Iraq's moribund manufacturing sector appeals for help

Reuters News
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Posted: Jun 22, 2011 6:36 PM
Iraq's moribund manufacturing sector appeals for help

By Khalid al-Ansary

BAGHDAD (Reuters) - Standing beside the dust- covered machines of his idle biscuit and sweet factory in eastern Baghdad, Fadhil al-Abboudi says Iraq's small private manufacturers are feeling abandoned.

Despite government announcements of ambitious plans to expand Iraq's oil sector, whose huge energy reserves invite comparisons with Iran's, Iraqi entrepreneurs see no such support for moribund small and medium-sized private industries.

With their businesses shattered by years of chaos and war, lacking government support and unable to compete against a flood of cheap imports, thousands of Iraqi manufacturers have sold or mothballed their plants or converted them into storage sites.

Power and water shortages, security worries in a war-ravaged country where shootings and bombings remain daily occurrences and high customs tariffs all compound the dismal picture for the private Iraqi SMEs whose factories used to manufacture everything from food to fabrics, metal and plastics.

Abboudi's dreams of re-equipping his factory are dead, and he despairs of restarting his business and reconquering a share of the Iraqi market now swamped with foreign imports.

"At one time, the foreign products couldn't match ours in price. Now it's the other way around," Abboudi told Reuters.

All around eastern Baghdad, hundreds of similar small factories are also inactive. Many display 'For Sale' signs.

Abboudi reckons he would need roughly 1 million Iraqi dinars ($855) to buy the diesel needed to restart his machinery and rehire his workers. But even if he does, he does not think he can match the prices of imported goods without making a loss.

"The government asks us to compete with the imported items but they don't support us with loans nor protect our products with laws. What is happening now is that the market is being flooded with imports," Abboudi said.

There are around 40,000 privately owned small and medium sized enterprises across the country but 70 percent of these had already come to a halt even before the 2003 U.S.-led invasion that toppled Saddam Hussein and triggered years of turmoil and sectarian slaughter which disrupted economic activity.

Eight foreign firms, including French and Japanese companies, have so far invested in various sectors under Iraq's Industry and Minerals Ministry, according to an official.

In early 2010, the ministry of industry awarded a $200 million contract to France's Lafarge SA to rehabilitate Kerbala cement factory, while Japan's Marubeni Corp and Kawasaki Heavy Industries won a contract in 2009 for the Kubaisa cement factory in Anbar province.

Many of Iraq's 240 factories were looted in the aftermath of the 2003 U.S. invasion. Some are outdated or located in areas still controlled by Islamist insurgents.

Sectors open for investment range from construction, engineering, petrochemicals and fertilizers to food, drugs and textiles.

"REFUSE DUMP" OF CHEAP IMPORTS

Private manufacturers hoped the fall of Saddam might revive their fortunes, but they have been disappointed.

The rate of paralysis of private manufacturing increased in the post-Saddam period to 90 percent and the remaining factories are operating at reduced capacity, some as low as 10 percent.

"We used to have developed and sophisticated machinery compared to neighboring countries and we met our local demand," Hashim al-Atrakchi, chairman of the Iraqi Federation of Industries, told Reuters.

But economic sanctions in the Saddam era followed by eight years of conflict and sectarian bloodshed, coupled with diversion of resources to the military have robbed Iraq's private manufacturing sector of any competitive edge.

Both Atrakchi and Abboudi complain the government has not adopted a clear policy to charge tariffs and taxes on imported products. These had existed under Saddam's government to protect local manufacturing.

But there are some signs that the grievances of local businessmen are being heard in the national parliament.

Parliament speaker Osama al-Nujaifi said last month the 325- seat assembly would work to draw up laws that would crack down on imports of poor quality products from dubious origins.

"The Iraqi market has become a refuse dump for such products," Nujaifi said.

In 2010, Iraqi's government approved four laws that introduced import tariffs, protections for local products and consumers and anti-monopoly laws.

But this is small comfort for machine-maker Raad Qassim who says the laws have had little real impact on revitalizing local manufacturing. "Neighboring countries buy my own machines and use them and then send us their products," he said.

Abboudi said he and other factory owners were considering suing the U.S. and Iraqi governments in international courts for damages and losses they had suffered in the eight years since the U.S.-led invasion, and for the current lack of support. They were planning to ask for at least $6 billion in compensation.

"We've reached a state of despair about the government doing anything for us," Abboudi said.

(Writing by Khalid al-Ansary; Editing by Jan Harvey)