Iraq Reconstruction May Take Years

CAIRO, Egypt – Saddam Hussein took a wealthy, thriving country and drove it into the ground. Restoring Iraq's economy will take years, analysts say, even with the world's second-largest proven oil reserves.

The hurdles are formidable: bombed-out roads, bridges, buildings; offices stripped by looters; outdated and corroded facilities in polluted oil fields; fallow farm fields ruined by waterlogging and salinity.

Add to that the prospect of political and social instability along with foreign debt and compensation claims in the hundreds of billions of dollars.

"We have had three wars and 12 years of sanctions," said Walid Khadduri, editor in chief of the Cyprus-based Middle East Economic Survey. "There's a price to pay for that."

Baghdad has an illustrious history as a center of commerce dating to the Abbasid Islamic dynasty, which built its capital on the banks of the Tigris in A.D. 762.

The city prospered in the 8th and 9th centuries as the center of east-west trade routes, becoming such a commercial hub that a letter of credit issued in Baghdad was honored from Central Asia to North Africa. Craftsmen organized themselves into societies offering benefits long before Western trade guilds developed.

Then the Mongols sacked Baghdad in 1258, and the city sank into lethargy until the oil boom of the 1970s.

Flush with cash, Saddam initiated ambitious social reforms, more than doubling the nation's literacy rate and making Iraq a leader in the Arab world in health, education and culture. Middle-class neighborhoods sprouted, sewers and water lines were laid, highways and an airport were added.

Progress ended after Saddam began a devastating war with neighboring Iran that lasted most of the 1980s. Burdened with debt and facing social unrest, Saddam then accused Kuwait of stealing Iraq's oil and invaded in 1990.

A U.S.-led coalition drove out Iraq's army in 1991, and the country has been hobbled ever since by U.N. economic sanctions imposed to force it to disarm and pay reparations.

"What has happened is tremendous neglect of investment over the last 20 years or so," said Peter Sluglett, an Oxford University expert on Iraq. "Everything was starved."

Iraq does have some advantages, he said. It has a fairly well-educated and entrepreneurial people, and its population of 24 million is neither too small (like the Persian Gulf states) or too big (like Egypt).

But unlike post-World War II Germany and Japan, Iraq does not have much of an industrial base to draw on. Oil revenue accounts for 95 percent of national revenue, and that was already under stress.

U.N. experts visiting Iraq in 2000 noted severe corrosion, blowouts and pollution in the oil fields and concluded some wells had been irreparably damaged. Daily capacity has been falling by 100,000 barrels a year since a 1990 peak of 3.5 million barrels a day.

Even agriculture is in trouble. The United Nations (news - web sites) estimated before the war that less than half the total cultivable area of Iraq is farmed, largely due to extreme soil salinity and waterlogging caused by poor irrigation practices.

Many people are counting on oil money to help rebuild the country. Yet Khadduri points out Iraq's oil production is worth at most $22 billion a year.

Preliminary estimates on the cost of rebuilding Iraq range from $20 billion a year for the first few years to as much as $600 billion over a decade. On top of that, oil has to pay for food, education, medical care and other necessities — plus $200 billion or more in debts owed to countries like Russia, France and China and compensation claims to Kuwait and others.

"People overblow, overestimate the thing about the oil as if it's going to be manna from heaven," Khadduri said. "The bonanza people are talking about, I don't see it, not in foreseeable future."

Iraqi exiles concede reconstruction will take years and require billions in aid.

"But beyond that, the opportunities are enormous for private enterprise to step in and make the desert bloom again," said Bart Fisher, a trade specialist and secretary of the U.S.-Iraq Business Council, which is presenting a rebuilding plan to U.S. officials this month.

Among its prescriptions is an independent, quasi-governmental Iraqi Bank for Reconstruction and Development, staffed by Iraqis and non-Iraqis, to help privatize state-owned concerns and develop a free-market economy.

"In the long run, what we need is to bring in the private sector," said Fisher. But he said it should be done gradually, to avoid the "mafia-driven" system that emerged from the overnight method used in parts of the former Soviet bloc.

His group, which seeks to promote U.S. investment in Iraq, believes businesses from many countries will be eager to participate in a rebuilding Iraq.

Some doubt that.

"I'm trying to be realistic," Khadduri said. "International companies won't go and invest several billion dollars in a country that doesn't have political or social stability. They want to have laws and regulations in place before they go in. Iraq has to put itself in order."