WASHINGTON, July 9 (UPI) -- Amid continuing violence and an insurgency in Iraq, a Department of Commerce official Thursday touted the potential for increased foreign investment in the country's rebuilding.
Assistant Secretary William Lash, Chairman of the U.S. Department of Commerce's Iraq and Afghanistan Investment and Reconstruction Task Force, conceded that attracting foreign investment was a challenge, but he painted a rosy picture of the country's future.
"We aren't getting the Golden Arches yet, but what you are seeing are partnerships with Middle Eastern companies. Caterpillar, GM, ... Mitsubishi are coming in, but they are coming in through other partners," he said at the Heritage Foundation.
Lash was enthusiastic about the vast reserves of oil, natural gas and other natural resources in Iraq, as well as the liberalized tax policy and growing banking sector.
"Private banks are now flourishing in the country," he said. "You see private bank deposits are doubling."
He added, "More importantly you're seeing sophisticated western banks coming into the country." HSBC, a United Kingdom-based global bank, National Bank of Kuwaiti and the Standard Chartered Bank of the U.K. have all established ties in Iraq, Lash said.
While it is growing, establishing a thriving banking sector is hobbled by a traditional mistrust of banks, Lash said. And so it is crucial to develop Iraqi commercial law in 21st century standards, he said.
"Iraq also has a better tax policy (than the U.S.)," he said, "a 15 percent maximum cap on individual or corporate taxes. All designed to help attract capital."
Despite continued electricity and water shortages in Iraq, Michael Fleischer, who worked for increased private sector development in Iraq as an aide to former Ambassador L. Paul Bremer, was upbeat about the future of the Iraqi economy, as long as the government continues with little regulation.
Fleischer was also speaking at the informational forum.
"When the government is not intruding on private initiative, private initiative can carry a nation from tyranny to prosperity very quickly," he said.
The Iraqi people are also starting new businesses at a much faster rate since March of this year, according to Fleischer. From the end of the major combat operations in May 2003 to the end of March, 2004, about 300 new businesses registered every month, since April the number has risen to about 1000 new businesses a month, he said.
Certain sectors are particularly prone to growth as Iraq stabilizes, Lash said. The information technology sector is in desperate need of modernization in Iraq. As it stands, payrolls are dispersed in cash simply because banks don't have the computers to do it any other way, he said.
Cell phones, which sell for about $700 each, according to Lash, are also a growing sector.
Regional players are leading the way in another ripe sector: agribusiness. Iraq has the ability to once again be the breadbasket of the region, he said.
Much still needs to be done, however.
According to Fleischer, the unemployment rate measured by the Iraqi Ministry of Planning was 28 percent in January. But Micheal O'Hanlon, of the Brookings Institution, a non-partisan Washington think tank, puts the rate currently at 28 to 45 percent.
Despite the optimistic presentation at the Heritage Foundation on Thursday, reports from the World Bank and the United State General Accounting office paint a picture of Iraqi investment hindered not only by the recent war, but also years of war with Iran and a decade of sanctions.
From a height of $3,600 in the early 1980s, the per capita income has dropped to somewhere between $770 and $1020 in 2001, according to estimates by the World Bank. The drop was attributed to the eight-year war between Iran and Iraq, followed by international sanctions imposed after the first Gulf War in 1991.
And Iraq's GDP in 2003 was estimated to be $13-17 billion. This is about the same as the much smaller Albania, Yemen, or Burkina Faso, and only one-twentieth of its neighbor with a similar population size, Saudi Arabia, which has a GDP of about $286 billion.
Digging itself out of the economic hole is also complicated by a lack of reliable security, a nascent democratic government, and unreliable electricity, according to a June 28 GAO report.
The report concluded that the new Iraqi security forces, which number 220,000, are untested, some even taking up arms with the militias during the upsurge in violence in April. And despite efforts to disband militias, many are still active throughout the country.
The lack of security has plagued attempts at establishing a new government, the report found. Among other examples, in the face of assassination attempts, an independent court system is difficult to maintain.
The judiciary isn't the only government institution under attack.
Since the end of combat operations in May 2003, over 700 military personnel have been killed in Iraq.
"The security situation hinders the ability of the ministries to provide needed services and maintain daily operations," the report said.
Despite these dismal findings, Lash was optimistic.
"If you're going to make a direct investment, you do have a security issue," he said. "But it's a manageable risk, and people are taking that risk every day."
