Iraq on the Capitalist Frontier

Inside the marble-tiled lobby of the Hotel Ekal, investors carrying sidearms are negotiating business deals. A mile or so away, two brothers are installing one of this capital’s first Internet cafes. Above the entrance to the House of Elegant Bodies, a poster of a pumped-up Arnold Schwarzenegger lures potential U.S. patrons.

The reconstruction gold rush has begun.

While the Pentagon-run Office of Reconstruction and Humanitarian Assistance gradually gets a grip on Iraq’s postwar needs eight weeks after Baghdad fell to allied forces, the private side of rebuilding is proceeding at breakneck speed -- without much in the way of government involvement, official supervision or international approval.

“Get ORHA out of the way,” said Rubar Sandi, an Iraqi American investment banker who began leasing property and launching commercial ventures almost as soon as the smoke cleared. “Let the business community do this. They know what to do and how to rebuild.”

The reconstruction effort of officials, consultants and contractors affiliated with ORHA, which recently changed its name to the Coalition Provisional Authority, is expected to consume tens of billions of dollars over a period of several years.

But for the untold number of independent businesses, investors and would-be entrepreneurs operating independently of ORHA, a deal can be negotiated, approved and put into effect between afternoon tea and 11 p.m. curfew.

“A lot of people see they can sell their property, get cash, buy some products and sell them, make quick money,” said 37-year-old Karam Hasan, who is trying to sell his Al Arz barbershop -- if the price is right.

Sometimes the two tracks of reconstruction collide.

Sandi, the merchant banker, came to Iraq with plans to install a cellular telephone network and launch a commercial airline. He said he had a telecom vendor ready to start installing towers and relay stations. He had arranged to lease several jetliners and hire former Iraqi Airways pilots, crews and ground personnel to begin twice-weekly flights from New York to Baghdad.

But ORHA had other ideas, said Sandi, who founded the U.S.-Iraq Business Council in Washington and participated in the State Department’s prewar Future of Iraq rebuilding project.

Sandi quoted ORHA officials as telling him that they would confiscate any telecommunications equipment that he tried to install. If he tried to launch commercial air service, his planes would be grounded, they said. Those areas of reconstruction are subject to high-level approval, and remain off limits to upstarts for now.

“They are not facilitators,” he said of ORHA officials. “They are not helpful. They are nothing but a bunch of bureaucracy.”

Sandi put his telephone and airline plans on hold. Instead, he teamed up with a local partner, hired about 300 Iraqis and began providing security, transportation, catering, translation and professional services to visiting executives. He leased four hotels, including the 280-room Al Sadir and 200-room Hotel Baghdad, which he plans to develop into full-service business centers.

Sandi greets visitors in the Ekal, a smaller hotel that has become the temporary nerve center of his reconstruction network. Armed guards check IDs and issue passes. Above the elevators are two clocks, each bearing a new sign: One says “Baghdad,” the other “Texas.”

Life in reconstruction’s fast lane is not without risk. Business schemes that appeared flawless may grow warts on closer inspection. Competition can be cutthroat. Capital can dry up. Vendors and purchasers can renege on agreements. Trusted partners can turn out to be thieves.

Hasan, the barber, thought he could turn a quick dinar by purchasing what was described to him as a solid silver jewelry box from the palace of Hussein’s son Uday. He bought the box, but it turned out to be a plated product of dubious origin, worth considerably less than he paid.

Hareth Zahawi, a subcontractor who has been attempting to line up reconstruction work for native Iraqis, was discussing a possible alliance with a Kuwaiti firm, only to learn that the company was using information obtained from Zahawi to cut its own deal with the coalition. “They tried to sideline us,” Zahawi said. “It’s a serious risk.”

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Too Much, Too Soon?

Some experts express concern that free-market capitalism, while efficient at channeling money to its most productive use, may be too much, too soon for a country struggling to emerge from decades of failed central planning.

Nearly 500,000 Iraqis are losing government paychecks as the coalition dismisses Hussein’s military forces, dissolves his Information Ministry and removes Baath Party loyalists from other agencies. Thousands more may join them as inefficient state-operated industries fall by the wayside.

