@
RESTORING HOPE
Economic Revitalization
in Iraq Moves Forward
Paul A. Brinkley, Deputy Under Secretary of Defense
for Business Transformation
Paul A. Brinkley is deputy under
secretary of defense for business
transformation In June 2006 he was
tasked by the deputy secretary of de-
fense to lead the Task Force for Busi-
ness and Stabilization Operations,
Iraq. Mr Brinkley holds bachelor's
and master's degrees 1n 1ndustnal
engineering from Texas A&M Univer-
sity and has completed coursework
for a PhD. in operations research
from North Carolina State University
The holder of four US patents for
systems and process technologies,
he was a senior executive wilh several
successful mternational compames
onor to joining the Department of
Defense 1n 2004
PHOTO Quality assurance technician
at the State Company for Drugs and
rvledical Suppl1es in l~mawah, Iraq.
(courtesy of the author)
Counterinsurgents achieve the most meaning/it! success by gaining popu-
lar support and legitimacy for the host government, not by killing insurgents.
Security plays an important role in setting the stage for other progress, but
lasting victory comes fi-orn a vibrant economy, political participation, and
restored hope.
-U.S. Army Field Manual3-24, Counterinsurgency'
0 NE OF THE CRITICAL FACTORS in the counterinsurgency strategy
that is demonstrating early but measured progress in increasing security
in Iraq is the alignment and rapid application of economic development as
security improves.
As discussed in the first part of this series on revitalization of the Iraqi
economy, "A Cause tor Hope" (Military Review, July/August 2007), the
challenges in leveraging and applying American economic expertise, invest-
ment, and other stimuli to uplift the Iraqi economy have been numerous,
ranging from policy to strategy to tactics.
Prior to 1991, Iraq was the most industrialized ofthe Arab states with a
significant base of industrial operations across a wide range of sectors, and
a highly skilled civilian workforce. From 1991-2003, industry in Iraq was
strictly focused on internal production to meet domestic demand-United
Nations sanctions prevented export of goods or international economic
engagement, although some factories remained relatively modem through
investments in equipment upgrades.
Following the collapse of the regime in 2003, the Iraqi workforce experienced
great economic hardship with unemployment and underemployment exceeding
50 percent? These conditions directly contributed to insurgent sympathy and
economically motivated violence. The Task Force for Business and Stability
Operations in Iraq (TFBSO) was established in 2006 by Deputy Secretary of
Defense Gordon England to address the revitalization of the industrial economy
in Iraq. What follows is a status report on this revitalization effort and the
ongoing transition of the Iraqi industrial economy to a free-market state that
is integrated with global financial, supply, and trade infrastructures.
TFBSO and the Overall Economic Mission in Iraq
Underlying every strategic objective of the task force is a core principle
based on the size and scope of the U.S. presence in Iraq. For calendar year
2007, Iraq had a gross domestic product estimated at $55 billion3 The
8
March-April 2008 MILITARY REVIEW

U.S. Department of Defense (DOD) current cost
of sustaining operations in Iraq is approximately
$10 billion per month4 Most of this cost is dedi-
cated to sustaining the presence of our uniformed
service members and civilian workforce, covering
not only the direct cost of military operations, but
also everything from housing to food to security
at the local level.
Considering U.S. government spending as a
market has underpinned the TFBSO's economic
development strategy in Iraq. Careful application
of this spending with an eye on local economic
development, while ensuring our forces are sus-
tained with the best possible materiel support,
has fundamentally changed the way DOD consid-
ers economic reconstruction and has led to the
development of new approaches to post-conflict
stabilization.
Economic reconstruction in Iraq has required
an interagency operational concept that leverages
the collective strengths ofthe various U.S. gov-
ernment entities in Iraq. The general framework
illustrated in figure 1 represents the interagency
operating model that has emerged for Iraqi eco-
nomic development.
While the boundaries for the model are not firmly
fixed, this general structure has informed collabora-
tion and cooperation among involved U.S. govern-
ment entities. With this basic structure defined and
agreed upon, the TFBSO further defined its areas
of focus.
