KURD REGION OF N IRAQ DRAWS INVESTORS

by Mohammed A. Salih

(IPS) ARBIL -- A huge building complex is rising above the ancient citadel and mosques in the Iraqi city of Arbil: a "modern market" with four 33-floor towers set to accommodate more than 5,000 shops and business offices.

The billion-dollar project is a symbol of the Kurdish region's economic growth. The Iraqi company al-Sharq al-Awsat is building this center as part of an almost $3.5 billion investment in northern Iraq.

While the rest of Iraq is coping with a ruthless campaign of violence, in the north Kurds have rolled up their sleeves to rebuild their autonomous region in the north, which was much damaged during decades of war and sanctions.

There is growing interest in investment in Kurdistan. More than 5,800 companies have been registered over the past few years, of which 1,900 are foreign.

Last year, the U.S. Department of Commerce recommended Kurdistan as "a gateway for investment in Iraq."

Herish Moharram Mohammed, head of the Kurdistan Investment Board, a government body working to promote investment in the region, said his office has approved approximately $5 billion worth of investment projects since its establishment last November. However, only some of the approved projects are being implemented at the moment.

The regional parliament passed an investment law last summer to lure foreign capital to Kurdistan. The law gives such incentives as a 10-year tax and customs holiday, full ownership of land to foreign investors, full repatriation of profits and free land plots for projects.

"We have tried to create as favorable a climate for investment as we can," Mohammed said in Arbil. "Time is moving more quickly than us. The government budget is not enough to cover all the areas, and so we need investment to fill in the gaps."

Other cities in Kurdistan have turned into big business centers. New five-star hotels, housing and tourist complexes, big restaurants and factories are being built across the region.

The bulk of investment has been in construction rather than in productive sectors such as agriculture and industry. The Kurdish region has great potential in these sectors given its fertile land and natural resources.

Kurdistan has turned also into a big consumption market for foreign products.

"We need to be more productive," said Abdulnasser Hatemi, an Iranian Kurdish professor of economics from Arbil's English-language University of Kurdistan. "The government needs to think about building industry. Though it is growing, we need to do more."

Hatemi said investors should see Kurdistan as a promising new place because return on capital has been enormous.

Large-scale business activity has attracted thousands of laborers from the volatile areas of Iraq, as well as from countries as far as India, the Philippines and Ethiopia. Many locals, however, remain unemployed or underemployed.

"Foreign labor should be controlled and limited ... and investors must not bring laborers for skills that exist here, and there should be consequences for their actions," Hatemi said.

Although on the surface the economy is booming in Kurdistan, unhealthy practices do exist beneath the surface that could slow or harm its growth.

Cathryn Cory, head of the Start the Healing organization that works to attract foreign capital to Iraq said that while laws allow foreign investors to own 100 percent of their projects, close to a deal some investors are asked to pick a local partner. Such a partner is often demanding, and does not put money into the project.

"We have to get rid of graft and all such issues," said Cory, who is working to secure funds from foundations abroad to build diary farms and housing complexes with long-term repayment installments, for mainly low-income people.

The Kurdistan Investment Board head did not reject such allegations. "We have instructions from the Prime Minister to support the investors in the face of such pressures," Mohammed said. "We are determined to clean up our institutions of corruption."

There are also some anxieties about how long the Kurdish community can sustain the current pace of development, given the uncertainty over the fate of the country as a whole.

"The main challenge is the political future of Iraq," Hatemi said. "But if Kurds feel that their institutions are recognized and supported by the international community, then other problems are going to be resolved."