Table of Contents
- The Possibility of Kurdistan Becoming an Independent State
- Political Situation
- Foreign Relations
- The Construction Boom in Kurdistan
- Kurdish Business
- Establishing a Company
- Central Bank of Iraq
- Business Development
- Kurdistan Security
- Assessment of the Security Environment
- Related Geography essays
Iraqi Kurdistan is a semi-autonomous region on the north of Iraq. The region borders Iran, Syria and Turkey to the east, west and north respectively and the remaining south borders Iraq (Aziz, 2011, 7). The Kurdistan regional capital is known as Erbil and is legitimately governed by the Kurdistan Regional Government. The autonomy of this region was established in March 1970 as a result of the agreement made between the Kurdish opposition and the Iraq government after a long duration of heavy fight (Aziz, 2011, 83). This region's economy is dependent on the booming oil industry, tourism, and agriculture and has a more developed economy compared to other parts of Iraq, which is accredited to the relative peace the area enjoys. Based on the peaceful state, especially after the Iraq Liberation by the United States in 2003, Kurdistan has grown to be the most successful region of Iraq in relation to economy, business, construction, political situation and security (Chapman, 2011). There are expectations that the region becomes independent from the main Iraq. However, there have been several considerations that led to the political leaders in the region hesitation about the declaration. They are based on the fact that Kurdistan is a landlocked region and needs to build its international relations with Iran and Turkey before it becomes independent in order to be able to sustain the business and economic growth.
As a result of internal and external factors, Kurdistan politics has not developed into a stable entity and is, therefore, very uncertain as to how the alignments will be in the future. This uncertainty can spill over to the recently developing social institutions and economic trends that are likely to be fragile and unstable. This paper looks at the possibility of Kurdistan Region becoming an independent state based on the business and economic performance of the region, and if the ten-year peaceful experience as a semi-autonomous region may be used as a foundation, it can be emulated to bring democracy to Iraq in the future. The paper also looks at the performance of the dependent variables in Kurdistan that include international business levels, economic performance, security of the region, construction boom, and political developments before and after Kurdistan becomes an independent state.
The Possibility of Kurdistan Becoming an Independent State
The discussion of Kurdistan Region becoming an independent state has intensified. It is making headlines in newsrooms in the recent past. Politicians and commentators from all fields are expressing their opinions on the topic other than they did before, the latest politician being Hassan Alawi, who is very influential and known to be a vocal supporter of the Kurds and one of the founders of the Baath party. Izzat Shabander, who is the leader of the State of Law coalition, also recommended that Kurds need to form their own independent state. These remarks have infuriated many Iraqi nationalists who are opposed to the idea, but have not changed the minds of Kurdish politicians, who instead have continued emphasizing the same.
This controversy between the Kurdistan Region and the rest of Iraq was also heightened when the Iraqi Prime Minister, Nuri AL-Maliki issued a directive to remove the Kurdish flags from Government premises in Diyala province. The order generated an emotional outcry, followed by widespread demonstrations from the Kurdish public, which forced Diyala province office to decline to obey the order and consequently forced the prime minister to withdraw the order. This evidences that the majority of Kurds support Kurdistan becoming an independent state. Evidently, this drive of people cannot be stopped and will one day come to pass. As a matter of fact, the easiest way for a Kurdish politician to become popular is to support the idea of being an independent state. However, the declaration has not been made because of the drive for diplomacy and the unstable economic, security and political reality of Kurdistan region to stand on their own (Leezenberg, 2012, 5). Similarly, the Arab politicians have also joined the discussion by portraying themselves as associates of the Kurds and supporting Kurdistan atempts to declare independence.
