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Billions Pour Into Iraqi Reconstruction.

As Iraq's US-backed transition from dictatorship to democracy approaches the end of its third year, lucrative contracting by foreign and Iraqi firms has moved behind the perimetres of US-built military installations. US and other companies left in droves after a mob in Falluja, the Sunni-dominated hotspot west of Baghdad, lynched four US private security contractors from Blackwater Corp in April 2004 as the insurgency mushroomed. Heightened security risks made Iraq all but impossible for the small "wildcat" companies that had been plying its back roads in soft-skinned 4x4s, rustling up orders for cement, air conditioners or whatever could be ferried in from Turkey and Jordan for new US bases.

Yet statistics hardly bear out a mass exodus. The number of US civilian contractors has climbed from about 14,000 in April 2004 to more than 30,000 at present. The Falluja disaster meant a boost for private security companies, whose payrolls now represent more than 25% of the costs for US-funded reconstruction projects, according to the US embassy in Baghdad.

Despite the shock of the insurgency, the US Agency for International Development (USAID) points to more than 2,300 US-funded construction starts in Iraq, "more than two thirds of what we planned to do" at the outset. The US government has provided roughly $21 bn - in project value, rather than cash - for rebuilding Iraq. So far, US reconstruction agencies have paid $12 bn for work completed, much of it on water and electricity contracts, while another $5.5 bn is currently contracted out, according to US officials.

Many US aid-funded reconstruction projects entered their "spending phase" earlier this year, when allocated funds started turning into "cheques going out the door", US officials say. And lately, larger portions of the work appear to be going to Iraqi companies. Recently the government announced a $20m US-funded electricity contract for Najaf, the Shi'ite holy city now mainly under Iraqi control, with all engineering work set aside for Iraqi contractors. Such companies keep a low profile, but they are profiting handsomely from reconstruction, as growing inward transfers to the local banking system show.

While US agencies tend to favour private contractors, the reconstruction ministry keeps its state-owned builders busy too. Companies such as al-Mu'tasim, Farouq and Hammurabi, in turn, hire a slew of family-run outfits for low-skill labour.

According to Brookings, unemployment has probably fallen from 50% after the invasion to less then 40% now. The Financial Times on Dec. 8 quoted the US State Department as saying about 125,000 Iraqis were employed on US government-funded projects in the previous week, although the number fluctuated by several thousand from one week to the next, suggesting many casual jobs. Rising Iraqi wages, mainly a dividend of US-backed reconstruction, have caused demand for commercial imports to soar.

On the surface, however, US-led reconstruction has still failed to deliver benefits to most of the Iraqis. The national electricity grid is more off than on, and oil refineries are still a mess, forcing the government to spend much of this year's investment budget on fuel imports. With crude oil exports rarely above 1.6m b/d, and falling for the past two months, little cash has been available for Iraqi-funded reconstruction projects, according to Hussein al-Uzri, chairman of the Trade Bank of Iraq (TBI), which has replaced the discredited oil-for-food scheme.

Based on the TBI's letters of credit, most of the government's purchases are for short-term needs: medicine rather than hospital equipment; portable generator sets as much as parts for mainline power plants. Worse, much of the spending went through middlemen in neighbouring Jordan, resulting in grossly inflated costs, Uzri said.

Other Arab contractors have cashed in on reconstruction. One Egyptian company selling US-made infrastructure equipment recently secured a $14m order for power units with Iraq's State Company for Oil Projects (SCOP). But the same supplier said it had raked in oil-for-food deals worth $100m during the three years before the invasion. The 2006 budget, recently discussed in parliament, will focus more on ramping up oil exports, Uzri said.

President Bush on Dec. 7 sought to highlight "quiet, steady progress" in reconstructing Iraqi cities such as Najaf and Mosul, where he said residents were "seeing tangible progress in their lives". His speech blended old rhetoric about the wider war on terror and the challenges facing young democracies with an attempt to inject more details about progress amid mounting domestic criticism about the war. However, Democrats attacked the speech for failing to provide clear economic, military or political benchmarks for success.

Bush acknowledged that in Najaf "the reconstruction had proceeded with fits and starts since liberation", and that sustaining electric power remained a "major challenge". But he said security was improving and new water treatment facilities were being installed. In Mosul, he blamed problems on the fact that terrorists and Saddam loyalists had initially gained control with car bombs and ambushes. He said: "Fifteen months later, new businesses and markets opened", while Iraqi security forces were now responsible for day-to-day security.

Jack Reed, a member of the Senate Armed Services Committee, and a leading spokesman for the Democrats on Iraq, drew attention to a recent inspector-general's report that set out concerns about the scale of reconstruction. Reed said electricity supply was still below pre-war levels, while the Bush administration had failed to rally the international community which had pledged $13.3 bn in aid in loans and grants, adding: "They have given just $436m in loans and $167m in grants, less than 5% of the initial pledges". Last month Stuart Bowen, the inspector-general, found that of 3,200 projects initially proposed, 1,887 had been completed while more than 400 contractors had been killed. Concern about fraud was underlined last month when Robert Stein, the former comptroller for the Coalition Provisional Authority (CPA) in the South Central Region of Iraq, was charged - with other officials - with accepting bribes and kickbacks of up to $200,000 a month.
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Publication:APS Diplomat News Service
Date:Dec 12, 2005
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