After languishing in a state-run command economy for more than 40 years, Iraqi business people are now worried about their future.
Their anxiety stems from an October law that turned the country’s socialist system into the most open economy in the Arab world, permitting 100% foreign ownership of Iraqi businesses.
“Most Iraqi investors aren’t millionaires,” said Ihsan al-Titenchi, membership director of the Iraqi-American Chamber of Commerce and Industry.
“They want to know what’s going to happen to them. Are they going to stay in business? Or is someone from the outside going to arrive and put them out of business?”
The October law, signed by the Iraqi Governing Council and US administrator Paul Bremer, banishes most restrictions on trade, capital flows and foreign investment.
“Iraqi investors want to know what’s going to happen to them. Are they going to stay in business? Or is someone from the outside going to arrive and put them out of business?”
It allows, for instance, foreign banks to open branches and buy Iraqi banks. It slashes import tariffs to five percent.
The investment law has generally been panned in local newspapers. Stories have suggested high-tech and cash-rich foreign businesses will conquer the economy, steamrolling nascent Iraqi businesses.
Even al-Titenchi, from the pro-American chamber of commerce, complained that the law was drawn up without the help of the Iraqi business community it regulates.
“It was an order from Mr Bremer. They didn’t consult anyone about it,” al-Titenchi said in an interview at a conference the chamber called to explain the new law to Iraqis.
Al-Titenchi said the chamber had been flooded with questions and complaints about the law.
The new investment law was an
Many of those in attendance said the law should be changed to prohibit 100% ownership of Iraqi companies. Foreign investors should be forced to enter a partnership with an Iraq-based firm, they said.
But Michael Fleisher, the Coalition Provisional Authority’s head of private sector development, said such restrictions would only hurt Iraq’s economic future.
The law of the market was harsh but it honed a company’s skills enough to compete globally, Fleisher added.
“Protected businesses never, never become competitive,” Fleisher told the 100 or so attendees. He predicted the new law would lead to an “economic wonder on the Tigris and the Euphrates.”
Fleisher praised another component of the law, which sets the top personal income and corporate tax rates at 15%.
Survival of the best
“The entire Republican party in the United States would like to have the new Iraqi tax law,” he said.
Other countries that dropped restrictions on foreign investment – he named Dubai, Hong Kong and Singapore – were wealthier than those with such barriers in place, he said.
“Will you be overwhelmed by foreign businesses? The answer depends on you,” Fleisher told the audience. “Only the best of you will survive.”
Fleisher urged the business leaders to press their advantages before foreigners start arriving. Use your head start, your knowledge of the local market and your commitment to stay in Iraq, he said.
One foreign businessman who heard Fleisher’s advice praised the new law.