By Gavin Jones, Director of Iraq Business News, and Partner at consultancy firm Upper Quartile. This article was originally published on the Emerging Economics blog. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The US administration has declared again that it is “on track” to withdraw all US military forces from Iraq by the end of 2011. But, even as the White House publically pushes this position, many of the US policymakers are hoping that the Iraqi government will come and politely ask if some US troops could possibly stay. Just 10,000 or so would be good ……. and the cream on the cake ……… an extension of the SOFA [Status of forces agreement] providing that all important diplomatic cover “just in case” the military have to do something nasty. However a series of summertime incidents have now made it pretty clear this is unlikely to smoothly or without repercussions.

First, the PM Maliki came out openly (and very publically) against prolonging the SOFA and then started to define his view of the environment that he would be “happy” to see US forces extend their stay in Iraq – basically a limited number of military “instructors” restricted to doing things that the Iraqi’s forces cannot do by themselves i.e. intelligence, electronic security, that sort of stuff. Then at the beginning of August a key group of senior Iraqi politicians authorised Maliki to start negotiations with the US over the rules and regulations of any forces that might be invited to stay.

Leaving the start of the negotiations to the point where most US military units have been loading up planes with their equipment has not helped Iraq / US relations much.

And this means …………….

If all this goes through as looks likely then from January US forces in Iraq will be unable do anything that they are cannot describe as “training.” No-one is very clear what this will actually mean or how it will change the operations in Iraq but it will probably mean that US forces will not be patrolling and separating the Iraqi army and Kurdish militias in the north-central region; it will not be able to jump on any al-Qaeda remnants; or provide security for the massive US embassy in Baghdad or the hordes of US diplomats elsewhere in the country. So pretty restrictive and a big change.

By Gavin Jones, Director of Iraq Business News, and Partner at consultancy firm Upper Quartile. This article was originally published on the Emerging Economics blog. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

We have been working with a substantial international company in Iraq supporting their business development – both they and we have been working in Iraq for several years now and it is very easy to be critical, concerned about transparency and efficiency and availability of finance and the willingness of the SOC to pay for things that they order.

We have been supporting the company manage its invoices and collect money that is owed by the South Oil Company (part of the massive Ministry of Oil in Iraq); some of these invoices are 7 to 9 months overdue and quite substantial sums of money are involved. After having done this work for a number of years I am pretty sure that the problems come down to misunderstandings – on both sides; silly mistakes – on both sides and a lack of trust – on both sides. It is the silly mistakes and a complete misunderstanding of how the South Oil Company processes invoices that cause most of the delays.

Our work really just involves identifying the process and the various committees within the South Oil Company (SOC) and then having one of our local staff move the invoice and all the supporting documentation through the various committees in the correct order making sure that we have the correct stamps, signatures and approvals, all of which have to be in the right order before the whole package is moved along to the next committee ………… and then starting all over again.

All invoices are received initially by the Trade Commission:

Then the process works its way through seven stages as follows;

Step 1;

The Trade Commission – specifically the Foreign Procurement Department who will send the Invoice to the Technical Supervisory Committee at The Projects Commission.

Step 2;

The Technical Supervisory Committee will review the invoice and whether the work invoiced for has been completed, and seek approval of the Director General.

After obtaining DG agreement, the Committee would send the Invoice back to the Trade Commission, accompanied by the Committee Memorandum and the agreement of the Director General.

Step 3;

The Trade Commission would prepare Payments Release Memorandum for the invoice(s) and then send on to the Financial Commission, to authorise payment(s).

Step 4;

The Head of the Financial Commission or his Deputy would initiate the memorandum, and send it to the Foreign Accrediting Department. The Accrediting Department would fill in the payment details and then send it to the Checking Department.

Step 5;

The Checking Department would check the memorandum fill in their bits and then send it back to the Foreign Accrediting Dep.

Step 6;

Then the Foreign Accrediting Department, after having the checked all is correct, will stamp it and prepare the Payment Release Authorisation Letter addressed to the (still) the Iraqi Trade Bank, stamp it and sign it, get some more stamps and signatures of the Financial Commission, get another signature of the Director General and then send the letter to the Trade Commission.

Final Step;

The Trade Commission would send the same letter that the Financial Commission has prepared, to the Iraqi Trade Bank, to enable them to do the release the payment to your account in Dubai.

Then …………. Payment, but it ain’t going to be in 30 days!

And if you think you can get invoices through that system without knowing the order, the characters and the issues that trip up the system without help on the ground, then good luck.

Just like any post-conflict economy – you need to understand and accept the system and work within it.

