Iraq's exiled investors and business owners are watching for the sign to return and rebuild their country.
IRAQ HAS LONG HAD A PROFOUND IMPACT ON THE POLITICAL and economic landscape of the Middle East. In the 1970s, when the country's oil boom helped transform the nation, turning the immense, desiccated sandlot into a modern, diversified economy, Iraq was a beacon for intellectuals as well as investors and oil men. After its 1990 invasion of Kuwait and the embargo that followed, Iraq's cash-rich guest workers, many of them Jordanians, returned home to fuel a property bubble that burst a few years later. The embargo also fed a regionwide black-market economy and a corrupt bourgeoisie, which in turn provoked a cultural backlash from indignant Islamists.
Now the violence in the country following the U.S.-led invasion of 2003 has made exiles of close to 3 million Iraqis, more than 10 percent of the prewar population of 26 million, largely split between Syria and Jordan. According to the latest research by the United Nations High Commissioner for Refugees, there are nearly 2 million Iraqis in Syria and 1 million in Jordan; the office estimates that 50,000 people leave Iraq every month.
Amman, with its solid banking system and openness to the West, attracted the initial and most prosperous wave of refugees. If Iraq is ever to be rebuilt, it will need the help, and money, of skilled exiles like those who have settled in Jordan's capital. But now, as the war in Iraq continues, there are signs that Iraqi expatriates are growing increasingly frustrated in Jordan, where they face red tape and a nativist suspicion of foreigners.
Unlike other countries in the region, Jordan is doing little to attract or retain Iraqis or other foreign investors. Egypt and Saudi Arabia are selling state-owned assets, liberalizing their financial sectors and dismantling obstacles to direct investment from abroad. Foreign companies that were once intimidated by nontariff barriers throughout much of the Middle East are now increasingly prominent in Cairo, Alexandria, Riyadh and Jeddah. Even Syria is opening up: Fromageries Bel, the French owner of the Laughing Cow cheese franchise, operates a wholly owned subsidiary there; agricultural giant Cargill is part of a consortium developing a sugar refinery; and France's Lafarge has been awarded a license to build a $100 million cement plant in a joint venture with local investors.
Tiny Jordan, however, has failed to establish itself as either a manufacturing hub or a services center. "Here you either have money or you don't," says Labib Kamhawi, a businessman and human rights activist in Amman. "We need investment in information technology, retail and high-rise buildings for more office space. But we don't have vocational training, so people would not be able to adapt even if we had these things."
Jordan's needs include the basics, says Joost Hiltermann, who heads the Amman office of the International Crisis Group, a Brussels-based organization that monitors conflicts worldwide. "You have a million additional people in a country with 6 million, so there are severe constraints on water, electricity, health and education," he says. "Iraqi money is being invested in real estate, which is good for the upper and middle classes, but it's bad for everyone else."
Indeed, the riches of many Iraqi exiles have created a liquidity-driven boom in Amman, fueling resentment among ordinary Jordanians. The cost of housing in Jordan has risen by as much as two thirds since 2003, according to local estimates, and the price of basic commodities, from food to fuel, has soared -- along with crime rates and prostitution. High-level corruption, always a blemish on the monarchy, is flourishing.
Unable to make inroads, Iraq's business-class diaspora is radiating outward, moving further away from where the money and resources could one day do the most to restore Baghdad. Iraqi mogul Asad al-Khudhairy, for example, who left Iraq for Amman in 2004, abandoned Jordan earlier this year to settle in London. Al-Khudhairy is the head of the Iraqi Federation of Contractors, chairman of Dar Es Salaam Investment Bank and patriarch of the al-Khudhairy family -- one of the oldest and most venerable of the dozen or so oligarchies that once dominated the Iraqi economy. He is looking at investment opportunities in Oman and Egypt these days. "It's hard to talk to the people in power, and when you do, it's tough getting the right answers," says al-Khudhairy, 69, of his experience in Jordan. "Plus, we're afraid of the high fees" for everything from utilities to building permits.
