July 28, 2009 / 12:30 PM / 10 years ago

Iraq starts privatization drive, but progress slow

BAGHDAD (Reuters) - Iraq’s industry chief is battling a global crisis and a deep-rooted aversion to Western capitalism as he presses ahead with privatization to wrench the country free from past Soviet-style policies.

Fawzi al-Hariri, minister of industry and minerals, says he has broken new ground by ushering in Iraq’s first public-private partnerships, and plans to introduce new import regulations to bolster Iraq’s own industries.

“It’s little in international terms but a leapfrog in Iraqi terms,” he said of the up to seven joint ventures he has fostered between private investors and state-owned enterprises.

“It is unheard of to have private sector involvement in the public sector. We broke that taboo,” he said in an interview with Reuters.

As well as trying to entice private investment into war ravaged industries, Iraq plans to introduce import tariffs of between two and 20 percent early next year, a move it hopes will encourage foreign manufacturers to open factories in Iraq.

Iraq has some 67 state owned enterprises, which include 240 factories employing between 100 and 4,000 workers each.

Yet equipment is ancient, and even before sanctions and the war that ousted Saddam Hussein in 2003, Iraq had long supported unproductive state industries to keep people employed.

Plans to privatize or partly privatize Iraqi industries have hit a wall of suspicion among Iraqi lawmakers and the public who for decades lived with Saddam’s socialist economic policies.

Privatization legislation is stuck in parliament awaiting ratification, and Hariri said he did not expect any state industry stake sales until at least 2012.

Utilities such as water and electricity, and industries such as cigarette manufacturing are unlikely to privatized at all.

“You can see the sentiment in parts of the government and legislative parties regarding oil contracts, and how they view that as selling the state silver,” Hariri said, referring to rows over deals with foreign firms to develop Iraq’s oil fields.

SMALL BUT SIGNIFICANT SUCCESS

In the absence of privatization legislation, Hariri can only offer production sharing deals to foreign investors, who are promised the bulk of output over 10 to 15 years.

But plans to conclude 35 such deals by the end of last year were scotched by the global economic crisis and a sharp increase in state wages, which raised production costs, Hariri said.

However, he said he had had some successes.

Japan’s Marubeni Corp has entered a joint venture with Iraq and a private investor to develop a fertilizer plant, and the company has also expressed interest in a cement factory.

Iraq has a deal with Swedish truck maker Scania to assemble vehicles in the country, and also has an initial agreement with German carmaker Daimler for a production line, a deal Hariri hopes to finalize in August.

He said he hoped to revive a deal with the world’s largest steel maker ArcelorMittal, hit by last year’s slump in steel prices, to invest $1 billion in a Basra steel plant.

Iraq hopes to ratify import tariff legislation early next year in preparation for its entry into the World Trade Organization (WTO), a move Hariri said the body had approved.

Iraq is currently a virtual free-for-all for importers.

“We want to certain protections, because once you’re in the WTO, you’re open and fair game for everybody in the club,” Hariri said, adding that some protectionist measures would only be in place for five years by agreement with the WTO.

Korean products by manufacturers such as South Korea’s LG Corp are particularly popular in Iraq, and Hariri hopes import rules will push such firms to manufacture in Iraq.

“LG said to me, ‘Why should we manufacture or assemble in Iraq when we could be selling?’,” Hariri said.

“I said, ‘Well, not for long’. They’re now talking to us.”

Editing by Missy Ryan and Richard Balmforth

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