Iraq: Steel
Industry Overview
Across the Middle East, Arab
companies are positioning themselves to take part in the reconstruction of Iraq,
either as subcontractors to US firms working in the country, or as exporters and
suppliers of goods and services to the Iraqi market.
Some are even considering establishing joint venture partnership with the Iraqi
private sector. Hopes of windfall profits for companies working in Iraq have
pushed up stock markets in the region since the beginning of the year by more
than 54 percent in Kuwait, 14 percent in Jordan, 28 percent in Saudi Arabia, 64
percent in Egypt, 6 percent in UAE and 19 percent in Oman. While the expected
returns and profit margins in Iraq can be huge, the risk of doing business in a
country with no functioning legal system and in the absence of a stable and
recognized government could be equally high.
The transition to a new Iraqi government and administration endorsed and
supported by the people of Iraq may take at least two years to be accomplished.
During this period, companies investing in Iraq or trying to do business there
will be working in a country that lacks constitutional and legal framework. In
the absence of impartial judicial system that could enforce contracts signed
with Iraqi counterparties and protect the rights of foreign suppliers and
investors, the business climate will be quite risky. It seems that until Iraq
gets a new constitution and a representative government able to put in place a
culture of corporate governance, the current de facto administration of the
coalition forces will have to shoulder the responsibility for contractual
arrangements signed on behalf of the public sector.
In the middle of all these uncertainties, Iraq's oil and gas revenues over the
next decade will be nowhere near sufficient to meet the country's anticipated
reconstruction and development expenditure. Nor is there enough aid money likely
to be forthcoming to close even a small part of the shortfall. Neither the US
nor Europe or the Gulf countries are talking about anything like a Marshal plan
for Iraq similar to the one that helped rebuilding Europe after World War II.
The major potential sources of funding are, over time, likely to include
regional and international developmental institutions such as the US Agency for
International Development (AID), the European Investment Bank (EIB), the Arab
Fund, the Kuwait Fund, the Islamic Development Bank, the World Bank and the IMF
export credit agencies (tied to supply of home country equipment and services),
and companies willing to invest in Iraq's infrastructure and industries by way
of such financial structures as joint venture partnership, strategic
shareholding and through built operate and transfer schemes (BOT). When Iraq
reschedules its debt and starts repaying according to an agreed upon schedule,
it should be able to tap once again the international capital markets and to
borrow from regional and international commercial banks. It is worth noting that
one or two financial institutions in the region have already started raising
capital for country specific investment funds targeting business and investment
opportunities in the Iraqi market.
So far nine contracts for the reconstruction of Iraq worth $2,400 million have
been awarded by the USAID to American companies including Bechtel, Halliburton,
Motorola, MCI, Research Triangle Institute, etc. Bechtel's $680 million contract
gives the American company the responsibility for the design, rehabilitation,
upgrading and reconstruction of Iraq's infrastructure including one seaport,
five airports, electric power plants, road networks, rail systems, municipal
water and sanitation services, schools and health facilities, select government
building and initial satellite communications system. USAID has allowed the
major American companies to subcontract up to half the value of their contracts
to non-US firms, with an eye to benefit from the excess capacity available in
the region. Furthermore, federal regulations in the US prohibit supplying
materials from American companies if the cost is more than 6 percent higher than
can be obtained locally for the project. What will happen in effect is that
American companies like Bechtel and Halliburton will manage the projects, while
companies from Jordan, Kuwait, Saudi Arabia and UAE among others in the region
will provide material supplies and work on major subcontracts. Language,
communications, proximity to Iraq, ability to provide quality products and
services at competitive prices and knowledge of the local Iraqi market will
boost the competitive advantage of Arab contractors and suppliers.
Iraq is also a large consuming market for all sorts of products including food
supplies, clothing, cigarettes, pharmaceuticals, detergents, furniture, paper
products, cement, steel, fertilizers, cables, cars, tractors, computers, white
goods, satellite dishes, electronics, mobile phones, generators, and
air-conditioning among others. On the services side, the Iraqi market needs
consulting, banking, insurance, health and medical services, land transport,
advertising, auditing, printing, courier services, information technology, as
well as, legal and management support services among others. Most of these goods
and services could be exported to Iraq from neighboring Arab countries. In
certain cases, there are major advantages for building a manufacturing operation
in Iraq or establishing a presence in the country to provide professional
services. This could be the most successful way to enter the Iraqi market and
will give Arab companies a headstart vis-à-vis the competition. The best
approach is to establish joint venture partnership with one of the leading Iraqi
merchant families to capitalize on their knowledge of the local market.
Those companies who can wither the initial period of commercial and legal
uncertainties and are willing to act quickly will be handsomely rewarded. There
are ample opportunities across all sectors of the economy to invest in. Besides
rebuilding the infrastructure and expanding the country's manufacturing and
agricultural base, the list would include building first class hotels in Baghdad
and Basra, private hospitals, schools, department stores, storage facilities,
mobile telecommunication, entertainment centers and banks among others. The
banking system in Iraq for example needs a complete revamp. The large archaic
public sector commercial banks (such as Rafidain and Al Rashid) dominated the
banking scene for years. The 16 privately owned banks accounted for less than
6.6 percent of total deposits in 2001, and loans above $20,000 are a rarity.
Another promising sector in Iraq is the agricultural sector. With plentiful
water resources and fertile soil, Iraq main source of economic power besides oil
lay with farming. It was only until the 1950s that Iraq lost agricultural self
sufficiency when the government started to invest more in the oil sector. Iraq
has a variety of agricultural resources ripe for expansion by an entrepreneurial
private sector. Dates, vegetables, wheat, poultry products, cattle and sheep all
are likely to provide attractive business opportunities in the years to come.
To conclude, there will be ample opportunities for those Arab companies who are
interested to participate in the reconstruction and the rehabilitation of Iraq.
Some may choose to wait until a representative government is elected and a legal
infrastructure is put in place. While such a development would help protect the
investor and reduce the risk of doing business in the country, nevertheless, it
could take two to three years to materialize and once in place, companies would
end up reaping only normal returns. The more daring Arab companies who are
willing to take the risk and can design a strategy to mitigate political and
commercial uncertainties associated with the initial period, will find
themselves at the center of the 21st century's first goldrush.
Source:- Henry T. Azzam - Arab News -
16/06/2003
Basrah State Company for Iron & Steel
Iraq
Reconstruction: Important Links and Information
Iraqi Steel
Industry Overview
Iraqi Consumption of
Steel Products
Total Imports
of Flat Steel Products to Iraq in 2002
To add your news on
steel related business
Click Here. Your article
will be reviewed and after approval be advertised here.
|
