Still No Government in Iraq

Time.com ran a nice piece over the weekend by veteran Middle East reporter Andrew Lee Butters.  The article describes nicely the maneuvering by Allawi and Maliki to form a majority coalition -- and most importantly, to be named Prime Minister.

It seems that a lack of government is having little effect on Iraq, and many would argue that given the ineffectiveness of the Iraqi government, that no government is actually better.  The longer-term implications of this impasse, however, are most definitely negative.  The Iraqi government is locked in a struggle for legitimacy.  Who can provide for the needs of the people?  Who can provide security?  Is it Al Qaeda?  Iran?  For the future of Iraq and the Middle East, the answer had better be the lawfully elected Government of Iraq.  The longer this stalemate goes on, the less legitimate the government is seen in the eyes of the people, and the greater the opportunity for other players to exert influence on the population.

Iraq's State-Owned Enterprise Problem and China's Solution (Again)

When China started to privatize its state-owned enterprises (SOEs), it could have auctioned them off to the highest bidder.  I'm sure large auctions happened in many cases.  In many other cases, the factories were sold (given?) to people with contacts inside the party.  While that may not seem morally correct, the end result really did serve a large number of people.  In fact, selling (giving?) the factories at low prices indicates an understanding that most SOEs are really worth nothing more than the land they are on, and maybe some equipment value.  As businesses, SOEs are, for the most part, disasters. By getting SOEs into the private sector quickly, many people were put to work in productive and viable businesses.

Iraq has a similar problem.  The government of Iraq owns hundreds of factories, which employ hundreds of thousands of workers, who don't even show up for work.  Essentially, the SOEs have become another means to distribute government rations.  Still, the Iraqi government, with advice from some US advisors, continues to overvalue these terrible companies and desperately offer them to foreign investors.  Better they use China's models -- give them away to businessmen who will rapidly make them productive.  Of course, a few connected people will get wealthy.  Other than making some feel jealous, who cares?  The end result will be thousands of Iraqis returned to work.

Iraq's Power Problem and China's Solution

The biggest complaint among small business owners in Iraq is the lack of electrical power.  Most small manufacturers have their own generators, but the operating costs are so high that it doesn't make sense to use them.  Power is available, but in unscheduled blocks of 1.5 to 2 hours, delivered every 4 to 6 hours.  Imagine that you are attempting to produce plastic parts, and your machines take 90 minutes to warm up.  You aren't going to make many parts with 1.5 hours of power.

Billions of dollars have been spent repairing the electrical grid in Iraq, and much progress has been made.  Still, it will be several more years before all the citizens of Iraq have reliable electrical power.

During the peak of China's growth, China faced a similar shortage of electrical power, and the solution the Chinese government adopted offers a basis for a solution in Iraq:

1.  When I was working in China, my company opened a new manufacturing facility.  The local government was unable to meet all of our power demands.  We simply received a schedule, telling us when we would have full power and when we wouldn't (we didn't have power for 2 days each week).  We were able to schedule our work around power availability.  Though the situation in Iraq is more extreme, the Iraqi government could provide a power schedule to industrial areas.  While in Iraq, I was able to convince the Ministry of Electricity to provide a scheduled block of power to the factories I was working with.  The benefit was enormous, and new factories opened in the area as a result.

2.  The Chinese provide power preferentially to business.  Iraqi government employees provide power preferentially to themselves.  Obviously, there's some room for improvement here.

ME Magazine Article

An article I wrote about my work in Iraq was just published in Mechanical Engineering Magazine.  Check it out here:

http://memagazine.asme.org/Articles/2010/June/Rebuilding_Broken_Land.cfm

Iraq's Elections

Iraq's national elections happened with a level of violence that was below most expectations.  This, on the heel of successful governate-level elections in early 2009.  Again, I'm not recommending vacations to Baghdad, but things are improving.  You should definitely keep an eye on Iraq's market.  If a new government is successfully formed, it will be an important milestone.  The overall winner, Ayad Allawi, was very popular among Iraqis that I spoke with (though neither Allawi nor Maliki won enough seats in the Council of Representatives to form a majority).

http://topics.nytimes.com/top/news/international/countriesandterritories/iraq/elections/index.html?scp=1-spot&sq=iraq%20elections&st=cse

Iraq's Investment Law

Iraq's National Investment Commission (NIC) was established in 2006, and began operating in earnest in 2007.  If you need specifics about Iraq's investment laws and general information about doing business in Iraq, check out the NIC website at:

http://www.investpromo.gov.iq/

Iraq's Culture of Business

Continuing on the list of reasons why you should consider doing business in Iraq is: 2) Iraq has a strong culture of business.  Let me clarify.  There are three types of businesses/business owners I ran into when I was in Iraq:

1.  State owned enterprises.  These anachronisms were bad when they were open, and they're worse now.  As a make-work, counter-insurgency project, there may be some value.  As a business, I'm not sure what to make of them.

