Foreign Investment In Iraq’s Basra Runs Into Problems

Basra in southern Iraq has always been the main business hub of the country. It has the only access to the Persian Gulf and contains the vast majority of the nation’s oil and gas reserves. Today, it receives just over one-third of all investments in the country, and that amount is dramatically increasing. The problem is that far too many of these deals fall through because of government red tape, lack of coordination, the country’s limited banking capacity, and corruption.

(Agence France Presse)

In February 2011 the Dunia Frontier firm released a report that found that private investment in Iraq almost doubled in 2010. Last year, 156 companies pledged $42.668 billion to Iraq, a 48.7% increase from the $28.7 billion in 2009. The leading sectors foreign businesses put their money into were real estate, transportation, electricity, industry, and oil and gas. Baghdad received 39.8% of all investments, closely followed by Basra with $14.702 billion, or 34.5% of the total. In May 2011, the Basra Investment Commission announced around $174 million in new investment in the province. These reports only covered monies promised however, not actually appropriated.

The problem with too many announcements about investments in Basra, and Iraq in general, is that they too often fail to actually materialize for a number of reasons. In June 2011 for example, the Basra Investment Commission said that it had agreed to 40 development projects since it was founded in 2008, but more than half of them were never implemented. The Commission stated that one major problem was that companies could not get land allocated to invest in. In Basra, the Oil Ministry owns most of the land because of the province’s huge oil and gas deposits. Iraqi law prohibits foreign companies from owning land in many cases. The government has tried to change the legislation, but has largely failed. In October 2006, parliament passed a law that allowed investors to lease land for 50 years. (1) That was followed by an amendment to the 2006 Investment Law that allowed foreign companies to own land for housing projects. In December 2010, a similar decree was issued to allow investors to own land for housing, and leasing for other types of investment. None of these have helped, because there are still other laws that restrict land use by investors. (2) The government also lacks adequate land dispute regulations, and trained staff to implement the new laws. Another problem with the bureaucracy is that it is too slow in issuing visas for foreign workers. The oil companies in Basra especially have complained about this. A consulting engineer working in the province told the press that an additional issue is the lack of coordination between the provincial and central governments. In April 2011, the Electricity Ministry signed a $204.4 million deal with the Chinese National Machinery and Equipment Import & Export Corporation to build a 500 megawatt power plant in Basra in 19 months. This was touted in the province, but then the head of the electricity committee on the provincial council found out that Baghdad never signed the final deal with no explanation, so the company never started its work. Like the rest of the country, corruption is a major impediment. Hundreds of building companies have sprung up in Basra since the 2003 invasion. The Basra Chamber of Commerce claims over 1,000 building contractors registered with it. The problem is that many of these are fake businesses connected to politicians. This hurts investment because these are the types of firms that foreigners would look for as subcontractors to do construction work, but too many of them are simply firms set up to steal money. Finally, Iraq’s banking sector is severely limited. In July 2011, the Electricity Ministry complained that the country’s financial institutions lacked the necessary assets for foreign companies to use them. Other issues included most transactions having to take place in cash, the lack of electronic banking, and no interbank and international payments. All of those mean that companies can’t get the financing that they need nor easily transfer their money. Together, these explain why so many deals have fallen through in Basra. The government and laws are not supportive, corruption is rampant, and the country’s banks can’t handle the demands of foreigners.

The World Bank ranked Iraq as one of the least business friendly countries in the world not long ago. Basra is a perfect example why. More and more companies are interested in investing there, but so many of them fail to accomplish their goals because there are so many barriers to completing a successful deal. Its the average Iraqi that suffers because the country is so in need of development. It has gone through thirty years of wars, sanctions, invasion, and civil war. The infrastructure is a wreck as a result, and there is high unemployment and underemployment, especially for the youth. That’s why Basra and the rest of the nation needs foreign money so bad.  Until the government changes its practices a large number of companies and Iraqis are going to be disappointed because agreements will continue to fall through, failing to bring the jobs, improved services, and new businesses to Iraq that so many are looking forward to.