It is argued that Kurdistan Region is politically qualified to be independent, but it is uncertain if the region is militarily and economically prepared for this move (Heshmati, 2010). These are the areas that Kurdistan needs to strengthen to be able to operate efficiently as a state. The revenues from the oil industry need to be handled without any mismanagement or chronic corruption. By this, the region will be capable of operating independently should the links with Baghdad be cut. This is because an independent Kurdistan will automatically lose its current 17 percent budget allocated from Baghdad (Blanchard, 2008, 28), and will have to seek trade with Iran, Turkey and other friendly nations to sustain their budget. It is worth noting that the KRG has other sources of revenue income, but this is not enough to maintain the bloated public sector salaries and to continue sustaining the investment and rebuilding programs.
According to the analysts’ view, the Kurdish independence will heavy rely on their relation with Turkey, which serves as the main gateway for Kurdistan Region. Owing to the fact that Kurds’ independence will enormously benefit the Turks, Turkey is likely to support the idea despite all the political pomposity and historical antagonism, since it will enjoy greater influence on the KRG. Besides, Kurdistan has the potential to become a source of cheap energy to fuel the thriving Turkish economy in the future. This fact supports the possibility of Kurdistan being an independent state owing to the existence of ready allies with whom business can be done. The region’s economy has also been in an upward trend majorly because of the better security not enjoyed by the rest of Iraq and the extra revenue collected from oil explorers, sale of oil to domestic market and local taxation, and other schemes. This is an indication that the economy is capable of performing better when they are independent.
Kurdistan Regional Government (KRG) is based in Erbil, which serves as the capital of the region, and has parliament which is elected by popular vote and a cabinet composed of the KDP, the PUK parties and their allies such as Iraqi Communist Party and the Social Party of Kurdistan among others. Structurally and formally, the two parties show little variance from each other but have similar international organizations and structure of authority. Under the leadership of Nechirvan Idris Barzani as the country’s Prime Minister, KDP and PUK parties managed to have a unified cabinet from 2006-2009, which ensured peaceful running of the region (Jabbar, 2006). The prime minister also spearheaded the extraordinary social and economic reforms, including minimized violence against women, developments in infrastructure, and the encouragement of the private sector and foreign investments to improve the economy of the region. He also championed the formation of positive associations with Turkey and the expansion of gas and oil fields in the region that currently provide the highest exports revenue (Heshmati, 2010). It should be noted that the traditional organization of the Kurdish social and political structure is essentially tribal, with a tribe being a socio-political unit having distinct territorial boundaries and membership founded on kinship (Aziz, 2011, 64). Tribal power is prevalent in Erbil and Dahuk. There have also been political disputes and uncertainty in the relationship between Kurdistan and Baghdad over oil consumption and the formulation of laws stipulating how the revenue should be fairly shared. These have obstructed advancement toward a unified, central government (Blanchard, 2008). For example, when Kurdistan’s leaders formulated their own oil law and entered into an oil exploration contract with the Texas based Hunt Oil Company; the national oil ministry in Baghdad swiftly disputed its legality. This is a sign that the central Iraqi Government does not recognize the independent operation of Kurdistan Region, a fact that can easily raise political tensions.
The Kurdistan ruling parties of PUK and KDP have continuously resisted the pressure from the public and opposition parties to call for independence (Jabbar, 2006). This is because Baghdad has constantly failed to implement article 140 of the Iraqi constitution that defines the territorial boundaries, especially the KR borders and the oil rich areas of Kirkuk (Zedalis, 2012). Kurdish politicians are therefore faced with hard choices of either to proclaim independence to become more dependent on the Turkish and Iranian trade, or to continue under Iraq until all the territorial disputes are fully resolved, so that they continue putting the infrastructure is in place (Leezenberg, 2012, 6). Either way, it should be noted that Kurdistan can become an economic power in the region without control and limitations from the central Iraqi government if Kurdistan becomes a state.
