Issue 853, 15 May 2009

Moving from ‘hard’ to ‘soft’ security, Iraq pins hopes on fragile economic renaissance

The Maliki government faces a daunting task in the last year of its present mandate: not only must it maintain security improvements while its own forces replace departing Coalition troops, it must also create an economic renaissance in the teeth of a harsh fiscal squeeze. Failure on either count will lead to the unravelling of the current fragile peace which holds the promise of a normal future for its citizens.

Security and economic progress are linked – we can’t keep the peace without economic progress; we can’t talk about economic progress without security. So said Prime-Minister Nouri Al-Maliki in a packed conference hall at the end-April Invest Iraq conference in London. With this analysis, he neatly encapsulated the ruthless dynamic which will determine over the next 12 months whether Iraq prospers or stumbles back into lawlessness.

The investment conference represented the Iraqi government’s most concerted attempt so far to kick start an economic virtuous circle in which enterprise replaces insurgency and crime as the best future career path for the millions of young Iraqis who have no real work or prospects. The number of top officials who attended the two-day event in London – enthusiastically supported by the British government, whose Department for International Development (DfID) put up substantial funds – set it apart from most of the other well-meaning and functional talking-shops and networking opportunities that have taken place in Turkey, Jordan or Dubai over the past few years.

Maliki’s 100-strong delegation included Deputy Prime Minister Barham Saleh, Oil Minister Hussein Al-Shahristani, Industry Minister Fawzi Al-Hariri, deputy ministers, senior advisors and director-generals of state firms. On the day it lowered the Union Jack over Basra, the UK government was represented by Business Minister Lord Mandelson and International Development Minister Douglas Alexander. Prime Minister Gordon Brown hosted a reception at Downing Street at the end of the first day.

The objectives for both sides were as much political as commercial. While Maliki’s chances of victory in the December 2009 election depend largely on getting the country moving again, Downing Street wants to establish a positive narrative for winding up its military involvement as UK troops depart from their underwhelming final deployment at Basra airport. In his keynote speech, Mandelson, one of Westminster’s smoothest operators, said Iraq had entered “a new phase” – a theme he returned to several times, emphasising that Invest Iraq represented a “beginning” for UK business policy in Iraq. Mandelson led a delegation of 23 executives from large British companies such as Rolls Royce to Basra and Baghdad in April; he described this as a “demonstration of commitment to Iraq’s future”. He said DfID had organised 19 visits by potential UK investors, leading to $10bn-worth of proposals. This key claim was repeated by both the Prime Minister’s Economic Envoy to Iraq Michael Wareing and DfID minister Alexander.

Enthusiasm vs bureaucracy

While the immense improvement in the security situation has stimulated investor interest, the Iraqi government is dealing with a severe financial crisis, which helps to explain its renewed enthusiasm for foreign investment. Baghdad can’t afford to pay for many planned projects, let alone revive moribund state-owned enterprises. “We understand that private sector investment is essential.” Deputy PM Saleh said, outlining a list of policies designed to improve investment conditions, including legislation to allow foreigners to purchase land.

However, the machinery of government remains sclerotic, rendering hopes of a quick rush of investment to boost short-term growth and commerce rather far-fetched. One Iraqi investor complained that although construction of a $70m five-star hotel in Karbala was nearing completion, the local authority had still to award planning permission for it. Other delegates told GSN this was a typical case. Many of the encouraging speeches, ambitious promises and optimistic forecasts delivered from the Invest Iraq platform were immediately dismissed by attendees from the large Iraqi delegation and diaspora, who expressed deep scepticism at the government’s ability to deliver.

Beneath its welcoming veneer, the recently created National Investment Commission (NIC) has little grip on the unquestionably massive opportunities which Iraq offers. Asked about the exact procedure for attracting and evaluating private sector proposals for specific investment opportunities, NIC chairman Sami Al-Araji was disappointingly vague. He claimed to have a “clear strategy”, but failed to supply any detail. Araji is an old school technocrat; respected for his dynamism and determination, he took over at NIC mere weeks before Invest Iraq began. Araji was previously deputy industry minister, a position some local commentators said he found restrictive. Araji told the conference the NIC would play a co-ordinating role between local and national government and ministries with the objective of making investors’ involvement in Iraq “safe, productive and pleasant”.

The changing security map

Entrepreneurs who have braved the security risks to establish themselves on the ground suggest the best approach is to keep a low profile and avoid Baghdad. The basic infrastructure for getting around is increasingly in place. A growing number of commercial flights land at Baghdad, Erbil, Najaf and Basra airports. Internet connections are improving and mobile telephones are ubiquitous. One British government consultant told GSN that a delegation from a UK company recently visited Basra and were delighted to be escorted through the town and to eat in a local restaurant without danger.

The level of violence has abated, but remains worryingly high. According to Iraq Body Count, an independent watchdog, 358 civilians died from violence in April 2009 compared to 1,260 in April 2008 and 2,436 in April 2007. While DfID is encouraging businesses to go to Iraq, the Foreign and Commonwealth Office’s travel advice for Iraq (excluding the Kurdistan Regional Government area), updated on 22 March, reflects the still present danger. It advises “against all travel to Baghdad and its surrounding area, the provinces of Basra, Maysan, Al-Anbar, Salah Ad Din, Diyala, Wasit, Babil, Ninawa and At-Tamim”, and “against all but essential travel to the provinces of Al-Qadisiyah, Muthanna, Najaf, Karbala, and Dhi Qar.” This may change. “A review of our travel advice is in hand, so areas where it is easier to travel – such as southern Iraq and Basra – will be differentiated from less secure areas,” according to British ambassador to Iraq Christopher Prentice.

The security map will change as Iraq takes full control of areas following multinational troop withdrawals. According to the PM’s security spokesman Dr Tahseen Al-Shaikhli, “around two-thirds of the country is now run by [Iraqi] police, the other one-third is being handed over to the police.” In areas where the Coalition has withdrawn, some troops have remained on an ‘overwatch’ basis. Most of the 140,000 US troops will have departed by August 2010. As this crucial deadline approaches, Shaikhli emphasised that the security threat was morphing, and Iraqi security forces needed to develop new skills to maintain control. “Al-Qaeda has not been eradicated. It is now made up of separate parts, and is not a co-ordinated organisation. What we are seeing now are sparks,” he said. “This is going to be an intelligence-led war. We need to build capabilities in the intelligence agencies.”

Such warnings show that, whatever happens, the private security sector is certain to prosper in Iraq. One UK-based security professional with extensive Iraq experience told GSN that his business was factoring in the threat of kidnapping and crime as the most likely long-term risk in Iraq rather than renewed political insurgency.