UAE hopes up again for a Baghdad bonanza

More than half the foreign direct investment in Iraq to date is believed to have come from the UAE, which was also the first country to cancel Iraqi debt obligations and open an embassy in Baghdad after the US-led invasion. Now hopes are rising again that Iraq could turn from civil war to a new age of prosperity based on its huge hydrocarbon wealth.

Oil majors are committed to the production sharing agreements to enable this to happen, and the next step required is for a new coalition government to be formed in Iraq providing the necessary political stability. Then business can really get started, delegates were told today at a conference in Dubai hosted by UAE law firm Al Tamimi that has an office with four staff in Baghdad.

Corruption and violence

Formidable problems remain. Corruption is said to be worse than in Nigeria and personal safety remains a serious issue. Civilian deaths from violence might have halved to 4,000 last year but this is still totally unacceptable to many UAE small companies that would like to set up in Baghdad.

It was curious to listen to a presentation from the Private Security Association of Iraq whose members can draw on a small army of 40,000 security personnel. It would be far more impressive to hear that such protection was no longer necessary.

Corruption is also a difficult problem. The oil companies have government contracts and can operate at a high level. Life for smaller companies is rendered almost impossible by constant demand for additional commissions. So for many working for a larger contractor is going to be the only viable modus operandi.

Rebuilding oil infrastructure

That said after the Iraq-Iran War ended in the late 1980s there was something of an economic boom in Dubai in resupplying Iraq and mending its damaged oil and gas infrastructure. Now the talk is of boosting oil output from a little over two million barrels per day to 10 million barrels per day by 2020 and consequently of massive investment is going into Iraq.

It is not surprising then that the UAE got an early foot in the door with brotherly actions. As the trade and logistics hub of the Middle East this is also made good commercial sense. Yet the anarchy of post-US invasion Iraq has beaten business opportunity in the past and could do so again.

Certainly progress is going to be slower than armchair economists say is possible. But a lot depends on politics and creating a coalition that can get things done. If that happens Iraq could take off against all the odds, and even fuel a boom in trade from the UAE.

Emirates flights to Baghdad start in July and Etihad is already there.