Northern Economic Upturn a Mixed Blessing

Friday, 18 November, 2005

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Talar Nadir

Aziz, owner of the International Company for Public Projects, is one of about 70 firms in Iraqi Kurdistan that have gone out of business in recent months - ironically, as a result of the relatively stable security situation and a rise in living standards.

Companies have been struggling to keep up with demands for increased wages, the rising cost of raw materials and competition from the influx of foreign firms who deem the region safe enough to invest in.

“If the government doesn’t help us out, we won’t have the strength [to keep our firms going],” said Aziz, whose business recently lost 230,000 US dollars.

The seriousness of the situation prompted the Kurdistan Contractors Union to call on the Kurdish authorities to suspend certain projects because of the rising costs.

Twana Hama Salih, of the Sagram General Contracting and Transportation Company, said wages and the price of materials have increased threefold since the summer of 2003, causing difficulties project implementation.

The union also requested that local companies should be exempted from fines imposed because of delays in work.

"Kurdish contractors have reached the stage of bankruptcy," said Nawroz Jamal Khafaf, head of the union. “The authorities issued projects one after the other without taking into consideration the situation."

The state-controlled Reconstruction Projects Institution has issued 750 tenders for construction and road building projects in the eastern part of Iraqi Kurdistan, which is governed by the Patriotic Union of Kurdistan. Foreign companies have won more than 30 per cent of these contracts.

Herish Muharram, manager of the Reconstruction Projects Institution, said the selection of contractors has been fair as it was based on competitive bidding. He added that foreign companies are often selected for more complicated projects because they have the expertise to handle them.

“Projects need modern techniques and foreign companies have this capability,” said Muharram.

Although Kurdistan has allowed overseas investment since 1991 when it became a semi-autonomous region, foreign companies started coming here only since the fall of the Saddam Hussein regime in 2003.

To encourage them, the authorities have issued a special decree that exempts the newcomers from customs fees and taxes for five years. They will also be given land, free of charge, in exchange for investing locally.

As part of the decree, the authorities also established the Board of Promoting Investment, which is charged with coordinating foreign investment projects. The board now has almost 100 projects in the works.

These incentives for foreign investors have upset local company owners, a number of whom accuse officials of unfairly favouring foreign companies. Resident businesses say this is partly to blame for driving some of them into bankruptcy.

"Much facilitation is given to foreign companies,” said a company owner, who wanted to remain anonymous. “Some projects are not even tendered out and are directly handed to the foreign company because a party official promised it would happen that way."

An public works and reconstruction official, who also preferred not to be named, said five contracts have been awarded to locals, only to be taken back and then given to Turkish companies.

"Our problem is mixing politics with reconstruction,” the official said. “People in authority in Kurdistan build friendly relations with neighbouring countries at the expense of the projects."

But Sheelan Khanaqa, head of media relations for the Board of Promoting Investment, said all contractors are treated equally. "We don't discriminate against Kurdish or foreign investors,” she said. “The issue has to do with the background and the level of seriousness of the companies."

Ali Izaddin Muhammed, owner of the Balambo Company, said it would be better if the projects were implemented jointly between local and foreign companies, as that would benefit the former in terms of skills and experience.

“We are to able to do most of the projects that were given to the foreign companies except for tunnel work, which exceeds our capacity," said Muhammed.

Even overseas firms have faced difficulties because of the cost of materials and labour.

The increasing wage demands have been caused by insufficient numbers of workers and now there are moves to encourage Arabs to make up the shortfall.

To date, the latter haven’t found it easy to find employment here because of fears that they might bring the violence of central Iraq in their wake. Indeed, at the end of last year they were asked to leave the region because of security concerns.

Abdul-Wahid Abdul-Faraj, an official in charge of public works and reconstruction contracts, said part of the problem is that his colleagues want to see Kurdistan rebuilt in a matter of months.

“During certain weeks, we issue [contracts for] 20 projects,” he said. “But we want to make many changes in the new year in our work plans and to insist that foreign companies bring their own staff and material so we don’t have these problems anymore.”

Talar Nadir is an IWPR trainee journalist in Sulaimaniyah.