Big Plans for Small Business in Iraq

Before the United States can rebuild Iraq’s economy, it will have to rebuild Sabah Abdul Rehman’s confidence, one brick at a time.

Rehman, a 48-year-old civil engineering technician in the southern city of Basra, is the kind of entrepreneur-in-waiting who U.S. experts say is needed to revive Iraq’s shriveled private sector. Years ago, he started a construction business, but his ambition was a casualty of Saddam Hussein’s aggression and the everyday thuggery engendered by the dictator’s regime.

And he’s not certain he would fare better now that U.S. authorities are occupying the president’s palace.

“This decision is very dangerous,” said Rehman, who is once again weighing the security of salaried work against the allure of business ownership. “Losing anything is very horrible to me.”

As the U.S.-led coalition turns its attention from toppling an abusive regime to establishing an acceptable replacement, experts say the Bush administration must move quickly to convince ordinary Iraqis that they too can profit from Hussein’s removal, that foreigners will not reap all the rewards of Iraq’s reconstruction and that upward mobility won’t be reserved for the privileged few.

U.S. officials acknowledge the need to sow the seeds of a new entrepreneurial class in Iraq, where private businesses were heavily taxed and regulated -- and sometimes shut down -- during the 24 years of Hussein’s rule.

“Saddam Hussein deliberately tried to create this situation,” said Humam Shamaa, a senior professor of economics and finance at Baghdad University. “He tried to minimize the private sector and increase the number of people who depend on the salary of the state.”

The coalition has taken several steps in recent days to resuscitate Iraq’s business sector.

U.S. and British military units have increased security patrols to deter the rampant looting that has crippled many industrial facilities and kept some businesses from staying open. They’re conducting training programs for oil company police and other security personnel and allowing them to carry automatic rifles at key locations.

Within two weeks, allied authorities plan to launch a trade credit program to help Iraqi businesses buy merchandise from other countries. Iraqi importers will deposit their purchase payments in Iraq’s central bank, which will guarantee the transactions. International banks will supervise the transfer of funds.

They have also declared a temporary “tariff holiday” that will allow essentially all goods to enter and exit Iraq duty-free. The goal is to stimulate the economy by boosting imports. Details are still being worked out, but the holiday is expected to last until the end of the year.

More private-sector initiatives are under discussion by the allies’ economic reconstruction team.

“We have other plans to help small businesses, a variety of programs,” a top official with the U.S. Office of Reconstruction and Humanitarian Assistance said this week. “We’ll be moving in the not-too-distant future into that phase.”

‘It’s So Degrading’

Sajed Younis Dabbagh hopes that day arrives soon.

Dabbagh, 55, closed his wholesale import business, Al Yaktin General Trading, when U.S. bombs began falling on Baghdad in March. It was a good thing: During the fighting for control of Iraq’s capital, Dabbagh’s warehouses and showrooms were struck by bullet sprays, tank shells and at least one missile.

Reconstruction agency officials told Dabbagh to keep his doors shut, his warehouses empty and his 17 employees at home until the issue of damage compensation can be resolved.

Dabbagh, whose import manifest includes refrigerators, luggage, electronics, meat, cheese and margarine, has been conferring with fellow Baghdad traders.

They want U.S. officials to set up a screening process to certify legitimate traders. They want coalition forces to step up security to keep looters at bay. But most of all, they want reconstruction officials to make their plans known, then carry them out.

The other day, Dabbagh stood in line for four hours in blistering heat for an opportunity to ask an ORHA representative what to expect next. He got less than a minute of her time and no new information.

“It’s so degrading,” he said.

It will take time to nurture a private sector decimated by two decades of wars, sanctions and government misconduct. In the meantime, some Iraqis express fear that outside financial interests will overrun local businesses, and that the country may conclude it would be better off with another command-and-control economy than with Western-style capitalism.

“I think the United States did not calculate the psychological factor,” Baghdad University economist Waleed Dankasly said. “The Iraqi people need to feel better about themselves. The factor of confidence is very important. There has to be encouragement.”

Potential Market Huge

Before the war, Bashaar Jawad Shualy made a living by importing used computers and other consumer electronics from Dubai and selling them to Iraqis out of Baghdad Computer Co., a storefront operation in Basra, Iraq’s second-largest city.

Two days after Hussein’s regime fell, Shualy received his first shipment of satellite television receivers from Kuwait. The competition is fierce, but the potential market huge. Under Hussein, only a handful of trusted cronies were allowed access to the global village. Now, any Iraqi with money to burn can get his MTV.

By the end of six weeks, Shualy had already sold 70 dishes for $150 to $250 apiece. Even though he’s off to a running start, Shualy said many Iraqi business owners will need U.S. hand-holding and financial backing to make the transition successfully.

He said small trading companies such as his have been importing goods on consignment, obligating them to pay only if they are able to sell. It would be better to buy merchandise in bulk with no strings attached, he said, but that would require expanded access to capital and more confidence in the economy.

“Some people are scared to use their own money because the future is unstable,” Shualy said. “When trade is open, small business will need money. The United States should play a leading role.”

For Rehman, the civil engineering technician, a few reassurances would help too.

In 1988, Rehman and two colleagues borrowed money from friends and relatives so they could launch Al Zaitoon Engineering Bureau, a start-up construction firm. .

They got a government license, rented an office and advertised their services. They began by renovating existing homes. Eventually, they got a contract to design and oversee construction of a small building to house several retail shops and apartments.

Rehman and his partners decided to expand into light manufacturing. They bought three machines to make concrete blocks and hired 12 Sudanese workers to operate them. They rented space in an industrial zone and begin churning out cinderblocks for another building under construction in Basra.

Rehman kept his day job as a site preparation specialist for the state-owned Southern Oil Co., but his evenings and weekends were increasingly devoted to nurturing the demands of his new business and dreams of future prosperity. “We worked day and night,” he said.

Things started to get shaky after Iraq invaded Kuwait in August 1990. The man paying for the retail and apartment complex decided to halt construction until the threat of war had passed.

About the same time, disaster struck the block-making business. One night, a band of armed thugs stormed the site, chasing off two security guards and beating and blindfolding a third.

They took everything: the bricks, the machines, 60 tons of cement. Rehman and his partners didn’t have enough capital to keep the project going or even cover their office rent. For several years, he set aside a portion of his salary to pay off his debts.

“I decided at that time to leave work with contracts. It’s very dangerous.... But now, if I get a chance, maybe I’ll start again,” said Rehman, who provides for his wife, Athraa, and four daughters, Israa, Noor, Russul and Duaa.

“Security is the foundation,” he said. “You can’t start a building without a sound base.”

And bricks that don’t disappear in the middle of the night.