DUBAI, 20 September 2004 — Rampant violence and an escalating hostage crisis in Iraq are putting a strain on Gulf investors who, having banked on a flourishing post-Saddam Hussein Iraq are now bitterly counting their losses.
The near-daily car bombings, assassination attempts and kidnappings are crippling foreign companies, a number of which have been forced to halt operations in Iraq. Financiers who have pumped millions into establishing businesses there barely 17 months ago are already disappointed with the impact on their balance sheets but are biding their time, hoping security will somehow improve.
“Since last April, the market and business went into a nosedive,” said a Dubai-based businessman, who in the first 11 months after the April 2003 fall of Saddam’s regime invested in excess of $7 million in opening businesses in Iraq.
“From April to the first week of September, we have incurred losses of potential income of almost $3 million,” he said, requesting anonymity.
He has two four-star hotels in Iraq, a garment factory, laundry services, a trading company as well as food catering and manpower supply services.
“All investment was made after the war last year and early this year,” he said. But since April, when four US contractors were killed by insurgents in the flashpoint town of Fallujah, the business climate has deteriorated to the point that the market is “way behind” the first two months of 2004.
“People in general don’t buy unless they need something badly. The Iraqi government is not buying. They issue tenders, you submit bills and there’s no decision to buy things. It seems they don’t have a budget yet,” he said.
One consequence is that he has had to lay off 50 percent of his manpower, all Iraqi, thereby affecting the flow of money back into an already depressed economy.
One of his hotels, located on the banks of the Tigris River, was completed in April. “We’ve locked it, with all the imported furniture still inside,” he said. Five months later it is still barricaded.
His second hotel went from almost 100 percent to five percent occupancy, said the businessman, who has two companies in Dubai and 10 in Iraq, including subsidiaries. At the outset of his entry to the Iraqi market, his projected pay-back was on average two years. “On some projects the pay-back was even nine months to a year. It was excellent.” But the worsening situation since April put a stop to that.
The first business requirement for a successful economy in Iraq would obviously be improved security, he said. The next would be changing the country’s commercial laws and strengthening its banking system to better serve potential investors.
A spokesman for the Dubai-based Iraqi Business Council, set up earlier this year to promote joint ventures in Iraq, and grouping Iraqi businessmen and companies in the United Arab Emirates, said the unrest has affected businesses throughout the region that are dealing with Iraq.
“Business from the Gulf region is slowing down, and we’re very concerned. Security has deteriorated badly in the last couple of months. It’s affecting the business community in and outside Iraq,” he said.
Supplying goods from Gulf states requires follow up through businessmen traveling regularly to Iraq, checking the set-up, collecting revenues and continuing the cycle of providing material, the spokesman said.
“But people nowadays are cautious, only going when it is essential. If they can postpone, they will,” he added. “But, we do hope security improves.”
