18 Dec 2006

Iraq Economy Growing, Despite Insurgency

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As the American community of fashion calls Iraq “a disaster,” and pleads for American withdrawal, Newsweek reports that the Iraqi economy is actually very healthy, almost booming.

Civil war or not, Iraq has an economy, and—mother of all surprises—it’s doing remarkably well. Real estate is booming. Construction, retail and wholesale trade sectors are healthy, too, according to a report by Global Insight in London. The U.S. Chamber of Commerce reports 34,000 registered companies in Iraq, up from 8,000 three years ago. Sales of secondhand cars, televisions and mobile phones have all risen sharply. Estimates vary, but one from Global Insight puts GDP growth at 17 percent last year and projects 13 percent for 2006. The World Bank has it lower: at 4 percent this year. But, given all the attention paid to deteriorating security, the startling fact is that Iraq is growing at all.

How? Iraq is a crippled nation growing on the financial equivalent of steroids, with money pouring in from abroad. National oil revenues and foreign grants look set to total $41 billion this year, according to the IMF. With security improving in one key spot—the southern oilfields—that figure could go up…

there’s a vibrancy at the grass roots that is invisible in most international coverage of Iraq. Partly it’s the trickle-down effect. However it’s spent, whether on security or something else, money circulates. Nor are ordinary Iraqis themselves short on cash. After so many years of living under sanctions, with little to consume, many built up considerable nest eggs—which they are now spending. That’s boosted economic activity, particularly in retail. Imported goods have grown increasingly affordable, thanks to the elimination of tariffs and trade barriers. Salaries have gone up more than 100 percent since the fall of Saddam, and income-tax cuts (from 45 percent to just 15 percent) have put more cash in Iraqi pockets. “The U.S. wanted to create the conditions in which small-scale private enterprise could blossom,” says Jan Randolph, head of sovereign risk at Global Insight. “In a sense, they’ve succeeded.”

And what does Newsweek think is needed for economic growth to continue? Continued US presence.

The withdrawal of a certain great power could drastically reduce the foreign money flow, and knock the crippled economy flat.

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