As hundreds of families stroll through rows of Mercedes-Benz, Jaguar and Range Rover vehicles at a weekend auto show in early March, it’s hard to believe you are in the country of Iraq.
Cranes dot the skies in Kurdistan, which is
seeing a boom in residential and commercial building
Photo: Susan Mohammad
Unlike the rest of Iraq since the ouster of Saddam Hussein in 2003, the Kurdistan Region in the north (which is governed by the semi-autonomous Kurdistan Regional Government, or KRG) is stable, even thriving. A U.S. Consulate was opened in the regional capital of Erbil in 2011, and both the Hilton and Marriott hotel chains are building properties there to take advantage of increased tourism to an area rich in history, natural gas and oil. In the past few years, business offices or consulates representing 24 different nations have been established.
According to the KRG, Kurdistan experienced GDP growth at an impressive rate of 8% last year. This growth, combined with the replacement of socialist policies with free-market legislation in the years following the collapse of Hussein’s regime, has succeeded in attracting foreign investors. To add to the prosperity, Iraq has just passed the largest annual budget in its history — $100 billion, up from $82.6 billion in 2011 — with Kurdistan set to receive 17% of that figure through transfer payments under the new Iraqi constitution. After Saudi Arabia, the budget is the second largest in the Middle East.
Following decades of war, sanctions and repression, Kurdistan is rebuilding at a break-neck pace. The region is in need of many services, creating opportunities for foreign firms in everything from construction to agriculture, education and banking.
In 1988, more than 180,000 Kurds were killed and 90% of their villages destroyed by Saddam’s regime during an operation known as the Anfal campaign. Many Kurds were also forced off their agricultural lands and into relocation camps or cities. As a result, the region’s rich farmland is mostly unused making Kurdistan very dependent on trade and imported goods from Turkey and Iran. Turkey is Kurdistan’s largest trading partner, with more than $6 billion worth of goods traded between the two neighbors in 2011. While Kurdistan does export oil to Turkey, trade is mostly a one-way street. The regional government is redeveloping the local agricultural sector in the hopes of becoming more self-sufficient. To achieve this, the KRG is encouraging city dwellers to relocate to villages using financial incentives such as no-interest agricultural loans, and by providing up to $20,000 for families to build a home in the countryside. Improvements to neglected infrastructure such as roads and dams, and the construction of massive food storage silos are also under way.
There are an estimated 2,000 foreign-owned companies operating in Kurdistan, which has a population of nearly five million people (in an area roughly the size of Switzerland). Of that number, the regional government says 53% were Turkish-owned, while the other companies were mainly from the United Kingdom, Europe, Asia and the United States. There are currently 87 U.S. firms operating in the region (compared with just nine in 2010) and that number is expected to increase dramatically by the end of 2012 as more American companies learn of the region’s attractive incentives.
These enticements include loans of up to $2 million (US) for foreign-owned SMEs to set up shop in Kurdistan, and a low corporate tax rate that varies by industry but averages at 5%.
“Any foreigner can own land where they set up their projects free of charge and they are tax exempt for seven years, which may be extended for up to 15 years in some cases,” said Fathi al Mudaris, Economic Advisor to the KRG Minister of Trade and Industry, outlining further incentives for foreign companies. “Investment law here also allows foreigners to own 100% of the shares,” he added.
Al Mudaris pointed to the construction industry, and the current boom in hotel and residential development in the cities of Erbil and Sulaymaniyah, as one area of opportunity.
“Our infrastructure has been ignored and destroyed for about 40 years and the growth rate of the community is such that our population will double every 14 years,” said al Mudaris. “The demand for construction materials is very high. We have a few cement factories and a large steel one, but we also import materials from Iran, Turkey and the Ukraine, so we need new resources for construction materials.”
A challenge for one is an opportunity for another
Kurdistan suffers from frequent but short-lived power outages. It also lacks an insurance industry and its banking sector is in its infancy. While this state of affairs can prove a challenge for some companies, it means opportunities for others.
Al Mudaris said the government is currently targeting smaller enterprises in order to “pave the way” for larger companies. “The policy of the KRG is to support all sectors to develop. Our people are friendly and we have no economic crisis. We hope to give the private sector a chance with our policies.”
There are currently no direct flights from North America to either of the two international airports in the region, but Lufthansa or Austrian Airlines provide service from Europe.
A temporary visa is issued to U.S. citizens at the airport upon arrival. Those wanting to extend their stays longer than 10 days must report to the Residency Office.