2.  Opportunistic men calling themselves "sheiks" and offering to do anything for government money.  Hey, why not?  There's lots of money to be had.

3.  Real small business owners who were dedicated, eager to learn and grow, and willing to work hard.

I went to Iraq seeking the 3rd type of business owner, and I'm happy to report that I found many of them.  My work focused on an industrial area north of Baghdad, called Boob Al Sham (or Bab Al Sham).  I won't go into detail, as Mechanical Engineering magazine just published an article I wrote about the area (link to that tomorrow, or as soon as the story is posted).

You have to look for good businessmen, and not fall into the easy trap of working with the person with the best English and most helpful attitude, but if you look, the right type of business partner can be found.

Have you done business in the Middle East?  In Iraq?  How did you find the business culture?  Let me know!

What Does Iraq Need?

Continuing from yesterday's post, my first point was that Iraq needs everything. There are approximately 30 million people in Iraq, with approximately 20% of the population in greater Baghdad. Years of war and embargo (don't forget, starting in 1980 with the Iran-Iraq war) have prevented consumer goods, industrial goods, and building materials from reaching the country. As the political and economic situation in Iraq improves, there will be a rising demand for almost everything.

According to some reports, Iraq will need at least three million new housing units in the coming years. Most construction material is now imported from neighboring countries, and is of poor quality. While the current market is very price sensitive, this too will change as the situation improves. Demand for higher-priced, better-quality product will increase. If your company makes material used in commercial and residential construction, you may want to consider Iraq for future market expansion.

Should You Do Business in Iraq?

Yes, you should consider it, and here's why:

1. Iraq has roughly 30 million people. It's not a huge market, but they need everything.

2. The culture of business is there, and it's strong. Prior to the disastrous Iran-Iraq war (yes, Iraq's troubles actually precede the Bush 43 administration), Iraq led the world in date exports, the manufacturing sector was robust, and the medical system was the envy of the Middle East.

3. While commercial code lags most developing countries, the Council of Representatives addresses the issue every year. Don't put both feet in Iraq, but as business law develops, be ready to move.

4. Physical security is improving. I don't recommend a vacation in Baghdad yet, but it's getting better. The elections went off with a level of violence that was below most expectations. There are security options, and Iraqis can move very freely (except for the occasional security checkpoint).

5. There is money in Iraq. Some of it is waiting patiently on the sidelines -- wealthy Iraqis in Syria, Jordan, Turkey, Europe, and the US are waiting for the right time to re-enter the Iraqi market. When the time is right, there will be a massive influx of cash.

Of course, there is a list just as long for why you shouldn't do business in Iraq, and most of that list would deal with corruption and security. Still, Iraq is an interesting market, and a beautiful country that should be a treasure for the world to visit and enjoy. I believe that someday it will be.

What do you think? Are you curious about Iraq? Let me know.

Another Piece on Iraq

While in Iraq, I wrote a proposal for several of the industrialists that I had been working with to visit the US. The purpose of the trip was to learn about best practices in manufacturing, quality control, and business associations. The proposal was approved, and in April, the industrialists visited the US. What a strange experience to see my friends in the US! Initially they seemed so out of place -- so overcome by the natural beauty of our great country. Like most good businessmen, they adapted quickly, and like small children, were eager to learn from everyone they met. Here's a link to a TV news piece that was done about the trip:

http://rochester.ynn.com/content/501758/hope--friendship-bring-iraqi-business-association-to-rochester/

Some of the details are wrong, but overall, it's a nice piece.

Industrial Work in Iraq

Wow, I've been working in Iraq for almost seven months. I can't believe how quickly time has gone by. The pace of work, lack of time off and lack of personal space blends one day into another. Even given the difficulties, the work is some of the most rewarding that I've ever done. Here are a couple of links to stories:

http://www.army.mil/-news/2009/04/20/19879-patrolling-for-industry-coalition-forces-assist-local-businesses-with-improving-productivity/index.html

http://www.mnf-iraq.com/index.php?option=com_content&task=view&id=27470&Itemid=225