Rebuilding Babylon: New Opportunities in Iraq

The post-Saddam years, with the removal of sanctions and a new low-tax environment, created a bonanza of opportunities. Seven years later, though, it’s time for the real entrepreneurs to come to the fore.

Rebuilding Bablyon

This article first appeared in the Summer 2010 issue of The Explorer, Aramex's thought-leadership magazine that investigates issues critical to businesses, communities and the planet.

By James Montague

Nahla al-Loza had never considered herself a businesswoman before. But, in the end, she realised she was left with no choice. When the 37-year-old mother fled Iraq just before the start of the 2003 US invasion, she left behind a steady government job, a home and her community. When she returned, her former life was barely recognisable: her country was undergoing dramatic, often violent, changes, she had no money and, most importantly, no means of income.

“It was such a hard, hard life,” recalls al-Loza. “I searched, but found no jobs anywhere. In my city, the computer was so expensive, and before the invasion, only rich people used them. Then all our lives changed. The USA came.”

In 2007, she decided to take matters into her own hands. Using $4,000 of savings, and building on her experience working unpaid as an administrator at an NGO, she invested in high-speed wireless and set up a language and technology training consultancy. “All my family told me: ‘Don’t do that, you are a woman, and work is just for men’,” she recalls. “Most people in my city fought me and my plans. They wouldn’t use my business because I am a woman. But people needed good internet and my service was so good they came. They don’t like me, maybe, but they like my internet service!”

Nahla’s story encapsulates the reality, and the potential power, of the contemporary entrepreneur in Iraq. The post-war business landscape is very different to that of 2003, when it was a contractors’ free-for-all, when anyone with a wheelbarrow fought for State Department dollars. Now, business realities are necessitating a return to basics. “Iraq, for a post-conflict market, has a surprisingly active private sector,” explains Mohammed Shohaieb , a former World Bank officer now working for a consultancy advising on private-sector development in Iraq. “It has all the characteristics of a developing market, including a large ratio of informal firms as well as a culture of ‘convenience’ entrepreneurism.

“Many of the business owners are there because they can’t do anything else or are simply awaiting government jobs. We are talking very traditional business models: retail trade, farming, construction. It’s a lot better off than many other post-conflict societies, but it is still fragile.”

The headline figures are certainly encouraging: GDP grew by 4.3 per cent last year and the IMF projects it will rise by 5.8 per cent in 2010. According to the World Bank’s Business Environment Snapshot for Iraq, 2009 saw further improvements in the country’s credit rating, its regulatory quality and, most importantly, its political risk rating for investment. Corruption remains an ongoing issue, though, with Iraq ranking 196th out of 202 listed countries.

But now, a new problem has emerged, one oddly similar to that which faces small businesses in the West – namely the lack of a credit line from banks. “Hardly any banks are lending, there’s just no avenue for credit,” continues Shohaieb. “You now have over 50 formal financial institutions in Iraq between banks and microfinance institutions. But microfinance just doesn’t seem to tick with Iraqis. In Egypt or Syria or Bangladesh, loans are in the $100-1,000 range. That’s just not enough for entrepreneurs in Iraq. They need anything up to $10,000. There are no financial records, no customer histories and security is still patchy; banks simply aren’t willing to take the risks. The culture of credit isn’t there.”

Creating a new business culture

When the Iraqi regime of Saddam Hussein collapsed in 2003, it uncorked an entrepreneurial fervour that had been bottled up by decades of strict economic controls and endemic cronyism – where family connections, loyalty and patronage were the ever-present invisible hands in the market.

“You are talking about the institutional environment – economic, political and social – of complete structural inequality, where access to funds or opportunities was totally controlled,” says Sameeksha Desai, assistant professor at the University of Missouri at Kansas City and visiting scholar at the Kauffman Foundation, who recently returned to the US after undertaking a research trip to Najaf. “If you have the type of regime where one group has all of the political power, all the government jobs, all the police jobs, the normal man doesn’t start businesses. That stifles people’s ability to start businesses and stifles competition, things become inefficient and the practice of nepotism becomes deeply institutionalised – unless there is a sudden change in government.”

With that change in government, it’s little surprise that entrepreneurial activity has risen sharply. But whilst the headlines have been about the scrap for Iraq’s oil, businesses closer to the ground have adapted to take advantage of the opportunities when, and where, they can. Phil Borden, author of Shaku Maku: On the Ground in Occupied Iraq, which detailed his time working for the US State Department as he tried to encourage small businesses, calls it “the lobster mentality”. His survey revealed that 94 per cent of Iraq’s private sector is made up of small businesses, with very few employing any more than 50 people. “When a lobster sees an opportunity, it comes out and grabs it and then hides. I knew one man who got wind of a shipment of sugar from Brazil, made a cellphone call, paid the bribe, bought the container, distributed it. Now he doesn’t have to work for a long time. And he won’t. He’ll take it easy until the next lobster opportunity comes along.”

In Washington, entrepreneurship is seen as an essential cog in Iraq’s post-war development. The US government has invested millions of dollars in projects to try and kick start Iraq’s private sector, after realising that pouring money into top-down state enterprises was seeing little return. Last year, the US Agency for International Development (USAID) announced it had, in spite of the unique difficulties they face persuading Iraqis to get involved in the scheme, managed to hand out $300 million in microfinance loans since the start of the war.

The economics of stability

“Boosting entrepreneurial activity is really the only answer if you want to break the cycle of violence,” agrees Desai. “Since 1980, of the 20 poorest countries on earth, 15 have had at least one war. People fight when they are poor. These wars are not ideological wars as many people think, most are driven by inequality and poverty – it’s just that dictatorships blur the lines. Entrepreneurship is important, though, and we know this from non-violent countries that when people become self-employed, they won’t do something else. Unfortunately, in a country that is still facing many problems and agendas, the unemployed are potential insurgents.”

Desai claims her surveys of Iraqi businesses in Najaf, a city booming with religious tourists from Iran, have revealed that politics is no longer a top concern anymore. “One of the things that came out was that security wasn’t actually the main problem at the moment,” she explains. “The clarification from them is: ‘We do well with our businesses, we travel, we have a decent quality of life, but we have to operate on a project by project basis. Security doesn’t stop us, but it does impose a tax on our business’.”

On the ground, though, much still needs to be done to build trust in institutions. Security issues still loom large. And whilst Baghdad, the Kurdish north and hot spots like Najaf are growing, the benefits still differ region by region. But for Nahla al-Loza, who now employs ten people and is expanding into other fields, she hopes it will be her example, rather than the intervention of the government, that will encourage others to follow suit and take the same, successful risks.

“I’m an independent woman and the government does not help me, just their own religious groups,” she says. “But now it is better than it was, and I now have a new company. I will be a strong woman. I have my own car and home. It will make ideas, independent ideas, spread in my society.”

 

This article first appeared in the Summer 2010 issue of The Explorer, Aramex's thought-leadership magazine that investigates issues critical to businesses, communities and the planet.

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