BAGHDAD (Reuters) – The long wait in Iraq for the foreign investment that was supposed to pour in after the 2003 U.S-led invasion may finally be over as violence begins to fade, U.S. officials believe. “We may well be at a turning point, frankly. We’ve heard this before, but the conditions are lining up that there could be significant interest being shown by Western companies,” said Marc Wall, the top U.S. economic official in Baghdad.
Wall signaled that a sharp drop in violence, coupled with perceptions of progress for Iraq’s fragile democracy, may put to rest the concerns that have so far kept major Western investment, especially in Iraq’s lucrative oil sector, at bay.
Foreign investment will be one of the keys to transforming Iraq’s economy, now almost entirely reliant on oil and unable so far to fuel broad-based growth, into an engine that can create jobs and rebuild the country after years of war.
When the Bush administration led the invasion to oust Saddam Hussein in 2003, Washington promised to reinvent an economy frozen in time, and establish a flourishing, modern free market.
Six years and tens of thousands of deaths later, many Iraqis complain that life is no better than it was under Saddam.
In Baghdad many get only a few hours of public electricity a day, public healthcare and education falls far short of what it should be, and private sector jobs are scarce.
Iraq is lucky to be sitting on the world’s third-largest oil reserves, and the government of Prime Minister Nuri al-Maliki is in the midst of welcoming competition from the world’s biggest oil firms, like Exxon Mobil and Total, to secure contracts to develop major oil and gas fields.
While growth outside’s Iraq oil industry has finally begun to stir, sectors like agriculture, industry and tourism are dwarfed by oil and prospects for major development are distant.
FRAUGHT WITH RISK
Some investment from fellow Arab nations, especially the Gulf, has begun to trickle into Iraq, but the dearth of Western and especially U.S. firms operating on the ground is stark.
Iraq remains a dangerous place. Suicide bombings and car bombs occur daily, and recent weeks have seen a worrying uptick in political assassinations after January 31 provincial elections.
Security costs for Western officials or businessmen are hugely expensive. Most travel around Baghdad in armed convoys — when they are able to venture outside walled compounds.
There is a perception, too, of serious political risk. Tension is mounting between the government of Prime Minister Maliki, a Shi’ite Arab, and semi-autonomous Kurdish authorities in northern Iraq over oil resources and territory.
Many ask if Maliki, who made a strong showing in the local polls, will try to grab more power. Corruption is another worry.
Wall, who has the rank of ambassador, called the election a milestone, for the simple fact it was not marred by violence.
“Politics are becoming more normal. What that means is the door is open for greater business activity and … engagement.”
He said Iraq may benefit from the global financial crisis, as it might prompt some to look past Iraq’s security risks in stacking up regional investment opportunities.
“The banking sector was essentially closed off, and did not suffer contagion,” he said. “On relative terms, this place looks better. Western companies see an untapped market.”
But the global economic slowdown also poses a major risk for Iraq as it depends on oil for 90 percent of its revenues.
After oil prices collapsed from their all-time high last summer, amid expectations for lower demand, Iraq was forced to slash 2009 spending plans twice, and officials say that budget woes could start to cramp reconstruction spending in 2010.