IRAQI BUSINESS UPDATE
Framework for an
Industrial Economy
From its inception, the Task Force for Business
and Stability Operations has operated with a broad
set of focus areas, each with a dedicated team of
U.S. government and business leaders engaging
in all areas of the country, and has been tightly
aligned to Multi-National Force-Iraq (MNF-I)
and its subordinate commands. While much of the
public understanding of the task force has focused
on enabling and automating direct contracting with
Iraqi businesses and restarting idled large state-
owned enterprises shut down since 2003. these two
primary focus areas led to expanded emphases on
economic development for each critical tier of a
modem industrial economy.
A modem industrial economy must possess the
following key elements:
• A fiber-optic communications backbone with
corresponding local wireless access capability to
enable automated transaction processing as well as
broad-based access to information via the Internet.
• A banking sector and financial system infra-
structure capable of automated financial manage-
ment, from large-scale bank-to-bank financial
transactions to personal financial transactions.
• Active industrial operations across sectors
identified as competitively advantageous for eco-
nomic or strategic reasons.
• Small-business and private-sector entrepre-
neurial activity to drive future employment.
Legal Frameworl<, Policy,
Central Banldng, Justice, Trade
Within Iraq, U S government
civilian organizations' engage
at the highest level of pol1cy and
legal structure or, in the case of
USAID, at the humanitarian or
small-business grassroots level
vvth micro loans, educational
assistance, and other
humanitarian support.
Industrial Economy
TFBSO is working on
tactical initiatives that
enable the core industrial
base of the economy and
integrate Iraq into global
supply and investment
processes.
Micro Loans, Local Assistance
* U S. Military Commanders Emergency Response Program Funds are applied primarily at the local level, with sorne investment in industrial capacity.
Figure 1. Interagency engagement model.
MILITARY REVIEW March-April 2008 9

• Private-sector investment processes to encour-
age inflows of private capital to further stimulate
business growth.
These key elements are addressed by the TFBSO
operating model in figure 2.
Review of Task Force
Focus Areas
The progress and current status of the key eco-
nomic elements in Iraq present an optimistic picture
for the way ahead.
Communications infrastructure. To suc-
cessfully integrate Iraqi industry with the global
economy, a cost-competitive core fiber-optic com-
munication backbone with robust connections to
wire-line and wireless infrastructure is critical.
In partnership with the MNF-I Communications
and Information Services Command, the Defense
Information Services Agency (DISA), and the U.S.
Embassy Baghdad advisor for telecommunications,
the TFBSO launched several initiatives to stimulate
the creation of such a network infrastructure.
To incentivize public- and private-sector com-
panies to build up Iraq's fiber-optic communica-
tions infrastructure, DOD leveraged its bandwidth
Private Investment
Marl<et Demand Establishment
Industrial Privatization
Industrial Capacity Restoration
Contracts 1 Direct Economic Stimulus
l'
Banldng & Financial Networl<s
Communications Infrastructure
Figure 2. Task Force operating model.
consumption for non-secure traffic. As of 2007,
all non-secure DOD communications were being
transmitted over satellite-the most costly means of
broadband communication. Due to the lack of nec-
essary low-cost terrestrial network infrastructure,
and in the absence of alternatives, costly satellite-
based Internet and telecommunications access has
become common in Iraq. In partnership with DISA,
TFBSO is working to contract with public and pri-
vate telecommunications firms in Iraq to purchase
bandwidth-encouraging these firms to build out
communications networks. As these terrestrial
networks are built out, private-sector businesses
(banking, industrial transactions) can transfer from
satellite communications onto them.
Communications infrastructure status. The
first step in this critical effort has been establishing
fiber-optic network capacity from Baghdad through
Basra to Kuwait City, beginning to link to the global
Internet backbone. This project, launched in January
2007, continues, although there have been delays
resulting from circuit-testing failures within this first
link managed by Iraq Telecommunications and Post
Compnay (ITPC), the Iraqi state-run telecom enter-
prise. As this first circuit becomes active, subsequent
links north through Mosul
and west through Al Qaim
Facilitating rapid private direct investment
opportunities from institutions, private equity,
and corporations
will be pursued, with neces-
sary spurs to key industrial
centers, including Irbil,
Recreating intra-Iraq demand among
factories, facilitating global supply
agreements, joint ventures
Sulymania, and Najaf.
