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U.S. Business Activity in Iraq Picks Up

With Iraq continuing to recover after years of war, American firms are increasingly looking to tap the country’s vast business potential.

Flag of Iraq
Antenna Audio, Inc. | Getty Images
Flag of Iraq

“As U.S. relationship with Iraq continues to transition, we see an increase in interest in commercial opportunities from U.S. companies,” says Lionel Johnson, vice president for Middle East and North Africa Affairs at the U.S. Chamber of Commerce.

In the first 6 months of 2011 U.S. business activity in Iraq stood at $2.92 billion, up almost $1 billion versus a year ago, according to Johnson.

Earlier this month, 85 American businesses and organizations, including 12 Fortune 100 companies, took part in the Baghdad International Trade Fair, according to the State Department.

“Iraq is now at the cusp of significant economic growth driven largely by oil exports and a major surge in government expenditure,” says Nicholas Skibiak, director at Dunia Frontier Consultants.

While political landscape remains very fluid, violence in Iraq has been relatively low in recent years, compared to peak of 2005-2007, adds Skibiak. He doesn’t expect the environment to significantly change with final U.S. troop withdrawal at year’s end.

Risks

Business environment in the country remains highly challenging. This year, World Bank ranked Iraq 166 out of 183 countries on the ease of doing business.

Potential investors should prepare themselves for significant security costs, cumbersome visa and business registration procedures, long payment delays, corruption and non-transparent dispute resolution mechanisms, says the report.

There is also “strong resentment and open hostility to Americans among many Iraqis,” notes Skibiak. “However, these attitudes are not in any way an impediment to U.S. firms.”

Tapping Opportunities

Dozens of American businesses are already operating in Iraq.

With companies like Exxon , Chevron , Marathon and Hess , a big chunk of activity is concentrated in Iraq’s rich oil and gas sector.

Country’s oil production this year returned to pre-war levels at 2.6 million barrels a day and is expected to grow to 3.4 million barrels per day in 2012. But activity is being hampered by logistical bottlenecks, decrepit infrastructure and bureaucracy.

U.S. firms are also working in agriculture, transportation, housing construction, banking, telecommunications, health care technologies and education.

More than two dozen projects were announced in 2011.

Best Western later this month plans to break ground on two hotels in the Kurdish capital city of Erbil. “Establishing the brand now provides us with a significant competitive advantage,” the company told CNBC.

Marriott also signed a deal for two hotels; Hill International received a major housing development contract, and Citigroup hired a former U.S. diplomat to spearhead its expansion in the country. Late last year, Microsoft opened a training center in Baghdad.

U.S. Lags Behind

But American firms dramatically lag behind Middle Eastern and European companies. Last year, U.S. non-energy-related commercial activity represented less than 1.7 percent of total foreign commercial activity, according to Dunia Frontier Consultants.

“U.S companies have tended to be much more risk averse than their European counterparts,” says Skibiak. “And several European governments have been very aggressive in pursuing government tenders and encouraging bilateral trade.”

“Iraqi government also is careful not to look like it's favoring American interests,” adds Skibiak.

Recently, the Obama administration has stepped up efforts to encourage U.S. investments in the country.

“It’s time for the United States to start thinking of Iraq as a business opportunity,” said Secretary of State Hillary Clinton at the U.S.-Iraq Business Forum earlier this year.

International Monetary Fund projects Iraq’s $100-billion economy to grow faster than China’s in the next two years, at an average 11.4 percent.

And exports of U.S. goods and services to Iraq are expected to increase from $3.3 billion last year to $8.5 billion in 2013, according to the National U.S.-Arab Chamber of Commerce.

Follow Karina Frayter on Twitter: @kfrayter