Kurdistan Region to some level is permitted to have its own foreign relations without referring to Baghdad. For this reason, Iraqi Kurdistan hosts several consulates, embassy offices, international trade offices and honorary mission offices of countries that intend to escalate their influence and have better relations with Kurdistan Regional Government. By October 2010, there were already 20 diplomatic representations in the region including Turkey, and there are more nations in need of improving their ties with the region (Jabbar, 2006). This is good news to the Kurds, since it improves their chances of engaging in independent international trade without involving Baghdad, thus confirming the ability of Kurdistan to survive after it becomes an independent state. There is also a representative of the KRG in the United States, who is the youngest son of the Iraqi president Qubad Talabani, as well as arepresentative to the United Kingdom. These representations give the region a head start proving that it is recognized on the international map as being semi-autonomous and can easily become fully independent.
The peace and stability of Kurdistan Region have allowed it to realize a higher level of economic development than in other regions in Iraq. In 2004, the per capita income of the region was 25 percent higher than in the rest of Iraq (Heshmati, 2010).Currently, the Kurdistan government continues to receive a portion of the revenue from Iraq's oil exports, and the government is planning to implement a unified foreign investment law (Blanchard, 2008). The KRG also plans to construct a media city in Erbil and free trade zones close to Turkey and Iran borders. These initiatives are to encourage foreign investors to venture into the booming economy and to improve foreign earnings from the international trade and tourism. Kurdistan Region, however, lacks a resilient industrial and agricultural base, and greatly relies on imports of products like milk and grain, which led to the adoption of oil-for-food program by the United Nations to deliver foreign products to Iraq during the Saddam Hussein rule (Torchia, 2007, 1).
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Presently, Iraqi Kurdistan has the lowest poverty rates in Iraq and, according to President Jala Talabani, the number of millionaires has increased from 12 to 2000 in the Kurdish city of Silemani since 2003, thus reflecting the economic growth in the area (Heshmati, 2010). Based on the KRG website, neither a coalition soldier has died nor a single foreigner has been abducted in the areas administered by the KRG since the 2003 US invasion to Iraq. This stability is a factor that attracts investors to the region, but not to other insecure parts of Iraq. The region also encourages a free business environment for all, confirmed by a sign erected in front of the offices of a trade association that reminds visitors to leave their guns at the reception desk to symbolize no restriction. This makes investors to freely venture into this region full of unexploited oil wealth. The investors include Kurdish businessmen established in Europe, Persian Gulf Arabs, United States, Turks and a few Europeans and Americans. There is also Sigma International Construction, which builds over 350 luxury homes on the outskirts of Erbil and the American Village development, which is fitted with ready back doors, closets and fully equipped kitchens (Torchia, 2007, 1). These decent homes have brought new value to the Kurds and the finished units have been sold off to the members of parliament.
Kurdistan’s two main cities, Erbil and Sulaimaniyah, have constructed new airports and are currently constructing roads, building schools, business malls, and residential houses. Many Erbil populations can access clean and well treated water from a facility that was constructed through the assistance of the U.S. Army Corps of Engineers. They have a well-developed gasoline station in Erbil that is described to match the standards found in an American suburb. It is well-constructed, with 16 pumps, and consumers can easily use their credit cards. The station has a developed mini-market that retails potato chips, chocolate bars and other junk fast food from Turkey (Torchia, 2007). There are also hundreds of Turkish companies in different sectors of the economy operating in Kurdistan Region, thus contributing to the general economic growth.
The Construction Boom in Kurdistan
Kurdistan is an area that before 2003 invasion lacked many of the basic necessities such as water, housing, security among others that are required to ensure the well-functioning of the society. Kurdistan functioned as a de-facto state from the first Iraq War in 1991 until the second Iraq War in 2003 amid a lot of challenges. The region encountered double sanction, one being the international sanction on Iraq and the sanctions that the Baghdad government imposed on Iraqi Kurdistan Region (Heshmati, 2010). This crippled the economic strength of the area. However, since the 2003 invasion , large sums of money have been injected into Iraqi Kurdistan region, sparking large-scale construction in the major towns within the region and has improved from a very poor third-world economy and society to a booming economy and construction never experienced before, as manifested in the world-economic rankings (Heshmati, 2010).
The Kurdistan Region has seen a lot of construction ranging from roads, buildings, skylines, involving people and even changing the political landscape owing to the newly adopted change movement slogan. The region is currently constructing a new airport terminal building, which is to be of top international standards closer to the temporary airport (Kurdistan in Midst of Construction Boom, 2008). There are also world-class roads from the airport to the city center with road signs guiding motorists on direction to drive. Next, there are beltways with a strategic and thoroughly modernized 60-metre-long road which has considerably reduced the number of traffic jams, once a common phenomenon in Erbil. Moreover, the city currently has several Western shopping malls such as Hawler Mall, Nistiman Mall, Naze Mall, and Majidi Mall among others, all of them having some level of local and Kurdish touch (Kurdistan in Midst of Construction Boom, 2008).Other than the shopping malls, there are several social sites in different locations that members of public can relax and have fun. Such sites include new parks, go-carting, a fun fair, an Aqua Park and a bowling center among others.
The construction boom is a result of peace and stability that the Kurdistan Region enjoys and the fact that the Kurds have difficulties in getting visas to travel to other countries, thus letting their money be consumed and invested locally (Heshmati, 2010). There are also several foreign investors constructing houses for sale to the locals, as well as business buildings. In addition, the coming of the foreign investors is a result of the contribution by Kurdistan Regional Governments, which has put in place the most liberal investment laws in the Middle East, provided incentives for the coming of foreign companies that possess a lot of experience, knowledge and capacity. For instance, the 2006 Law on Incentive for Investmentis not found anywhere else in Iraq and is considered one of the major factors for construction success in Iraqi Kurdistan (Heshmati, 2010, 48). It was the same year that Kurdistan Investment Authority was established with a sole duty to encourage development, by among other methods giving a 10-year exemption of non-custom taxes and duties to business investments in the region (Kurdistan in Midst of Construction Boom, 2008). These terms attract many investors into the area leading to the improvement of the standards of living of the Kurds employed in these massive investments and ensuring sustainable economic growth.
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Currently, there are over 100 private investments projects in Kurdistan region with a total investment of more than $16 billion (Kurdistan in Midst of Construction Boom, 2008). This is great news to the economy of the regions, since the projects offer employment to many Kurds. The projects in the provinces of Erbil, Dohuk and Suleimaniah are ranging from commercial developments to tourism, and agricultural sectors.
Erbil has recently witnessed massive construction projects, with the construction of the Le Royale and Grand Rotana hotels. Damac properties, a United Arab Emirates contractor, also pronounced a $4.5 billion housing project in Erbil city, thus injecting more impetus to the construction boom. Out of the total investments, 59 percent are owned by the Iraqi, 16 percent by foreigners and the remaining by combination of the locals and foreigners (Kurdistan in Midst of Construction Boom, 2008).
Establishing a Company
When establishing a company in Iraq, the government allows 100 percent foreign ownership to motivate foreign companies to invest in the area. There are numerous types of companies that the investors can choose from, depending to the needs of the business. However, the total capital required to set up the company must be fully paid before the certificate of establishment is issued, and it takes approximately 15 days only to form and register a company if all documents are submitted correctly. This registration process is made simple and is meant to make it easier for any person willing to invest in the area. The support of a legal advisor is needed when starting up a company. In Kurdistan, the only regulation is to encourage the employment of the locals. The new investment law outlines that Iraqi citizens are to be given precedence during recruitment, though it does not create any ratios. The KRG also offers some exceptions for jobs which require specific skills and exceptional education.
