies are not afraid to do business in Iraq,” said Eren Balamir, who was in charge of Turkey’s pavilion at the fair.

The high cost of security — a cost that most regional businesses don’t have — has dissuaded many American businesses from coming; some contracts spent as much as 25 percent of their budgets on security.

Security isn’t the only impediment. Being seen as the occupier is just not good for business. Although the United States, legally speaking, has not been an occupying power since June 2004, when the Security Council formally ended occupation, many see it that way. Even Iraq’s prime minister, Nuri Kamal al-Maliki, has described Americans as occupiers to curry electoral support.

One European ambassador, who spoke on the condition of anonymity because of his government’s policy, said his own country’s trade opportunities greatly increased in Iraq after it withdrew the last of its troops more than a year ago. “Being considered an occupier handicapped us extremely,” he said. “The farther we are away from that the more our companies can be accepted on their own merits.”

“As a U.S. company, you already have a few strikes against you before you even step foot in Baghdad airport,” said Marc Zeepvat of the Trans National Research Corporation in New Jersey, who specializes in studying the Iraqi market for institutional investors. “The U.S. government and U.S. companies have to wake up and realize they’re not in a privileged position any more.”

“The State Department’s travel advisory doesn’t help either,” Mr. Zeepvat said. It tells people, in effect, “don’t come.”

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