As Iraq's economy tries to rebound, bureaucracy brings it down
| Baghdad, Iraq
Years of declining violence have improved Iraq's economic prospects, and the market is once again ripe for investment.听In 2012, the nation鈥檚 per capita GDP climbed to $6,300, up from just $1,300 in 2004.
In other words, a growing number of Iraqis have money to spend, but few places to spend it.
But bureaucratic hurdles that hold up ambitious projects and a return of violence 鈥� July had the highest number of fatalities since 2008 鈥� threaten to derail the fledgling investment climate.听
Abu Laith Al-Saadi was among a group of investors who sought to take advantage of Iraq鈥檚 steadily improving economic situation. Four years ago, the group decided to build a western style mall in Baghdad. Shopping malls are wildly popular in the Middle East. But they largely disappeared from Iraq during decades of war and sanctions.听
On a听Friday听night stroll through the recently opened Mansour Mall,听Iraqis pack every level of the shopping center, which is filled with high-end shops and boasts a movie theater that screens the latest Hollywood hits. There is a massive play area for children with carnival rides and games.
Iraq's market is so starved for attractions like the Mansour Mall that such a venture can generate a much bigger profit margin than a similar project would yield in a more stable place like Dubai, says听Saadi.听The Baghdad mall enjoys a roughly 50 percent profit margin. He estimates a similar project in the United Arab Emirates would only generate 7 percent profit margins.
Carried largely by the country鈥檚 oil wealth, the Iraqi economy has听grown in recent years. In 2012, the economy grew by 8.4 percent, and it鈥檚 expected to grow by 9 percent this year. As violence declined after 2008 and remained low until the beginning of this year, Iraqi investors tried to seize the opportunity to develop commercial projects unrelated to the oil sector.
Despite the success of his investment, Saadi says that he's concerned for the project's future as Iraq's security听deteriorates. Already the mall is protected by scores of security guards armed with AK-47 assault rifles who check all cars for bombs before they can park in the official lot.听He and his partners are considering opening another mall, but with instability returning to levels unseen since 2008, they are hesitating.
鈥淵ou can鈥檛 make such a big investment in a bad environment. If the situation in 2009 was like it is today, we wouldn鈥檛 have even considered such a big project, but we started and when we opened the mall the situation deteriorated again. What can we do?鈥� Saadi asks.
The near daily explosions in Baghdad are also a challenge for Iraqi investor Fadhel Kassim, who is building a small amusement park in the capital city, but听he says Iraq鈥檚 government bureaucracy听poses an听almost equally big challenge.
Like many investors, Mr.听Kassim听said they were willing to wade through Iraq鈥檚 antiquated bureaucracy. But听now听a return to violence has made听an already unfriendly business environment worse, and investors say they鈥檙e beginning to hesitate on new projects. With the world's fifth largest proven crude oil reserves,听growth seems assured. Still, it remains unclear how much the country can develop听other sectors,听especially as security conditions worsen.
鈥淭he government departments inherited all the procedures and mentalities from Saddam Hussein. It is a real problem facing the investment activity,鈥� says Ali Fikiki, an Iraqi economist who runs a consulting firm. 鈥淚t is retarding our progress very badly.鈥�
Mr. Kassim began planning the project in 2009, but bureaucratic听hurdles held it up for three years. Among other challenges, he spent more than a year in a legal battle trying to use land one government office gave him for his project, but another disputed that he couldn't use.听听
鈥淭he people responsible for Iraq鈥檚 investment laws are uneducated,鈥� says Kassim. 鈥淭he situation is terrible. If the situation stays like this, Iraq will not be rebuilt quickly.听 It will be built very slowly.鈥澨�
