Kurdistan's Economy: Economic Overview

[Aslan]

The Kurdistan Regional Government territories in northern Iraq have been semi-autonomous since the 1990 Gulf War and subsequent protection of the region from the hostile forces of the Hussein regime forces by the Allied establishment of a no fly zone, called operation "Provide Comfort".

The beginning of the de facto state is best summarized by a quote from Laurence Quills book Invisible Nation: How the Kurds' Quest for Statehood Is Shaping Iraq and the Middle East.

"That was the beginning of the de facto state of what I call the law of unintended consequences," said Abramowitz. Nobody involved suspected this was anything but a humanitarian mission. Years later Abramowitz realized they had accidentally created the semi-autonomous region of Kurdistan.

"But at week's end Secretary of State James Baker had a road-near Damascus conversion. Ambassador Abramowitz convinced the secretary of state that his visit to Ankara should include a flight out to see the magnitude of the crisis on the border. Baker, along with his director of policy planning, Dennis Ross, helicoptered in to the mountainside camp at Qukurca.

As Baker stepped down from the helicopter, thousands of desperate men, women, and children swarmed around him begging for food. He stayed for about twelve minutes. The international media's initial reaction was to deride Baker for showing up in his Texas cowboy boots for a photo op and leaving so quickly.

Morton Abramowitz would later call it the most effective twelve minutes spent in the history of refugee work.

Until the moment he landed, Baker had been arguing with Ross that the United States needed to keep Iraq from splitting apart above all other concerns. Ross felt that America had a moral obligation to help the people who had been encouraged to rebel. Ross coordinated with his counterpart in the Pentagon, Paul Wolfowitz, and they even came up with joint talking points to convince their bosses, Cheney and Baker, to do something. But the trip to the border did it all. Indeed, Baker later described the scene of the exodus in biblical terms. On the plane back from Incirlik air base Baker called President Bush and told him the U.S. policy needed to change. The American generals, who had been celebrating the end of their nice neat war, got a call from Washington telling them to prepare to airlift food within thirty-six hours."

Thus, it is important to note that Kurdistan had a de facto government since 1990; there is continuity of governance – a key reason why Kurdistan has a strong potential to prosper - unlike the central Bagdad government.

This separate status was further solidified in 2003 during Gulf War II, when the region became a logistics and basing headquarters for coalition forces.

Relatively untouched by the two successive wars which shattered southern Iraq, its isolation and natural alliance with the coalition, particularly with the United States, proved its political and economic salivation – with the upshot that it is anything but isolated now, with foreign investment, oil companies, consultants, builders and engineers flooding in from Turkey, Europe, the GCC, Lebanon and now and increasing number of companies from the UK, the USA, and Germany.

At the top of the list driving the region’s economy is Kurdistan’s gas and oil reserves, estimated respectively at 100-200 trillion cubic feet and 45 billion barrels, with possibly another 25 billion potential barrels in unproven reserve.

That along with a rapidly emerging market in infrastructure construction, telecom, power network, residential and commercial building along with advance urban planning and other management consulting has led to growing FDI, which was sparked by the region’s progressive 2006 law enacted three years after the fall of the Hussein government.

Part of the Federal Republic of Iraq, the region is working not only for its own benefit but to assist growth throughout the whole of Iraq, but there are strains in relations, as the Kurdistan section in a play of real politique is making oil deals on the side, with companies ranging from Dutch Shell, to Exxon Mobil and most recently in the news headlines --- a joint partnerships with Turkey for an dedicated oil pipeline from the region to Turkey. While Baghdad has grumbled about this arrangement they have not led to a split or any military encounters.

The Kurdish Regional Government begun exporting crude oil by truck to Turkey during the summer and the recently announced pipelines project is expected to be completed by 2014.

Still up in the air is the settlement matter over regional ownership of oil rich Kirkuk and Mosul, majority Kurd cities.

There is some criticism of dependence on oil creating a single commodity supported economy; also of the fact the public sector is overly large. According to report from Sulaimaniyah province, the provincial government employs 249,000 workers and that an additional 77,000 are being paid as pensions.

This has come in answer to a private sector that is still nascent in its growth – but with great expectation, according to government and private sector planners. Though bloated, because of the government using the public sector as an mass employment program the unemployment rate in the region has gone down to 14 percent in the Kurdistan region and to 11.9 percent in Sulaimaniyah province.