While these efforts to
motivate construction of
Recreating intra-Iraq demand among
factories, negotiating regional and global
supply agreements, JOint ventures
core terrestrial networks
continued, the Government
of Iraq (GOI) executed
Restarting/restoring production to idled
Iraqi industrial base.
private-sector auctions for
Global System for Mobile
(GSM) cellular communica-
Policies, processes, and systems to support Joint
O:mtracting Command in direct U.S. government
contracts with private Iraqi business.
tions licenses at the national
level during the summer of
2007. These license auc-
lncent the development of robust private sector
financ1al services and associated infrastructure,
through contract requirements.
tions, originally expected to
generate no more than $400
million in total revenue for
lncent the development of necessary wireless
and w1re-line communications infrastructure
capable of supporting economic activity
the GOI, were an astounding
financial success for Iraq.
Three licenses generated
$3.6 billion in revenue to
10 March-April 2008 MILITARY REVIEW

the GOI from regional investors. These licenses have
been awarded and network consolidation within Iraq
is now underway. Modem mobile data services are
being offered as a result of the investments in new
infrastructure, and cell phone penetration in Iraq has
increased by 50 percent since the summer of 2007,
with over 12 million subscribers now active.
Direct economic stimulus through contracting.
In support of the Joint Contracting Command Iraq/
Afghanistan (JCC II A) commander, Major General
Darryl Scott, U.S. Air Force, the task force coordi-
nated changes to policy unifYing operational control
of contracting in the Iraq area of operations under J CC
1/ A. Changes included fielding a system to automate
contracting transactions in a way that was useful to
Iraqi businesses as well as to the command resources
working to ensure Iraqi firms were given access to
DOD contracts. This new information system, the
Joint Contingency Contracting System, was fielded
in September 2006 and now operates with over 1,000
active users across the DOD contracting community
in Iraq and Afghanistan. It provides a central database
for Iraqi and Afghan companies, their capabilities,
awards to date, and contract performance.
Direct economic stimulus through contracting
status. The JCC 1/ A's "Iraqi First" program (which
mandates that DOD contracts go to Iraqi businesses
whenever possible) has been extremely effective. In
the past 18 months, over 3,900 private Iraqi busi-
nesses have registered and received U.S. contracts
at a monthly value in excess of$1 00 million. These
contracts range from construction to material goods
to professional services across a variety of sectors.
IRAQI BUSINESS UPDATE
This direct economic stimulus has generated more
than 100,000 Iraqi jobs across the country. Figure
3 provides a graphic representation ofthe contract
dollars awarded since the Iraqi First program was
conceived and launched in the fall of2006.
Financial infrastructure and private banking.
A key issue in the development of a modem econ-
omy in Iraq has been the absence of a well-regulated,
modem banking sector. Prior to 2003, Iraqi banking
was dominated by a few large state-owned financial
institutions that were closed to international finan-
cial flows due to United Nations sanctions. Despite
negotiations since 2003 over debt settlements with
creditor nations, these large state-owned banks are
still not modernized because automating and linking
them to global financial networks would enable their
assets to be seized by creditor nations.
Over the past several years, however, a significant
number of private bank branch offices have opened
in Iraq, many with links to global financial networks
via rooftop satellite access that enable electronic
funds transfers (EFTs) (figure 4). The expansion
and growih of these EFT-capable private financial
institutions is critical to stimulating sustained
economic development and to moving Iraq from a
cash-based society to a modem economy.
Financial infrastructure and private bank-
ing status. Working in close partnership with the
U.S. Department ofthe Treasury and JCC II A, the
TFBSO launched an effort in the fall of 2007 to
stimulate and develop the private banking sector
in Iraq. The effort includes building a consortium
of Iraqi private banks. One of the consortium's
$500,000,000
-$450,000,000
r::
0
::I $400,000,000
E $350,000,000
<t
'E $300,000,000
CIS
~ $250,000,000
<t
0 $200,000,000
CIS $150,000,000
..
-
r::
0 $100,000,000
(.)
$50,000,000
$0
Nov 06 Dec 06 Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07
Month
NOTE: Peak in September and subsequent drop in October and November aligns to fiscal year-end spending pattern for ccntract awards.
Figure 3. Host-nation contracting impact.
MILITARY REVIEW March-April 2008 11

Figure 4. Geographic distribution of private bank branches
with EFT capability.
100%
90%
Cash
EFT
83%
28%
30%
22%
20% ~---- ~--------------------------------------------
10% ~-----------------------------------------------------
0% ~-----,-----,------,------,------,-------------,------,
Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08
Figure 5. EFT adoption rate.
objectives is to establish a core
shared private financial infra-
structure to efficiently process
payment and financial-transfer
transactions. The operating
model for this shared service
was defined and agreed to by
the private banking consortium
in January 2008. A key next
objective is the establishment of
a transaction regulatory body,
the Iraqi Payments Association,
accountable to the Central Bank
oflraq for oversight. The estab-
lishment of this body is planned
for the summer of 2008.
To directly stimulate the
rapid capitalization and expan-
sion of private banking, and
also to stimulate the migration
away from a strictly cash-
based economy toward EFT
and management, steps were
taken to again leverage DOD
spending as a market incen-
tive. Under policy that took
effect in November 2007, and
as a next step in the Iraqi First
program, businesses in Iraq
receiving new U.S. contracts
are required to open accounts
with one of the EFT-enabled
private banks, from which
they will receive all payment
from DOD. The impact of this
requirement has been immedi-
ate and measurable, as shown
in figure 5.
As the graph indicates, by
January 2008, almost 60 percent
of payments to Iraqi firms were
being executed electronically
instead of via cash disburse-
ment. The benefits of this tran-
sition include reduced payment
cost and improved efficiency
for DOD, the migration of over
3,000 private Iraqi enterprises
to modem banking practices,
12 March-April 2008 MILITARY REVIEW

IRAQI BUSINESS UPDATE
and the elimination of cash-based payment and its
attendant risks of corruption and violent theft. Over
$100 million a month in DOD contracting actions
are eligible for payment electronically. This flow
of cash through private banks will improve their
capitalization, enabling these critical financial
institutions to begin their own private investment
practices at the local level, further stimulating eco-
nomic growth.
Industrial revitalization. As described in depth
in "A Cause for Hope," a primary area of emphasis
for TFBSO was the restart oflraq's industrial base,
largely idled or operating at a small percentage of
capacity since 2003. Fielding a team of experienced
business leaders, accountants, and consultants,
TFBSO assessed major industrial sites across the
country, as indicated in figure 6.
The restart effort struggled initially, in the
absence of any appropriated funds for small capi-
tal investments in spare parts, training, or other
requirements necessary to enable production in
factories that had been idle for years. Between
November 2006 and September 2007, 17 facto-
ries covering a variety of industrial sectors were
restarted in Iraq. These operations were restarted
by the direct application of demand via U.S. or
Iraqi government contracts for goods or services,
or through direct links to sources of demand inside
Iraq. The infusion of$50 million appropriated by
Congress during the summer of2007 accelerated
the industrial revitalization effort significantly-
enabling TFBSO to launch 48 projects in 30
additional factories or production lines across
the country.
1. State Ccmpany for 'v1ech3nicallndustries (SCI\III), lskancariyah <llll*
2. State Ccmpany for i\Jtcmotve l1dustrv iS CAl). Iskandar yah <llll*
raqi State C:Jmpany for Cemen:, Fallcjah <llll
4. Iraqi United Gypsum. FalluJah
5. State Company for Glass and Ceramics- Plate Glass, Ramadi
6. State Company for Glass and Ceramics- Consumer Glassware, Ramadi
7. State Ccmpany for Ce·amics Ceramic TillS, P.Bmadi <llll*
8. State Company for Ce•amics Ceramic Fixtures, Ramadi <llll*
9. AI Sumood State Company· Steel Structures. TaJi
10. AI Sumood State Company· Foundry, Taji
11. Nassr State Co1pany for lvle~hanicallnd Trailers, Taji <llll*
12. Nassr State Company for Mechanical Ind.- Foundry, Taji
13. Nassr State Company for Mechanical Ind.- Machine Shop, Taji
14. Northern Cement State Company- Badoush. Mosul
• 5. State Ccmpany for Jrugs and Medical · Nirawah, Mosul -<11
16. Northern Cement State Company- SinJar, Sinjar
17. Iraqi State Company for Cement,AI Qa'im
18. State Company for Phosphate, AI Qa'im
·g_ D1yala State Ccmpary ElectncallndLstnes · "ranstormert, Baqubah -<11
20. Diyala State Company for Electrical Industries· Electric Meters, Baqubah
21. Diyala State Company for Electrical Industries· Optic Cable, Baqubah
22. State Ccmpany for =9rtilizer · North, Bayji <llll
State Company for !-<and Made Wear Naaf <llll*
24. State Ccmpany for lndus:nes. 1\13,af -<11
25. State Ccmpany for Textle Industries· Hilla, H;lla <llll
26. State Ccmpany for Industries, Baghd3d -<~~*
27. State Ccmpany for _eather lrdustnes, Baqhdad <llll*
28. AI Furat Stat9 Company· C1emical, AI Hi1diyah -<11
29. That AI Sawary Stale Company For Chemical Industries· PVA. TaJi
30. That AI Sawary Stale Company for Chemical Industries· Resins, TaJi
31. State Company for Drugs and Medical Supplies · Samarra
32. State Ccmpany for :oetr~.chemicallndustries Basrah <llll*
33. State Company of FHtilizers · S::;uth, Basrar -<11
34. Harir Tomato Paste and Fru1t Processing Plant. Harir
35. State Company for Construction Industries· Concrete Pillars, Mosul
36. State Ccmpany for Engineerhg lndust~; (f-'EESCO), Doura -<II*
37. State Ccmpany for -land Woven Baghcad <llll*
38. State Company for Paper Industries, Basrah
39. Ur State Company for Engineering Industry, Tallil
40. No:llern Compa1y for furniture, f~mawah -<II*
41. Baghdad Factory for Furniture, Baghdad
42. State Company for Cotton Industries, Baghdad
43. State Ccmpany for ':lectricallndLstries (SCEI), Baqhcad -<~~*
44. State Company for Vegetable Oils Industry, Baghdad
4-!l. AI Monsour State Company, Baghdad
46. State Company for Tobacco and Cigarettes, Baghdad
47. Baghdad Electrical, Baghdad
48. State Company for Batteries Industries, Baghdad
49. State Company for Construction Industries· Stone Cutting, Baghdad
50. State Ccmpany for \Noclen rdustnes. -<11 *
51. State Ccmpany for Jairy Products, Baghdad <llll
52. AI Furat State Company· De:ergent, '--lir-ciyt.r <llll*
53. State Company for Construction Industries· Marble Cutting Erbil
54. Southern State Company for Cement- Sedda, Sadal al Hindia
oo Kani Bottling, Kan1
56. Kurdish Textiles, Erbil <llll
57. State Owned Slaughterhouse, Baghdad
58. Sulymania Apparel Company Sulymania
59. UB Group Brick Factory, Dahok
60. MosJI Head:;' Vllear. Mosul -<II*
61. Ahram Foodstuff Manufacturing Company, Dahok
62. Na:ional Metal and 3icyc e Plan:, Mahmoudi:;ah "'**
63. Ready Made Clothing (RMC Company) MahToudiyah -<11
64. AI Hamara's Biscuit Company, Mahmoudiyah
65. Sulymania Food Processing Plant. Sulymania
66. State Company for Paper, Taji
67. Dakuk Da1ry Facility, Oahuk
68. Allkaa Metal Fabncation Plant
69. AI Shaheed Brass Plant
71. Taji Furniture <llll
72. AI Az E>actr:>nic Industry i2 factcrieSJ <llll
State Company f:lr Rubber lnduslries D warivar Tire <llll*
...,.. Arrows indicate one or more active TFBSO projects undervvay at the site in partnership with multinational di'uision commands.
* Stars indicate factories started or with materiel increases in production or employment resulting from TFBSO efforts.
Figure 6. Assessed and impacted Iraqi factories.
MILITARY REVIEW March-April 2008 13

Industrial revitalization status. As a result of
these efforts, the task force has restarted or materi-
ally increased production at 29 factories across
Iraq as of the date of this publication, with proj-
ects underway at 18 additional sites. Over 10,000
sustained jobs have resulted from these restarts,
which also generate secondary and tertiary eco-
nomic activity and employment at the local level-
stimulating local suppliers, service providers, and
other businesses.
Wherever possible, the task force has worked to
again link factories together that once engaged in
commercial transactions. As described in "A Cause
for Hope," these intra-Iraqi commercial relation-
ships were a stabilizing element of Iraqi society.
When investments in raw material, machinery, or
other goods or services have been made to enable
factories to restart, TFBSO has sourced these goods
and services between and among Iraqi factories
whenever possible. This sourcing helps align indus-
trial revitalization to the overarching objective of
political reconciliation.