By Gavin Jones, Director of Iraq Business News, and Partner at consultancy firm Upper Quartile. This article was originally published on the Emerging Economics blog. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

It has been long in the making but it looks like Prime Minister Nuri al-Maliki is beginning to publicly recognise that a post-2011 US presence in Iraq is necessary for both Iraq and himself and starting to shuffle deck-chairs to mesh coalition politics with his own finely-tuned survival instincts.

An important flip in attitude was after his recent meeting with the new US defence Secretary Leon Panetta; Maliki has started talking about “instructors” and not “advisers” or, for that matter, troops. Having regular US forces or military bases and “advising” would also be at obvious variance with a stance on Iraqi nationalism and bring nasty flash-backs of the British involvement in Iraq all those years ago.

The area in which Maliki is thought to be reluctantly accepting US “training” assistance includes border surveillance, logistics and intelligence. This is actually the least unacceptable position locally and something that could be repackaged to sit well with the notion of Iraqi sovereignty: the US is considered a world leader in many of these areas; and to ask for assistance from a global superpower in these specific areas would not harm the domestic idea of Iraqi independence in the same way that the presence of US “advisers” would. However it is a delicate balance.

Contrast this with the prevailing themes concerning the “West” in Iraq:

• Iraq’s almost complete absence of external defence capabilities comes up again and again. And while this is probably true, as long as it is presented as a general issue rather than broken up into bite-sized chunks and specific issues that can be singled out for cooperation kneejerk nationalist reactions will continue in a divided parliament.
• The peacekeeping role in and around Kirkuk is also pretty high up the concern list. This is also something that is very sensitive to Iraqi nationalist knee-jerks because it fits so well with the belief that “foreigners” are plotting to keep the Iraqis divided to justify a military presence. Using Arab-Kurdish tensions in this will be used to reinforce views that foreigners are manufacturing Sunni vs. Shiite tensions to extend a presence in the oil-rich areas in the south.

Maliki seems to be accepting that an international military presence must be retained but make sure that the internal debate is so low-key that any Iraqi debate is avoided. Great for Maliki, interesting for the US but who and how is this going to be paid for now Iraq has a budget surplus, oil fields coming on stream; just wondering if we are going to see more US companies picking up big oilfield contracts to balance this job-saving move.

For their part, the Iraqis still need to agree on a new Minister of Defence, so that any training can be applied.

And post-conflict reconstruction rolls on …………….

By Gavin Jones, Director of Iraq Business News, and Partner at consultancy firm Upper Quartile.

“Something we could not have predicted five months ago is that Iraq would emerge as the most advanced Arab democracy in the entire region. As messy as it is, when you think back to the months and months that it took to form a government, and the fact that the conflict was political, they weren’t in the streets shooting each other. The government wasn’t in the streets shooting its people.” Bob Gates, US Defense Secretary.

Well, well ……………. given all the soul searching and some of the appalling misjudgments by various Governments involved in the reconstruction of Iraq followed by some the comments then made by the press over the management of the country by the Iraqi Government maybe the cynicism in the West is becoming a bit more muted.

Looking back to all the press speculation at the various game changing decision-points in the country’s development over the last 5 years it is astonishing how wrong all the experts were and – in many cases – still are. We have hosted Iraqi delegations to the UK on a number of occasions – on the first one a delegation of international oil companies dedicated time to explaining to the Iraqi Government that Service Agreements would never work; explaining (carefully) that if the Iraqi Government were looking to much-needed investment, they needed to come into line with the rest of the world and award Production Sharing Agreements (PSA’s) – or the international oil industry would walk right on by and invest elsewhere.

The press presented the 1st license round as a failure by the Iraqi Government who only allocated one license out of the ten bid ………… and publically forced BP to reduce their bid from $3.99 per barrel to $2. BP was hammered in the press for agreeing to take such a cut and the press talked about the oil community by-passing Iraq.

Where are we now; all licenses are awarded; BP’s agreement looks pretty shrewd with other service agreements being awarded at $1.39 per barrel and $1.15 in much smaller fields. And they are all there – Americans, Korean’s, Russians, Malaysia – and all contracted as service companies to the Iraq Government.

We watch the International Oil Companies – so used to being top-dog – coming to terms with their role of a sub-contractor …………. and some are taking a long time to adjust to this position.

The next issue to unfold will be whether Iraq holding out is going to change the way oil-rich countries allow companies to operate in their country is going to become embedded ………… eyes on Libya!

What Mr. Gates was in effect saying is that Iraq as a democtatic model is a potential bulwark for American interests in the Gulf. The private sector is piling in with eye-watering levels of investment – the Press (still) won’t acknowledge that Iraq is looking pretty good but – generally: mission accomplished.

It leaves the question as to why the interventions in Libya are based on principles learnt in Afghanistan; it’s the wrong model stupid! Learn from Iraq ….. not Afghanistan.

