Demands for payment from tribes, militias stalling investment in Iraq

Economic projects in Iraq are facing major setbacks due to ongoing payment demands from tribes and armed groups.

al-monitor Metal pipes are seen as the land is cleared from ordnance and mines laid down during the 1980-88 Iran-Iraq war in the massive Majnoon oil field, some 40 kilometers (25 miles) from the eastern border with Iran, on Feb. 7, 2012, in southeastern Iraq. One of the partners on the project is Petronas, which in 2020 has become one of the latest companies to come up against extortion attempts in Iraq. Photo by ALI AL-SAADI/AFP via Getty Images.

Oct 31, 2020

BAGHDAD — Ashab al-Kahf, a pro-Iran militia in Iraq, issued a statement Oct. 27 calling upon all Iraqis to report any information they may have on the presence of investors or economic experts from countries considered Iran’s rivals — such as the United States, Britain, Saudi Arabia and the United Arab Emirates — in exchange for amounts ranging from $20,000 to $50,000.

Iraqi and foreign investors are facing demands for compensation from armed militias and tribes in Iraq, and most of them are opting for withdrawing from the projects out of fear of violent reprisal if they don't meet the demands. Over 6,000 projects have been placed on hold between 2008 and 2019.

In the latest development, the Malaysian Petronas oil company threatened to leave the Garraf oil field in Dhi Qar province Oct. 18 in the wake of tensions stemming from the behavior of tribal members living near the field. 

Petronas isn’t the only company facing demands from parties, militias and tribes in Iraq. On Oct. 15, an unknown force raided a residential investment complex in Salahuddin province, detained workers for more than three hours and threatened to kill them if they resumed work.

On July 2, Prime Minister Mustafa al-Kadhimi said during a meeting with several investors that the private sector is facing a lot of extortion and that the government is putting deterrent measures to punish and pursue the parties behind such shakedowns. He said that his doors are open to businesspeople who want to complain about any extortion they might face, and that the government will pursue corrupt entities.

Mohammad Rahim al-Rabihi, a board member of the Iraqi Extractive Industries Transparency Initiative, said investors and foreign companies operating in the country have been facing more and more extortion attempts. He told Al-Monitor, “Some tribes have been claiming that they own lands abandoned for dozens of years, alleging that these properties belonged to their parents and ancestors, to receive financial compensation from oil or investment companies.”

He added, “The government paid tribes large amounts of money as compensation although they are state property. The next stage of extortion involves halting the company operations until certain companies are imposed to obtain secondary contracts and employ tribal members at the workplace.”

He continued, “In the past few years, tribal extortion took on a religious form. They forced companies to pay a lot of money to build religious shrines.”

Since 2018, Iraq has been a stage for protests of university graduates asking for employment in multinational companies. Thousands of protesters encroached on oil fields and power stations in Dhi Qar, Basra and Wasit, among others, which stopped operating, thus affecting oil and electricity production. 

Mazhar Muhammad Salih, a financial adviser to the prime minister, told Al-Monitor that extortion attempts by armed groups against investors and economic activity must be treated firmly and rejected as damaging for the national economy. He said that as a result of such extortion, Iraq now ranks 171st out of 190 countries in the evaluation of the “Ease of Doing Business” issued by the World Bank in 2019.

He said this classification relied on criteria such as the rule of law and the fight against corruption. The country needs to make a major effort to grant investors reassurances that they can operate on its territory, Salih added.

While the National Investment Commission has identified more than 100 investment opportunities worth $75 billion, investor interest remains low because Iraq is not considered a suitable environment due to security, political, economic and social instability.

Alaa Mousawi, head of the Investors’ Association in Iraq, told Al-Monitor that the extortion investment companies face impacts their work and profits and will push them to reduce their activity and investments. He said foreign companies, especially in the oil sector, have been harassed by local citizens seeking to acquire money.

He added that Iraqi economy is suffering as a result of having to employ unskilled labor imposed by tribes and militias. Such circumstances affect companies’ output, stock share prices and shareholder profits. He added that ensuring a suitable environment for investors will create new jobs. Extortion attempts and outside meddling in companies’ affairs have also driven investors away and deprived the economy of an opportunity to create new jobs.

Most Iraqi investors would rather invest in neighboring countries such as Turkey, Jordan, Iran, Egypt and the UAE, rather than Iraq, due to bureaucratic issues, corruption, extortion and weak law enforcement.

Economist Karim Akrawi told Al-Monitor that most foreign companies want to pull out of Iraq because of the intervention of armed groups and tribes in their operations and the absence of state protection. He said this intervention in companies’ affairs affects the quality of work and boosts expenses. If a project might normally cost the state $10 million, this could double to $20 million in such a climate, Akrawi said.

He said that extortion leaves projects incomplete and that using protests to put pressure on foreign companies in order to achieve personal and factional gains is a disastrous mistake, making Iraq a place that investors avoid.

He said all this causes foreign employees to be fearful and costs the state huge amounts of money, either in spending for protection or in income lost because the foreign companies leave. 

He said some companies have employed militia and tribal individuals despite getting little to no work from them in return. Akrawi said he was surprised that the Iraqi state kept mum about such conduct as it is destroying the national economy.

The Iraqi economy has been facing huge challenges, including an increase in poverty and unemployment. Although the investment law has made life easier for investors, many still prefer to do business outside Iraq. Also, many young people have sought to migrate and citizens’ trust in the state has been shaken.

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