The ‘Buy Iraq’ conference

I was at the Invest in Iraq conference yesterday, being heralded by Lord Mandelson as a “new chapter” in Iraq’s history. I wondered if the timing was planned – the UK unveils a big conference to attract private investment into Iraq, the same day it pulls its troops out of Basra…out with the troops, in with the bankers! – but maybe that’s cynical.

It was an impressive event – the main hall at the Landmark Hotel, which seats around 500, was completely full, with people being turned away. Prime minister Al-Maliki and several other ministers gave a strong message: Iraq is moving from a centrally-planned to a free market economy, and it wants to move very quickly to provide jobs and services to the economy. ‘Otherwise’,  as the suave deputy PM Barham Saleh put it, ‘we will be voted out at the next election.’

One of the key talking points was the negotiations now going on between the government and around 30 foreign oil companies, for the rights to develop Iraq’s enormous oil reserves. This will be the first major post-war private investment into the country, and the deal that really kicks off the country’s post-war reconstruction.

Apparently the negotiations are going well, though I heard mixed reports about what the government is demanding – some said a 51% stake in projects, others a 75% stake, others that they may allow foreign companies to take a controlling stake in projects, which would be fairly unheard of in most emerging markets, but the government needs money to stay in power, the price of oil is low, so it’s not in as strong a bargaining position as say the Kremlin was in 2007, when it ‘re-negotiated’ several 90s era deals.

Hopefully the Iraqi government will build some flexibility into deals, so that it will get a greater share of profits if and when the oil price rises.

The other question was the reconstruction of the electricity sector. Apparently, it’s now back to pre-war output levels, which means the country receives on average 14 hours of electricity a day. Improving this will be key to the government and economy’s success.

It’s a daunting task. One businessman I spoke to, who’s advising on the sector’s reconstruction, said output needed to be quintupled to cope with the rising energy demands of Iraqis. Western private investment could be persuaded into that sector, according to some bankers I spoke to, but it would need western government support, because unlike the oil sector, electricity revenues cannot be secured offshore, so there’s all the local legal risk for big electricity investments.

That support could come in the form of export credit agency (ECA) guarantees. Such ECA guarantees are quite normal for big infrastructure projects in emerging markets, and in today’s low liquidity market, it’s essential if public-private deals are going to get done. Otherwise, governments have to finance deals off their own balance sheet, which Iraq’s government cannot yet afford to do. So ECA coverage would seem to be essential for the reconstruction of Iraq’s infrastructure.

But here’s the rub – not a single western government provides any export credit agency coverage (ECA) for project finance in Iraq. Not the US, not the UK, nothing.

Many bankers I spoke to said they are willing to put alot more money into the reconstruction of infrastructure, but they would need ECA coverage to do so.

I was really shocked to hear we don’t provide any ECA coverage for the country. All that talk of nation-building, and according to Hugh Sykes of the Today show, all Basra has to show for it is a UK army-constructed fish market.

There’s a strong economic motive for providing ECA coverage for private firms to help re-build Iraq. And, I would argue, there is also a moral argument for it.

At the moment, however,  Iraq is apparently ‘too risky’ for ECA coverage. But if western governments are not prepared to risk their money in Iraq, how ever are they meant to persuade private companies to do so?

US to world – sod off

Obama admin confirmed positions

The world may be in deep trouble, but Barack Obama is still stumbling around trying to staff up his government – testimony to a crazy appointment system and a domestic political environment more toxic than AIG’s balance sheet.

Much attention has been focused on Treasury’s failure to confirm enough staff to have anything sensible to say about the London Summit – but there are problems all round the world, with few Ambassadors in their jobs. 

Take the farcical situation in Iraq, which,  as I saw on a recent trip, desperately needs US civilian agencies to step up a gear as the military draws down.

You’d think that everyone would be desperate to get an ambassador in place to replace Ryan Crocker. But no – politics have intervened, with John McCain leading an especially boneheaded charge. It’s got so bad that top military brass are letting on that they’re thoroughly pissed off:

Sources tell The Cable that Centcom commander Gen. David Petraeus, top Iraq commander Gen. Raymond Odierno, and Defense Secretary Robert Gates are frustrated by the delay in getting a U.S. ambassador confirmed and into place in Iraq, and support [Christopher Hill’s] confirmation proceeding swiftly. 

