The Tricky Business of Rebuilding Iraq

7 MINS READFeb 13, 2018 | 18:40 GMT
Children who lived in Mosul play at their temporary home in a camp for people displaced from the war-scarred city.
(KARIM SAHIB/AFP/Getty Images)

Displaced Iraqi children fly kites, made from plastic bags, at the Hamam al-Alil camp for internally displaced people south of Mosul.

  • Iraq’s development needs and its poor economy mean Baghdad will depend heavily on external funding, whether in the form of aid, loans or investment from private companies.
  • Corruption and poor security will plague development projects in Iraq, although global interest in shoring up the country’s stability is guaranteed.
  • Arab Gulf states are keen to increase their participation in Iraq’s reconstruction in part to help stabilize the country and in part to use connections there to challenge rival Iran.

Years of conflict, corruption and neglect have left major portions of Iraq's infrastructure in tatters. Now, with a semblance of stability returning to parts of the country, an international scramble is on to help Iraq rebuild, one railroad, highway and oil refinery at a time. To this end, representatives from almost 2,000 companies have gathered in Kuwait City for a conference highlighting scores of projects that span a breadth of sectors including agriculture, oil and natural gas production, and transportation. Like any other construction-based conference, this one, hosted Feb. 12-14 by the Kuwait Chamber of Commerce, features the typical crush of contractors and vendors. But the projects they may be competing for come with an added layer of complications created by Iraq's geopolitical position.

Iraq in 2018 exists in a fragile state. Although 2017 marked a landmark year of liberation from the Islamic State, the militant group's shadow continues to haunt the country, and remnants of violent extremist organizations persist in some corners. Throughout Iraq, swaths of land remain underdeveloped, and infrastructure needs that long predated the Islamic State's rise in 2010 remain unaddressed. Iraq has long suffered food insecurity as a result of poorly utilized agricultural capacity, water scarcity as a result of destroyed or aging infrastructure, and a sheer lack of housing, schools and hospitals. (Some of the projects being promoted this week are even designed to rebuild infrastructure damaged during Iraq's war with Iran in the 1980s.)

Iraq's fragility extends to its political sphere as well. In the lead-up to general elections later this year, the popularity of Iranian-backed militias and their political arms has been made clear as electoral lists are constructed, underlining Tehran's pervasive influence. Adding an element of urgency to the conference, Sunni politicians have clamored for reconstruction in places ravaged during the fight against the Islamic State, mostly areas of Sunni majority. Their demands have drawn particular interest from Sunni-majority states like Turkey and the Arab Gulf states that oppose Shiite Iran and particularly would like to see Sunni-majority areas of Iraq thrive, and to use natural inroads to Shiite communities to foster political connections that they can use to circumvent Iran’s spread.

The layers of complication added by Iraq's continuing security woes and its political ties to Iran are not the only challenges to reconstruction. Chronic corruption, which remains corrosive despite the current government's push against it, discourages private companies from sinking money into development projects. Despite these barriers, however, Iraq's strategic importance will guarantee significant global interest in supporting its redevelopment.

The companies represented at the conference come from more than 70 countries, all of which realize, at least to some degree, the extent of the challenges ahead for the Iraqi government. It must try to control a low-lying area of the Levant that is prone to invasion while guarding resource-rich land prone to exploitation and managing a diverse population. By helping to shore up Iraq in the midst of these perpetually challenging circumstances, those countries are trying to ensure that the country’s outsize security and governance issues (which metastasized into the global security threat posed by the Islamic State) don’t extend beyond the country’s borders again.

Addressing the Job at Hand

Under discussion in Kuwait City are 157 development projects as diverse and wide-ranging as subway systems in Baghdad, agricultural fields in Nineveh province, oil and natural gas infrastructure in oil-rich Basra, and highway projects across swaths of desolate land. Iraq’s planning ministry is specifically encouraging private-sector involvement in projects in vital economic segments including energy, transportation and logistics, water, health, construction, and agriculture. What’s clear from its broad agenda is that scope of the infrastructure needs that Iraq hopes to address will go beyond simply rebuilding what was lost. Its ambitions extend to fulfilling some of the country's long-neglected needs as well. This will boost the total funding required for all projects beyond the $88.2 billion estimate put forth Feb. 12 by the Iraqi government for the conference-spotlighted projects. It estimates that about a quarter of that total is urgently needed.

