Kurdistan: In The ‘other Dubai’, An Economic Boom

The headquarters of Asiacell, a Kurdish company that has become a telecom giant in Iraq, the city is experiencing its own construction boom.

ERBIL, IRAQ—On the top floor of a 23-storey hotel, looking down over a landscape dotted with construction cranes and new housing complexes, Cem Saffari doesn’t hide his pride and satisfaction.

“In five years, Kurdistan will achieve what the Emirates did in 20. You will not be able to recognize it.”

Saffari left a comfortable life in London to take a job at this hotel in Kurdistan, the northeastern autonomous region of Iraq.

“It’s a growing and challenging environment which I like, and pioneers always win,” he explains. “There is a certain amount of risk in investing here, but we believe the turnover will be higher.”

A middle-aged man from Turkey dressed in an impeccable dark suit, Saffari is the business development manager of the luxury five-star Divan Hotel in Erbil, the capital of Iraqi Kurdistan.

The hotel, which cost an estimated $80 million, is a mix of oriental and western style and the first foreign investment for an ambitious Turkish group that is already running nine hotels in its home country. With 228 rooms ranging in price from $500 to $15,000 (Canadian) per night, the hotel’s main target is the ever-growing number of businessmen willing to invest in a region that is experiencing one of the fastest economic growths on earth.

While the world was dealing with the global economic crisis, Kurdistan registered 8 per cent growth last year, driven by the exploitation of its gas and oil reserves — estimated at 100-200 trillion cubic feet and 45 billion barrels, respectively. For 2012, local authorities expect 12-per cent growth, which, according to the International Monetary Fund, would make Kurdistan the second fastest-growing economy in the world after Mongolia.

As the capital of the region, Erbil is enjoying the lion’s share of a boom that has caused building plot prices to skyrocket: housing complexes sprawling in the empty outskirts of the city offer two-storey houses that cost more than $1 million, shopping malls are mushrooming and luxury brands like Porsche are arriving. The city stock exchange, a project put on hold for several years, is due to open this year, along with a new business tower and several major hotels.

Its fast growth has gained Erbil the nickname of “new Dubai,” but local authorities prefer to define Kurdistan as “the other Iraq” to highlight the stable and peaceful conditions of the region, in contrast with the sectarian killings and daily bombings still ravaging the rest of the country. The security that the Kurdish Regional Government (KRG) has been able to provide is indeed one of the main reasons behind the economic boom. Thanks to its ethnic homogeneity and with its own armed forces in charge of security, the region has become a safe haven for many Iraqis and minority groups (Christians above all) fleeing violence in Mosul and Baghdad.

The region’s political and military 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 punitive military actions of the Saddam Hussein regime. But it’s been only since 2003 that Kurdistan has been allowed to blossom, thanks to the end of economic sanctions against Iraq.

“In 1991, Kurdistan was a big village,” recounts Fatih Ali Almudaris, economic relations adviser at the local Ministry of Trade and Industry. “We had no telecommunications or highways and just a couple of hospitals.”

In a clear sign of its growing economic importance, the region now hosts 17 consulates and foreign representations, seven universities and two international airports with direct links to cities like Vienna, Frankfurt and Stockholm, while a new highway is being built between the two main cities of Erbil and Sulaymaniyah.

In Erbil, shopping malls host big brands like Rolex and Emporio Armani. The restaurant scene features Italian pizzerias, Chinese restaurants and sushi bars. Speed lovers can hit a go-kart track — at the extraordinary price of $20 per lap.

Aware that oil will not be able to sustain the local development forever, the KRG has invested in tourism, rehabilitating the main attraction in town: the massive Citadel. It overlooks the bazaar and city centre and is reputedly the world’s oldest continuously inhabited settlement (since 2300 BC). The 10-hectare site will soon be restored, turning its crumbling houses into boutiques, restaurants and art galleries.

Although the 2003 U.S. invasion of Iraq liberated Kurdistan from Saddam Hussein, other countries have been faster in exploiting the region’s economic opportunities. According to data from the local Ministry of Trade and Industry, more than half the 1,170 foreign companies registered in the region are Turkish.

“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 (products), which are better than the Chinese (products),” explains Almudaris.

Turkish companies have made the investments even though the country’s government has been a long-time opponent of an independent Kurdish state for fears it might appeal to its own Kurdish population.

However, the economic partnership might also serve Turkish political interests if Iraqi Kurdistan should become independent and start lobbying for self-determination for the 28 million Kurds living in neighbouring Turkey, Iran and Syria.