Opposition to the Hill appointment has been led by Sens. John McCain (R-AZ),Sam Brownback (R-KS), and Lindsey Graham (R-SC). Brownback has called Hill’s past dealings with Congress over North Korea “evasive and unprofessional.” In a joint statement last week, McCain and Graham wrote that Hill had a “controversial legacy” on North Korea, and added, “The next ambassador should have experience in the Middle East and in working closely with the U.S. military in counterinsurgency or counterterrorism operations. Mr. Hill has neither.”

Since the previous ambassador, Ryan Crocker, left the job Feb. 13, Odierno has complained of doing double duty: serving as the commanding general and the de facto ambassador.

The power vacuum in Baghdad comes at a critical juncture in Iraq’s transition, sources noted. The U.S. mission is becoming increasingly focused on political stabilization and economic development over military missions; Arab-Kurd tensions are rising in the north; struggles for dominance within and across sectarian groups are heating up in the aftermath of January’s provincial elections; the Baghdad government is facing tough budget choices due to declining oil prices; and national elections that will determine whether Iraq can consolidate its democracy are due by year’s end.

Keeping a lid on such political tensions is “crucial to consolidating the security gains from the surge,” a Washington Iraq hand said, “yet the advocates of the surge want to slow down the process of getting an ambassador to Iraq.” […]

If this drags on, Democrats may look to turn the tables on the Republican senators, who have argued that Iraq was so central to U.S. national security. “Why are they dicking around and not putting an ambassador in there if Iraq is so important?” the Senate Democratic foreign-policy staffer said.

It’s a point the generals are quietly saying among themselves, if not yet publicly.

I know that Washington really only cares about Washington, while the right is settling in for a decade long tantrum. But I wish they’d at least pretend they give a damn about everybody else…

The security burden

In Small Wars Journal, Sergeant Michael Hanson laments the weight of the equipment that a US marine carries to keep himself safe. 40 pounds of body armour, plus a pack that can weight twice as much again (at a total of 120 pounds or 54 kilos, that’s like lugging Jennifer Lopez around wherever you go).

The consequences are predictable:

This weight limits their speed, mobility, range, stamina, agility and all around fighting capability. They can’t go out far and they can’t stay out long with all of this gear. It is simply too much. Combat patrols are typically four hours, and even that short amount of time is exhausting. Our Marines are being consistently outrun and outmaneuvered by an enemy with an AK, an extra magazine and a pair of running shoes.

Sergent Hansen believe that the flight to security  (“all the best equipment for our soldiers”) – ends up making soldiers less secure. You’ll find a similar sentiment in General Petraeus’s admirably concise counterinsurgency guidelines. Walk, is one of his directives. You can’t commute to this fight, is another.

But where does this leave civilian agencies? I doubt there is a single British or American embassy in the world that hasn’t seen dramatically increased security since 9/11. Many now resemble prisons.

Aid agencies, meanwhile, operate from fortified compounds in a growing number of countries, while the Iraq operations of some international NGOs are said to have hidden their use of armed guards from their own head offices. Both struggle against the prospect of an ‘armed humanitarianism.’

Petraeus calls on soldiers to live among the people, deepening their cultural understanding and ability to navigate informal networks, through prolonged and regular face-to-face contact. Diplomats, of course, need to do the same.

He advises them to “understand how local systems are supposed to work – including governance, basic services, maintenance of infrastructure, and the economy-and how they really work.” That’s the mission of development workers.

I am not trying to make a glib point here. Soldiers have the means to defend themselves (and to prevent the kidnaps that, once amplified by the media, can be strategic game changers). Diplomats and aid workers do not.

But how can civilian agencies deepen engagement with populations, while responding to growing insecurity? And what will they do if they find that – like the overloaded marine – security measures are eroding their ability to do their job?

Hoekstra on Twitter: I’m in Iraq, come get me

Peter Hoekstra, Iraq and Security

“A congressional trip to Iraq this weekend was supposed to be a secret,” reports Congressional Quarterly. “But the cat’s out of the bag now, thanks to a member of the House Intelligence Committee who broke an embargo via Twitter.”

The leak came from Peter Hoekstra, “a former chairman of the Intelligence panel and now the ranking member, who is routinely entrusted to keep some of the nation’s most closely guarded secrets.”

Best twitter reaction: “Me in Baghdad. That’s Rep. Hoekstraover my shoulder, head-down cause he’s tweeting our location.”