Queue forming for post-war contracts

THE prospect of a share in the vast project to rebuild Iraq has heightened the anticipation of many companies. Some estimates put the cost of reconstruction as high as $100 billion.

This is more than the $90bn dollars spent by the US in the late 1940s and early 1950s on the famous Marshall Plan which kick-started the reconstruction of Western Europe.

Clearly the war has produced losers as well as winners. Both Russia and France are said to be owed around $8bn dollars each by the Iraqis and there are now suggestions from Washington that these debts, much of which were run up in the purchase of weapons systems, should be forgiven.

The current anti-French mood in the US has hit exports of certain French products such as wine, and visits by tourists to France, already hit by war uncertainty, may be further affected on the margins.

However, Russia is far more vulnerable, given the fragile nature of its economy and that country's dependence on oil revenues, massively boosted in the run-up to the conflict.

To the victors have gone the spoils. The invasion of Iraq was still underway when the US Government started dishing out the contracts. Setting the early space was a Seattle-based transport services company called Stevedoring which has landed a contract worth almost $5m to run the deep water port of Umm Qasr, liberated with great difficulty in the early days of the war by British forces.

The US foreign aid agency, USAID, is collecting bids for everything from road construction to teacher training. The really big winner to date, meanwhile, has been the huge building conglomerate, Bechtel, which has landed a contract worth almost $700m.

US companies have scooped the pool when it comes to the award of US contracts. However, the Americans point out that, by law, when US money is being spent, it must go to American-owned businesses, except in unusual circumstances.

In what amounts to a sop to their UK partners in arms, some British and other overseas companies have been invited to tender as sub-contractors, as a result of a partial waiver of nationality rules.

The emphasis, at present, is on jump-starting Iraqi reconstruction so as to ensure that basic services become available.

The first groups of public servants are returning to work. A skeleton train service between Baghdad and Umm Qasr is restored.

Further down the line, Irish companies can expect to participate.

While controversial former TD Liam Lawlor has bagged the headlines with the disclosure that he plans to move in to try and take advantage of the opportunities, the real action will lie elsewhere.

PARC, for example, ran Baghdad's top hospital between 1981 and the first Gulf War in 1991. It could well return to assist in the restoration of Iraq's ramshackle health service.The agribusiness group, Masstock, has been active in Saudi Arabia for many years and might play a role in boosting Iraq's agri industry. ESB International has a huge track record overseas. It has invested in a huge power project in northern Spain and is set to run much of the South Eastern US electricity infrastructure.

Butler Engineering has indicated that it may do business in the country while Irish Enco has also been mentioned.

Oil exploration group Petrel waits in the wings.John Whelan, CEO of the Irish Exporters Association, believes that it will be at least 12 months before normal trading returns: "In the meantime, it is a question of making early contacts so that firms can get into a favoured position. The message for Irish exporters is that this market could become very significant, but early positioning will be needed. It is really a question of how aggressive Irish firms want to be."

In Mr Whelan's view, the decision by the Government not to reinstate export credit insurance will not help. He also believes that greater trading opportunities in the short term may come from countries adjoining Iraq as economic confidence in the region as a whole is boosted. Irish offshoots of US multinationals, in particular, could benefit from any rebound, but not every State in the region is set to benefit.

Over the past decade, a big winner was Syria. It is reckoned that smuggled oil has accounted for almost one fifth of that country's GNP.

This tap has quite literally been turned off. Syria could face severe economic pressure in the months ahead. The US also faces delicate decisions when it comes to Russia and France.

If it decides to force through complete debt forgiveness, on the basis that the Iraqi people should not be punished for the acts of Saddam Hussein, there could be unintended side effects, including the undermining of Russia's economy in the run-up to key parliamentary and presidential elections.

There are also warnings that such a move would hit international lending, generally, by ensuring that many States in future would have to pay a higher premium to secure overseas loans. There are recent precedents, however. Poland's was forgiven in the early Nineties.

Chris Johns, economist with ABN AMRO in London, believes, tough rhetoric aside, that the US Government will not seek to punish the French and Germans.

"Realpolitik will prevail. French trade will not suffer, except in the very short term. It is in the interest of the West to ensure that Russia becomes more Anglo Saxon, economically." Not does he believe that the rebuilding of Iraq will give a big boost to growth closer to home.

"One hundred billion dollars (the estimated cost of reconstruction) is actually a very small percentage of world GNP.

"Most of the money will be spent in Iraq which is a good thing rather than in, say, the US where the economic impact would be greater."

BRITAIN, he adds, is not likely to gain a big share of the spoils in Iraq. "I do not think that anyone in the UK expected very much."

In truth, as is highlighted by this week's events, Iraq remains highly unstable and nation building is at the very early stage.

The Americans will have to create a new currency to replace the discredited dinar. They are likely to avoid dollarisation, but monetary reform will take time. The legal system, too will have to be rebuilt from the ground up.

For quite a long time to come, Iraq will essentially be an aid economy. Indeed, eight years on from the ceasefire in Bosnia, that country is only now beginning to emerge from its status as economic basket case.

Delicate negotiations on the likely future role of UN agencies, too remain to be carried out. But the whole process of restoring Iraq to the international economic fold will be a painful one.

More in this section

IE_logo_newsletters

Select your favourite newsletters and get the best of Irish Examiner delivered to your inbox