Fastest growth on earth?

Kurdistan’s economy is thriving and investors are slowly overcoming their fears
August 22, 2012





“In five years Kurdistan will achieve what the Emirates did in twenty. You will not be able to recognize it.” Looking down from the top floor of the 23-storey-hotel where he works, overlooking a landscape dotted with construction cranes and new housing complexes, Cem Saffari does not conceal his pride when asked why he moved from a comfortable life in London to pick a job in Kurdistan, the autonomous North-Eastern region of Iraq. “Pioneers always win,” he says.

A middle-aged Turk in a dark suit, Saffari is the business development manager of the luxury five-star Divan Hotel in Erbil, the capital of Iraqi Kurdistan. The Divan cost $80 million to build and is the first foreign investment of a Turkish hotel company that already runs nine hotels in its home country. With 228 rooms whose prices range from $500 to $15,000 per night, the hotel's clientele is the ever growing number of businessmen willing to invest in a region with one of the fastest economic growth rates on earth. Kurdistan’s GGP grew by 8 percent last year, driven by the exploitation of its gas and oil reserves, which are estimated at 45 billion barrels (or about 40 per cent of Iraq’s total reserves). In 2012, local authorities expect 12 per cent growth in Kurdistan, higher than the 11.1 per cent forecast for Iraq which, according to International Monetary Fund, is already the fifth fastest growing economy in the world.

As the capital of the region, Erbil is enjoying the lion's share of a boom that has caused property prices to skyrocket. Housing complexes rising in empty outskirts of the city offer two-storey houses for more than $1m; shopping malls are mushrooming everywhere and luxury brands such as Porsche are coming into town. The Erbil stock exchange, whose project was put on hold for several years, is scheduled to open in the coming months, together with a new business tower and several major hotels. The city’s petrodollars and rapid growth have unsurprisingly gained Erbil the nickname of “the new Dubai”, but local authorities prefer to define Kurdistan as “the other Iraq” to highlight the stable and peaceful conditions of the region, in stark contrast with the sectarian killings and daily bombings that continue in the rest of the country. The security that the Kurdish Regional Government (KRG) has been able to provide is one of the main reasons behind the economic boom. Thanks to its ethnic homogeneity and own armed forces, Kurdistan has become a safe haven for many Iraqis and minority groups (Christians above all) who have fled the violence of Mosul and Baghdad.

Although the region's autonomy dates back to the end of the First Gulf War of 1991, when the UN enforced a no fly zone to protect Kurds from the vengeance of Saddam, it is only since 2003 that Kurdistan has been able to blossom, thanks to the lifting of economic sanctions against Iraq. “In 1991, Kurdistan was a big village,” recounts Fatih Ali Almudaris, an economic adviser at the local Ministry of Trade and Industry. “We had no telecommunications or highways and just a couple of hospitals.” In a sure sign of its new economic importance, the region now has seventeen consulates and foreign representations, seven universities and two international airports with direct links to cities like Vienna, Frankfurt and Stockholm. A new highway is being built between the two main cities of Erbil and Sulaymaniyah.

Today, Erbil boasts the attractions of an international city. Its shopping malls sell Rolex and Emporio Armani; the restaurant scene features pizzerias, sushi bars and Chinese food; and there is a go-kart track that charges a ridiculous $20 per lap. Romantic couples sip tea on the hills of Shanidar, one of the three, gigantic parks in town. The Saad al-Abdullah Music Hall is hosting more and more concerts, included one recently held by oud (lute) player Naseer Shamma, one of the most renowned musicians in the Arab world. Aware that oil will not sustain Kurdistan forever, the KRG is investing in tourism as well, rehabilitating Erbil’s massive citadel, the oldest continuously inhabited settlement in history that overlooks the bazaar and city centre. Inhabited since 2300 BC, the 10 hectares of ancient houses are being transformed into boutiques, restaurants and art galleries.

Although Kurds still regard with gratitude the 2003 US invasion of Iraq that liberated them from the yoke of Saddam Hussein, other countries have been quicker to exploit the economic opportunities offered by the region. Turkey and Iran are at the forefront. According to the local Ministry of Trade and Industry, of the 1,170 foreign companies registered in Kurdistan, more than half are Turkish. Turkish capital is financing everything from construction to oil installations, from jewelry boutiques to food products. “Iraq had been under an economic embargo for decades. When we opened up, we needed everything and Turkey was there with its expertise and quality,” explains Almudaris.

Turkish investment in Kurdistan might appear at odds with the country’s opposition to an independent Kurdish state. The government in Ankara remains highly sensitive to anything that might animate Turkey’s own, large Kurdish population. But Turkish companies have been investing in Kurdistan since 1996, well ahead of any other competitor, and they are now reaping the benefits.While more cautious foreign investors still associate Kurdistan with the dangers of Iraq, those on the ground in Erbil perceive a smart-long term strategy by Turkey, especially if claims for self-determination among the 28 million Kurds in Turkey, Iran and Syria begin to rise. “The Turkish plan was very clever: make this region economically reliant on them to thwart its political wings,” explains a foreign businesswoman living in Erbil, who asked not to be named for the sensitivity of the opinions expressed.