The TFBSO has continued to help Iraq build
industrial partnerships with international firms. A
recent example of this engagement is illustrated by
the international agriculture firm, Case New Hol-
land Corporation, which partnered with TFBSO to
restart tractor manufacturing operations at an idled
factory in Babil province.5
Industrial privatization and entrepreneurial
activity. The long-term intent ofTFBSO economic
efforts in Iraq remains Iraq's transition to a vibrant
free-market economy that is seamlessly linked to
the global marketplace. TFBSO's initial objective
was to restart idled large state-owned factories,
restoring employment and stimulating local eco-
nomic activity. Working in support of the Iraqi
Ministry oflndustry and Minerals (MIM), the next
step is to solicit bids from private investors for
joint ventures or direct investment in operational
state-owned enterprises. Such solicitations are
first steps to long-term full privatization of these
enterprises.
This is a transitional approach that is consistent
with economic transition models successfully
applied in other former command economies,
especially in East Asia. As a method to introduce
foreign investment and expertise from interna-
tional businesses, this approach avoids large-scale
14
displacement of skilled workers and undermines
insurgent sympathies. For a post -conflict economic
development effort in an industrialized economy
such as Iraq, in which terror networks prey upon
local economic distress to generate support, this
transitional approach also reduces the threat to our
uniformed men and women.
Industrial privatization and entrepreneurial
status. In February 2007, MIM issued a public
solicitation for investors in 13 large state-owned
factories in sectors ranging from construction mate-
rials to mineral processing to industrial operations.
TFBSO accountants, consultants, and legal advisors
have provided direct support to MIM in order to
establish transparent, auditable financial review and
assessment processes, and have actively supported
each stage of review ofbids submitted.
On 10 January 2008, the Government of Iraq
announced the first awards of joint ventures to
three Iraqi-European financial consortiums for
large cement-manufacturing plants in Muthanna,
AI Qaim, and Kirkuk. Averaging over $100 million
each in foreign direct investment, these proposals
tum operational management of each cement fac-
tory over to the respective investor group while
retaining ownership of the facility with the GO I.
The investor will manage the facility, increasing the
current average levels of250,000 tons of cement per
year to an average of 1. 8 million tons per year, and
receiving a majority percentage of profit over a 15
year period. Over 5,000 jobs will be created under
the terms of these proposed transactions.
Given the security environment that has chal-
lenged Iraq over the past four years, these first
joint ventures represent a highly desirable, and
profitable, business model for both the investor
and the GOI. The GOI gains world-class expertise
in factory operation, as each consortium includes
an international cement manufacturer, while the
investor benefits because of the GOI's stake in both
security and development in the surrounding area
over the period of the agreement.
These initial agreements, in final legal negotia-
tion at the time of this publication, represent great
progress for the Iraqi government and for TFBSO
efforts to support revitalization of Iraqi industry
as a step to private-sector development in Iraq.
The notion of hundreds of millions of dollars in
private foreign capital flowing into such places
March-April 2008 MILITARY REVIEW

as Muthanna, Al Qaim, and Kirkuk did not seem
possible even a few months ago. Yet today, thanks
to improvements in security that have taken place
across the country under MNF-I leadership, foreign
investment is starting to take place. TFBSO is hope-
ful that there will be additional announcements of
joint ventures and new industrial starts over the
coming months-further signs of normalcy taking
hold in Iraq as security improves.
Private investment. In September 2007, fol-
lowing the Congressional hearings in which Gen-
eral David Petraeus, Commander, Multinational
Force-Iraq, and Ambassador Ryan Crocker, U.S.
Ambassador to Iraq, provided a review of status
on post-surge security, political development, and
economic stabilization in Iraq, there was aground-
swell of interest from foreign investors regarding
investment in Iraq.
This interest was unexpected. TFBSO had
emphasized the importance of foreign investment
and global corporate presence in Iraq from the
inception of its effort, leveraging support from
organizations, including the U.S. Chamber of
Commerce and DOD's Defense Business Board, to
solicit engagement from business in support of eco-
nomic development in Iraq. These efforts resulted
in business engagement with initial momentum, but
new interest among U.S. corporations tapered off
significantly in the late spring of2007. The reasons
cited at the time related to the decline in overall U.S.
public opinion regarding the Iraq mission. TFBSO
decreased its efforts to draw U.S. businesses to Iraq
as a result of this decline in interest. However, to
date 15 ofthe 29 American and international cor-
porations that the TFB SO hosted in Iraq during the
winter and spring of2007 have transacted business
or submitted proposals for new business that are
still in review.