FOOTNOTES

1. Iraq, “Investment Authority, Iraq: the lack of powers and the old law impede the work of investors,” 4/28/10

2. AK News, “Iraqi investment board says non-committed companies will be banned,” 4/24/10

SOURCES

AK News, “Iraqi investment board says non-committed companies will be banned,” 4/24/10
- “Planning Ministry to reconsider decision of ownership of land for investors,” 4/12/10

Daily Star, “Iraqi private banks struggle to cope with limited services, capital,” 7/22/11

Dunia Frontier Consultants, "Foreign Commercial Activity in Iraq 2010 Year in Review," 2/5/11

Ghanim, Wahid, “basra’s big business: fake building contractors defaulting on jobs,” Niqash, 7/20/11

Al-Haidari, Nabil, “Investment and a wide area of dreams marred by red tape and lack of experience,” Radio Free Iraq, 6/18/11

Iraq, “Investment Authority, Iraq: the lack of powers and the old law impede the work of investors,” 4/28/10

Karim, Ammar, “Iraq power plans short-circuit,” Agence France Presse, 8/8/11

Lando, Ben, “Joining The Global Oil Sector: Challenges And Opportunities Facing Iraq,” Middle East Institute, 4/29/11

Lukic, Marko, “Basra – Model of Reconstruction of Too Good to be True?” Iraq Business News, 7/4/11

Radio Free Iraq, “More than half of investment projects in Basra have not been implemented,” 6/16/11

Ryan, Missy and al-Ansary, Khalid, “Iraq investment still hindered by politics, bureaucracy,” Reuters, 10/7/09

Special Inspector General for Iraq Reconstruction,” Quarterly Report and Semiannual Report to the United States Congress,” 1/30/11
- “Quarterly Report to the United States Congress,” 4/30/09

Al-Wannan, Jaafar, “Iraqi bank assets not sufficient for major foreign investment projects,” AK News, 7/12/11

SBS NEWS VIDEO: Aussies Leave Iraq

Iraq’s Oil Exports Take Large Drop In July As Oil Prices Climb Back Up

Iraq’s oil industry experienced differing trends in July 2011. On the one hand, exports took a large drop compared to the previous month. On the other, international oil prices climbed back up, providing large profits for the country.

(Reuters)

In July 2011, Iraq exported an average of 2.164 million barrels a day in petroleum. That was down from 2.75 million barrels in June. July was also the fourth time this year that monthly exports averaged less than 2.2 million. The government blamed the intense summer heat, which diverted the country’s oil from foreign sales to domestic consumption to fuel power plants, as the cause of the decline. Currently Iraq is experiencing nearly 120 degrees per day, and many of its electrical facilities are run off of diesel fuel.

At the same time, world oil prices went back up, and Iraq was the beneficiary. In July, a barrel of Iraqi crude sold for $108.80. That was up from $105.16 last month, and on par with May’s prices. Since March, Iraq has been selling its oil for more than $100 a barrel. This is due to the Arab unrest, especially in Libya that has greatly reduced its output, and increased market speculation. As a result, Iraq earned $7.3 billion in July, compared to $7.173 billion in June. May saw the country’s highest profits at $7.45 billion. Iraq has thus greatly benefited from the fighting and protests that have occurred in the rest of the Arab world.

Despite these short-term fluctuations, Iraq’s potential for growth is very limited right now. The recent increases in production are due to the work of international oil firms that signed deals with the Oil Ministry in 2009. Iraq’s petroleum infrastructure however, has reached its limit. There is very little room for any more expansion as its pipelines cannot handle any more capacity. That was recently highlighted in a report by the Baker Institute for Public Policy report out of Rice University in Texas, which said that in the near and medium-term Iraq would have problems raising production because of infrastructure limitations. The Oil Ministry doesn’t have plans to complete any of its pipeline expansion plans until the end of this year at the earliest. As long as world oil prices remain high though, Iraq can get by as its made record profits this year.

