Kurdistan Observer

U.S. Investors Cautious On Kurdistan

By JOHN P. GRAMLICH

WASHINGTON, April 27 (UPI) -- Despite an international advertising campaign that promotes Iraq's three northern Kurdish provinces as "The Other Iraq" -- safe, progressive and ideal for doing business -- American investors remain hesitant about the region, according to Iraqi and American analysts.

Middle Eastern companies have increasingly invested in Iraq's Kurdish region, widely considered the most secure in Iraq, but few if any American firms have invested so far, according to Raad Ommar, chief executive officer of the Iraqi-American Chamber of Commerce and Industry.

"My experience tells me that very few U.S. companies have invested in either Suleimaniya or Erbil, or if they did we would have heard about them and they would have become members (of the chamber)," Ommar wrote in an e-mail from Iraq ahead of an April 27 investment conference in Erbil. The chamber has about 700 members, he wrote.

Erbil and Suleimaniya are the main political and commercial cities in Iraq's Kurdish region, which consists of the provinces Erbil, Suleimaniya and Dahuk. The region has enjoyed limited autonomy since 1991, but remains divided between two rival political parties.

The Kurdistan Democratic Party administers Erbil and Dahuk provinces. The Patriotic Union of Kurdistan administers Suleimaniya province. The two parties are in the process of forming a unity government based in Erbil called the Kurdistan Regional Government, or KRG. But the government has yet to unveil a draft version of a common investment law, which it is expected to do at Thursday's conference in Erbil, Ommar said.

The KRG has promoted the Kurdish region through a partner organization, the Kurdistan Development Corporation, which initiated an advertising campaign called "The Other Iraq" in November 2005, according to the corporation's Web site. Advertisements have appeared in American and international print and broadcast outlets and invite potential investors to "See the promise" and "Share the dream" of the Kurdish region.

The advertising campaign has been popular, according to Nijyar Shemdin, the KRG's representative to the United States and a spokesman for the development corporation. A Web site, theotheriraq.com, has attracted more than 1.25 million hits and 380,000 downloads of promotional videos, Shemdin said in a telephone interview.

But neither the KRG nor the U.S. Commerce Department could provide a record of American firms doing business in the Kurdish region. Analysts said they strongly doubted the presence of American companies in the Kurdish provinces outside of "the major contractors" hired by the U.S. government. Those contractors include Kellogg, Brown and Root, General Electric and Siemens, among others.

A Web site for a September 2005 trade fair in Erbil, called DBX Kurdistan, lists more than 400 companies that registered for the event, including 34 American firms. But Ommar, of the Iraqi-American Chamber of Commerce and Industry -- which organized the event -- said those firms have not invested directly in the Kurdish region.

American investors are hesitant about the Kurdish region because of corruption, lack of transparency and political uncertainties, said Vance Serchuk, a research scholar with the American Enterprise Institute, a Washington think tank.

The two main Kurdish parties have only just begun to merge operations into a unity government, and until that happens, the political and economic realities in the region are determined "less by formal institution and more by patronage networks," Serchuk said.

"Every aspect of life, from the soccer club to the security services -- all of them, in one form or another, intersect with the parties," Serchuk said, noting that such patronage networks are not attractive to American investors because there is no central power structure and no regulation.

The lack of a common investment law has underscored the problem. While the Patriotic Union of Kurdistan-controlled Suleimaniya province has an investment law in place, the Kurdistan Democratic Party's two provinces do not, according to Ommar. Business leaders are expecting to see a draft version of a combined law this week, he said.

Bilal Wahab, a Kurdish Fulbright scholar studying international corruption at American University in Washington, compared the current investment climate in the Kurdish region to the lawless business atmosphere in Indonesia that led to an economic collapse in the early 2000s.

"I'm getting a sense that something similar is going on (in the Kurdish region)," Wahab said. "I'm very happy that the parliament is considering making Kurdistan a real investment magnet, and by 'real' I mean transparent, dependable, accountable."

Until an effective common investment law is implemented, American companies are not likely to invest American capital in the Kurdish region, Wahab said. He said contractors doing business in the Kurdish provinces are only "recycling Iraqi money" and that Kurdish leaders recognize the problem.

"If they want foreign money to flow, they don't have an option. It's an obligation to make foreign investors happy," Wahab said.

More than 60 Turkish companies have invested in northern Iraq, according to Shemdin, the KRG's representative in Washington. He said some of those firms assisted in construction projects at Erbil and Suleimaniya airports, which offer international flights to countries including Jordan, Turkey and Germany.

But while Turkish and other Middle Eastern companies have done business in Iraq's Kurdish areas, American investors have been less responsive, despite the KRG and Kurdistan Development Corporation-backed advertisements in the United States.

Kurdish authorities have produced a memorable advertising campaign in "The Other Iraq," according to Serchuk, but he said the ads do not acknowledge the Kurdish region's problems.

"The ads are very glossy and very nice and very compelling. It's a very moving kind of campaign, but the Kurds still face some serious problems," he said. "I don't think friends of Kurdistan do them any favors by whitewashing that fact."