The emergence of interest in Iraq among inves-
tors after September appears to have resulted from a
growing sense that there would be no sudden reduc-
tion or elimination of the U.S. presence, and that
the surge strategy was bearing signs of progress in
security. Investors began seeking information about
the numerous secure areas of the country that were
ready for new business development.
There is a pervasive sense among investors that
Iraq has the potential for great prosperity, not only as
a petroleum producing nation, but also as a diversi-
MILITARY REVIEW March-April 2008
IRAQI BUSINESS UPDATE
fied economy in a critical region of the world. While
debates continue about necessary legal structure for
Iraqi hydrocarbon sector development and associ-
ated revenue-sharing among sects and regions, there
is great opportunity for investors seeking to enter
the ground floor of all other industries-the point
at which early investment in a developing region
results in the greatest financial return.
To address this interest, TFBSO established a
foreign direct investment team in October of 2007.
This group, which includes experienced investment
banking professionals, facilitates engagement of
foreign investors in Iraq by identifying opportuni-
ties for immediate new business in partnership with
the GO I. Primary initial investor interest is in new
construction, specifically hoteL retail, and office
space construction and property management. As
a result of the lack of real estate development in
Iraq over the past 18 years, there is a large need for
hotel and office space development in anticipation
of business expansion as petroleum companies
engage in Iraq in coming years.
Initial areas of focus include the geographic areas
and associated investment opportunities as shown
in figure 7. These areas were selected based on their
current security status, as well as direct input from
the GOI at the national and provincial level.
Private investment status. TFBSO has already
facilitated a proposal in final review and negotiation
with the GOI for construction of a new, internation-
ally branded hotel with retail space in the Interna-
tional Zone. Additional investment proposals are in
process for hotel and office construction in Baghdad
and Basra, as well as food processing, food services,
and new industrial construction. Assuming security
improvements are sustained and expanded over the
next several months, there is reason for optimism
that foreign investment will increase and that new,
privately funded construction and business develop-
ment will expand in the near future.
Earlier Recommendations
and Status
In the earlier report, "A Cause for Hope," three
specific recommendations were made regarding
revitalization of the Iraqi economy. One of these,
the alignment of economic development to political
reconciliation efforts, was described earlier and con-
tinues to be a part ofthe overall TFBSO strategy.
15

I Geographic Area Initial Areas· of Investor Interest
Baghdad -International Zone, Hotels, office and retail construction and management, food ser-
Abu Nawas, Haifa Street vices, food processing, construction services.
Baghdad Airport Hotels, office and retail, convention services.
lskandariyah Industrial assembly and fabrication, maintenance.
Najaf Hotels and tourism infrastructure and services.
Karbala Hotels and tourism infrastructure and services, agribusiness.
Basra (including Airport) Hotels, office and retail, professional services, petrochemical sector
support services.
Kurdistan Region Broad-based investment across industrial sectors underway.
Vibrant market economy emerging.
Figure 7. Foreign direct investment priority areas and opportunities.
A second recommendation focused on the need
for standard international tariff and trade policies
for Iraq. Since 2003, all tariffs on inbound goods
have been suspended-essentially making Iraq a
completely free open market for all international
goods. This situation is unsound, especially for
industries such as agriculture and food processing,
which remain in a state of depressed output. As of
the time of this report, the suspension of all tariffs
remains in place.
The final recommendation involved the restora-
tion of bank balances for state-owned factories
seized in 2003. The cancellation ofbalances was a
key step in shutting down state-owned factories, as
it denied working capital necessary for purchase of
raw material, maintenance, services, and new equip-
ment. TFBSO took this recommendation forward
in partnership with the GOI, then learned that the
process to restore bank balances would be untenably
slow, given the speed the industrial revitalization
effort was attempting to achieve.
Instead of restoring bank accounts, the Ministry
of Finance has applied an alternative strategy of
allocating GOI budget to the Ministry of Industry
and Minerals for the specific purpose of recapitaliz-
ing idled industrial facilities. Four-hundred million
dollars has been budgeted in 2008 for the MIM,
which exceeds the approximate value of the bank
balances seized in 2003. The MIM is working with
TFBSO to maximize the net effect of that budget.
To illustrate the significance of this decision by the
GOI, the total capital budget in 2007 for the MIM
was approximately $30 million.
