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Iraq: privatization in desperation.

For several years Iraq has indulged in tentative steps towards privatising public sector enterprises. They have not always been taken very seriously. But now, under the increasingly severe pressure of UN sanctions, the regime appears to be on the verge of a major sell-off of state companies.

WITH NO immediate end in sight to the UN-imposed trade embargo, Iraq has decided that the best way of revitalising its economy and boosting domestic output lies in privatising much of its state-run industrial sector. The Revolution Command Council (RCC) has issued a decree authorising the industry and minerals minister, General Hussein Kamel Hassan, to transform the ministry's factories into limited companies. The state will retain a shareholding of at least 25%, while the remaining shares are to be sold at public auction on the Baghdad stock exchange to Iraqi companies or individuals, with the proceeds going to the Finance Ministry, the RCC decree stated. Companies formed from the privatisation move were also offered the incentive of a 10-year tax exemption.

The Industry and Minerals Ministry is in charge of several thousand enterprises producing textiles, cement, clothes, bricks, electrical appliances, food, construction materials and other products. According to 1992 statistics, Iraq had 46,760 industrial units in 1990, employing over 110,000 workers. Reuters news agency quoted Baghdad traders as saying that the sell-off was intended to draw excess money out of circulation, combat inflation and strengthen the sinking dinar. "Iraqis have a lot of dinars. Some do not know what to do with them. I believe it will be a good investment," it quoted a Baghdad trader as saying.

The RCC promised to give the new limited companies financial incentives to get them off the ground, including interest-free loans from the Finance Ministry worth at least five million dinars. The move follows the privatisation of almost 50 Iraqi factories in 1987, as part of government moves towards economic liberalisation.

In 1992, following the United Nations' imposition of sanctions two years earlier after Iraq's invasion of Kuwait, the government opened up the banking sector, and since then a few state-owned assets have been put up for sale.

The privatisation drive follows a cabinet reshuffle in early September in which the prime minister, Mohammad Hamza al Zubaydi, and eight other ministers lost their posts, although the key portfolios of foreign affairs, defence, interior, and culture and information remained unchanged. The newly-appointed prime minister, Ahmed Hussein. Khudayyir, was the third man to hold the post since the Western-led coalition drove Iraqi forces out of Kuwait at the end of the 1991 Gulf war.

President Saddam Hussein told the new cabinet that their priorities should be to curb profiteers and hoarders, and to pay more attention to providing security for the Iraqi population and meeting their food requirements. Saddam indicated that there would be no let-up in the campaign reactivated in 1992 against alleged speculators and middlemen, of whom more than 40 were executed in 1992.

Perhaps out of sensitivity to allegations that his son Uday was beginning to monopolise the distribution and sale of food and other essential goods, the Iraqi president warned his ministers: "There is no task above that of serving the people, alleviating their burden and putting an end to their exploitation by middlemen, parasites and those toying with the wealth of the people and the country." The government newspaper Al Jumhuriyah, for its part, described Iraq's market economy as "a theatre of the absurd", and admitted that official statements about cracking down on food profiteers were issued primarily for public consumption rather than to initiate punitive action. Successive surveys by United Nations agencies and other international bodies conclude that while Iraq's hopes for economic resurgence once sanctions are lifted remain positive, the immediate prospects reflect a different picture.

Hospitals remain short of drugs to deal with patients. There is no end in sight to the UN-imposed trade embargo, despite attempts by the state media to link a lifting of the embargo to what they describe as Baghdad's compliance to the vast majority of conditions imposed by the UN so far.

The picture has worsened since the UN's Food and Agriculture Organisation reported in mid-1993: "There is soaring unemployment, drastically reduced food intake, large-scale depletion of private assets, high death levels, escalating crime rates and rapidly increasing numbers of destitute people."

In fact mortality is still increasing, much of it linked to the continuing UN sanctions, Iraqi ministers argue. The health minister, Umid Madhat Mubarak, said in September that as a result of medical shortages, some 4,000 children under the age of five were dying each month, compared to 700 a month before the Gulf crisis. Deaths among Iraqis over the age of five had risen from 1,800 to 6,500 a month during the same period, while over 300,000 people had died since 1990 as a result of "sanctions-caused shortages in Iraq's health services", he claimed. He added that Iraqi hospitals were currently operating at 50% of normal capacity because of the shortage of medical supplies, and many were forced to turn away all but emergency cases.

In anticipation of lucrative new contacts once the international sanctions are lifted, Iraq has been sending out feelers to its erstwhile trading partners. A visit to Baghdad in August by a Russian trade delegation ended amidst some acrimony, with the Russian foreign ministry reiterating its support for the international sanctions in force against Iraq.

Iraq's trade minister, Mohammad Mahdi Saleh, has urged businessmen from Turkey, where many also want an end to the embargo, to circumvent sanctions, promising them preferential terms for any deals struck between Baghdad and Ankara. Ankara claims that it has lost more than $2bn annually in transit dues because of the enforced closure of the 1,000-kilometre pipeline linking northern Iraqi oilfields with Turkey's coast on the Mediterranean.

Despite remarks by the Turkish prime minister, Tansu Ciller, that Turkey might cooperate with Russia in a bid to mitigate the Un embargo imposed against Iraq in August 1990, it is still unlikely that the government in Ankara will break ranks with its NATO allies in unilaterally breaking the embargo by setting up deals with the Iraqi government.

"As long as the sanctions against Iraq are enforced, Turkey is going to follow them," a Turkish diplomat in Baghdad said. Turkey remains the only member of the American-led alliance against Iraq to have reopened its embassy in Baghdad.

Notwithstanding that, flights by aircraft of the Western-led anti-Saddam coalition continue to take off from Turkey to patrol Kurdish-controlled areas of northern Iraq.

In late September Turkey and the United States signed an agreement for a US grant to Turkey valued at over $125m. So any future moves in Ankara perceived as pro-Baghdad are more likely to stem from Turkish intra-party politics infighting rather than from any freelance Foreign Ministry initiative, irrespective of the closet support among some in Ankara for a speedy rapprochement with Baghdad in the interests of lucrative trade relations once the United Nations sanctions are eased or lifted.

Baghdad argues that now that it has fulfilled the major part of the United Nations' requirements on the resolutions arising out of the invasion of Kuwait in 1990, and the Gulf war the following year, international sanctions against it should be eased, and eventually lifted altogether.

When that eventually happens, future prospects for the privatised industrial sector can only improve, with growing domestic demand when the eventual resumption of oil exports fuels the anticipated reconstruction boom.
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Title Annotation:Business & Finance
Author:Feuilrehade, Peter
Publication:The Middle East
Date:Nov 1, 1993
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