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Mon 15 Feb 2010 04:00 AM

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Business guide: Operating in Iraq

The overwhelming potential that work in Iraq holds for the majors embarking on their mammoth tasks will deliver an immense opportunity for hundreds of Middle East based oilfield service companies, EPC contractors and niche technology providers.

Business guide: Operating in Iraq
Gary Soper, first secretary, head of UK Trade & Investment in Iraq.
Business guide: Operating in Iraq
John Desrocher, minister counselor for economic coordination, US State Dept.

The overwhelming potential that work in Iraq holds for the majors embarking on their mammoth tasks will deliver an immense opportunity for hundreds of Middle East based oilfield service companies, EPC contractors and niche technology providers.

If the work is to be done in the timeframes suggested, domestic knowledge and skills will be nowhere near enough.

However, doing business in Iraq can be a costly, frustrating and difficult business. For the first time in many years, however, the opportunity is so great that it easily outweighs the pitfalls, as many first-movers from the international and Gulf region are finding.

To open the lid on the business environment in Iraq, Oil & Gas Middle East tracked down Baghdad residents John Desrocher, minister counselor for economic coordination, US State Department, and Gary Soper, first secretary, head of UK Trade and Investment, Iraq.

"The Iraqi message is very much one of investment. They are very keen to see more companies establish operations there, but also to broaden that whole dialogue to include trade as well," explains Soper.

However, getting your investments off the ground in Iraq will be an uphill task. "It is clear that in some ways this is a challenging place to do business. This is a country which is essentially rejoining the world economy for the first time in decades," outlines Desrocher.

For small and medium size enterprises Iraq remains a small but growing opportunity landscape. For the time being the biggest rewards are there for the multi-national companies which carry the clout of global support with them.

Breaking into to Iraqi markets also represents challenges quite beyond those of the rest of the region. "It's important to bear in mind that the private sector is still small in Iraq. Over 43% of the working population is employed by the government or state owned enterprises, so there isn't the same dynamism in private hands that you find elsewhere," explains Soper.

"However, it's still early days and there is a very steep learning curve under way. You can see from the difference in the way the first and second oil bid rounds were undertaken that the improvements are being made swiftly."A further consideration is that a great deal of international work is predominantly handled by the ministries. SME's might not have the level of financial backing required to stay in for the long haul currently required.

In terms of getting started, both Desrocher and Soper agree that your home country's embassy or trade mission is the best place to start. Following that step, the National Investment Commission, which was established in 2006, is the next port of call. The NIC, led by its Chairman Dr. Sami Al-Araji, is the face of private investment in Iraq, with a mission to serve as promoter, facilitator, monitor and policy advisor for firms looking to invest in Iraq.

"The NIC is one of the first places we would direct people and can help companies clear all the hurdles and challenges which are out there. They are really very dedicated and they work very hard promoting investment, as well as being good people to work with," says Desrocher.

Whilst a number of agencies have sprung up focused on specific industries, in theory to streamline processes and procedures, but it is not always clear where the lines of demarcation between them lie, and vested interests still have a habit of coming to the fore. Clearly not a market for the feint hearted, but things are improving.

Government ministries don't have the pedigree of making important decisions. The ingrained system is that everything goes up to the highest level. "There have been instances of $40,000 projects which aren't signed off because trade and development contracts do not have a framework in place. There is a natural tendency to send everything towards the presidential office for authorisation," says Soper.

For companies looking to set up in Iraq and finding office space in the International Zone (formerly the Green Zone) the consensus is be prepared to progress slowly. "There are companies on the ground in the International Zone which have facilities for rent - either for flying visits, kitted out as a standard board room, as well as temporary and medium term office units," explains Soper.

For long-term partnerships the model appears to be that once companies have the confidence to set up a local joint venture that will facilitate moving out of the International Zone.

The market is clearly not one for the feint hearted, and much ground work must be laid before embarking on your business plan. Rich pickings won't come quickly, and finding a suitable JV partner looks to be the best vehicle for medium-term penetration. For the firms that successfully crack the major projects, the rewards are unparalleled in the coming decade.