Iraqi Kurdistan still a tough sell to investors

By Missy Ryan

ARBIL, Iraq (Reuters) - Iraqi Kurdistan has been primed for a wave of foreign investment for years, but officials say the grand goals of a relatively peaceful northern enclave are frustrated by violence plaguing the rest of Iraq.

Kurdish officials dream big, speaking of bringing Europeans to ski the region's snow-capped peaks, building modern schools and hospitals and rejuvenating thirsty wheat fields.

In Arbil, the Kurdish capital some 310 km (190 miles) north of Baghdad, the streets buzz with activity. Several upmarket hotels and housing projects are going up on the outskirts of town. Direct flights arrive from Europe and westerners are a common sight in the city centre's booked hotels.

"We have many things: oil, iron, phosphate," said Baqi Salaye, a Kurdish businessman sipping sweet tea in an elegant, gold-trimmed reception room in Arbil's chamber of commerce.

Yet Salaye, who dabbles in aviation, tourism and other business, echoes widely felt frustration when he bemoans the muddled perceptions of outsiders, who often fail to notice that Kurdistan has been largely been spared the bloodshed in Iraq.

"If something happens in Mosul, they say 'northern Iraq.' If it happened in Diyala, they say 'northern Iraq,'" lamented Karim Sinjari, Kurdish state interior minister, referring to northern areas that fall outside the Kurds' autonomous region.

"So -- someone sitting in the United States -- you see the news and you cannot differentiate."

Kurdistan, closely allied with Washington for years, seemed poised to flourish after the U.S.-led invasion in 2003 toppled Saddam Hussein, the unflinching leader who had waged war against minority Kurds and slaughtered civilians en masse.

Since a new investment law was issued in 2006, promising investors a 10-year exemption from non-customs taxes, Kurdistan has licensed over 100 investment projects, said Nawroz Muhammad Amin, a senior official at the region's Investment Board.

Investments in housing, tourism, industry and other sectors, not including oil and natural resources, total around $16 billion from 2006 through mid-2008, she said.

About 16 percent of that was foreign investment, 25 percent Iraqi and foreign partnerships, and the rest local. Among outsiders, Arab companies have so far led the pack.

Damac, a developer from the United Arab Emirates, plans to begin work this year on a small city of residential, commercial and recreational properties near Arbil worth at least $6 billion, aiming to attract returning Iraqi exiles.

But Western investors are arriving more slowly, which frustrates Muhammad Amin.

"We visit different countries. We have an investment law. We have the government Web site, and ads on Arabic channels," she said, throwing up her hands.

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