Once-Barren Basra Is Back in Business

June 02, 2011

Once-Barren Basra Is Back in Business


BASRA, Iraq—Basra was a lethal tinderbox for much of the period after the 2003 U.S.-led war in Iraq. Fighting between militias terrorized residents in this city of three million. Services were nonexistent.

Now, the once-deserted downtown is buzzing with locals and expatriates who buy clothing and munch on ice-cream cones into the evening hours, while developers cash in on reconstruction projects even before the U.S. military's planned end-of-year withdrawal.

In the latest sign of progress, the Basra Investment Commission announced Thursday that it would issue 19 new investment licenses to local and foreign companies on Saturday valued at up to $174 million—bringing total licenses awarded to 39 valued at up to $874 million. The commission expects to grant as much as $3 billion in development projects over the next two years—for new housing, power stations, schools, roads and other infrastructure after a long period of underinvestment.

The shift underscores how far Basra has come from the dark days a few years ago, and most locals are optimistic about the U.S.-led withdrawal in December. The reemergence of the international oil industry has generated increased confidence that Iraq has attained enough momentum to ride out the departure of international troops later this year. That has also boosted the prospects of investment opportunities in housing, transport, retail and other sectors that can capitalize on Basra's proximity to the Iraqi oil field.

Indeed, about 35 British businessmen held a conference in March with the Basra Chamber of Commerce to size up the opportunities for investment in Basra's future.

There continue to be challenges as well, including allegations of government corruption, visa difficulties for expatriate workers and the lack of direct flights to major European cities. Few cite security as their chief concern these days, however.

Emblematic of Basra's rapid metamorphosis is the planned revamp of Camp Bucca—a sprawling prison run by U.S. military, once known as Iraq's Guantanamo Bay. Earlier this year, the Basra Investment Commission awarded a project valued at $245 million to convert the area into a commercial center. U.S. forces built Bucca in 2003 on the Kuwait border and housed terrorism suspects from all over Iraq. Dogged by accusations of abuse from human-rights groups, Bucca closed in September 2009.

The makeover project was awarded to a consortium consisting of Kufan Group and Northern Gulf Partners, said Haider Ali Fadhel, head of Basra Investment Commission, a state-run entity.

"God willing, Basra is flourishing and attracting foreign businessmen," said Mr. Fadhel.

Long the center of Iraq's oil industry, Basra is especially well placed now that the oil comeback has moved into the operations phase after a lengthy period of uncertainty following the war. Iraq hopes to quadruple its output from today's level of 2.6 million barrels a day, with much of the growth coming from large oil fields less than two hours from Basra by car.

BP PLC, which is developing Iraq's largest oil field, the nearby Rumaila site, has recruited more than 3,000 Iraqis and plans to double that number in the coming years. Other oil giants, including Royal Dutch Shell, Exxon Mobil Corp. and Italy's Eni SpA, plan to build massive base camps near Basra. Dozens of Iraqis were queuing to get jobs ranging from drivers to qualified oil engineers in a recruitment office in Basra last month.
"I get 60,000 Iraqi dinars [about $50] a day for shuttling workers from Basra to the oil field and vice versa," said Razaq al-Batat, who drives a minibus. A couple of years ago when there was less opportunity, Mr. al-Batat would have earned less than a quarter this wage, he said.

The Basra governorate also garners a reliable stream of oil revenue from the central government. Although oil sales are managed by the national government in Baghdad, a law passed in 2009 by Iraq's parliament guarantees Basra $1 for each exported barrel of crude from its oil fields. With about 1.7 million barrels of oil exported via Basra every day, this means the Basra governorate will get $1.70 million a day, or about $51 million a month.

Mr. Fadhel and other Basra officials say the city could be braced for an even bigger boom in the coming years in light of the need for new housing, power stations, schools, roads and other infrastructure after a long period of underinvestment.

To be sure, Basra still faces some important challenges that could constrain its future. Businesses face difficulties in getting Iraqi visas and myriad red tape when dealing with bureaucracies, according to Sabih al-Hashimi, who heads the Basra businessmen's association. The lack of direct flights into Basra from London, Paris and other centers is also problematic and forces travelers to change planes in Kuwait, Dubai or Amman.

But local business boosters are hopeful after an investment law amended earlier this year by Iraq's parliament that permits foreigners to own land. Mr. Fadhel of the Basra Investment Commission calls the measure "a step forward."

The new Iraqi investment law exempts investors in some projects from corporation taxes and fees for a period of 10 to 15 years, and from import fees for required equipment for a period of three years. They are entitled to employ foreign workers, if needed, and to repatriate investment and profits.

Zaab Sethna, who is leading the conversion of the Camp Bucca prison into a retail and office complex, said the challenges in Basra are manageable compared with other parts of Iraq.

"There is some corruption elsewhere in Iraq but we haven't seen the like in Basra," said Mr. Sethna, partner and head of Baghdad office of Northern Gulf Partners, the company that won the license to invest in Bucca. "Where there is some security concern elsewhere in Iraq, we don't have such concerns in Basra. The local security and police forces are very helpful."

Northern Gulf expects the complex to provide warehousing and service equipment to oil companies and others who work in Basra, the Basra oil field and the surrounding area. One advantage of the complex—so far the only U.S. military camp to be converted into a mixed-use business center—is the sophisticated state of the roads, buildings and water systems, said Mr. Sethna.

"The Americans have already built very good infrastructure in the facility, he said.