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Investors quick to grab slice of oil-rich Kurdistan
region
20.3.2008
By Steve Negus, Iraq Correspondent
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March 20, 2008
The Khanzad American Village rises on a hillside
north of the town of Erbil, the Iraqi Kurdistan's
capital, a series of two-storey luxury homes which
true to its name are virtually indistinguishable
from a suburban planned community in California or
Arizona.
One would not know by looking at most of the country
that Iraq's economy is booming at a rate that the
International Monetary Fund claims will be 7 per
cent in 2008 - a natural enough effect of rising oil
prices in an economy driven by the public spending
of petroleum revenues.
Baghdad remains beset by political deadlock and
administrative lethargy that according to US
calculations saw the central government spend just
36 per cent of its total budget during the first
eight months of 2007. |
Erbil International Hotel |
But in the autonomous
region of Kurdistan, the economic boom is plain for
all to see - the construction cranes in downtown
Erbil and the planeloads of south Asian migrant
workers give this formerly destitute corner the look
of a Gulf state.
Meanwhile, trading companies and even some
investment companies are enticed to set up shop in
an enclave of relative stability that labels itself
the "gateway to Iraq". They are keen to take
advantage of an oil-flushed $60bn-plus economy that
needs to import nearly all its goods from abroad.
Officials of the Kurdistan regional government say
the region's economy was virtually destitute just a
few years ago,www.ekurd.net
having suffered under
the previous regime of Saddam Hussein which
destroyed thousands of villages in its attempt to
isolate Kurdish guerrillas.
For investors there are opportunities in virtually
every sector, but the downside is that new entries
into a young market will suffer from a primitive
banking system, power cuts, and other infrastructure
failures.
"We admit that we have weaknesses. . . [and] we have
to compete with Dubai, China, Jordan [for
investment]," says Herish Muharam, the KRG's
investment authority chairman. Consequently, he
says, the region has enacted a law that "gives more
incentives than any other country in the
[Middle-East] region," allowing, among other things,
full foreign ownership of assets.
The American Village is part of the $2bn (€1.3bn,
L990m) that the regional government says has been
invested in Iraqi Kurdistan since the passage of the
investment law in 2007.
Its developers say they were lucky to get into a
market early where "people have a lot of cash but
don't have anything to spend it on", says Jim
Covert, country manager for the US-based Sigma
construction company, which is building the project.
He says 100 buyers including four government
ministers have already snapped up homes worth
between $225,000 and $585,000 in the Khanzad
village.
Thanks to the KRG's efforts, Mr Covert says, the
project moved at breakneck speed - from conception
to breaking ground took only three months.
However, so rudimentary is the banking system that
buyers often make down-payments on their modern new
homes with bags of $100,000 in cash.
One other problem is the security environment.
Although Kurdistan is much less violent than the
south, it still experiences the occasional car bomb
as well as fighting in the border areas between the
radical Kurdistan Workers' party and the Turkish
army.
Few here expect that Turkish tanks will ever enter
downtown Erbil - not least because Turkish traders
do a thriving business and Turkish contractors are
involved in many of the region's most prominent
public projects.
"My message to our Turkish friends is to
differentiate between our political differences and
business," says Mr Herish.
Still, say businessmen, Kurds are reluctant to make
long-term investments in a region that has seen
numerous destructive military campaigns over the
past eight decades, from attacks by the Iraqi army
to internecine Kurdish battles to last month's
Turkish incursion.
KRG officials admit the boomtown economy has caused
problems. Kurds regularly complain about high
inflation, which the IMF estimated at 25 per cent in
Iraq in 2007.
Other dangers have yet to capture the public
imagination, but are still very real: for example,
Mr Herish is anxious to prevent his country from
becoming a money laundering haven, or to allow the
creation of mafias as in post-Soviet states.
Some economists also fear too much money is going
into hotels and real estate as opposed to more
productive investments - a common concern in newly
opened economies in the Middle East,www.ekurd.net
particularly if there
are lingering doubts about stability. But whatever
the pitfalls, say KRG officials, their region has to
start somewhere.
Copyright, respective author or news agency FT
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