Kurdish Economy Set for Post-ISIS Comeback

<em>The Kurdish capital of Erbil.</em>
The Kurdish capital of Erbil.

ERBIL, Iraq — Hailed as “the next Dubai,” Iraqi Kurdistan enjoyed breakneck economic growth amid an era of stability and safety.

That was, until the so-called ISIS brought it all to a grinding halt.

New commercial towers and shopping centers began to dot the capital city, trading was set to open at the first Kurdish stock exchange, and the first ski resort had just begun selling season passes.

Kurdish Iraq welcomed 2.9 million tourists in 2013, and Erbil was named “Arab Tourism Capital” in 2014 — even though the city isn’t Arab.

Those hailing from unstable, neighboring areas with weak passports, found Kurdistan an attractive getaway. A hidden Iraq emerged, seemingly worlds away from the mayhem consuming the rest of the war-torn country.

But the ISIS advancement brought an end to many of the once ongoing developments.

Three years later and with decisive victories of the Iraqi and Kurdish forces against ISIS, confidence in Iraqi Kurdistan is coming back.

Now, one can feel the buzz generated by the return of expat workers and large companies in places like Ainkawa, the thriving suburb of Erbil. Vogue hipsters roam the city, catching the eye of international media.

Drive-throughs, like Kentucky Fried Chicken and Hardee’s, are regularly open until 2:00 AM. Reports even say that a Trump-affiliated hotel may join other recently-opened luxury lodging. In Ainkawa, it’s easy to forget you’re in Iraq.

Foreigners once skeptical of security in the Kurdistan Regional Government (KRG) now appreciate a safety record superior to Europe and the United States. Compare Erbil’s single incident two years ago with the tragic events occurring in western capitals and cultural centers like Paris, Berlin, and London.

The signs of change go beyond anecdotal impressions, though. In the southern city of Kirkuk––which Kurdish forces took over from Iraq in 2014––foreign investors have poured more than $1 billion in the last year alone.

Once fearing instability, potential investors took notice of improvements in security, and new shopping centers and housing projects are starting in earnest for the first time.

The energy sector generates some 85% of public revenues, with around 600,000 barrels of crude oil in average daily exports. A pending deal with Russian energy giant Rosneft would turn that into one million barrels per day through a fresh $3 billion investment.

This turn of fortune has allowed the Kurdistan region to repay 25% of debts owed to oil companies––an impressive feat in a short amount of time.

Still, the KRG is working to lessen dependency on oil—which only employs one percent of workers—and to enact austerity measures for the 1.4 million government employees who comprise more than 50% of the labor force.

The volatility in oil prices and total cut of the Kurds’ share of the Iraqi federal budget was a wake-up call to a government finding itself unable to pay the massive workforce.

Once forced to seek a cash infusion from the international community, the budget deficit shrank by 99%, from $4 billion in 2013 to just $63 million in 2016. That same period saw the total budget reduced to only $5.4 billion, from a comparatively plum $10 billion.

Leading this transition, Prime Minister Nechirvan Barzani declared in a recent speech that, “In Kurdistan, we are going into the recovery phase,” and that economic diversification can help the tourism industry “replace oil and gas.”

Other new initiatives aim to also boost agriculture and manufacturing, to provide more diverse job opportunities and potential sources of revenue.

Early numbers do seem to point towards recovery: 1.6 million people visited Kurdistan in 2016—versus just 782,000 in 2015—and aggressive efforts are underway to court new foreign companies.

Newcomers to emerging markets are often deterred by onerous bureaucracy. Yet, the region’s tax and regulatory environment are surprisingly friendly to companies: corporate taxes are 15%, personal income taxes hover at just five percent, and there are no sales or VAT taxes. The region even has generous tax abatement incentives lasting for up to a decade for new projects.

“The KRG will do its best to help the private sector and have them invest here,” said Prime Minister Barzani. “I invite all local and foreign investors here to take advantage of our laws and offers, and invest.”

Compare virtually any measure of progress, and it appears the situation for the Kurds is on a long-term upswing, regardless of what happens to the rest of Iraq.

In the decade from 2003 to 2013—the end of Saddam Hussein’s reign to the arrival of ISIS—the number of schools boomed from 3,200 to 6,000, with the literacy rate jumping from 53% to 84%.

Hospitals multiplied from 22 to 125. Nearly 11,000 miles of roads were paved. Over 50,000 low-income housing units were completed, and the poverty rates in Kurdish provinces remain the lowest in Iraq.

The Kurds have already scheduled an independence referendum for this fall, with the worst of the economic, refugee and terror-related crises now behind them.

Some raise doubts whether an independent Kurdistan will be viable, yet few will dispute their now-proven adaptability to some of the Middle East’s harshest challenges.

Zach D. Huff is a Middle East analyst specializing in Kurdish affairs, and a part-time resident in Iraqi Kurdistan.

This article originally appeared in Forbes Middle East.

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