CW learns first hand if doing business in Iraq is really practical
Construction Week events director, Oscar Wendel, travelled to iraq to learn first-hand if doing business in the country is really a practical possibility.
A city of both peril and opportunity, Baghdad is a contradiction on most counts when one talks about doing business there.
The feasibility of risk premiums for doing business in Iraq, as well as the first mover advantages for entering the market are debatable. Many have been overly optimistic about the prospects.
But again, the untapped abundance of natural and human resources alongside a pent-up demand for new public infrastructure, is begging to be explored.
For instance, electricity is estimated to only reach a quarter of the population in many areas, with contracts consistently being awarded to western firms on a large scale.
The ongoing plan is to invest around US $150 billion in infrastructure development by 2025. Housing is a priority in Baghdad, with the mayor, Sabir Al Issawi, having revealed a five-year plan to build 300,000 houses in addition to a $3 billion city metro, 12 new power plants, hospitals, hotels and schools. The $6 billion port, south of Basra, was also recently put out to tender.
Yet, security, political stability and the lack of an adequate legal framework for tendering and project management,
remain a significant concern.
On landing at Baghdad International Airport, I was picked up by one of the major security firms.
In general, the Personal Security Detail Units travel in convoys of four. With constant radio traffic between the drivers, a seamless teamwork efficiently cuts off any car from coming too close to the clients in the armored vehicles. The art is called CP driving (Closed Protection).
The former SAS soldier in my car was armed with a machine gun and said that if something should happen they would physically move me to safety if needed. The final instruction given to me was how to activate the emergency sequence on the satellite tracking system, if he was killed.
The cars are monitored by US Army helicopters circling the city at all times and the routes are announced and cleared at least 48 hours in advance. I wondered if the security measures were a little exaggerated and driven by transport costs in the region, which were $6000 to $10,000 per convoy.
But just two days after I returned from Baghdad, the embassy area where I was staying, located in the International Zone (former Green Zone), was attacked with bombs, mortars and firefights took place. The first reports were of 35 dead and 200 wounded.
Yet, these events are becoming less frequent.
Speaking to CW on security concerns in the city, Mohamed Al Assam, founder, chairman and MD of Dewan Architects said he saw steady improvements during each passing month. He also pointed out that his company’s order book was evenly split between government and private contracts.
Work won by Dewan includes the Bab Al Murad complex which includes a 10-floor hotel and three-level shopping centre, Rotana Hotel Baghdad which is scheduled to open in 2012. It will be the first 5 star hotel in Baghdad since the seventies.
And the Urban Renewal projects for Aadhamiya, Karbala and Najaf traditional city centers that according to Al Assam, “aim to find methods to adapt the area to contemporary demands without damaging the spiritual legacy contained in its historic structures.”
Al Assam asserts that a success factor for getting business in Iraq is having a presence in the country, with daily dialogue and close relationships with the project offices of the ministries, where companies register.
The urban regeneration projects and infrastructure works are primarily financed by government bodies, such as the Baghdad Municipality and the Ministry of Public Works and Ministry of Transport.
The most inspiring story from my Baghdad visit was at the State Company for Automotive Industry (Scai) where the assembling of Scania trucks resumed last December.
Manager of truck manufacturing Abed Abbas Nahi claimed that during the second Gulf war, looters falsely informed the Americans that his factory was loyal to Saddam.
“I spoke to the Americans and they were surprised I spoke English and was an engineer, almost expecting us to be riding around on camels. The Americans told us to leave. I said ‘You want to kill me, you can kill me, but I’m not going to leave’.”
Ten men stayed with him and defended the factory buildings. “We had Kalashnikovs and two RPG7 rocket launchers. We barricaded ourselves around the buildings and on the roofs with almost four months of firefights going on. The factories around us were all looted down to the bricks with only the columns left standing.”
Today, Scai is the only vehicle assembly plant in Iraq with its first 150 trucks completed. Has a page been turned and is Iraq proving itself business worthy? You decide.
10 steps to better business in Iraq
- Increased security and safe housing
- Improved import logistics
- Access of personnel to the country
- Efficient visit and work visa processing
- Competitive wage levels for competent expatriates
- Maturity of frameworks for contractual implementation with investment
- Clearer financial laws
- RFP processing more transparent and efficient
- Stability and predictability of government
- Less corruption
These points were listed by country managers of some western firms that have been operating in Baghdad’s International Zone for several years on the condition of anonymity.
Leading Foreign Firms in Iraq
- Pell Frischmann
- Cyril Sweett
- Khatib & Alami
Setting-up costs in Iraq
Office rent: $3000 to $5000 per month for a small office that can accommodate 4 to 5 staff
Car: $25,000 to $35,000 to buy a car
Hiring staff: $1000 per month to hire an office manager
Security staff: $2800 per month ($700 each for 4 people – minimum required number of security staff for an office)
Office boy: $500 per month
Driver: $700 per month