Iraq Oil Exports And Profits 2010-2011

Month	Avg. Exports (Mil/ Bar/ Day)	Avg. Price Per Barrel	Revenue (Mil)
Jan. 10	1.92	$73.97	$4.441
Feb.	2.05	$73.04	$4.229
Mar.	1.84	$76.20	$4.351
Apr.	1.80	$79.66	$4.222
May	1.88	$73.85	$4.335
Jun.	1.86	$71.10	$3.889
Jul.	1.82	$71.21	$4.009
Aug.	1.82	$71.43	$3.957
Sep.	2.02	$73.07	$4.428
Oct.	1.91	$77.10	$4.526
Nov.	1.92	$80.59	$4.618
Dec.	1.95	$86.31	$5.222
Jan. 11	2.16	$90.78	$6.082
Feb.	2.20	$98.44	$6+
Mar.	2.15	$107.13	$7.167
Apr.	2.14	$114.26	$7.342
May	2.22	$108	$7.45
Jun.	2.27	$105.16	$7.173
Jul.	2.16	$108.80	$7.3

SOURCES

Associated Press, “Iraq says oil exports continued to rise in June,” 7/26/11

EurekAlert, “Study: Iraq must overcome logistical, political challenges to become oil leader,” 7/28/11

Hafidh, Hassan, “Iraq July Oil Exports -4.8% On Month At 2.164 Million B/D – SOMO,” Dow Jones, 8/1/11

Reuters, “Iraq’s July oil exports dip to 2.164m bpd,” 8/1/11

Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 7/30/11

PRESS TV VIDEO: Moqtada al-Sadr Warns US Troops Of Remaining In Iraq

Moqtada al-Sadr warns US troops of remaining in... by presstv

How Dysfunction Within The Bush White House Undermined Planning For Iraq

Then National Security Adviser Rice and Pres. Bush did a poor job managing Iraq policy (Agence France Presse)

One of the major problems within the Bush White House was that it had a dysfunctional foreign policy apparatus. The National Security Council was created after World War II to manage military, intelligence, and foreign policy issues. Under the first Bush administration, the National Security Advisor was Condoleezza Rice. She had a close, personal relationship with the president, but proved incapable of managing the strong personalities within the White House. The president also often failed to make any choices between these differing opinions. That led to a haphazard approach to Iraq, which ultimately undermined planning, and helped lead to the chaos after the removal of Saddam Hussein.

Vice President Cheney, Sec. of Defense Rumsfeld, Pres. Bush, Sec. of State Powell. Bush's top officials were deeply divided on Iraq policy. Rumsfeld and Powell were rivals within the administration as well (Associated Press/Getty)

Both President Bush and Condoleezza Rice lacked strong management skills. That meant many times tough issues were never debated, nor even decided upon. Sometimes agencies were allowed to follow their own independent paths, with little to no coordination from above. After 9/11, the situation became worse. Instead of ideas coming slowly up from the bureaucracy, top officials like Secretary of Defense Donald Rumsfeld, Vice President Dick Cheney, and others made decisions on the fly. That meant there was even less discussion within the administration. On top of that, many individuals within the White House did not like each other. Rumsfeld and Secretary of State Colin Powell for example, had a running battle with each other. The former also did not like Rice, and often denigrated her at meetings or ignored her completely. This belies the tendency to think of an administration as a single, unified entity. That was far from the truth for Bush’s time in office. Because of these internal rivalries and the fractured decision making process, Rice, who was supposed to manage foreign policy, often had to play catch-up on what was going on. Bush meanwhile, did little about these sharp differences.

Undersecretary of Defense Feith refused to coordinate with other agencies on post-war Iraq planning, a sign of the divisions within the Bush White House (Washington Post)