So far, though, building a Kurdish state has not been the main priority of the local authorities, who are busy trying to sustain the region’s rapid, recent growth. The lack of local expertise is a problem, and has forced the KRG to lure foreign firms with business-friendly regulations: ten-year tax exemptions; total ownership of companies and repatriation of profits; cut-price land for investment projects and an economic philosophy that changed beyond recognition from the state-driven policies of the previous regime. “In the 70s and 80s everything was belonging to the government,” says Dara al Khayat, President of the Kurdistan Federation Chambers of Commerce and Industry. Al Khayat is one of the richest men in Iraq. He built his Kurdish conglomerate of construction companies, upmarket retailers and farms from a family tailor’s business. “Now all the state companies have been privatized and our economy is definitely free-market oriented”.

Despite the undoubted opportunities, there are still factors that discourage foreign investment in Kurdistan, however. Building materials and some basic goods, like processed food products, are almost all imported. Water and electricity supplies have improved in recent years, but Erbil municipality is still only able to provide 17 hours of electricity per day, while in the countryside many villages don't have power at all. Speaking off the record, businessmen still cite corruption as major problem, and, most importantly, oil disputes between Kurdistan and the central government of Iraq loom over the region's future like a dark cloud.

While the national constitution entitles Kurdistan to 17 percent of Iraq’s total oil revenues (some $83 billion in 2011), Erbil and Baghdad are constantly bickering over the authority to grant exploration contracts in the region. The Iraqi government systematically denounces deals done by the KRG without its consent. Last year, the oil ministry in Baghdad claimed that a contract signed between the KRG and the US oil giant, Exxon Mobil, to drill six exploration blocks in Kurdistan was illegal and excluded the company from the list of bidders participating in the next round of national oil exploration rights. The ministry announced similar retaliation against Chevron after it too signed an exploration deal with the KRG in July, but as of yet neither company seems deterred. “The Iraqi government is too weak to enforce any decision against the KRG, so the oil explorations in Kurdistan continue,” confirms a diplomatic source in Erbil. But the blacklisting has had an effect: while more than forty oil companies have a presence in Kurdistan, many of the big names have stayed away. The tension is helped neither by Kurdistan smuggling abroad oil it is supposed to export through the central government nor by the continuing dispute over the status of the oil-rich province of Kirkuk. Once inhabited by a Kurdish majority but now jointly run by Iraqi and Kurdish forces, Kirkuk is still waiting to have its future decided by a referendum that was due to take place in November 2007.

Even if there are enough open questions to put off most western investors, Kurdish authorities are confident in the region’s longterm stability, and extent of the opportunity that exists there. “Here, anyone who has an idea can be the first one to put it in practice. It's a virgin territory,” explains 30-year-old Jamal Penjweny. Ten years ago, Penjweny was a shepherd. Now he roves from consulting for oil companies to working as a photographer to managing a small cafe in the centre of Sulaymaniyah, where Kurdish politicians like to boast that the cost of land is reaching Manhattan-like prices. Penjweny’s photography has been exhibited in galleries in the US and Europe (a project called “Iraq is Flying” was on show at Manchester’s Cornerhouse). He is the perfect example of how a creative mind can prosper in 21st century Kurdistan. Penjweny’s pictures of Kurdistan have been exhibited in the US and Europe. “Before, we weren't used to think beyond these mountains,” he explains, sitting in the garden of his cafe and looking at the peaks that encircle the city. “Not only the economy has grown fast, but also the mentality of the people.”

Sulaymaniyah shares some Erbil’s shiny new trappings – it boasts the headquarters of Asiacell, a Kurdish telecoms company with a presence right across Iraq and its own, enormous new hotel - but the city is better known as a cultural hub, and the cradle of a Kurdish identity whose existence was threatened so many times under Saddam. The city centre still contains the Amna Suraka ('Red Jail' in Kurd), a gloomy complex of red buildings where Saddam’s forces used to detain and torture political prisoners.

Overrun in 1991 by the Kurdish uprising, the prison is now a museum where plaster-works demonstrate torture techniques of the past. In the basement, photographs show the victims of al-Anfal, the three-year-military campaign launched by Saddam in 1986 that killed 182,000 Kurds and destroyed 4,000 villages. Visited by scores of schoolchildren every day, the prison lies beside a former military base which is now a park named Azadi ('freedom' in Kurd), to symbolize the new era the region is experiencing and the importance of an achievement no economic development will ever match.

“Working here has a special feeling. This was one of the main places were Kurdish identity was wiped out,” says Ako Ghareeb Maroof, the museum’s director. Maroof spent seven years fighting in the mountains as a peshmerga, as the freedom fighters were known. “The ongoing development is good, but the real dream for me is to be able to live in a free country. We always defended our roots and culture, and we will always do so.”