Central Bank of Iraq
Banking in Iraq is an area that draws a lot of interest and offers a lot of opportunities. Iraq has a population of 30 million people including Iraqi Kurdistan, but there are only 550 bank branches serving the populous country. The Central Bank of Iraq is the only authorised body to issue operation licenses to any financial institutions and banks. The licensing period is between six months to one year and there are several requirements that must be complied with. However, in comparison, it is easier to obtain licences in Iraq than in most of the neighbouring countries like Turkey, which have very stringent banking legislation. Currently, there are several foreign banks that have been authorised to operate by the Central Bank. One of the banks licenced is Ziraat Bankasi, a major Turkish bank (Kurdistan in Midst of Construction Boom, 2008).
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There is also Japan Kurdistan Business Council composed of representatives from the two areas that looks at the business interests of both Japan and Iraqi Kurdistan by encouraging exchanges in business, economic, and political issues. This counsel is located in Yokohama-Japan and in Kurdistan Region. Its duty is to promote Kurdish and Japanese commercial links through consistent interactions with Kurdish and Japanese commercial and government leaders, and through the analysis and promotion of major policy issues affecting businesses as well as looking at the future of Japanese-Kurdish relation (Japan Kurdistan Business Council). The two allies currently do business together having mutual trade benefits. The membership of the council is comprised of well-known established companies and smaller private companies that are interested in building a stronger commercial link between Japan and Kurdistan Region. This means that the latter has developed the international ties that are necessary to successfully trade alongside Turkey and Iran and will stand firm in case the region declares its independence from central Iraq. Among the sectors that Japan looks at are the tourism, manufacturing, agriculture and transportation sectors, which are key factors of the economic development of any country and thus will in turn offer economic stability for the whole Iraq (Japan Kurdistan Business Council).
Business development is fully encouraged and supported by all the concerned government agencies of Kurdistan Region to venture in to the commercial prospects and interests. Kurdistan Region through an annual publication known as Invest the Future provides guidance to potential investors on the best ways to enter the region and gives advice on the process of submission of business plans that can be accepted (Kurdistan in Midst of Construction Boom, 2008).The KRG through its agencies also actively pursue and meet likely investors intending to expand the ongoing operations. In addition, the region works closely with the organizations that promote trade missions, such as the U.S. Chamber of Commerce. To add, the region has robust ties with the United States through the Department of Commerce, which sent representatives to Iraqi Kurdistan and marked the first official U.S. government business mission to Iraq in 20 years. Because of the U.S mission, Kurdistan is headed to be the trade connecting point between the United States and Europe and Iraq, as well as the Middle East (Torchia, 2007). It offers excellent investment openings and is a proof that Iraqi Kurdistan Region is capable of growing their economy without depending on Baghdad government, and therefore confirms why the region needs to be an independent state, where such international agreements are not interfered with or blocked by the Baghdad government.
There are three provinces in Kurdistan Region, namely Sulaymaniyah, Dohuk and Erbil. They are governed by the KRG. These areas enjoy significant peace and greater stability, compared with the rest of Iraq. Although there are fewer extremist occurrences and lower levels of violence propagated by insurgents in Dohuk, Sulymaniya and Erbil if compared to the rest of Iraq, the security condition in the country is still not satisfactory. According to Zedalis (2012), the violence related to the ownership of the oil rich Kirkuk areas is likely to continue owing to the fact that the Baghdad government have refused to implement article 140 of the constitution to separate the boundaries. In 2008, there were also multiple incidents involving IEDs of rocket propelled and mortar fire, shootings and vehicle bombing that arose in Dohuk, Mosul, Sulymaniya and Erbil (U.S. Travel.State.Gov).
Terrorists and insurgents still have the ability to carry out attacks throughout Iraq in the areas such as Baghdad, Mosul, Kirkuk and Basra with their main targets being hotels and restaurants where many foreigners assemble, as well as mosques, army recruiting centers, large gatherings, public transport terminus, government buildings, police stations, churches, and party political offices. The groups also target Christian and Islamic festivals and through grenade attacked even the adjacent churches or holy places. Equally, landing and departing military and civilian planes from Baghdad International Airport and destined to other cities in Iraq have been the focus of insurgents using small arms and missiles (U.S. Travel.State.Gov).
