Iraq 'needs $7bn to re-invent its industrial sector' says minister

Country's industry chief says government wants to sell more than 90 per cent of the nearly 200 companies it owns covering everything from petrochemicals to food.

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Although improved security is allowing Iraq to rebuild its shattered industrial sector, the country needs up to US$7 billion to help it recover from years of war and sanctions, its industry minister said. "At the present estimate, I would think it will require between $5bn and $7bn of investment" to "re-invent the industrial sector in Iraq in a modern way," Fawzi Hariri said. "What has been spent to date has been less than one billion dollars," said Mr Hariri, a 52-year-old Christian member of the Kurdistan Democratic Party, who has held the post of industry minister since 2006.

Iraq's industrial sector, which was once among the region's most advanced, has been wrecked by 30 years of destructive wars and sanctions. "Probably 97 per cent" of government revenue over the past few years has come from oil," Mr Hariri said. Iraq fought Iran from 1980-88, invaded Kuwait in 1990 and was expelled in 1991. It was then targeted by crippling UN sanctions until the 2003 US-led invasion, which unleashed a wave of internecine violence that persists to this day.

By "2003, almost 99 per cent of Iraq's industry was at a standstill," Mr Hariri said. "It was either destroyed, looted or was shut down." Since then, some progress has been made. "Today, over 70 per cent of the factories are actually working and producing," although "they are not working to the right capacity." Mr Hariri's ministry controls 70 companies in six sectors: construction, chemicals and petrochemicals, engineering, food, pharmaceuticals and textiles. Other ministries own another 122 companies.

But while many companies are state-owned and could theoretically be well-funded, Iraq's myriad needs have drained the country's coffers and created intense competition among government enterprises for scarce cash. Security, health, education, oil and other needs "took a priority on the government budget in comparison to the needs of industry," Mr Hariri said. "Therefore, we were working with very limited resources."

Since government funding has been lacking, private-sector investment has taken on crucial importance in rehabilitating the sector. Because of the need for more funding to come in for rehabilitation and the lack of funding from the government, "We had to go for private sector investment," Mr Hariri said. There are currently at least 10 state-owned enterprises in joint ventures with private firms, he said.

"These are joint venture agreements based on production sharing, which means that the investor will come to take charge of the whole facility, manage it, invest in it, develop it, and we will share the end product for a period of time," he said. Mr Hariri said he wanted to have 50 joint ventures, but "security and instability have actually prevented many people from coming forward." Security concerns were "a major, major, block, but it's getting a lot better," he said.

Iraq will eventually happily privatise between 90 and 95 per cent of its state-owned enterprises, Mr Hariri said. As of now, however, those companies cannot legally be sold off, and the minister hopes a law allowing for such sales will be in place by the end of next year. However, he said, when Paul Bremer, who headed the US-run Coalition Provisional Authority, ordered the sale of state-owned enterprises soon after the 2003 invasion that ousted Saddam Hussein, "it was like having a broken-down vehicle ... and you put a 'for sale' sign -- nobody would buy it".

Developing government-owned companies, including via joint ventures, will make them more valuable in an eventual sale, Mr Hariri hopes. New laws have been passed but not yet implemented that include legislation to prevent the "dumping" of goods in the Iraqi market and to impose tariffs on some imports and will also aid industrial development, he said. Asked if some sectors have priority for development, Mr Hariri said: "We need to get them [all] moving and working to make sure they are not a burden on the budget."

"At the moment, we are looking at somewhere in the region of 25-plus per cent of our budget that goes on salaries and pay" for the ministry's roughly 200,000 employees. "We need to cut that drastically, to something around 10 per cent," he said, and "to do that, we need to encourage private sector development." The government has three plan periods for certain goals to be accomplished, Mr Hariri said. In the period ending this year, the aim "is stabilising the facilities and getting them started".

The goal for the second period, from 2011 to 2015, is to "develop further partnership and investment and possibly privatisation". From 2015 to 2020, the goal is "supporting the development of the private sector" so that industry eventually accounts for five to 10 per cent of Iraq's currently oil-dominated economy. But that all "depends on the capacity of us being able to attract [foreign direct investment], and our capacity also to attract more money from the existing budget."