Iraq became a perfect example of this dysfunction. There were deep divisions within the White House over how to deal with Saddam Hussein. These came out on several occasions before the 2003 invasion. For example, the first national security meeting of the Bush administration in January 2001 focused upon creating a new Iraq policy. First, Deputy Secretary of Defense Paul Wolfowitz argued for a military confrontation with Saddam Hussein, and more support for the Iraqi opposition, specifically the Iraqi National Congress. Powell on the other hand, pushed for strengthening United Nations sanctions on Iraq, which would more strategically target military related goods heading for the country. Rather than work out these differences or select one approach over the other, no decision was made about Iraq. That left State and Defense to carry on separately with their individual policies. Another case was when initial planning started for post-war Iraq in late-2001. At one time, five different groups were working on the topic including the State Department’s Future of Iraq project, two steering groups within the National Security Council, two officers from the Central Command (CENTCOM), and the Pentagon’s Office of Special Plans. Because the White House wanted to keep its plans secret, all of this work was compartmentalized meaning that none of these groups worked with each other, most didn’t know about one another, and few consulted with outside agencies that would be critical for any security and rebuilding effort after Saddam was overthrown. Later on, new groups replaced these initial ones, and ignored all their previous work. A specific example of this was a meeting held in January 2002 at the Old Executive Building in Washington to go over the basic war plan and aftermath. General Wayne Downing, the National Security Council’s top counterterrorism official, chaired the session, which was organized by the Vice President’s office. Rice was not informed however, and when she found out about it, she ordered all the papers that resulted from it destroyed. It wasn’t until January 2003, right before the invasion that Bush gave the Defense Department ultimate responsibility for post-war Iraq. Even then, the in fighting continued as Undersecretary of Defense for Policy Douglas Feith was put in charge of post-war planning at the Office of Special Plans. He said there was no way that the Pentagon would discuss Iraq with other parts of the government even though they would be needed to help stabilize the country after the invasion. When it came to dealing with Iraq, planning for the war, and its aftermath things were haphazard at best within the White House. No agency wanted to work with another, Rice had no handle on managing these differences, and President Bush either didn’t know about all the machinations within his administration or never took the time to decide on one approach over another.

Years later, many of these divisions became public. In 2006, Karen DeYoung of the Washington Post wrote Soldier, The Life of Colin Powell in which he attacked Rice for not dealing with the differences within the administration. Powell told DeYoung there were plenty of White House meetings over policy, but nothing came of them. That left Powell wondering when or if the president would make a decision on matters. He also thought this lackadaisical atmosphere allowed Rumsfeld and Vice President Cheney to do what they wanted. The next year, Elisabeth Bumiller of the New York Times released Condoleezza Rice, An American Life. She said that Rice’s power came from her relationship with the president. At the same time, she never pushed him on anything, and never managed the strong personalities in the cabinet. For example, Rumsfeld would often try to take over National Security Council meetings, and would never tell Rice what he was doing. She had to send members of her staff to the Pentagon to try to find out what was going on there. Cheney also showed her little respect. That led Bumiller to believe that Rice was a weak national security advisor. In 2008, former Undersecretary of Defense for Policy Douglas Feith’s book War and Decision came out. He wrote that Rice did a poor job because she didn’t coordinated policy. Feith also took his shots at the State Department and CIA, blaming them for most of the problems that occurred in Iraq. Finally, in February 2011, Donald Rumsfeld’s Known and Unknown came out. He stated that the Bush White House was dysfunctional, and that had a negative affect upon the Iraq war. Like Powell, Rumsfeld said that there were national security meetings, but no clear process on how to make decisions. He blamed Bush for not working out the disagreements amongst his senior staff, and for not always asking for or receiving options before he made a policy choice. He claimed that sometimes the government didn’t always follow through with the choices that he did make, and went on to accuse the other parts of the government for failing in Iraq. All of them shared a few common points. Namely, Bush and Rice failed at running a smooth administration, which was marked by in fighting.

In January 2007, President Bush declared, “I’m the decision-maker” when it came to Iraq policy. His record would contradict that statement. He didn’t pick a clear Iraq policy when he first came into office in 2001, instead allowing the State and Defense department’s to follow their own paths. At the end of that year, planning for the invasion of Iraq and its aftermath officially began, but there was no coordination, cooperation or management of the process. Condoleezza Rice, Bush’s National Security Advisor should’ve been in charge of bringing some order to this chaos, but utterly failed in that task. In the second Bush term, she was rewarded by being named Secretary of State. Many of these problems were leaked to the press at the time, but by 2006 they began to come out in the open more as the major figures within the administration either released books or had ones written about them. The common theme of all of them was that the Bush’s foreign policy process was deeply flawed, starting at the top with the president, going down to Rice, and then spreading to the other major figures who continually sniped at each other undermining any unity of effort from the administration. In the end, Iraq was the one that paid the ultimate price as immediately after the overthrow of Saddam Hussein looting broke out, militias tried to seize power in towns and cities, the government collapsed, services stopped, and small groups began attacking the Coalition. The U.S. was caught utterly unprepared to deal with any of these because the only clear decision it had made was to invade, while everything else was left up in the air because of its dysfunction.