The British Government give British officials serving in Iraq restrictions and warnings to operate under strict security regulations because of the insecurity considered as serious. All British officials operating in Iraq stay in secure and protected accommodation areas, and must travel together with security teams always, and are restricted from travelling to specific places at certain times (Middle East and North Africa. Iraq, 2012). The terrorist attacks are carried out by extremist Islamist terrorist groups comprising Al-Qaida in Iraq, Ansar al Islam and a link of Kurdish extremists based in Iran affiliated to Al-Qaida who carry out occasional cross-border attacks (Zedalis, 2012; Middle East and North Africa. Iraq, 2012). Even though the Kurdistan Government successfully tries to counter terrorism threats in Erbil and Sulaymaniyah, terrorism and abductions still remains possible. This, therefore, means that foreigners, business investors, tourists or social workers must remain careful in their operations not to expose themselves to the insurgents
The current UN Security Council report on Iraq Kurdistan provides that the overall Kurdistan regional government areas continue to be stable, thus allowing them to participate in extensive outreach program and activities by UNAMI and the United Nations country team. They, however, note that minimum threats from militant sympathizers that are infiltrating from other regions cannot be fully ruled out (UN Security Council). This report gives confidence to foreign investors that the place is secure business, though exercising little caution.
Assessment of the Security Environment
The KRG areas are still the most established and least violent in Iraq, which is a result of the homogenous Kurdish population and the availability of the Kurdish Police and the regional security forces, or Peshmerga (Chapman, 2011). The Peshmerga are well-trained and armed, and are very devoted to the security of the KRG region to minimize planned or spontaneous attacks that can occur in the region. A number of countries have issued advice against travel to Iraq except to Kurdistan Region, which is considered more secure from high threats of terrorism, violence and abductions aimed at foreign nationals. There are also no limitations in place against travel to the provinces of Sulaimaniyah, Dohuk and Erbil, since the risks of terrorism in the areas is significantly lower than in other parts of Iraq (Middle East and North Africa. Iraq, 2012).
This proves that the international community has a lot of trust and confidence in Kurdistan Region, thus increasing the chances of investments in the region. In spite of this, one needs to seek local guidance before moving to the isolated places that border Turkey and Iran that are characterized with incidents of shelling, unexploded ordnances and mines (Chapman, 2011). For this reason, Kurdistan Region needs to consider declaring independence to be able to secure their borders better than it is currently. This will bring more confidence to the foreign investors to do business in the area.
In conclusion, the Iraqi Kurdistan part of the greater Iraq has enjoyed semi-autonomy since the 1991 Gulf War and experiences considerable peace and stability in comparison with the rest of Iraq. The region is administered by the Kurdistan Regional Government (KRG), which is composed of mainly two parties KDP and PUK that have several other affiliate parties, and has a capital in Erbil. The region has established good foreign relations with the United States, United Kingdom where they have embassies, Turkey, Iran and China through the business council that looks into the business interest of the two regions. The economy of the area is dependent on oil industry exports, tourism and agriculture and has a booming construction industry especially after the 2003 invasion. The country experiences massive construction ranging from the international airport, world standard roads, residential houses, sky scrapers, shopping malls among others, which offer employment opportunities to many Kurds (Heshmati, 2010).
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It is also worth noting that Kurdistan Region is more secure and stable than other parts of Iraq, making it more attracting to the foreign investors who are encouraged to invest in the area to boost the economy, presently having over 100 new investments owned by both Kurds and foreigners. Based on the economic ability, security of the area, the developed international trade links, as well as the dependable foreign relations the region is enjoying, Iraqi Kurdistan is capable of being an independent state without relying on the budget portions given by the GOI and avoiding the limitations presented by the Baghdad government. The Kurdistan Regional Government can build the economy of the region much faster when fully independent than when under the reign of the south.