Weak economy sputters along in new Iraq

Sunday, July 11, 2004

BAGHDAD, Iraq -- Once a month for the past year, Essam Awada, 28, went to work to pick up his pay. The genial warehouse foreman would sit around with the other guys at the water tank factory, tell a few Saddam jokes, and they would get their money and go home. But now, he said, he doesn't bother. A neighbor brings him his pay.

"They told us not to even come in. There's no work," Awada said, shrugging.

A friend, Mohammad Armut, is an aircraft engineer. He used to work on the Iraqi military's Russian fighters. But there are no more military planes, no civilian airline and no work for him. Armut, like other workers, got a raise when the Americans took over. He gets a check every month for doing nothing.

The minister in charge of Iraq's vast number of state-owned industries says about two-thirds of his work force is unneeded. Other officials estimate that more than half the state-owned companies are not running and that the remainder are limping at a fraction of their capacity.

That gap illustrates the vast scale of the difficulties facing the interim Iraqi government, which took the reins of civilian authority June 28. Fifteen months after the U.S. occupation began, with its ambitious goals of converting Iraq into a free-market model for the Middle East, the wheels of Iraq's daily economy are barely turning.

Little reconstruction is evident. Bombed or looted buildings remain vacant shells. Factories remain still, idled by lack of electricity, the absence of a market and a shortage of raw materials, equipment parts and motivation. U.S. plans to privatize Iraq's antiquated government-run industries fell flat. Iraqi officials say their American supervisors came, surveyed the problems and left.

"The Americans came in thinking it would be a picnic," said Hachim Hasani, the new minister of industry and minerals. "They were misled." The state still controls almost all large businesses in Iraq. The 61 major industries under Hasani account for 90 percent of Iraq's industrial production, including oil, leather goods and textiles. Of those, only the oil and cement industries could be called profitable, he said.

The oil industry was, and continues to be, the main moneymaking prop to Iraq's economy. But the daunting task of reconstruction will soak up oil revenue, and there are few alternatives to spur the national economy and provide jobs. The construction sector, made up of many small private firms, has yet to see the promised flush of work to rebuild Iraq. Agriculture remains neglected and antiquated.

Factories, which could provide jobs, are a shambles. Hobbled by a 13-year embargo, the government under Saddam Hussein ran the manufacturing sector poorly, if at all, and the Americans who planned to privatize the companies found little of value.

Hasani, a portly man who fled Iraq 24 years ago and built an import-export business in Los Angeles, returned last year and now finds himself left with the task of privatization. He presides over a subservient staff in shabby offices where his ministry moved after it was looted and burned. He travels everywhere with guards; several government officials have been assassinated.

He recently organized a trade convention in Kuwait, which Iraq invaded in 1990, where he tried to lease or sell some of the unprofitable industries. "I don't call them losers. I call them potentially profitable concerns," Hasani said with the aplomb of a car salesman. He got interest but no takers. Investors are waiting to see if the bombs and shooting stop, he said.

By his ministry's figures, state-run industries brought in $73 million in revenue in the first five months of this year but paid out $85 million in salaries alone, much of it to employees not working.

Daily violence is a big cause of stagnation in the country's industries, but not the only one. The whole economic structure needs to be overhauled, according to those dealing with the problem.

At the State Company for Woolen Industries, big power generators can keep the machines running even when Baghdad's electricity supply shuts down, according to the director general of the seven plants, Muqbil Barrak. Two of the factories were looted or bombed, but the five functioning plants are running only one shift out of three, he said. Barrak juggles schedules to try to keep his 3,700 employees working at least a few shifts a week; all are being paid their full salaries.

The problem, he said, is that the U.S.-led Coalition Provisional Authority arbitrarily doubled salaries to reduce unrest when it took over in April 2003. That huge increase in operating costs makes the company's wool blankets, tents and clothing much more expensive than imports.

"We can't sell our products on the local market. Our prices are too high," Barrak said. "It's good to have better salaries for our workers. People need to feed their families. But it's a disaster for the company."

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