Mon, Oct 01, 2007 page9

• Iraq's Kurdish region trying to restore economy

  Optimistic investors are rushing into the oil-rich region despite security concerns and inadequate infrastructure

  • By Christopher Torchia / AP
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  Billboards in Kurdistan's capital boast that luxury malls and hotels are on the way, but banking and insurance systems barely function. Cranes loom over building sites, but few government inspectors check the quality of construction.

  This is economic development, on the fly. A sign at the office of a trade association sums up the freewheeling business environment in the part of Iraq controlled by a Kurdish administration.

  "Please leave your gun at reception," it says.

  The Kurdish zone north of Baghdad is mostly peaceful, while much of the rest of Iraq is a patchwork of factions at war with US-led troops or one another. Development occurs because security is relatively good, but the economy is weak, dependent on imports and prone to political uncertainty, institutional pitfalls and a lack of transparency.

  Some investors are diving into this poor region full of untapped oil wealth, taking risks that would be unacceptable in a Western-style business environment. They include Kurdish businessmen based in Europe and the US, Turks, Gulf Arabs and a smaller number of Europeans and Americans.

  Sigma International Construction, a Chantilly, Virginia-based company, is building more than 350 luxury homes on the outskirts of Irbil. Right now, the "American Village" development is little more than leveled earth and shells of half-completed houses, designed with walk-in closets, back doors of sliding glass and fully equipped kitchens.

  Jim Covert, Sigma's director in Kurdistan, said 80 homes had been sold in advance, and several ministers from the regional Cabinet were clients. The most expensive residence, the "Palace," sells for US$580,000.

  "People don't blink," said Covert, who employs Serb foremen and Bangladeshi laborers because they are more skilled than Kurdish workers. "People have money here and they have nothing nice to spend it on."

  The same optimism is visible at construction sites across the city, though most of them seem a long way from the Utopian billboard images of gleaming office towers and five-star hotels bordered by lush lawns. At least one housing development near the airport, named "Dream City," is behind schedule.

  The regional investment board has licensed 51 projects with a total value of US$5 billion since last year; about 20 percent of that money has been spent.

  Two decades ago, most of Kurdistan's villages were systematically destroyed during former Iraqi president Saddam Hussein's Anfal campaign against the Kurdish population. UN sanctions imposed on the dictatorship also hurt the Kurds, even though they enjoyed a US-backed safe haven.

  Pell-mell development since the fall of Saddam in 2003 has yielded real benefits in the territory of about 4 million.

  The two main cities, Irbil and Sulaimaniyah, have new airports and are building new roads, housing, malls and schools. Despite a recent outbreak of cholera in Kurdistan, many Irbil residents have access to clean water from a treatment facility built with help from the US Army Corps of Engineers.

  Irbil, home to the regional government, has a big park with rose beds, trimmed lawns and a canal with paddle boats. A granite monument displays the names of 98 people, including top Kurdish officials, who were killed in two suicide bombings in February 2004.

  One new gasoline station in Irbil looks as good as anything in a US suburb or freeway stop. It takes credit cards, and has 16 pumps and a mini-market that sells potato chips, chocolate bars and other junk food from Turkey.

  Hundreds of Turkish companies operate in Kurdistan, even though their government has threatened to stage a cross-border attack on a separatist rebel group of Turkish Kurds who have bases in remote parts of northern Iraq.

  Another source of political uncertainty is Kurdistan's relationship with Baghdad, where disputes over drafts of oil and revenue-sharing laws have blocked progress toward a unified, central government.

  Kurdistan's leaders signed an exploration deal with Hunt Oil Co of Texas after drafting their own oil law, and the national oil ministry quickly questioned its legality.

  Nazaneen Muhammad Wusu, regional minister of municipalities, said international bank loans for Kurdistan have to be approved by the central government, which amounts to a bottleneck on progress.

  "Baghdad is not in a normal situation," she said. "They are more busy with security issues, political difficulties. We are suffering indirectly from the situation there."

  Kurdistan is also on the national power grid, and suffers constant blackouts that force people to use private generators.

  Eager to attract business, Kurdistan passed an investment law last year that allows foreign investors to get free land, as well as import materials and repatriate profits without paying tax. But the banking system is so basic that it is difficult to wire money out of the country, and insurance is virtually nonexistent; most car owners, for example, drive without it.

  Foreign agencies are helping to build up Kurdistan's institutions, teaching basic skills such as how to use a computer.

  Still, a culture of transparency has yet to take hold and business deals often rely on the power of personal connections.

  "There may be some corruption here and there, we don't deny it," said Falah Mustafa Bakir, head of the foreign relations department of the regional government.

  But he said Kurdistan was committed to an open business environment that could eventually make it an economic "gateway" to the rest of Iraq.

  Kurdistan, however, lacks a strong industrial and agricultural base and is heavily dependent on imports of products such as milk and grain, a legacy in part of the UN oil-for-food program during Saddam's rule that delivered foreign products to Iraq.

  Kurdistan has bottled water plants, but many Kurds prefer to buy water from Iran and Turkey because they think the quality is better.

  For all their problems, many Kurds exude an optimism that is all but impossible to find elsewhere in Iraq.

  "I think things will get better," said Ali Abdullah, an Irbil bookshop owner whose best-sellers are romance novels and books of Islamic teachings. "There's a lot of development in this city. It will have a knock-on effect on other businesses."
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