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Fast track to capitalism scares Baghdad businessmen

Thursday, December 4, 2003

BAGHDAD, Iraq -- Pity the Iraqi businessman.

After more than 40 years languishing in a state-run command economy, Iraqi entrepreneurs who've finally won the freedom to start businesses now face a new threat: competition, especially from well-heeled foreigners given virtually unrestricted access to the Iraqi market.

"Most Iraqi investors aren't millionaires," said Ihsan al-Titenchi, membership director of the Iraqi-American Chamber of Commerce and Industry. "They want to know what's going to happen to them. Are they going to stay in business? Or is someone from the outside going to arrive and put them out of business?"

The anxiety stems from an October law that turned Iraq's socialist system into the most open economy in the Arab world, permitting 100 percent foreign ownership of Iraqi businesses.

The law, signed by the Iraqi Governing Council and U.S. administrator L. Paul Bremer, banishes most restrictions on trade, capital flows and foreign investment. It allows, for instance, foreign banks to open branches and buy Iraqi banks. It slashes import tariffs to five percent.

Panned in papers

The investment law has generally been panned in local newspapers. Stories have suggested high-tech and cash-rich foreign businesses will conquer the economy, steamrolling nascent Iraqi businesses. Even al-Titenchi, from the pro-American chamber of commerce, complained that the law was drawn up without the help of the Iraqi business community it regulates.

"It was an order from Mr. Bremer. They didn't consult anyone about it," al-Titenchi said in an interview at a conference the chamber called to explain the new law to Iraqis.

Al-Titenchi said the chamber has been flooded with questions and complaints about the law. Many of those in attendance said the law should be changed to prohibit 100 percent ownership of Iraqi companies. Foreign investors should be forced to enter a partnership with an Iraq-based firm, they said.

But the Coalition Provisional Authority's head of private sector development, Michael Fleisher, said such restrictions would only hurt Iraq's economic future. The law of the market is harsh, Fleisher said, but it hones a company's skills enough to compete globally, while bringing lower prices for consumers and, he hopes, an economic recovery in battered Iraq.

"Protected businesses never, never become competitive," Fleisher told the 100 or so attendees. He predicted the new law would lead to an "economic wonder on the Tigris and the Euphrates."

Fleisher praised another component of the law, which sets the top personal income and corporate tax rates at 15 percent.

"The entire Republican party in the United States would like to have the new Iraqi tax law," he said.

Other countries that dropped restrictions on foreign investment -- he named Dubai, Hong Kong and Singapore -- were wealthier than those with such barriers in place, he said.

"Will you be overwhelmed by foreign businesses? The answer depends on you," Fleisher told the audience. "Only the best of you will survive."

Fleisher urged the business leaders to press their advantages before foreigners start arriving. Use your head start, your knowledge of the local market and your commitment to stay in Iraq, he said.

One foreign businessman who heard Fleisher's advice praised the new law.

Samer Abdallah, 29, said he and his partners were setting up companies that rent cars and bodyguards, that erect billboards, and that represent other foreign firms wanting to do business in Iraq without the risk of sending employees.

Abdallah, from Lebanon, said he soon hopes to earn a profit -- which the law allows him to send home without restriction.

"The law is extremely good for short-term investors," said Abdallah, in a blue suit flecked with ashes from the cigarette he waved about. "We've invested some money here and opened offices, but the market is not yet stable."


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