Iraq’s emaciated private sector will suffer casualties too. Some experts predict that home-grown merchants, traders, builders and service providers will be squeezed out by foreigners with more experience, deeper pockets and closer ties to the United States and its allies.

Still, for every economic hand wringer, there is at least one cowboy capitalist ready to tame the new frontier.

“It’s like Texas in 1879,” said Ihsan Hussein Ali, who was not sure why he chose to cite that year in particular. “There are no rules.”

Hussein Ali and his younger brother Ghassan, both engineers, are ready to escort fellow Iraqis from the 19th century to the 21st. They are preparing to open three Baghdad Internet cafes, where patrons ready to spend $3 to $4 an hour will be able to cruise the Web and catch up on e-mails.

They were planning to hook up 20 PCs to satellite receivers inside the first cafe, a small outlet affixed to the Baghdad Hotel.

Before the war, the brothers were helping a Jordan-based trading operation bring oil field equipment and other industrial goods into Iraq under the United Nations “oil-for-food” program, which is being shut down. So they figure it’s time to look for other opportunities.

“Now all the doors are open,” the older brother said.

Sidewalks are another matter. In Baghdad’s bustling Karada district, curbsides are piled high with factory-fresh televisions, washing machines, gas ranges, air conditioners and other appliances. They compete for space with racks of clothes, furniture still under construction, and stacks of food, beverages, cigarettes and ice.

Since the war, the streets of Baghdad have become one big duty-free bazaar. Street vendors have always been a fixture of the cityscape, but the volume and variety of goods rapidly multiplied with the demise of government tariffs that ran as high as 100% -- and with the arrival of satellite TV dishes and other goods that were illegal before the war.

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Prices in Decline

Prices are falling, particularly for those carrying wads of Iraqi dinars, which have started gaining in value against the U.S. dollar.

Outside the Al Yaser Showroom, proprietor Ayad Husseini is offering Toshiba television sets for 280,000 dinars (about $200), down from 350,000 dinars before the war. But his biggest seller is the Kumtel toaster oven, which has plunged from about 80,000 dinars to 36,000 dinars, or $26, today.

The price has fallen so far, Husseini decided to buy one himself to give to his wife’s family.

Less than a block away, 21-year-old Ali Shamel and a friend sell only one product from their sidewalk storefront: soda pop, by the case, hauled in daily on flatbed trucks.

“The Main Center for Pepsi,” says their hand-painted banner. “We have different sizes. Reasonable prices.”

The current favorite is Pepsi-Cola bottled in Saudi Arabia, about $7 for a case of 24. Egyptian Pepsi occupies second place, followed by Coca-Cola, 7-Up and regional brands Chipper and Oranta. Shamel said he sells about 100 cases on most days, and clears $25 or so after expenses.

“The prices are better because there’s no government now,” he said, expressing no regrets.

At Abu Khalid Grocery Store, some prices have risen and some have fallen. But almost nothing has fallen harder or faster than the cost of American apples: The price of a Granny Smith or a Red Delicious apple has dropped by more than half. They still cost three times as much as the smaller, pale yellow apples from the region, but Khalid Shaloub’s customers aren’t complaining.

“They like them better than Persian apples,” said Shaloub, who keeps some of his U.S. fruit in a refrigerated container near the back of his shop for people who prefer their apples cold.

Some Iraqis see reconstruction as an opportunity to start something from scratch. Others see it as an opportunity to expand what they already have.

Salah Talab has been operating his House of Elegant Bodies weightlifting gym in a nondescript concrete building for seven years. But the sign is in Arabic, and he wasn’t getting new business despite all the newcomers flocking to Baghdad.

Last week, he put up a framed poster of a well-oiled and fully flexed Schwarzenegger above the doorway.

The marketing ploy paid off. “Foreigners came and worked out,” he said.

Talab, a former Mr. Asia titleholder who was briefly jailed by Hussein’s regime for importing American nutritional supplements, hopes to attract more international patrons with special postwar promotional rates.

“Where you from? California? Good! Big beach for bodybuilding!” he said, sketching an imaginary coastal expanse with his hands.

It was time to clinch a postwar deal.

“Membership $10 a month for Iraqis,” Talab said. “For Americans, I make discount. Any amount you want.”