Open Investment Policy Looks Like ‘World Occupation’ to Iraq Merchants

In the marble-floored corporate offices of Al Hafidh General Trading Co., Waleed and Hani Hafidh vented the rage of many Iraqi businessmen Monday over the country’s new wide-open foreign investment policy.

Puffing furiously on imported cigarettes, the brothers asserted that the economic reform package unveiled by Iraq’s recently appointed finance minister in the United Arab Emirates on Sunday will destroy the country’s small yet burgeoning private sector, create a permanent “world occupation” of its economy and render the Iraqi people “immigrants in their own land.”

The policy, which won high praise from U.S. officials present, including Treasury Secretary John W. Snow, allows 100% foreign ownership of any non-oil venture in Iraq. It also treats foreign corporations the same as Iraqi companies and permits up to six foreign banks to set up shop with branches throughout Iraq.

That, said the Hafidh brothers, will ruin their banking and importing businesses. If, that is, foreign companies decide to risk investing in the violent country.

Despite months of economic anarchy that has earned the Hafidhs and other businessmen record profits through duty-free sales of imported televisions, air conditioners, washing machines, refrigerators and computers, Iraq’s private sector is utterly unprepared to compete with multinational corporations, the Hafidhs and others say.

“We were very happy when the regime changed. We thought everything would be free,” said Waleed, 51. “Now we feel betrayed.”

Indeed, for the past three months, Waleed was among a handful of private-sector leaders who pushed for limited economic protections during weekly private meetings with L. Paul Bremer III, the American who heads the U.S.-led Coalition Provisional Authority. The economic initiative was drawn up by the unelected, 25-member Iraqi Governing Council and its U.S. advisors and approved by both the council and Bremer.

Waleed and other Iraqi businessmen had told Bremer that the nation’s investment policy should mirror those of other Persian Gulf nations, which limit foreign ownership of any company based in those countries to 49%.

When the new policy was announced Sunday by Iraqi Finance Minister Kamel Keylani in speeches at this year’s meetings of the International Monetary Fund and World Bank governors, Waleed and his brother were in shock, they said.

“Everything we asked for was thrown onto the trash heap,” said Waleed, echoing the thoughts of many businesspeople in the Iraqi capital, some of whom appeared on Arab satellite television Monday to air their grievances.

Other critics argued that the policy was premature, rushed into place to lure corporate investment and hefty contributions from foreign governments to limit the American investment in rebuilding a nation still seen by many as a war zone.

“It’s the wrong approach,” said Sam Kubba, who heads the American Iraqi Chamber of Commerce in Washington. “It’s a recipe for disaster because it gives the impression that they’re trying to sell off all the Iraqi resources. They should go about it much more slowly. Start by getting a democracy in place first and letting the people elect a government.”

Kubba, who has been encouraging U.S. companies to partner with Iraqis in investment here, said American businesses are also wary of the Governing Council’s legitimacy in implementing such programs.

Still others in Iraq criticized Bremer’s administration for not better explaining the need to open the economy so suddenly and so wide.

“Why won’t Bremer stand up and say how great our needs are?” said Ali Dham Jabburi, who owns a carpet shop. “Then we will know whether to accept such investment policies.”

Added Hammam Shamaa, a French-trained economics professor at Baghdad University: “Iraqis have had 35 years of brainwashing about imperialism, about colonialism, so they need a transition period to understand what the free market is.

“We have to put a great effort into explaining to Iraqis how the economic plan will be done and how the Iraqis will have a share in it,” Shamaa said. “Right now, the Iraqis understand nothing.”

Responding to the torrent of criticism, a member of the Iraqi Cabinet, which was selected by the Governing Council -- which itself was appointed in consultation with the Coalition Provisional Authority -- conceded that the country was ill-prepared for such radical new policies. But Mohammed Tofiq, the minister of industries and minerals, insisted Monday that Iraq simply had no choice but to rush them into action.

An occupied land where car bombings, firefights and attacks on U.S. troops have become daily affairs, Iraq is desperate to find a way to compete with other countries in the region, he said. Given the country’s security problems, he said, owning the world’s second-largest oil reserves simply isn’t enough in the urgent short term.

“We need foreign investment,” Tofiq said. “Our unemployment rate is 60%. We have to create jobs.”

Putting Iraqis back to work also will help bring down soaring street crime and may blunt the armed resistance to the occupation by bringing more benefits to the people, he said.

“We now have the most liberal investment law in the region,” he added, “so that it would encourage the foreign investors to come here rather than other countries.”

International business analyst Sherman Katz also praised Keylani’s proposal, saying that the benefits of rapid economic development outweigh the risk that native Iraqis may take a back seat to foreign investors.

“Investment is the best transmitter of technology, capital, know-how, good jobs and opportunities for countries to work their way up the ladder toward the higher end of beneficiaries of globalization,” said Katz, a scholar in international business at the Center for Strategic and International Studies in Washington.

Under Saddam Hussein, economic policy was grounded in socialism but corrupted by personal whim. Entrepreneurs were allowed to operate but had to pay huge import taxes. The Hafidhs say they used to shell out a $230 duty on a single television. Since the U.S. military drove Hussein from power, duties are gone and the brothers have been able to sell TVs for $280 and make a profit.

Businessmen like the Hafidhs, who operated during the decades of socialism and corruption, insist that jobs created by foreign investors under such conditions would be little more than “slave labor.”

“Iraqis through the many years we have suffered are used to earning very little money, so the foreigners will take advantage of this,” said Hani, 49. “And when the foreigners come, the prices will soar beyond the means of most Iraqis. If a man is paying $10 a month in rent for his house, the foreigners will come along and offer $100.

“How can we compete with our dinars?”

The brothers also questioned the legality of the new policy since it was approved by an unelected body in an occupied land that has no constitution. “They can only take such a decision if they consider Iraq the 51st state of America, and then the Governing Council must resign,” Hani said.

The Hafidhs and others warned that the new economic program ultimately could add to the bitterness that is fueling the insurgency.

With the Americans skittish about investment in the short term, the new policy is likely to first draw well-heeled businessmen from neighboring Kuwait -- and even Israelis, they suggested, who are deeply resented by Iraqis. “This could cause serious problems, security problems,” Waleed said.

Tofiq, who is from the northern region of Kurdistan and served in an autonomous government there for six years, agreed that is a risk. But he added, “I don’t think Kuwaitis can buy all of Iraq.”

Besides, he said, no corporations have been breaking down his door to invest. First, the coalition must “improve the security, fill the vacuum, stabilize the country. Otherwise, nobody will come, not even Iraqis who are living outside.”

In the long run, he said, “I think there will be a positive reaction” to the new law. “Right now, people are in the dark. After so many years ... there is a psychological barrier, and we have to break it.”

But even Tofiq conceded that the new law is likely to destroy the nascent Iraqi banking industry, which also would affect the Hafidhs. They’re the largest shareholders in one of the handful of Iraqi banks that has sprouted since the regime’s fall.

When asked what he had to say to those new bankers, Tofiq lamented: “They will disappear.”

In the meantime, Hani Hafidh said, the business community is left powerless. There are still no elected representatives or courts to appeal to. “There’s nothing we can do,” he said. “Just watch and wait. We are just like an audience that watches our fate unfold before us.”

Times staff writers Edmund Sanders and Warren Vieth in Washington and Alissa J. Rubin in Baghdad contributed to this report.