Iraq's economy shows signs of growth

BAGHDAD -- Businessman Issam al-Assadi reclines in a chair in his spacious villa with sweeping views of the Tigris River, as a servant pads over to serve tea.

Iraq is finally open for business, says al-Assadi, a powerful entrepreneur whose network of construction and other companies has won millions of dollars in Iraqi government contracts. "International companies are starting to come to Iraq," he says.

Buoyed by an increase in oil production and declining violence, Iraq's economy is showing signs of life.

Iraq has boosted oil production to 3 million barrels a day with the help of international oil companies. That's up from the 2.5 million barrels before the 2003 U.S.-led invasion. The government expects to expand capability to 10 million barrels a day in six years, which would put it at the top of world oil producers.

Baghdad streets are jammed with late-model cars, and restaurants and cafes are open well into the night. People have more disposable income and can buy an infinite array of consumer goods. "There is a sense money is percolating," says Kevin Carey, a senior economist at the World Bank.

The International Monetary Fund forecasts Iraq's economy will grow 11.1% this year to about $144 billion.

But there's no shortage of reasons to be wary. Iraq's government is not fully formed, two years after elections. Bitter political and sectarian fights have threatened to bring the government to a standstill. The government still struggles to provide basic services, such as electricity. Al-Qaeda remains a threat and is trying to trigger a civil war by targeting Shiites with bombings.

"The security situation is getting better, but they know that any day, it can implode," says Subhi Khudairi, an Iraqi-American who does business in Iraq.

Encouraging U.S. investment

One of the encouraging signs of Iraq's economic recovery is foreign investment.

Last year, Iraq attracted $55.67 billion in foreign investment and other commercial activity, a 40% increase from the previous year, according to Dunia Frontier Consultants.

That means investors are looking past the perceptions of Iraq as a violent place, analysts say. "If you can get some foreign investors interested, you're doing something right," Carey of the World Bank says.

American companies were initially hesitant to enter Iraq. "We always encourage American companies to come here, but they hesitate," says Shaker al-Zamily, director of the Baghdad Investment Commission. "We ask them to not miss the opportunities."

He said Chinese firms have shown no hesitation. "If you go to Wasit, it's like Beijing," he said referring to an oil-rich province in the south. China's Shanghai Electric has a $1 billion deal to expand a power plant there.

Last year, China's investment and other business activity in Iraq was valued at more than $3 billion, according to Dunia. South Korea ranked No. 1, with about $12 billion in Iraq, according to the report. A South Korean real estate developer is in negotiations on a deal potentially worth $35 billion to build 500,000 housing units and related infrastructure, according to Dunia.

The real estate business is expected to expand rapidly as Iraq's government attempts to close an acute housing shortage. Iraq estimates it needs to build more than 800,000 homes or apartments, al-Zamily says.