When U.S. forces rumbled into Baghdad last year, there were widespread predictions that big U.S. companies would be close behind, pouring billions into investments that would yield a bonanza for American brands and give a vital boost to the Iraqi economy.
Fifteen months later, corporate America’s stampede has yet to occur. U.S. officials, businesspeople and experts know of no leading American firm that has made a large-scale capital investment in Iraq.
“I don’t believe the board of a multinational company could approve a major investment in this environment,” said Keith Crane, a senior economist at the Rand Corp. who worked for the U.S.-led Coalition Provisional Authority in Iraq last year. “If people are shooting at each other, it’s just difficult to do business.”
President Bush has made Iraq’s economic health a chief selling point for the continuing U.S. mission there.
“Iraq’s economy is moving forward, markets are beginning to thrive, new businesses are opening, a stable new currency is in place,” Bush said before troops in Florida on June 16.
U.S. reconstruction work and Iraqi oil sales are pouring cash into the country. But Iraq remains a country where one can’t use a credit card or an automated teller machine.
It’s also expensive and difficult to arrange the multiple Internet connections on which most modern businesses depend. The security risks are astronomical–scores of foreign civilian contractors have been killed in the wave of violence that has seized Iraq in recent months.
The commercial sector also continues to be stunted by spotty public services such as electricity, the lasting effects of a centralized economy and uncertain business laws. Bank lending is limited and insurance costly, if available at all, businesspeople say.
As a result, although dozens of U.S. companies have reconstruction contracts with the U.S. government, and although Iraqi entrepreneurs and regional firms have begun businesses, major American concerns have refrained from putting their capital at risk.
Their absence clamps a sharp brake on potential growth, countering the bullish picture painted by the administration.
The president’s view “is a good bit too rosy,” said an American business adviser who has spent most of the last year in Baghdad trying to arrange foreign investments.
“Where are the big U.S. companies? I don’t know of any,” said the adviser, who requested anonymity because of his dealings with U.S. officials. “The safety, the services they want–they’re just not there yet.”
Consumer products giant Procter & Gamble Co., for example, has formed a joint venture with five members of a prominent Iraqi business family, yet is waiting to see when it will be safe enough to get more involved.
The company is concerned about physical danger as well as the uncertainty of the business climate–“the whole combination,” said Randy Chinchilla, a P&G spokesman.
“None of our employees is in the country at this point,” Chinchilla said.
PepsiCo Inc.’s renewed partnership with the Baghdad Bottling Co., announced in January, has been frequently cited as the flagship example of direct foreign investment in Iraq.
But Richard Detwiler, a Pepsi spokesman, said widespread reports that the company had shelled out $100 million for one-third of the bottling company were mistaken.
Instead, PepsiCo gave the bottler a local franchise, which limits the risk to PepsiCo’s employees and capital.
General Electric Co. sent a group of staffers into the country this year to scout opportunities for its medical products unit. But GE began pulling its workers out in April as violence increased, a spokesman said.
Several multinationals have taken the first steps to investing by setting up joint ventures with Iraqi partners. Others distribute their products with the help of Iraqis and others in the region.
Sector has catching up to do
Michael Fleischer, director of the coalition’s Office of Private Sector Development, said the suppression of the Iraqi private sector under Saddam Hussein had delayed postwar development.
“The systems really aren’t in place to put together the kinds of [foreign investment] numbers you’d get in a developed country,” Fleischer said.
“Some of the things you might expect are still a little bit down the road.”
He noted that it took four years after the fall of the Soviet Bloc for Poland to attract substantial foreign investment. “I think we are where one would expect to be at this stage in Iraq’s emergence from tyranny,” Fleischer said.
He said dozens of foreign companies had investments of some size in Iraq and insisted that Iraqi entrepreneurs had begun an economic revival evident in the consumer goods trade that was popping up everywhere.
“The entrepreneurial spirit of this country springs up like wildflowers if given a chance,” he said.
If Iraqis are demonstrating an entrepreneurial spirit, it shows they are willing to face risks that frighten off foreign investors, U.S. businesspeople say. Iraqi merchants are putting up cash to truck in goods from abroad. But without insurance, they must absorb losses if shipments are hijacked or destroyed, U.S. executives say.
Entrepreneurs also must be more willing to accept the sky-high costs of doing business. Hiring security staff can eat up 20 percent of revenue; insurance, if it can be found, can cost 10 percent of revenue or more.
Borrowing in Iraq is difficult because the banking industry was crippled under Hussein and is still trying to get organized. Iraqi authorities have given banking licenses to three foreign companies, but so far none has opened a branch in the country.
New rules foster growth
Iraq’s former U.S. administrator, L. Paul Bremer III, introduced rules designed to foster a market economy and open the country to foreign investment.
The regulations permitted 100 percent foreign ownership of companies, except those in natural resource industries, for example. .
“The CPA put in place some pretty decent reforms, but there are still a lot of things that lie in the way of reaching that vision,” said Bathsheba Crocker, co-director of the Post-Conflict Reconstruction Project at the Center for Strategic and International Studies in Washington.
Still, a leading Iraqi-American businessman said he had seen a new confidence among entrepreneurs that he knew, inspired by the restoration of sovereignty and the emergence of an interim government.
“The mood is one of optimism,” said Sam Kubba, who is involved in a venture with a Texas company to market low-cost homes. But he acknowledged that multinational firms remained wary.
“They’re going to wait and see,” Kubba said. “They think it’s a bit too hot now.”