Citing just a few short facts in addition to the oil reserves: the region is tipped to hit a 12 percent GDP by year’s end; the autonomous region boast 450 major projects valued at USD $21 billion, of which at least 20 percent is being funded in part through Foreign Direct Investment (FDI) .

According to Herish Muharam, Chairman of the Kurdistan Board of Investment, a total of $7 billion is expected for investment by year’s end by FDI and local investors. Muharam added that Egypt comes in first on the FDI front which in the first five months of this year invested $497 million, followed by Lebanon with $231 million. Other significant investors this year include Kuwait and Turkey.

[Aslan]

Economy: Emergence of Market Economy in Kurdistan

Economy: Transition from Socialist to Market Economy in Kurdistan and Emergence of Real-Estate, Infrastructure and Tourism

A prominent area of early investment since 2006 has been in the lucrative real estate sector.
Fidaden Garde, head of the Sana Group and a board member of the Erbil Chamber of Commerce and Industry sat down with Marcopolis recently to comment on a wide range of economic matters.

Garde was asked in particular to comment on the sustainability of the housing sector, which has accounted for a large percentage of investment versus the possibly higher priority infrastructural sectors, tourism, IT, services and education, the latter three which could transform Kurdistan into a knowledge economy and net exporter of goods.

He noted that at the time of the 2003 US invasion there was a severe housing shortage in the Kurdistan region due frictions with the former regime and also the effect of sanctions against all of Iraq, and therefore of the first economic priorities was the housing sector.

“There was a severe housing crisis in Kurdistan, that’s why I think that the (political) opinions headed mainly to improve the housing sector in Kurdistan Iraq, and now I guess after that period - after these housing projects were done in Kurdistan – the priority lies in industry, agriculture, and tourism sector.”

Looking at the possibility of a real estate bubble – often a phenomenon in boom economies with many recently created wealthy citizens, Mr Garde said: “No, I think the prices are going to stabilize at a specific level. The prices increased because of many reasons; one of these reasons was the amount of cash in the market, and the priority was in the housing sector.”

Another real-estate insider, Peshraw Majid Agha, the Chairman of Empire World - acolossal 2.3 billion real-estate project - agrees with Garde: "most of the real-estate transactions are in cash loans so it is not risky like USA, Dubai or Europe. Majority of buyers are local investors so they don't take money and run away. They are living in Kurdistan and this is their home. Market is not saturated but very hard to predict house prices. Region's stability will continue to contribute to housing market. "

On the question of the chief challenges that the KRG’s quickly developing economy might encounter in the near term, Mr Garde was frank, noting that: “The challenges exist and will do so in the future as well, notably in the private sector.

He pointed out however that on the economic front the region was increasingly embracing capitalism more, thus unleashing the potential of the private sector.

“Kurdistan had been under a socialism system and laws until 2003, and now it has changed and the economy is heading towards a free economy,” he said, adding “Kurdistan is secure and stable. Our challenges are the remainders of what we had suffered in the past: infrastructure (deficit and damage.)”

Mr Garde said that the contracting sector was going forward at a strong pace in order to address the large infrastructural problems.

“The contracting sector in general is very effective in Kurdistan, because Kurdistan greatly needs this sector in order to build what had been damaged during the old regime.” He said.

“The contracting sector in Kurdistan is doing well, it is very active and contractors are trying to take advantage of many benefits from the foreign expertise – as our contractors work together with big or small foreign companies and they develop together several projects in Kurdistan.”

Among other large projects is the new highway being built between the region’s capital of Erbil and its second largest city Sulaymaniyah. Also, the prime minister performed the ground breaking for a new international airport in Duhok in late September. Duhok International Airport will be the third airport in the Kurdistan Region. After its completion in 2015, travellers will have direct international access to each of the region’s three provinces. The key airport in Erbil has recently added new facilities and continues to grow markedly.

A number of hotels are under construction including the nearly complete five-star Divan Hotel in Erbil, an $80 million investment by a Turkish hotel group. Also the Marriott group and Kempinski group have nearly completed two large towers. The center of much business and social action is the Rotana Hotel, part of an Emirati-owned group.

There are at least 21 major business hotels in the Kurdistan region’s three main cities: Erbil, Duhok and Sulaimaniyah, owned by a variety of groups and investors.

[Anthea]

Thank you for an interesting and extremely informative and very well written article