The High Demands of Iraqi Reconstruction

Although Iraq is one of the world's leading oil-producing states, it is in poor economic straits and cannot provide the funding that it needs to participate in profitable public-private partnerships. About 60 percent of Iraq’s gross domestic product is derived from oil revenue, with non-oil revenue contributing less than 10 percent. What's more, Iraq's aging oil and natural gas infrastructure is also in need of international investment. Like all countries whose economies are heavily dependent on oil, Iraq faces pressure to diversify. But without the liquid assets and wealth possessed by richer neighbors, like those in the Arab Gulf who are navigating their own economic shifts away from petroleum primacy, Iraq will be forced to depend on aid, loans and public-private partnerships with international companies willing to work with Iraqi companies to fulfill the development projects in question.

The Iraqi government's estimate of what the projects will cost includes the money it must provide to fulfill commitments within a public-private partnership framework. To help Iraq hold up its end of those bargains, nongovernmental organizations including the International Red Cross and groups from France, the United Kingdom, Qatar, Turkey and Kuwait have thus far promised it grants totaling $330 million. The balance would have to come from private companies willing to take the risk that the government in Baghdad might not be able to adequately match their investments.

As shown by the volume of attendees at the conference, there is no shortage of companies eager to take part in rebuilding Iraq despite the risks. But until stability returns, it will be difficult for many of them to dependably make a profit in Iraq. This is why the World Bank took to the stage Feb. 12 to implore companies to trust that it will help guarantee commitments made by the Iraqi government to agreements to develop the projects at hand. The problem, of course, is that the World Bank cannot guarantee that the Iraqi government will solve its corruption issues or be able to physically secure development sites. Security and corruption issues will both continue to plague Iraq long after this conference ends, ensuring that the development projects it is showcasing will remain complicated long-term endeavors.

In the Sectarian Crossfire

Iraq’s relatively weak geopolitical position often makes it easy for more powerful countries to take advantage. Iran and Turkey both have long considered parts of Iraqi territory and segments of its population to belong to their own historic territory and heritage. Deep and long-established commercial networks between Turkey and Iraq and between Iran and Iraq essentially allow companies from those countries preference to the most desirable projects. The preeminence of Iran in particular is formidable in southern Iraq, while Turkey is prevalent in the north.

These political barriers do not discourage a keen interest by other countries in involving themselves in Iraq’s reconstruction. This year, the most interested come from among the members of the Gulf Cooperation Council (GCC), who share both the Arab ethnicity of Iraq’s majority and a keen interest in challenging Iran’s regional reach. Conference host Kuwait, which has promised the greatest portion of the aid pledged so far to Iraq, exemplifies the GCC effort to foster Iraqi reconstruction. Kuwait’s interest is also a reflection of the deep historic ties between its business communities and those in southern Iraq.

By appealing to Iraq’s Arab roots, and committing some of their ample wealth to its reconstruction, the GCC states are showing their desire to use economic and political involvement in Iraq as a means of confronting Iran's hegemonic interests in the country. Turkey also shares a long-term interest in using its economic ties to Iraqi companies to increase its own influence at Iran's expense.

Finally, the tricky relationship between the United States and Iraq — and the depth of U.S. concerns about Iran’s growing reach in the country — is reflected in its exhortation to the Arab Sunni GCC states to invest heavily in Iraq’s reconstruction. While the U.S. government already has clearly indicated that it will not commit funds to the conference, it has strongly encouraged its Arab Gulf allies to contribute. The U.S. push not only recognizes the benefit to Iraq of access to the Gulf states' wealth, but it also has the added bonus of encouraging states opposed to Iran to make commercial inroads in a place that Tehran had considered signed, sealed and delivered for itself.

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