SOURCES

Associated Press, “Bush: ‘I’m the decision-maker’ on Iraq troops,” 1/26/07

Benjamin, Daniel and Simon, Steven, The Next Attack; The Failure of the War on Terror and a Strategy for Getting It Right, New York: Times Books, 2005

Burrough, Bryan, Peretz, Evgenia, Rose, David and Wise, David, “Path To War,” Vanity Fair, May 2004

Duffy, Michael, “Theater of War,” Time, 8/12/02

Elliott, Michael and Calabresi, Massimo, “Is Condi The Problem?” Time, 4/5/04

Hersh, Seymour, “The Debate Within,” New Yorker, 3/11/02

Kakutani, Michiko, “Rumsfeld’s Defense of Known Decisions,” New York Times, 2/3/11

Kessler, Glenn, “Rice’s Management at Issue,” Washington Post, 11/10/07

Milbank, Dana, “Don Rumsfeld, playing a dead-end game in his memoir,” Washington Post, 2/6/11
- “Iraq War Is Everyone Else’s Fault, Feith Explains,” Washington Post, 4/25/08

Packer, George, “War After The War,” New Yorker, 11/24/03

PBS Frontline, “Chronology: The Evolution of the Bush Doctrine,” War Behind Closed Doors, 2/20/03
- “INTERVIEWS Elisabeth Bumiller,” Bush’s War, 3/24/08
- “INTERVIEWS Karen DeYoung,” Bush’s War, 3/24/08

Reuters, “Donald Rumsfeld memoirs reveal no regrets over Iraq,” 2/3/11

Ricks, Thomas and DeYoung, Karen, “Ex-Defense Official Assails Colleagues Over Run-Up to War,” Washington Post, 4/9/08

Risen, James, State of War; The Secret History of the CIA and the Bush Administration, New York, London, Toronto, Sydney: Free Press, 2006

AL ARABIYA VIDEO: Iraq: Oil And Gas Part 2

Human Trafficking And Sex Trade Report On Iraq

At the end of June 2011, the United States Department of State issued its annual report on human trafficking around the world. Iraq has had an explosion in trafficking people, sex slavery, and prostitution since the 2003 overthrow of Saddam Hussein. Unfortunately, the government is barely dealing with the issue. It is for that reason that Iraq has received a low score for three years in a row by the State Department.

The State Department report placed countries into four categories. At the top was Tier 1, a country that acknowledged that it had a problem, was actively trying to deal with it, and also showed progress each year. Next was Tier 2, a country that didn’t fully meet the State Department’s standards, but is still working on the issue. Tier 2 Watch List was a nation that didn’t fulfill State’s standards, was making some effort to address the problem, but still had large issues to overcome. Tier 3 was a country that not only didn’t meet standards, but also wasn’t doing anything about it. Iraq was ranked a Tier 2 Watch List country for the third year.

Iraq is the source and destination for sex slaves. Iraqi women and girls are shipped off to Syria, Lebanon, Jordan, Kuwait, the United Arab Emirates, Turkey, Iran, Yemen, and Saudi Arabia for prostitution and slavery. There are sex trafficking rings operating out of Kurdistan, although the regional parliament denies that it is a problem. Women are often told that they are going to get a job, and then find out they’re being forced into the sex trade. One non-government organization said that labor agencies would rape women on film, and then blackmail them with it to force them into prostitution. Gangs have been known to go to jails, bail out women, and then force them into the sex trade to repay their debt. Some women are driven into prostitution because of extreme poverty. Some are forced into fake marriages, where they are turned into prostitutes instead of wives. There are also reports that women from Iran, China, and the Philippines are being transported through Iraq to be used in the sex trade in other countries.

