Business | Opinion
Tightening state's grip
Iraqi factories, once seen as economic deadweights, are now considering a way to get thousands back into work and away from the country's militia recruiters.
- By Steve Negus, Financial Times
- Published: 00:00 March 13, 2007
Four US Blackhawk helicopters come in low over a sprawling automotive plant near the town of Iskandariya south of Baghdad. The factory complex is mostly a mess, strewn with jumbled railway cars and fields of broken tarmac.
But amid the decay sits a line of newly painted police cars just rolled out of the factory's workshops, evidence that this plant - once a flagship of Iraqi heavy industry but virtually shut down after the 2003 US-led invasion - is getting back on its feet.
The helicopters unload a team from the US Department of Defence, joined by several dozen US businessmen from a variety of companies involved in defence, manufacturing and other sectors. They are part of a push to reinvigorate the Iraqi public sector, an idea that emerged in Washington as post-invasion plans to dismantle the Ba'ath-era state sector and create a model of economic liberalism gave way to the necessity of fighting an entrenched insurgency.
Factories that were once seen as economic deadweights are now considered - at least by the US - a potential source of work for hundreds of thousands of Iraq's unemployed and an opportunity to drain the recruiting pool for militias and insurgents.
Ironically, says one of the factory's top managers, it is now the Iraqi government that needs to be persuaded to help get the public sector functioning again.
According to members of the Defence Department team, in the middle of last year the factory - the State Company for Automotive Industries at Iskandariya - was overgrown with weeds, the employees despondent.
Today, it is producing armoured buses - a contract given by the US military to jumpstart the business - in addition to smaller contracts, such painting cars for the Iraqi police.
Only 1,000 of the 5,000 workers listed as employed at the plant are in full-time work. A plant that the management says could roll out six to 10 buses a day is only assembling five a month.
Financial burden
The company was founded in 1970, at the beginning of then-vice president Saddam Hussain's campaign to industrialise Iraq. It specialised in assembling buses from parts provided by Sweden's Scania. During the 1980-88 Iran-Iraq war it built armoured trucks and missile launch platforms.
After the first Gulf war saw Iraq's infrastructure bombed and the country placed under sanctions, the factory became a jack-of-all trades, assembling radio towers and even dabbling in oil refining.
But though the state-owned heavy industry may have been an engine of Iraq's prewar economy, it was financially a burden, running billions of dollars a year in the red.
The US-led Coalition Provisional Authority, which took over the running of the country after the invasion, slated the factories for privatisation and slashed their subsidies.
"The initial approach . . . was a rapid disempowerment of state-owned industry, in an expectation that in a secure stable environment private industry would quickly emerge," says Paul Brinkley, deputy undersecretary of defence for business transformation.
The Americans say this model has seen at least partial success in regions such as eastern Europe, but in Iraq it was a flop.
CPA policy - combined with electrical shortages and the purge of technocrats who held high rank in the former ruling Ba'ath party - may have "disempowered" the sector, but no factories were sold and no private sector capable of employing anywhere near the same number of workers emerged in its place.
Economic desperation
Such plants were virtually shut down, and their workforce - as many as 500,000 for the whole public sector - sat idle on half-pay.
Soon however the US military was facing Sunni militants and a Shiite militia movement, neither of which ever seemed to lack for recruits. US officers became convinced that economic desperation pushed many Iraqis to become the insurgency's foot soldiers, risking their lives for a few hundred dollars.
Local commanders began to eye the vast but idle industrial complexes in their zones as a means to drain the recruiting pool of their opponents, while senior officers such as Lt Gen Peter Chiarelli, then the deputy commander of US troops in Iraq, began to push for a change in policy. Iraq's coalition government still has the factories slated for privatisation, but the Americans are trying to get the plants running in the meantime.
Brinkley was put in charge of a task force which is touring Iraq's factories to identify obstacles to reactivating production and to try to introduce potential clients and partners. With some factories, such as the Iskandariya plant, the Americans can award contracts directly.
"When we take [businessmen] to working, functioning factories where there's a skilled workforce doing complicated work, discussions immediately ensue for opportunities for joint ventures, potential investment. When you bring industrialists to . . . empty, idle plants and [idle] equipment there's no discussion to be had," Brinkley says.
Managers at Iskandariya, however, say this new policy is facing resistance from the Iraqi government itself. Contracts for vehicles are going abroad, or to the private sector. "We export oil, we buy goods, but we're not employing people here," one senior manager says.
The Shiites who now run most of Iraq's ministries may be shunning the state factories because they were too closely associated with the old regime.
In the meantime, the Iskandariya plant says it will hunt for partners to invest in joint ventures. Iraq's security problems need not be a deterrent, one manager says.
The partners can simply ship over the equipment, and any technical problems can be solved by internet.
US officials are not normally involved in persuading Middle Eastern governments of the merits of the public sector.
But Iraq has turned many preconceptions on their heads.
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