Gavin Jones, Director of Iraq Business News, and Partner at consultancy firm Upper Quartile, was recently interviewed by Iraq’s Radio Dijla.  The full transcript is shown below:

Radio Dijla: How do foreign investors look at the Iraqi market today?

Gavin Jones: There are three main reasons for foreign investors committing to a market – a large and growing population i.e. China; a free, secure and functioning business environment i.e. Ireland and large reserves of natural resources. Iraq sits in the last category.

Foreign investors will come to Iraq without doubt but the value that Iraq will retain from the investments made will be limited unless the Government has a clear and transparent investment environment and a policy of building long term prosperity.

Currently the Iraqi Government does not have this and this is restricting the long term commitments that foreign investors are prepared to make. Many investors are waiting. The future is potentially extremely good. Iraq has its own destiny in its own hands.

RD: A large number of investors, who wish to enter the Iraqi market, suffer from the lack of information.

What is the best solution to overcome this obstacle?

The Financial Times ran an article on Wednesday by Farouk Soussa, Citigroup’s Chief Economist for the Middle East. While we’re all used to hearing the statistics and projections, Mr Soussa gave us a more engaging metaphor for Iraq’s potentially prosperous future: “Beneath the unsettled surface, Iraq is an economic giant, slowly but surely awakening after a 30-year slumber.”

But the article does not ignore the obstacles to Iraq’s growth, including security risks, governance issues, and corruption. “The uncertainty is great. But then again, so is the opportunity.”

All of this will be well known to regular readers of Iraq Business News, and we’ll continue to present all facets of commercial life in Iraq – the uncertainties and the opportunities.

This week, for example, our resident security expert, Dr Mike Knights of Olive Group, shares his perspective on the evolving security situation in the country. Yet, against that background, we still see universities expanding, houses being built, and oil and gas fueling the country’s redevelopment.

Upper Quartile and AAIB are the perfect team to help you manage the uncertainties and grasp the opportunities. For more information please contact Gavin Jones or Adrian Shaw.

Sunday 20th of June 2010, there was a real buzz in downtown Baghdad. Iraqi businessmen queued for hours to get through the security checks for the chance to discover American or British companies that could supply goods or services of quality.

The Baghdad Catalogue Show was an event that really demonstrated the strong desire and real will of reputable Iraqi businesses to trade with their US and UK partners. Over 100 people attended the half day event. Many had to be turned away due to the events limited capacity and advance registration process.

Many of the Iraqi businesses men in attendance of the event expressed their hope that trade relations with America and the UK would return to previous levels. The perception of superior quality and shared cultural values with the US and UK persists in modern day Iraq.

Part of any international companies’ overseas strategy must start by understanding the local operational environment and any event that can help companies to do that are critically important in assisting US & UK SME’s to successfully engage in the Iraqi market. The Catalogue Show was conceived as a preliminary step, combining the experience and expertise of Upper Quartile and G4S along with the trade support activities of the US Commercial Service. Catalogues are not sufficient to secure a long term business relationship especially in a country where face-to-face contact remain an essential element of business engagement but it has been a starting point for many of the businesses that took part in the Show.

Next year the Show will be bigger and better, with more private sector involvement from all 3 countries!

Markets hate uncertainty, but history has shown us that times of uncertainty create the greatest opportunities.

Warren Buffett’s famous saying, “be fearful when others are greedy, and be greedy when others are fearful”, is true whether referring to the stock market or to risk-taking in general.

And Iraq is giving us plenty of risk and uncertainty at the moment:

• Security: What will happen when US combat forces are withdrawn?
• Government: Who will eventually win this titanic battle? Did Tuesday’s meeting in Damascus between the secular Ayad Allawi and anti-U.S. Shia’ite Muslim cleric Moqtada al-Sadr bring us any closer to a resolution?
• Hydrocarbon law: As we’ve reported, both al-Maliki and Allawi are committed to honouring the existing contracts, but will the Supreme Court uphold them as valid? We’ll update you on this as soon as the Court makes a ruling.

But the fact that these issues are coming to a head now means that they will be resolved sooner rather than later. Companies like ExxonMobil and BP are not letting these factors delay their plans, while others are seeing this as exactly the right time to get into Iraq.

Instead of waiting for everything to be resolved, the French government, for example, is building a heavily fortified business centre and boutique hotel where businessmen can sleep, eat and work in safety. They’re not ignoring the risks, but they’re seizing the opportunities while they are still available.

If you’re considering taking that step into the Iraqi market, AAIB and Upper Quartile are the perfect team to help you manage the risks and grasp the opportunities. For more information please contact Gavin Jones or Adrian Shaw.