Iraq economy: 'Dire' gives way to 'hopeful'
The living standard is low and luxuries are sparse, yet reconstruction is under way.
By Ken Dilanian
Inquirer Staff Writer
BAGHDAD - Pepsi is rebuilding its old bottling plant. Mitsubishi is planning a new car dealership. A Kuwaiti firm envisions a $500 million hotel and shopping complex in the heart of the Iraqi capital.
Nearly a year after bombs, tanks and looters wrought devastation on Iraq's already-awful economy, the country is teeming with commerce, both actual and anticipated. The stores are filled with new products, foreign investors are circling, and unemployment - while still painfully high - appears to have fallen by half.
"It may not be palpable, but Iraq is booming," said Maria Khoury, chief of research for Atlas Investment Group, a Jordanian investment bank. "We're seeing a big increase in consumer goods flowing into the country."
Though still very low, Iraqi living standards are higher than at any time since the 1991 Gulf War, economists say - despite the continuing bombings and killings. Oil revenues, which fund the government and its social safety net, are nearing prewar levels. The World Bank estimates that the economy will grow by 30 percent this year, after shrinking in 2003.
Like most things in Iraq, however, the economic picture is mixed. Despite the good news, the economy remains marred by underlying problems, even leaving aside the security threat that remains the biggest impediment to progress.
After years of wars, sanctions and mismanagement, Iraq's gross domestic product hovers around $1,000 per person, according to the 2004 Iraq budget - about the same as North Korea's or Mozambique's. (The United States' GDP is about $37,600 per person.) That means most Iraqis live hand to mouth, with few luxuries.
Unemployment is down - but from 60 percent to a still-whopping 28 percent, according to the planning ministry.
Underemployment is chronic. Iraq may have the world's best-educated taxi drivers and waiters.
"All I want is a job in my field," said Musadeq Mohammed, 28, a chemical engineer, who makes $200 a month working 10-hour shifts, seven days a week, waiting tables at Baghdad's Saj al Reef restaurant.
The consumer boom, while real, is the province of a relatively tiny elite. Iraqis who make the typical wages of $150 a month are not buying 36-inch TVs and $20 boxes of Swiss chocolates being sold in Baghdad's Karada neighborhood.
Culture clash in play
Glistening new storefronts selling newly available cell-phone service have sprouted around Baghdad, but there are only about 300,000 cell phones in use in a country of 25 million people, according to the Coalition Provisional Authority, the postwar U.S.- and British-led caretaker administration of Iraq. Mohammed, for one, cannot afford the $200 up-front cost.
Last week, the Pentagon finally awarded the first contracts in its $18.6 billion reconstruction program, which officials say should create hundreds of thousands of jobs for locals as it fixes bridges, sewage-treatment plants, and all manner of broken infrastructure.
But when it comes to laying the groundwork for economic revival, a culture clash has stymied some of the authority's aggressive plans. After decades of Saddam Hussein's state-controlled economy, which smothered individual initiative, many Iraqis are uncomfortable with free-market capitalism.
"For 35 years, he killed the ambitions of the Iraqis," Walid K. Issa Taha, general manager of the Eastern Company for Commercial Agencies, which represents foreign investors. "They are used to getting salaries at the end of the month without any hard work."
Lack of political will
The vast majority of Iraq's 200-odd state-owned factories are white elephants full of outdated equipment. Still, in the fall, the authority abandoned its plan to rapidly privatize them in the face of heated opposition from Iraq's Governing Council.
Iraqi politicians argued that a beleaguered populace would not tolerate the resulting job losses. But those factories, which employ 500,000 people, cannot compete with the imports now flowing from Syria, Jordan and Iran. They are bloated with redundant workers who are paid from oil revenues.
"The lack of Iraqi political will is limiting significant restructuring of state-owned factories," a report on the authority's Web site complains.
In a country in which unsolved murders are a near-daily occurrence, though, it may require more than political will.
"I have 30 percent more employees than I need, but I cannot get rid of them," said Salam Abd Ali, general manager of the Iraq State Company for Leather Industries. "If I do, it could mean a death sentence for me and my family."
The same problems bedevil government ministries, whose 1.1 million employees - many with little to do - cannot be fired. Public-sector salaries are consuming scarce resources in a country that needs every penny.
On March 6, a protest by Health Ministry bureaucrats turned into what police described as a riot. They were furious at a plan to make some of them work as guards at Iraq's chaotic hospitals, where doctors are routinely threatened.
In that kind of climate, the Governing Council has also resisted changing the system under which most Iraqis still receive government-funded food rations each month. The system requires the government to buy in bulk, mainly from foreign companies, which discourages farming and local food production. Economists said it would be far better to hand out cash. But polls show Iraqis prefer to get the food.
The authority's economists also lament the failure to cut off gasoline subsidies that allow Iraqis to fill their tanks for pennies. The artificially low prices create scarcity, resulting in long lines at government filling stations and big profits for black marketeers.
Yet the authority can boast some notable successes - steps that U.S. officials argue have laid the groundwork for Iraq's future prosperity.
The most important one may have been the change in September to new paper money, minus Hussein's portrait. While many postwar countries suffer from hyperinflation and currency devaluation, the Iraqi dinar is worth more against the U.S. dollar than it was in the fall.
"Iraqis would not be placing their savings in this currency and buying more of it if they didn't believe in its future," said Olin Wethington, a top authority economic adviser.
The authority and the Governing Council also passed a new foreign-investment law allowing 100 percent foreign ownership in most sectors. That is a rarity in the Arab world, where most countries have local-partner requirements that enrich insiders and impede economic growth.
Last month, three foreign banks were granted licenses to open branches.
Authority officials also have helped write a commercial-banking law and a central-banking law, and are working on reopening the Baghdad Stock Exchange.
With U.S. help, the Iraqi labor ministry has set up training centers around the country where Iraqis are learning English and computer skills - both necessary in order to work for the foreign companies now moving into Iraq.
Still worried about bombings and assassinations, multinational corporations are coming in mainly through local partners. But they are coming.
Having watched hundreds of thousands of cars being imported each month since the war, Mitsubishi Motors in January announced that it would open a Baghdad dealership within two years and said it had already picked out a site.
Because of the Gulf War and the subsequent sanctions, Pepsi had to leave Iraq in 1991 after 40 years in the country. A Baghdad distributor kept the main bottling plant going - making bootlegged products with the Pepsi name - and in January Pepsi announced a deal with that company to rebuild the factory and begin selling the real thing by June. The plant will employ as many as 2,000 workers.
Then there is the Sultan Center, which operates some of Kuwait City's biggest malls. The firm is answering a request for proposals by Iraq's trade ministry seeking plans for a hotel and shopping complex in Baghdad's al Monsour neighborhood, complete with a cinema.
This is not a pipe dream, said Tom Foley, a venture capitalist who is winding up his tour as the authority's top economic adviser. With foreigners pouring in to do billions in reconstruction work, "Baghdad's going to need a new hotel or two," he said.
"We think this can be open in two years," said Muthunna Darwish, the Sultan Center's Iraq-born company representative, who is betting security will be much improved by then. "We see huge potential here." |
