Analysis: Iraq's open-door economy

Analysis By James Arnold BBC News Online business reporter

"Capital is a coward," US Treasury Secretary John Snow told a banking conference on Sunday.

"It doesn't go places where it feels threatened. Companies will not send employees to places that aren't secure."

Open for business?

Not the sort of message, perhaps, that Mr Snow's colleagues in the US-led Iraqi administration would like to hear.

They have just announced a sweeping set of reforms, intended to create a free-and-easy environment for foreign investors - including putting almost everything outside the oil industry up for sale.

But if capitalists really are such yellow-bellies, can the reforms have any possible chance of success?

Selling out

The announcement has already sparked a flurry of disquiet.

Opponents of the war have complained that the US is imposing its free-market ideology on an unready subject nation.

Having already dished out cushy reconstruction contracts to its favoured companies, they argue, Washington is now effectively auctioning off the spoils of war.

And even neutral economists have been rattled by the speed of the announcement.

As Mr Snow admitted, investors like to be assured of a certain fundamental stability in places where they put their money.

Iraq simply cannot offer that - as a fresh suicide bomb in Baghdad this week demonstrates.

Springing up

But maybe investors are not such cowards.

Getting money into infrastructure is the real challenge

Within days of Saddam Hussein's statues being toppled, a Bahraini firm was offering Iraqis the country's first mobile phone service.

That was quickly stamped on by the authorities, annoyed that the Bahrainis had not secured a licence in their haste to launch.

But a new mobile tender is in the works, and international companies - even firms such as France's Alcatel, not known for their pioneering daring - are falling over each other to take part.

Throughout the retail and service sectors, there are stirrings of business.

Korean electronics firm LG, whose advertisements festooned Baghdad streets even during the grimmest post-war days, is setting up a local branch, and is likely to be followed by rivals Daewoo and Samsung.

Basic business infrastructure, from internet cafes to hotels, is starting to emerge; a stock exchange is planned for launch by the beginning of next year.

The next step

Services like these - cheap and quick to set up - are always the first off the ground, in many cases springing up before the clouds of war disperse.

Low start-up costs, combined with extraordinarily rapid growth in demand, can make businesses such as mobile phone networks alluringly profitable.

The problem for Iraqi policy makers, however, is to lure serious money into the sort of areas that are both duller and more dangerous.

This is particularly tricky where heavy investment is required into fixed assets - building and operating rail networks, opening power stations, renovating chemicals plants and so on.

Here, capital genuinely is cowardly - if insisting that your staff and assets are not blown to smithereens counts as cowardly.

Trying to be friendly

Hence the Iraqi Government's unexpected liberality.

The weekend's economic reform announcement was not, as some commentators have inferred, the launch of a privatisation process.

Finance Minister Kamel al-Kilani was at pains to stress that the programme would be put in place in the hazily indefinite future, a timeframe underlined by Mr Snow's cautious comments.

Instead, the apparent invitation is merely a way of stressing that the Iraqi Government intends to be as friendly as possible to investors.

The previous regime, hemmed in by international sanctions, thought about privatisation but eventually remained quasi-communist in its economic policy - a stance the present government wants to distance itself from.

When you're dealing with cowards, especially wealthy ones, it pays to be as friendly as possible.