“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, building a Kurdish state has not been a priority for local authorities, still busy in trying to sustain the economic development in the long run. The lack of local expertise has partially slowed the growth, forcing the KRG to lure foreign players with a range of business-friendly regulations. These include: 10-year tax exemptions, total ownership of companies and repatriation of profits, reduced-price land for investment projects and a freewheeling economic environment.

“In the ’70s and ’80s everything was belonging to the government,” explains Dara Jalil al-Khayat, president of the Kurdistan Federation Chambers of Commerce and Industry. “Now all the state companies have been privatized and our economy is definitely free-market oriented.”

Al Khayat, the Kurdish owner of an economic empire that has expanded from a family tailoring business to construction companies, foreign brands retailers and agricultural farms, is among the richest men in Iraq. He is a living example of the economic possibilities of the region.

But the boom has its limitations. Foreigner investors still have cause for caution. Building materials and goods like processed food products are almost all imported and expensive. Basic services like water and electricity have improved in past years, but the Erbil municipality only provides 17 hours of electricity per day, while in the countryside many villages don’t have power at all. Off the record, corruption is cited by many businessmen. And, most importantly, the oil disputes between Kurdistan and the central government of Iraq are looming.

While the constitution entitles the Kurdistan region to receive 17 per cent of total Iraqi oil revenues — which reached almost $83 billion in 2011 — Erbil and Baghdad are constantly bickering over which has the authority to strike exploration contracts. The Iraqi government has systematically invalidated deals done by the regional government without its consent; a recent agreement signed between KRG and Exxon Mobil Corp. has been denounced by the central government as illegal and the American oil giant was excluded from bidding in an offering of Iraqi oil exploration rights in May.

Kurdistan responds by sending abroad a good chunk of the oil it is supposed to export through the central government. But the blacklisting has effectively discouraged many energy giants from doing business in the region; while Kurdistan now hosts more than 40 oil companies the big names largely remained on the sidelines. The significant exceptions are Exxon Mobil, Total and Chevron, which Reuters reports has been blacklisted by the Iraqi government after it signed an oil deal with the KRG last month.

Moreover, the status of the oil-rich region of Kirkuk, once inhabited by a Kurdish majority but at present jointly run by Iraqi and Kurdish forces, is still contested. Its future is to be decided through a referendum that has been constantly delayed since November 2007.

But even if the political strife has discouraged most foreign firms from doing business in the region, Kurdish authorities are confident that in the long term the stable environment offered by Kurdistan will attract more investors.

“Here, anyone who has an idea can be the first one to put it in practice. It’s a virgin territory, not like Europe,” explains 30-years-old Jamal Penjweny, an artist and photographer turned entrepreneur.

Originally a shepherd from the mountain village of Penjwen, he moved to Sulaymaniyah 10 years ago. Today, he works as a consultant for oil companies and manages a small cafe in the city centre. He is also a photographer whose recent work “Iraq is flying” has been exhibited in major galleries in Europe and America. Penjweny embodies the new Kurdistan.

“This place has changed a lot in the past 10 years. Before, we weren’t used to thinking beyond these mountains,” he explains, sitting in the garden of his newly opened cafe and looking at the mountain range encircling Sulaymaniyah. “Not only the economy has grown fast, but also the mentality of the people. We are now much more globalized than before.”

If Erbil is the economic capital of Kurdistan, Sulaymaniyah can nonetheless claim a significant role in the development of the region. The headquarters of Asiacell, a Kurdish company that has become a telecom giant in Iraq, the city is experiencing its own construction boom. The Grand Millennium Hotel, a Dubai-style tower being constructed in the city centre, dominates the landscape. Here, Kurdish politicians boast with pride that the price of development land in the city centre is higher than in New York.

Sulaymaniyah highlights the rapid changes in Kurdistan in another way. It is home to the Amna Suraka (“red jail” in Kurd), a gloomy and threatening building complex in the city centre where Saddam’s security forces tortured local political prisoners. Now, it is a living example of what Kurds had to endure to become what they are today.

Overrun in 1991 by the local fighters, the prison has been turned into a museum where plaster works scenically explain how torture techniques worked. In the basement, a photo exhibition shows the victims of al-Anfal, the three-year-military campaign launched by Saddam in 1986 that resulted in the deaths of 182,000 Kurds and the destruction of more than 4,000 villages. Visited by scores of schoolchildren every day, the prison sits beside a former military base turned into a park called Azadi (“freedom” in Kurd).

“Working here has a special feeling. This was one of the main places were Kurdish identity was wiped out,” explains Ako Ghareeb Maroof, the director of the museum who spent seven years in the mountains as a peshmerga, as the local 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.”