Iraq also has a large number of illegal, forced laborers. Workers from Bangladesh, Thailand, Pakistan, Georgia, Jordan, Uganda, Ethiopia, Indonesia, Nepal, and the Philippines are all present in the country. There are gangs that bring foreign workers from East Asia, but the most common culprits are labor agencies. They regularly tell people that they’re going to get a good job in Jordan or the Gulf States, or even within Iraq, but then end up with something quite different when they arrive in the country. They usually have their passports taken, don’t get paid, work long hours, are threatened with being deported, and face physical and sexual abuse. In March 2011 for example, over 100 Ugandan women were found working in Iraq. They were recruited by a Ugandan company in 2009, and told that they would be earning high wages on American army bases. Instead they ended up being maids in Iraqi homes. They claimed that they were given little food or water, were locked insides the houses, and some of them were raped. One woman was able to get out of her employer’s house, and came into contact with a Ugandan security contractor, who helped her and a few others get out of the country, and return to Uganda. Still, Iraq like other countries in the Persian Gulf seems addicted to foreign labor, so the practice continues.

These problems are widely known within Iraq, but the government is doing very little about it. The 2005 Iraqi constitution prohibits forced labor, slavery, the slave trade, trafficking, and the sex trade, but does not provide any punishments. The State Department did not find evidence that Iraq was punishing human traffickers or identifying victims. It does punish prostitutes however, many of which are victims. Baghdad doesn’t provide any aid to those that have been trafficked or forced into the sex trade. That’s because the government doesn’t recognize that illegal workers and some prostitutes have been forced into their line of work. The government doesn’t collect data on trafficking, and hasn’t investigated officials that might be involved. Overall, the report said that Iraq had a “negligible law enforcement effort,” which was the reason why it was ranked a Tier 2 Watch List nation for the third year.

The one thing that Iraq has moved forward with is a punitive anti-illegal labor measure. It is threatening to enforce a Saddam Hussein era law that bans illegal workers. Under the act, the laborers would be deported, and companies fined that employed them. The government seems to be mostly going after workers that outstayed their contracts, but it does included forced laborers as well. Baghdad claims that it is simply part of a plan to fight unemployment in the country, rather than combat trafficking however.

Baghdad does have a written plan to combat trafficking, and would be a major improvement if it were ever implemented. Unfortunately, it hasn’t enacted its draft anti-trafficking law because the country’s political parties are still arguing over how to finish off the ruling coalition, seventeen months after national elections in March 2010. The Kurdish regional parliament did try to enact a prostitution law that would impose fines, and shut down rings involved, but it was rejected because the ruling parties said it was not a big issue within the region. The draft law is the only reason why Iraq was not moved down to a Tier 3 country in 2011.

Iraq has fallen in line with some of the negative traits of other countries in the region. It is a destination for human trafficking. People are also shipped through the country on their way from Asia to Europe. Like other Persian Gulf states, it uses a large number of forced laborers. The sex trade is widely known, but not officially spoken about by the government. Illegal workers are abundant throughout the country, and largely accepted. Baghdad has dealt with neither effectively. In fact, the State Department found hardly any evidence that the authorities were doing anything about either even though the constitution bans both practices. It is just the latest example that the rule of law is lacking in Iraq, and may be hindered for years due to weak institutions.

SOURCES

Jakes, Lara, “Foreign laborers earn little payoff in Iraq,” Associated Press, 6/17/11

Mohammed, Muhanad, “Iraq’s foreign workers fret over labor crackdown,” Reuters, 7/6/11

Rudaw, “Debate Lingers Over Regulating Kurdistan’s Sex Trade,” 8/3/11

Al-Sharaa, Hazim, “Iraqi Crackdown on Foreign Workers Criticised,” Institute for War & Peace Reporting, 7/22/11

U.S. Department of State, “Trafficking In Persons Report 2011,” 6/27/11

Waladbagi, Salih, “Foreign workers treated poorly in Kurdistan,” Kurdish Globe, 6/25/11