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Economic stirrings in Iraq with new multi-million building scheme

From Fred Pleitgen, CNN and Mark Tutton
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New Baghdad real-estate scheme
  • Baghdad to get $238 million real-estate development
  • Developer predicts oil industry will spark economic revival
  • Some Iraqi businesses feel they are losing out to cheap imports
  • Foreign investors put off by problems with security and infrastructure

Baghdad, Iraq (CNN) -- Work will soon begin on one of the biggest real-estate projects in post-Saddam Hussein Iraq, which some say is a sign things are looking up for the country's economy.

Iraqi-Jordanian real estate company Amwaj International is behind the ambitious Baghdad development, called Baghdad Gates.

The scheme will cost $238 million and will include 3,500 residential apartments, a five-star hotel, an office tower and an upscale shopping mall. Work is due to begin in a couple of months and could be completed in four years.

Namir el Akabi, CEO of Amwaj parent company Almco, told CNN, "We are targeting the educated, the doctors, the professors, the lawyers. We are targeting the middle class really."

He said Iraq has had no major construction developments for the last 30 to 40 years, leaving it with a chronic housing shortage. He added that as Iraq's security situation improves and refugees are returning home, the demand for housing is increasing.

"In Baghdad, and in Iraq generally, families are living with their father and mother in the same house, even after they get married," Akabi said.

"There is no space available and prices are very high. There is a major shortage and no major development."

That shortage, coupled with an increasing standard of living, makes Iraq's real estate a growth area, according to Akabi. And he's not the only one who thinks so -- in 2008 UAE real-estate company Al-Maabar announced plans for a $10-billion residential and commercial development in Baghdad.

What's more, Akabi is confident the country's oil resources will soon fuel a powerhouse economy.

To be honest, I expect Iraq to overtake the Gulf in seven years.
--Namir El Akabi, CEO Almco Group
  • Real Estate
  • Baghdad
  • Iraq

"To be honest, I expect Iraq to overtake the Gulf in seven years, because international oil companies are committed by contract to make oil production in Iraq reach 12 million barrels a day within seven years," he said.

"Production today is under two million barrels, so our budget will be six times what it is today. Today it's $60 billion, so you're talking about $360 billion income for the Iraqi government per year."

But some small businesses feel left out as Iraq is flooded with cheap goods from Asia and Iran. Thabit Al-Baldawi owns a small aluminum factory and says the government has done nothing to protect businesses.

"There is moral support but no financial support," he told CNN. "There is understanding for the role of private sector and calls to support the private sectors but so far it is just words."

Even the minister in charge of economic policy agrees. Iraqi Minister of Planning Ali Baban told CNN, "The concept of the free market and free economy was misunderstood by economic policy makers.

"The result is a situation of mayhem and the price is being paid by owners of small and big businesses."

Akabi conceded that Iraq has had trouble adjusting to a free-market economy. "To go from socialism to free market is difficult and it's still not complete," he said.

"There are a lot of difficulties, not only in changing the system, but also in the mentality of people. People are still depending on the government to provide them with everything, rather than taking their own initiative."

Kendall Roth is professor of international business at the University of South Carolina. He has been working with Tikrit University to help develop its business research facility, and he told CNN the real problem was not in the mind set of Iraqis, but in the country's infrastructure.

"Iraqi people are very industrious and can adapt very quickly with respect to understanding the principles of commerce," he said. "But their infrastructure is still struggling and until that's in place it's hard to get to higher-level issues.

"You need to have a constant power supply and distribution capability. There's just a lot of challenges that have to be brought to a different level of capability."

Baban recognized those same problems could deter foreign investors.

He said, "Investors are looking for security, political stability, legislative structure and appropriate legislation and guarantees, infrastructure that includes communication, transportation and other services -- and a lot of these issues are not available in Iraq."

"Doing Business 2010," a report compiled by the International Finance Corporation, part of the World Bank Group, identified Iraq as being among the worst countries in the world for starting a business, getting credit and enforcing contracts.

But entrepreneurs like Akabi will be hoping that as Iraq's oil revenue grows, those issues will be ironed out.

He told CNN, "I believe everything will grow proportionally upward once major investors come to Iraq. it will help the local market a lot and it will move the economy. It will trickle all the way down."