Next Steps
The two initial focus areas for the task force,
contracting support and industrial revitalization,
are now targets of new strategic direction, designed
to rapidly boost the growth of private business and
the ability of large industrial enterprises to adapt
their operations in support of broad Iraqi economic
development objectives.
In the area of contracting and direct economic
stimulus, the next step is an opportunity resident in
the information JCC II A collects on Iraqi businesses.
Recall that over 3,900 private Iraqi businesses have
been registered, have received contracts for goods
or services, and are rated on their performance as a
supplier to DOD. The Joint Contingency Contract-
ing System now has 18 months of data, representing
over a billion dollars in contracting actions, for
these companies. This database represents a wealth
of information helpful to future business develop-
ment in Iraq. With the support of appropriate DOD
general counsel and advice from international
financial institutions and the Government of Iraq,
TFBSO is working to identify appropriate mecha-
nisms to enable private investors to invest in these
Iraqi companies. TFBSO believes thatthese mostly
small-to-mid-sized companies could eventually
16
March-April 2008 MILITARY REVIEW

form the backbone of one or more Iraqi growth
funds, enabling individuals to invest in the future
of Iraq. This would provide a channel of capital to
entrepreneurial Iraqis, enabling more rapid growth
and associated broad economic benefits.
In the area of industrial revitalization, the task
force will apply standard business investment
management practices to the process of allocating
new funds to idled or low-production-rate Iraqi
factories. Directors general (factory managers) of
individual plants are being instructed in the prepa-
ration ofbusiness plans, marketing strategies, and
capital investment plans. To receive new funding,
these factories must submit their plans and strate-
gies for review. Submissions will be combined with
commander requirements for reemployment and
stabilization in each area of operation within Iraq,
and based on this combined criteria, funds will be
granted. The disciplined process for executing any
funds used to date will remain-but in the next
phase we will use the funding to motivate factory
managers to adopt standard international busi-
ness practices. In fact, many factory managers are
already adept at international business practices,
and for these managers this process has proven
relatively easy to adopt.
This investment-based approach will prepare
the state-owned enterprises for the future they will
encounter as they seek capital from private funding
sources, and as privatization of these factories takes
place over the coming years.
Integrating the Overall Effort
TFBSO is working in partnership with MNF-I
commands and the Government oflraq to stimulate
rapid establishment of the necessary elements of a
modem industrial economy. A robust communica-
tions infrastmcture enabling a transparent, modem,
well-regulated banking sector capable of supporting
vibrant small, medium, and large enterprises is the
vision for the Iraqi economy set forth by the Iraqi
MILITARY REVIEW March-April 2008
IRAQI BUSINESS UPDATE
government. Security improvements have been sig-
nificant, giving rise to cautious optimism and interest
in investment by foreign private financial institutions
and corporations. It is early, and much difficult work
remains to make this vision a reality.
This is a critical time. The opportunity for the full
application of economic development in support of
counterinsurgency doctrine is now. The opportunity
to support the Iraqi people in their desire for pros-
perity in a diverse, safe, and open society is now.
The opportunity for international investment with
an orientation to high risk and high return in a nation
with great potential for long-term prosperity is now.
Seizing these opportunities remains the challenge
of the day. MR
NOTES
1 U.S. Army F1eld Manual 3-24, Counterinsurgency (Washington, DC:
Government Printing Office, 2006), 1-27.
2. U.S Agency for International Development, Employment Parlicipation and
Unemployment in Iraq (Washington, DC: Government Printing Office), May 2007.
3. United Nations Economic and Social Commission for Western Asia (ESCWA),
Estimates and Forecasts for GOP Growth m the ESCWA Region 2007-2008, 7
December 2007.
4. United States House of Representatives Budget Committee, Hearing on the
Growing Cost of the Iraq War, 24 October 2007.
5. Case New Holland Incorporated-press release, Case New Holland Announces
Safes of 200 Tractor Kits to Restart Assembly Operations at Iraq Factory, 31 January
2008.
************
The author wishes to acknowledge Lieutenant
General Raymond Odierno for his unwavering
vision and operational support for task force
economic development efforts during his
command ofMulti-National Corps-Iraq, and
Major General Darryl Scott, for his visionary
leadership and partnership with the task force in
all aspects of applying our contracts and
associated business relationships as an
instrument for economic development during his
service as commander, Joint Contracting
Command Iraq/Afghanistan.
17