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Iraq Banks on Investors in Bid to Privatize

October 20, 2003|Edmund Sanders | Times Staff Writer

BAGHDAD — At less than a nickel, a bar of Iraqi-made Health soap would seem a bargain. But even at that government-subsidized price, there are few fans of the foul-smelling, industrial-strength stuff.

"You wouldn't wash your dog with it," one Iraqi said. "If you did, I swear, its hair would fall out."

The old Saddam Hussein regime tried giving it away as part of U.N.-supplied relief baskets sent to families. But instead of using the dingy yellow bars, many consumers stockpiled them until they had enough to swap for one cake of something decent.

So perhaps it's not surprising that the soap factory ended up on a list of struggling state-owned companies that may be among the first to be privatized. The newly appointed Iraqi industry minister plans to lease the Baghdad plant and 17 others to investors in hopes of nudging Iraq's quasi-socialist economy toward a free market.

The question now is, does anybody want them?

That's just one of many challenges facing U.S. officials as they move to privatize the Iraqi economy, a process seen as crucial to rebuilding the country. Other obstacles include a budding labor movement, newly unfettered foreign competition, a lack of security and, most recently, an emerging power struggle between U.S. and Iraqi officials over how best to proceed.

Without a doubt, there are gems among Iraq's 190 state-owned enterprises, and officials remain optimistic that they'll find buyers. Among the best are a leather factory renowned for its jackets and shoes, a drug plant specializing in high-quality knockoffs of Prozac and Viagra and some agricultural businesses, such as rice and date producers.

Iraq's cement factories have also traditionally been big exporters. On Saturday, the Al Muthanna Cement Co. -- a facility in the southern town of Samawa that was once suspected of producing chemical weapons and later was shut down due to looting -- came back on line, to the delight of its 750 employees.

But in light of much-publicized problems with aging equipment and mismanagement of the country's oil and electricity infrastructure, investors are wondering how many of Iraq's state-owned firms are in even worse condition. Rather than lucrative fixer-uppers, some factories may turn out to be costly teardowns, they say.

"These companies were all subsidized by the government before," said Mohammed Sadik Yassin, a Baghdad businessman who owns a large poultry farm. "Most of the factories are overstaffed. They may look tempting at first, but eventually they may not turn out to be profitable."

In fact, most state-owned firms are believed to be unprofitable, although no one really knows because their books have been destroyed or were never properly kept. Expenses from electricity to raw materials were subsidized, and the government inflated demand by keeping prices artificially low and doing much of the purchasing itself.


Longer Than Expected

During and after the U.S. invasion, several factories were bombed or looted. About half are idle because there is no demand or they can't get supplies or raw materials.

Already, the privatization program, which U.S. officials began mapping out before the invasion, is taking longer than many in Washington hoped. Thomas C. Foley, a big fund-raiser for President Bush who heads Iraq's private-sector development, now predicts that the transition may take three to five years. "It's going to take a long time to convert these assets," Foley said.

That timetable is disappointing news for the U.S.-led coalition, which was betting that the private sector would take the lead in reconstructing Iraq. Over the next three years, state-owned business will need at least $1 billion in subsidies just to pay workers and stay afloat, not counting needed repairs or reinvestment, according to the country's 2004 budget. U.S. officials are eager to shift those costs to investors.

The latest wrinkle in the privatization program is a dispute between American advisors and the U.S.-appointed interim government over how quickly to move and exactly who's running the show.

This month, Mohammed Tawfik Raheem, the new minister of industry and minerals, ran a full-page newspaper ad listing 18 state-owned firms that he intends to lease to investors for five to 10 years, a test run for privatization. Bids are due Nov. 11.

But Raheem opposes further steps toward actual sales of companies until a new Iraqi government is elected. "I won't talk about privatization because we don't have a law," he said. "We are not selling the companies."

Asked if one of Foley's mandates is to privatize the state-owned firms, Raheem said, "That's not his job. It's the Iraqis' job. We own the factories. If they are going to be privatized, it will be the decision of the owner, not someone who is an advisor."

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