German Companies Look to Iraq

With the war over, rebuilding efforts underway and U.N. sanctions lifted, German companies are trying to rekindle their once large trade relationship with Iraq. But many German firms have signaled they prefer direct engagement in Iraq rather than subcontracts from the U.S. or British companies dominating the rebuilding effort.

Before the U.N. imposed sanctions against Iraq, Germany was one of Baghdad's leading trade partners. In the 1980s, Germany exported goods and services worth up to EUR4 billion to Iraq, but trade between the two countries has shrunk drastically since the Gulf War in 1990/91. In 2001, for example, German companies exported goods worth no more than EUR350 million ($393 million) to Iraq.

Although German companies have more experience and business contacts in the war-torn country than their U.S. counterparts, the lack of a stable financial sector in Iraq and German banks' reluctance to issue export guarantees make access to the newly re-opened market difficult.

"There is wide interest from German companies to become engaged in Iraq," Peter Kreutzberger, regional director for Africa and the Middle East at Germany's main industry association, BDI, told F.A.Z. Weekly. "But direct business can only be done with cash at the moment."

Since Iraq is one of the largest potential markets in the region, the development of a stable democratic system and a functioning market economy in that country are of vital importance for German companies, which would benefit from an outstanding reputation and presence in the Middle East.

"Many companies already doing business in Iraq don't want to talk about it just yet," Kreutzberger said. "They hesitate to show off their contacts in Iraq and many economic questions are guided by political concerns."

Chancellor Gerhard Schröder's opposition to the U.S.-led attack on Iraq has made it more difficult for German companies to enter the Iraqi market, especially because American and British companies are dominating the initial rebuilding effort.

But there is high demand in Iraq for the industrial products and expertise that Germany is so well-known for, including mechanical engineering, plant construction, environmental services, medical technology and telecommunications. Companies like Thyssen Krupp and Salzgitter are therefore anxiously watching developments in the country.

Doing business with Iraq is difficult because of local security risks and difficulties on the part of Iraqi businesspeople to obtain visas to visit Germany, according to Kreutzberger. Until things settle down in Iraq, German companies are therefore more likely to profit from getting one of the 900 subcontracts from U.S. companies. Siemens, for example, is already working in cooperation with Bechtel, the California-based construction and logistics company, to service its own power plants in Iraq. And the electronic and engineering group is also bidding for a job to rebuild Iraq's mobile telephone network.

Although the United States has signaled a preference for companies from countries that supported the U.S.-led attack on Iraq, Bechtel, which received a EUR680 million contract from the U.S. government to rebuild the basic infrastructure, said many German companies are being considered for some of the subcontracting.

German firms can also access the market via a representative from neighboring countries such as Jordan or Kuwait, according to Paul G. Dolan, co-chairman of the Economic Forum Deutschland, a private business organization which recently founded a "Rebuild Iraq" taskforce to help small and medium-sized German companies do business in the Middle Eastern country.

"The market there is going to be won by the early bird, by those that open new markets and develop a name despite the fact that it's a little dangerous," Dolan said.