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IRAQ: Gulf Economies Peg Boom to Reconstruction
By N Janardhan
DUBAI, Apr 14 (IPS) - The fall of Baghdad is good news for the Gulf
Cooperation Council (GCC.) countries. Apart from the war resulting in very
little political damage, the U.S.-led military blitzkrieg limited the
economic fallout as well.
With the task of regime change nearly complete, barring a new
administration in place, the GCC countries are eagerly waiting to benefit
from the long and costly Iraqi reconstruction programme.
Apart from the rebuilding business, the end of war will help economies
with increased flow of direct foreign investment, which will have a direct
impact on the capital available for the reconstruction programme.
With three wars in two decades and more than a decade of UN sanctions,
the bill for rebuilding Iraq is estimated to be 100 billion dollars. It is
also expected to take years to rebuild the infrastructure and revive the oil
sector, both contributing to optimism for economic growth in the GCC
countries, comprising Saudi Arabia, United Arab Emirates (UAE), Qatar,
Bahrain, Kuwait and Oman.
With much of Iraq under U.S. control, the danger of a spillover of war is
a thing of the past for investors. As a result, stocks are rallying and
changing hands at record levels in Saudi Arabia and Kuwait.
The Kuwaiti Stock Market, the second largest in the Arab world, ended the
first quarter with a 21 per cent gain, over and above the 39 per cent
recorded in 2002. The rise is driven by expectations that Kuwaiti companies
dealing with transport, telecommunications, banking and other support
services will benefit from the reconstruction process.
Given the small market and the realisation that there is little scope for
expansion in their own terrain, Gulf companies, especially in Kuwait, have
reportedly approached bankers to see under what conditions they can borrow
money to invest and expand operations in Iraq, which has a market of over 25
million people.
Moreover, with oil income making up for at least two-thirds of the state
revenues in the GCC countries, the reconstruction programme offers the best
means of expanding the scope of business. The GCC governments, companies and
banks are likely to be the potential sources of capital for strategic and
political reasons.
Kuwaiti analyst Ali Jaber al-Sabah is of the view that infrastructure
will play a big role in determining the volume of business. ''Countries with
facilities to support the rebuilding process will have the upper hand,'' he
said, singling out UAE, Kuwait, Bahrain and Saudi Arabia as the main
beneficiaries.
According to a senior economist in a UAE bank, financial institutions
will profit immensely, especially those in Bahrain, which is positioning
itself as the leading financial hub in the region.
''UAE, the main trading centre in the region, will particularly
contribute towards emergence of re-exporting opportunities,'' he said,
adding that firms providing supplies to the American and British forces will
also profit.
One sector, for example, that is hoping to make big gains is the shipping
industry. The United States has earmarked about 2.5 billion dollars for
procurement of commodities and supplies out of the 75 billion dollars
approved by the Congress for military expenditure and reconstruction.
Much of the commodities related to daily needs will be sourced from Dubai
in the UAE because of its marine and air connectivity facilities and its
position as a regional business hub, said an official at Clarion Services.
A statement from the Dubai Port Authority said that they were working
closely with shipping and logistics agencies to ensure smooth flow of
humanitarian efforts. The Dry Cargo Department is already coordinating and
handling the World Food Programme's shipping activities, both incoming and
re-exporting, as well as other cargo projects into Iraq.
However, suspicions run high that the United States will hand out much of
the rebuilding contracts to its own companies, leaving the regional firms
with little or nothing.
According to Trinity University professor Mary Ann Tetreault: ''The
scrambling among U.S. companies and their champions in the administration
and in Congress for shares of the rebuilding contracts is already unseemly,
and they soon will be joined by governments representing firms based in
countries opposed to the war, who are unlikely to get even a crumb. Even
British firms will be lucky to get a share.''
''Assuming the answer to 'if' turns out to be yes, then 'how' is likely
to be limited to sub-contracting," she added. "Even that could help to
invest the region in the outcome of the war in a positive way, especially if
social and political reconstruction goes well and GCC citizens are on the
ground observing and talking about it. The Kuwaiti fire-fighting team put
out the first oil well fire(s) and the Kuwaitis were also the first to take
in humanitarian aid.''
The best way, according to the Kuwait specialist, to assess what the
larger GCC economy could expect from reconstruction is to ''see what
happened after the 1991 war, when a similar, in some cases identical, cast
of characters occupied the inside track.''
Tetreault said: ''Although there was a great sense of gratitude towards
the United States, which led to biased contract awards initially, firms from
other nations eventually were included on individual projects. The most
interesting, if least representative, example was the fire fighting, which
started out with four or five North American contractors and broadened out
to about 30, partly because of the magnitude of the task.''
Kuwaitis, she added, were ''just about the last to be included and they
acquitted themselves very well. But the big guys still held the inside track
on the rest of the large projects, even in Kuwait.''
Despite the understanding that the United States will make a good deal
off Iraq, the mandate issue - which bars the occupying force from taking any
decision that will have long-term sovereign implications - is unlikely to
allow Washington to have the entire cake as they had once hoped for.
(END/2003)
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