Iraq
For Sale
By Philip Thornton and Andrew Gumbel
The Independent
23 September, 2003
Iraq
was in effect put up for sale yesterday when the American-appointed
administration announced it was opening up all sectors of the economy
to foreign investors in a desperate attempt to deliver much-needed reconstruction
against a daily backdrop of kidnappings, looting and violent death.
In an unexpected
move unveiled at the meeting in Dubai of the Group of Seven rich nations,
the Iraqi Governing Council announced sweeping reforms to allow total
foreign ownership without the need for prior approval.
The initiative bore
all the hallmarks of Washington's ascendant neoconservative lobby, complete
with tax cuts and trade tariff rollbacks. It will apply to everything
from industry to health and water, although not oil.
But it is still
likely to feed concerns that Iraq is being turned into a golden opportunity
for profiteering by multinational corporations relying on their political
connections.
Already, the biggest
reconstruction contracts have been allocated to American firms such
as Bechtel and Halliburton, which have ties to the Bush administration.
They were selected behind closed doors, with no opportunity for competitors
to present bids.
Iraq is far from
an ideal environment for business, however, and the new initiative seemed
calculated to overcome qualms overseas companies have had about the
risks to both people and capital.
It remains to be
seen whether the prospect of buying into Iraq's most essential services,
pricing those services at will and repatriating profits in their entirety
will be a strong enough lure to offset the continuing inability of the
US military to make the country secure from resistance fighters and
heavily armed criminal gangs.
Wholesale privatization
is a dramatic departure from Saddam Hussein's centralized management
of the Iraqi economy, which was reasonably successful in capitalizing
on the country's oil wealth to build modern hospitals, schools and other
infrastructure, at least until the upheavals of the 1980-88 Iran-Iraq
war, the 1991 Gulf War and the imposition of United Nations sanctions
after that conflict.
One Arab expert
said: "There's a fear that privatization of too many things will
lead to things being sold off for a mess of potage." Kamel al-Gailani,
the Finance Minister in the provisional government, said the moves would
open Iraq to free- market competition that would deliver investment,
job creation and long-term economic growth.
"We are providing
Iraqi citizens with the freedom and opportunities they were denied for
so long under the Baath party to realize their economic potential,"
he said. "The reforms will advance efforts to build a free and
open market economy in Iraq, promote Iraq's future economic growth,
[and] accelerate Iraq's re-entry into the international economy and
reintegration with other countries."
The moves presented
by Mr Gailani, approved by the US and UK's coalition provisional authority,
include:
o 100 per cent foreign
ownership in all sectors except natural resources;
o direct ownership
as well as joint ventures and setting up branches;
o full, immediate
remittance to the host country of profits, dividends, interest and royalties.
Privatization of
everything from electricity and telecommunications to pharmaceuticals
and engineering could see hundreds of previously state-owned companies
sold off.
There will be a
tax holiday for the rest of this year, and income and business taxes
for investors will be capped at 15 per cent from next year.
Trade tariffs will
be slashed to show that Iraq is a "country that embraces free trade".
A 5 per cent surcharge will be levied on all imports, other than humanitarian
goods such as food, medicine and books, to fund the reconstruction effort.
America defended
the decision to offer such a generous package of tax breaks to entice
investors. "Capital is a coward," said John Snow, US Treasury
Secretary. "It doesn't go places where it feels threatened. Companies
will not send employees to places that aren't secure." Iraq's vast
oil reserves, the world's largest apart from Saudi Arabia's, would remain
in government hands. "They're going to run government finances
based on oil revenues," Mr Snow said.
Five months after
the overthrow of Saddam, there are no visible signs of reconstruction.
Clean water and electricity are still not available to most people and
entire neighbourhoods are still without phone lines.
Washington is desperately
seeking help with footing the $100bn bill it estimates rebuilding Iraq
will cost.