A shiny new airport that offers visas on arrival. Dubai-style property developments whose prices, doubling in a year, have attracted Emaar. A lively bazaar, and a historic citadel under renovation.
Erbil, the capital of Iraq’s autonomous Kurdish region, now attracts glowing praise from travel magazines and international investors alike.
The emergence of this newest petro-state presents the Kurds with a historic opportunity, but they are also beginning to discover the pitfalls of oil-fuelled development. To make the most of their bounty, they have to make some critical decisions and tough choices.
The region has made headlines for the discovery of giant oil and gasfields – the arrival first of buccaneering wildcatters and then of industry luminaries such as ExxonMobil – and the high-profile personalities that follow: Ashti Hawrami, the wily oil minister; the colourful, big-spending Todd Kozel of Gulf Keystone Petroleum; and Tony Hayward, BP's sacrificial former chief executive now reinvented as the head of Genel Energy.
From being the poorest part of Iraq under Saddam Hussein, the Kurdish region has become one of the wealthiest and most secure, attracting some mixture of envy and emulation from other provinces.
But ironically, the region’s own oil makes only a small contribution to the region’s finances, which still mostly come from its share of the central budget. The attempts by the Kurdish authorities to export oil independently of Baghdad have led to threats to cut off this disbursement.
Part of the downside of the boom are the growing pains common to any nouveau riche economy. Urban planning is haphazard, building quality often poor and roads are increasingly choked by traffic. Signs of conspicuous consumption interweave with poverty, as gold-plated BMWs cruise past boys selling windscreen washes on the street. Electricity provision is far better than in the rest of Iraq, but four power cuts interrupted my last dinner.
But more important are the foundations of the type of society the Kurds are trying to build. Some temptations, common to all oil countries, have to be resisted. A robust private sector is one of the region’s great strengths, compared with the rest of Iraq. But this can easily degenerate into crony capitalism and nepotism.
A certain amount of corruption, although wrong and undesirable, need not impede democracy or economic growth too much. But in countries such as Russia or Azerbaijan, pervasive corruption is not just part of the system – it has become the system. The Goran party, which did well in recent Kurdish elections, has based its appeal partly on advocating clean government. Yet the magazine editor Kawa Germyani, gunned down south of Sulaymaniyah in December, was just one of several journalists murdered recently while investigating corruption.
The other critical issue is to ensure that oil does not dominate the economy. This is dangerous for strategic, as well as social reasons. The landlocked Kurdish region is always going to be dependent either on the Baghdad budget or its pipeline through Turkey.
The easy response to meet people’s aspirations – and dispense political patronage – is to hand out petroleum revenues to create government jobs. The authorities need to build a cadre of skilled administrators, but the state should not be the employer of last resort. The capital-intensive oil industry can absorb only a small number of job-hunters.
Tourism is developing, and with attractive scenery, ancient sites and relatively liberal social attitudes it could become a mainstay of the economy. Agriculture, producing excellent fresh meat and vegetables, should be promoted so rural areas keep up with the cities.
But the region also needs a high-value manufacturing and services sector that can overcome its geographic disadvantage. Transport, clean and efficient government and education are top priorities. Perhaps, as well as from Dubai, the Kurdish region can draw inspiration from a fellow landlocked, mountainous state – wealthy and high-tech Switzerland.
Robin Mills is the head of consulting at Manaar Energy, and the author of The Myth of the Oil Crisis
