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Shopkeepers Learn to Love Free Market in Iraq

August 13, 2003|Edmund Sanders | Times Staff Writer

BAGHDAD — These are bittersweet times for shopkeeper Mohammed Kassim.

The owner of Hazan CD Center, a movie and music shop in Baghdad's Karada shopping district, knows that Iraq's overall economy is reeling from unemployment, rampant crime and the collapse of many government-owned companies.

But down here on the lower rungs of Iraq's economic ladder, business is booming.

Sales of CDs and DVDs at Kassim's small shop are up 75% compared with last year. Asked if his profits were improving, Kassim just grinned broadly and clapped his hands in satisfaction.

Temporarily free from taxes, import tariffs and government regulations on what and how they sell, small-business owners like Kassim report that they are enjoying the fruits of a free-market economy. Although overall reform of Iraq's previous centrally planned system will be difficult, economists and bankers say the postwar surge in small merchants' sales bodes well for Iraq's long-term prospects.

Under the old regime, Kassim said, he paid a $5,000 annual business license tax plus a monthly government "street sanitation" fee (though he said he never saw any cleaning). He was forced to take down the marquee outside his store because he couldn't afford the signage tax. Worst of all, Kassim endured daily visits from Ministry of Information officials who perused his selections to ensure that they didn't include racy Western movies or Shiite-themed music, which were illegal.

"I was quite afraid," said Kassim, whose current video offerings include "Miss Congeniality," "Wild, Wild West" and "Intersection." "Now we can offer much more, and so people buy more."

The crowds come in the relative cool of early evening, as cars and pedestrians clog the street outside Kassim's shop. With electricity supplies still erratic, many merchants move their wares out of their stuffy shops, filling sidewalks with displays of shoes, sunglasses, radios, jewelry and clothing.

The sidewalk bazaar along Karada Street would have been impossible under Saddam Hussein, who disapproved of such retail clutter.

Some shopkeepers don't even bother bringing their goods inside anymore. Noel Jonan, manager of the Yamama appliance store, stacks his inventory on the sidewalk so customers can easily load the air conditioners, televisions and microwave ovens into their cars.

A year ago, Jonan barely sold enough to cover the rent and pay his employees. These days, he may sell 100 air-conditioning units a day. "Before the war people were nervous," he said. "They didn't know the future. Now they feel it's time to buy."

Since he no longer has to pay import taxes -- which ran as high as 75% of an item's value under the former government -- prices for air conditioners have plummeted from 1 million Iraqi dinars, or about $600, to about $300. Although his profit margin has been cut in half because of increased competition, Jonan said he didn't mind, because volume was robust.

Analysts find such developments heartening. "Even with the bad situation right now, some economic activity is very good," said Sami Thami, acting director of Islam Bank in Baghdad. "Iraq used to be a developed country, and it will be again. It's a very rich country."

Whether the boom lasts remains to be seen. The U.S.-led Coalition Provisional Authority has said the tax-free environment will end in December, suggesting the free ride for merchants and customers may be short, according to Humam Shamaa, a Baghdad University economics professor who is advising the Iraqi Governing Council.

But even then, Shamaa predicts that the new government will be far more moderate in levying taxes and imposing rules, staying in accord with principles set by the World Trade Organization. "I'm satisfied that Iraq will change into a free economic market," he said.

Shamaa attributed the small-business boom to another trend: higher pay. Salaries for many government workers have soared under the U.S.-led coalition. "The only thing Americans are good for is paying," goes a common refrain in Baghdad these days. Teachers and police, for example, who previously earned less than $10 a month, now collect about $180.

"The standard of living for some Iraqis has improved," Shamaa said, noting that about half the Iraqis who are employed work for the state.

Rising real estate prices are also putting more money in the pockets of consumers. The influx of expatriates, foreign investors and reconstruction officials has led home prices in some areas to quadruple, a boom some experts believe won't last.

With a satellite phone affixed to one ear, real estate agent Caesar Majid, based in the upscale Mansour area, reported a surge of new buyers.

"A lot of people had money but were afraid to spend it or let people know they had it," he said. In addition, a previous law restricted home buying in Baghdad to individuals listed in the 1957 census. "They didn't want outsiders buying property," Majid said of the old regime. Now people are simply ignoring that and making offers.

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