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Opportunity vs. Risk: U.S. Business in Iraq

Posted by: Joe Weber on May 20

With suicide bombers still striking at random and the U.S. scaling back its military presence in Iraq, American companies are reluctant to open their wallets to invest directly in the still-dangerous country or to put personnel on the ground. But some are testing the waters.

Nasdaq OMX Group, for one, is helping to keep financial commerce moving in Baghdad. The exchange company, parent of the famed Nasdaq exchange, provided new trading technology that recently began powering the Iraq Stock Exchange and that could open the way for outside investment.

“We are today providing numerous markets in the Middle East with the infrastructure for their exchanges and financial markets,” says Magnus Bocker, president of Nasdaq OMX. “It was natural for the Iraqi market and the Iraq Stock Exchange to work with us, given our expertise, and for Nasdaq OMX to be one of their partners supporting the rebuilding of their market.”

The Iraqi exchange, set up in 2004, has been a modest operation without the electronic trading capabilities now common across the world. The new system, launched on April 19, will give Iraqi companies listed on the exchange access to interconnected global trading systems. For now, just a handful of 100 or so such companies are on the new equities trading platform, but more will be added every month, officials at the Iraqi exchange (ISX) say.

ISX Chairman and Nawsheruan Baban and chief executive officer Taha Abdul Salam, in a statement on the Nasdaq system, said they are “enthusiastic about the potential for increased foreign investment on the ISX.”

Just how quickly that foreign investment will arrive, however, is unclear. New tractors and other gear from the likes of Case New Holland and Caterpillar have been showing up in Baghdad, according to officials of the U.S. Department of Defense’s Task Force for Business and Stability Operations. But such companies typically are avoiding direct investment: case in point, it’s not Caterpillar but an Egyptian licensee of the company, Mantrac Group, that is putting money into operations in the country and selling earth-moving gear through dealer offices there.

Even some American business leaders who are enthusiastic about the country’s potential for outside investors are cautious. Thomas J. Pritzker, chairman of Global Hyatt Corp., has visited Iraq twice since last July under the auspices of the Defense Department task force and even urged Americans to build investment ties there in an article he coauthored for the Chicago Tribune last fall. “My own view is if we want Iraq to be successful, we should replace the military surge with a commercial surge,” he said in an interview.

But Pritzker is not yet ready to commit personal or corporate funds to investments there. “I’ve met people now, met them twice. I don’t know what we’ll do, but we’ll keep in the loop and if something comes along …,” he says. “These things don’t happen overnight.”
Similarly, in the stock market arena, Nasdaq and the Baghdad executives expect that it will take time for investors to warm to the new Iraqi market, which they say should be treated as an emerging or developing-nation market. Local companies and market players need to learn and understand global standards, they say. Says Bocker, “when emerging markets grow, it’s a matter of building trust.”

Nonetheless, they say confidence among foreign investors and locals alike should be bolstered by the combination of electronic trading and – perhaps more important – a clearing system that assures traders that their stock purchases and sales will be settled in timely and accurate style.

Nasdaq, which was paid some $6.5 million in U.S.-provided funds for the exchange gear, has provided technology to power some 70 exchanges, clearing organizations and central securities depositories in over 50 countries. Among them are nine Middle Eastern countries, including Egypt, Saudi Arabia and Dubai.

Nasdaq does not expect to send in outside personnel to service the Iraq exchange. Instead, employees in such spots as Dubai and Riyadh will likely maintain the gear remotely. Says Bocker, “to support the technology, you don’t need to be there physically.”

If Iraq does settle down and become safe for Westerners, there is little doubt that it could prove to be a lucrative investment arena over time. “At the end of the day it’s an impeccable opportunity. It’s a country that’s been suppressed for 20-25 years,” says Samer Awwa, a business development executive at the Aon the insurance brokerage firm who has visited the country. “It has the skill set and the workforce and a tremendous amount of natural resources.”

But big, obvious risks remain. For now, Aon executives say, insurance coverage for operations in Iraq is available, but pricey. It could cost several times as much as insuring, say, a mining company’s operations in remote mountain locations.

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