Doing Business in Iraq
Iraq - After Saddam
By
Oct 15, 2003, 23:30

Iraq - After Saddam
From a business point of view, the reentry of Iraq into the international community will require progress in three broad areas, more or less simultaneously.

I. CIVIL ADMINISTRATION: As much as possible, accountable civil leadership that predates the Saddam regime at the grassroots must be reconstituted to assist in the establishment of civil order and basic government services.

II. ECONOMIC REJUVENATION: The restarting of the Iraqi economy involves the development of a legal and regulatory environment that is market-based and business-friendly for international as well as Iraqi companies. Efforts should be focused on the following items that guide international and domestic companies’ investment strategies:

* Internal Market -- assessment of the size and potential for growth of Iraq’s domestic market, especially the purchasing power of its consumers. You don't invest in a market where you have little potential to make a profit.

* Freedom of Access to the Market -- the degree of government (theirs and ours) interference to entering Iraq's market. The freer the market, the more attractive it becomes as an investment opportunity.

* Labor Force and Raw Materials -- while the investor brings capital, technology and management to the table, the quality of the Iraqi work force and the availability of in country raw materials are also important ingredients in the recipe for success.

* Currency Devaluation Protection -- simply stated, if your investment is in dollars, but then the local assets (valued in the local currency) are devalued, you lose part (or possibly all) of your original dollar based investment.

* Remittance of Dividends, Interest, Royalties and Technical Assistance Payments -- if you can't get your money out of Iraq, then why invest?

* Property Rights Protection -- likelihood that a company's property, real or intangible (patents, copyrights, etc.), will be stolen.

* Export Potential -- ability to source from an operating unit in Iraq to serve nearby markets or maximize a company's global efficiency by trading among its various operating entities in different countries to round out its product lines.

* Regulatory Burdens -- the cost of government intervention on business (and profits) in Iraq. If the transaction costs are too high, no one will come.

* Favorable Taxation & Tax Incentives -- although tax incentives to attract initial investments are important, the final investment decision is usually based on how Iraq’s taxation will affect the normal operating environment.

* Low Political Risk -- an investor's ability to rely upon the integrity of the host government and its ability to maintain local law and order is essential to any long term investment.

* Predictable Macroeconomic Management -- confidence that the economy in which the investment takes place will be managed in a competent and predictable way. Simply stated, businesses must believe that the rules of the game will not change in the middle of a contest.

* Reliable Infrastructure Support -- the ability to consummate transactions and get products and services to market is critical. Whether it is reliable transportation services, power generation, insurance and accounting services, a competent financial system, or other basics, investments cannot yield reliable returns without them.

III. INFRASTRUCTURE: Every country requires a modern economic infrastructure if it wishes to successfully complete in the global economy. Iraq will need the reconstruction, and, in some cases, the initial construction of core infrastructure in the following five broad sectors:

1. AGRIBUSINESS: This covers every thing needed from seeds in the field to food on the table. This involves fertilizers, farm machinery, irrigation and water treatment, food processing and distribution among other goods and services.

2. TRANSPORTATION: Commerce can only operate efficiently and profitably if there is adequate road, rail and water transport around Iraq.

3. TELECOMMUNICATIONS: For market-based economies to achieve optimal performance, the markets need to be able to signal their requirements accurately and quickly. To keep pace with both local and global competitors, customers, suppliers and partners, Iraqi businesses will need modern telecommunications systems.

4. FINANCIAL SERVICES: Banking and insurance services are essential to lifting an economy to efficiency levels demanded in the global economy, and rely on modern telecommunications systems including both wire and wireless.

5. POWER GENERATION: Electricity is need to make the modern economy work.

Not surprisingly, American companies are extremely competitive in all five sectors. Moreover, emphasis on a free marketplace for goods and services reinforces an emphasis on a free market in politics.

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