Western style clashes with old bureaucracy in Iraq

BAGHDAD Tue Aug 9, 2011 6:56am EDT

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BAGHDAD (Reuters) - After fighting for more than a year to get paid for reconstructing a government building in Baghdad, Iraqi businessman Abu-Deema says he is throwing in the towel and packing up for a market where he won't drown in bureaucracy.

His patience finally wore out when his paperwork was put on hold for a month while the senior account manager he was dealing with in the government went overseas on vacation.

"We are getting killed by red tape," he said. "It is in the personnel who implement these laws. They have to change their style of doing business."

While security remains a central concern for businesses more than eight years after the U.S. invasion, complaints about an ingrained culture of bureaucracy from the Saddam Hussein era highlight new risks as Iraq recovers from the worst of its sectarian conflict.

Registering and licensing a business in Dubai takes a week while in Iraq, it takes six to 8 months as applications are lost in a blizzard of duplicated paperwork, one foreign businessman at a U.S. enterprise pointed out.

The cost of goods soars as bureaucracy delays inspection of goods at port, he said. He struggles even to get some officials to use their email to communicate.

"They are trying, but the government still lacks public technocrats," he said. "Saddam has gone but his ways of conducting business are still entrenched in government. They are not embracing new governance methods, office technology or more open ways of doing business."

THE CASE OF THE TRADE BANK OF IRAQ

The battle between Iraq's state-run planning mindset and its desire to join the global economy may have erupted into the open with the recent dismissal of Trade Bank of Iraq chief Hussein al-Uzri, who fled the country after being accused of wrongdoing at an institution that is praised by foreign investors.

Uzri, a U.S.-educated banker, was accused by the Iraqi government of committing "multiple violations" related to bad debts costing millions of dollars. He went into exile in early June but denied the allegations as "unsubstantiated" and "fabricated."

Cabinet Secretary Ali al-Alaq, a top aide to Prime Minister Nuri al-Maliki, said at that time that authorities moved against the bank because its leadership was suspected of violating banking regulations and issuing improperly secured loans.

But some Iraqi senior bankers with knowledge of what happened behind the scenes said the charges against Uzri are unfounded.

Instead, they said, he was seen by some officials as a maverick who rocked the boat, making the bank a success story by multiplying its capital base four- or five-fold in a few years.

Uzri shook up the bank's culture, paying large salaries to reward executive successes and riding roughshod over internal bureaucracy. He also ran into opposition from government critics who saw him amassing power inside the state-run bank, some senior bankers said.

"Uzri's problem was the Western mentality that he has, and his Western style in running the bank," said a senior government banker on condition of anonymity. "This does not suit Iraqi officials or the prime minister, who wanted Uzri to run the bank with their Iraqi... mentality and Iraqi standards."

Iraqi executives say those like Uzri imperil their jobs by pushing for a more modern way of doing business.

"I wish I could act as he used to do at TBI. But I can't," said one Iraqi private bank president, who asked not to be named for fear he would be expelled. "There are some rules or ways of doing things, and we can't just drop them. But you know these have become old fashioned and they should be changed."

CENTRALISED UNDER SADDAM

Under Saddam's Baath Party, Iraq had one of the most centralized political systems in the world, riddled by red tape, favoritism and corruption, with Baath members dominating government posts.

And as in many other emerging markets, many Iraqis still speak bitterly of unchecked malfeasance they perceive from the lowest to the highest levels of government.

Iraq has good anti-corruption laws, but aggressive enforcement has yet to take place. The country ranks among the world's most corrupt nations in Transparency International's annual corruption perceptions index.

It also still suffers from dilapidated infrastructure and feeble power generation forcing residents to rely on generators.

Global oil companies are undeterred and have flocked to Iraq to help develop its world-class energy reserves.

But other firms are wary.

The banking sector, for example, is dominated by two large government controlled banks, Rafidian and Rashid, and a centralized system forces government offices to deal exclusively with government banks, hobbling the private sector.

"Such things always happen at the beginning when a country witnesses a big change," said one foreign investor, asking that his name not be used because of the sensitivity of the subject. "But I think it will be a matter of time."

"As more and more companies come to Iraq... things will improve and change and there will be an acceptance from both sides," he said.

(Editing by Patrick Markey and Sonya Hepinstall)

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