Something to be taken into consideration when looking at the history of the war in Iraq and whether the U.S. government's overthrow of the Baath regime was worth it in the long run.
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Blood and Money
In what might be called the mother of all surprises, Iraq's economy is
growing strong, even booming in places
By Silvia Spring
Newsweek International
http://www.msnbc.msn.com/id/16241340/site/newsweek/
Dec. 25, 2006 - Jan. 1, 2007 issue - It may sound unreal, given the
daily images of carnage and chaos. But for a certain plucky breed of
businessmen, there's good money to be made in Iraq. Consider Iraqna,
the leading mobile-phone company. For sure, its quarterly reports
seldom make for dull reading. Despite employees kidnapped, cell-phone
towers bombed, storefronts shot up and a huge security budget—up to
four guards for each employee—the company posted revenues of $333
million in 2005. This year, it's on track to take in $520 million. The
U.S. State Department reports that there are now 7.1 million
mobile-phone subscribers in Iraq, up from just 1.4 million two years
ago. Says Wael Ziada, an analyst in Cairo who tracks Iraqna: "There
will always be pockets of money and wealth, no matter how bad the
situation gets."
Civil war or not, Iraq has an economy, and—mother of all
surprises—it's doing remarkably well. Real estate is booming.
Construction, retail and wholesale trade sectors are healthy, too,
according to a report by Global Insight in London. The U.S. Chamber of
Commerce reports 34,000 registered companies in Iraq, up from 8,000
three years ago. Sales of secondhand cars, televisions and mobile
phones have all risen sharply. Estimates vary, but one from Global
Insight puts GDP growth at 17 percent last year and projects 13
percent for 2006. The World Bank has it lower: at 4 percent this year.
But, given all the attention paid to deteriorating security, the
startling fact is that Iraq is growing at all.
How? Iraq is a crippled nation growing on the financial equivalent of
steroids, with money pouring in from abroad. National oil revenues and
foreign grants look set to total $41 billion this year, according to
the IMF. With security improving in one key spot—the southern
oilfields—that figure could go up.
Not too shabby, all things considered. Yes, Iraq's problems are
daunting, to say the least. Unemployment runs between 30 and 50
percent. Many former state industries have all but ceased to function.
As for all that money flowing in, much of it has gone to things that
do little to advance the country's future. Security, for instance,
gobbles up as much as a third of most companies' operating budgets,
whereas what Iraq really needs are hospitals, highways and
power-generating plants.
Even so, there's a vibrancy at the grass roots that is invisible in
most international coverage of Iraq. Partly it's the trickle-down
effect. However it's spent, whether on security or something else,
money circulates. Nor are ordinary Iraqis themselves short on cash.
After so many years of living under sanctions, with little to consume,
many built up considerable nest eggs—which they are now spending.
That's boosted economic activity, particularly in retail. Imported
goods have grown increasingly affordable, thanks to the elimination of
tariffs and trade barriers. Salaries have gone up more than 100
percent since the fall of Saddam, and income-tax cuts (from 45 percent
to just 15 percent) have put more cash in Iraqi pockets. "The U.S.
wanted to create the conditions in which small-scale private
enterprise could blossom," says Jan Randolph, head of sovereign risk
at Global Insight. "In a sense, they've succeeded."
Consider some less formal indicators. Perhaps the most pervasive is
the horrendous Iraqi traffic jams. Roadside bombs account for fewer
backups than the sheer number of secondhand cars that have crowded
onto the nation's roads—five times as many in Baghdad as before the
war. Cheap Chinese goods overflow from shop shelves, and store owners
report quick turnover. Real-estate prices have risen several hundred
percent, suggesting that Iraqis are more optimistic about the future
than most Americans are.
There's even a positive spin to be put on corruption. Money stolen
from government coffers or siphoned from U.S. aid projects does not
just disappear. Again, says Farid Abolfathi, a Global Insight analyst,
it's the "trickledown" effect. Such "underground activity" is the most
dynamic part of Iraq's economy, he says. "It might not be viewed as
respectable. But in reality, that's what puts money in the hands of
the little people."
Meanwhile, Iraq's official economic institutions are making progress,
improbable as that might sound in the context of savage sectarian
violence and a seemingly complete breakdown of leadership and law. Yet
it's a fact. A government often accused of being no government at all
has somehow managed to take its first steps to liberalize the highly
centralized economy of the Saddam era. Iraq has a debt-relief deal
with the IMF that requires Baghdad to end subsidies and open up its
gas-import market. Earlier this year the government made the first
hesitant steps, axing fuel subsidies—and sending prices from a few
cents a liter to around 14. "This has become one important way of
institutionally engaging with Iraq," says economist Colin Rowat at the
University of Birmingham. "If you lose that engagement, then that
means a lot more people have given up on Iraq."
It goes without saying: real progress won't be seen until the security
situation clears up. Iraq still lacks a functioning banking system.
Though there's an increasing awareness of Iraq as a potential emerging
market, foreign investors won't make serious commitments until they
are assured a measure of stability. Local moneymen are scarcely more
bullish on the long term. In Iraq's nascent bond market, buyers have
so far been willing to invest in local-currency Treasury bills with
terms up to six months, max.
Iraqna isn't the only success story. There is also Nipal, a
money-transfer service that is the backbone of Iraq's cash economy, as
well as a slew of successful construction firms in Kurdistan. Such
companies are not waiting for Iraq's political crisis to resolve
itself. Yet imagine how they would prosper if it did, and how quickly
they would be joined by others. As things stand, Iraqna faces
extraordinary difficulties. It builds towers but lives in constant
fear that they will be blown up. It has to be careful about whom it
hires, or where it assigns people to work. Whether Sunni or Shia, it
doesn't matter; criminal gangs and militias regularly try to kidnap
employees to hold them hostage for ransom, regardless of ethnicity. As
for long-range planning? Forget it, says Ziada, the Cairo analyst.
"It's a terrible situation for any company."
But again, that's the remarkable thing. In a business climate that is
inhospitable, to say the least, companies like Iraqna are thriving.
The withdrawal of a certain great power could drastically reduce the
foreign money flow, and knock the crippled economy flat.
With Michael Hastings in Baghdad
© 2006 Newsweek, Inc.
© 2006 MSNBC.com