The departure of such investors "is the most frightening thing," says Jalal al-Gaaod, 45, a Sunni Muslim living in Amman who is an architect with degrees from two presitigious U.S. universities. "Iraq can only be rebuilt by people like me, who have spent so much of our lives outside the country and who don't have this baggage of complicated and complex hatred and vengeance."
Al-Gaaod -- who, demographically, represents the last gasp of Iraq's once-prolific educated professional class -- is one of the few Iraqis in Jordan who has not given up on the country. Al-Gaaod and his brother Talal, who passed away last year, labored mightily with mixed results to nudge Jordan, through a series of massive development projects, toward a world-class economy. In 2002 and 2003 they designed and built their own headquarters and paid for it with $3.6 million in cash. They also pushed for a $2.2 billion oil-refining and -distribution project that would link Iraq and Jordan and enrich both countries (see sidebar). And they unveiled extravagant plans to develop Amman into a regional entrepôt for trade and culture -- and an incubator for Iraqi wealth.
Jalal, who is running a major development project and planning to open a new shopping center in Amman this month, says he intends to stay put in Jordan. But that too may change, he warns, leaving one less talented Iraqi in the region to rebuild the country once its sectarian holocaust is finally extinguished.
JALAL AL-GAAOD'S OFFICE IN DOWNTOWN AMMAN IS that of a designer as much as a businessman-investor. The shelves behind him are stocked with thick tomes on architecture -- his favorite book is The Fountainhead, Ayn Rand's 1943 novel about an iconoclastic builder -- as well as recent books on foreign affairs, including America's troubled Iraq enterprise. He wears a windbreaker with the Harvard Business School logo on the left breast, a souvenir of a two-week executive program he took in 2004 that brought him back to the U.S. for the first time since he arrived in Jordan in 1991.
Education is a hallmark of the al-Gaaod family tradition. Jalal's father, Bazee Mejeal al-Gaaod Jalal, learned French and English at a secondary school in the town of H¯it, in al-Anbar province, and taught himself to be a general contractor. His sons were the first from his clan of some 2,000 members to attend university in America. Both Talal and Jalal graduated with bachelor's degrees from the University of Southern California, where Jalal studied architecture. Jalal later earned an MBA at the Massachusetts Institute of Technology.
"It was a tough transition," Jalal says, "to move from California, where we would vacation in Tahoe, to 18-hour days studying through cold winters in Boston."
Exile has been tougher still.
Jalal was working at a design firm in Los Angeles when Saddam Hussein invaded Kuwait on August 2, 1990. A few months later he was in Jordan, where he set up a representative office for the family business, Tabouk Group Holding Co. "I wanted to be closer to my family," he says. "I didn't think I'd be gone for more than a year or two."
With Talal piloting things from Baghdad, Jalal struggled in Amman to keep the family's subsidiaries running throughout the 1990s despite the international embargo that crippled the Iraqi economy.
The two brothers were protecting the family's empire, a conglomerate that grew out of the construction firm their father had been operating while Jalal and his brother were studying in the U.S. Tabouk Group was one of the largest such companies in al-Anbar -- it built some of the province's first roads and highways. After the government nationalized Iraq's oil industry in the early 1970s, in time for the 1973 Arab-Israeli war that sent fuel prices spiraling, the government invested its petrol riches in lavish subsidies for aspiring industrialists. The senior al-Gaaod expanded into textiles and made a small fortune producing bath towels. But state incentives evaporated with the Iran-Iraq war of the 1980s. By the time Talal returned to al-Anbar with an engineering degree from the University of Southern California, the Iraqi economy was stagnant.
Made the head of the family business, Talal sold the bath towel plant and developed a small portfolio of companies that produced fertilizers, phosphates and dates -- an unlikely combination of modern materials and one of Iraq's oldest and most iconic commodities. On the eve of Iraq's invasion of Kuwait in 1990, Tabouk Group was doing a modest but stable import-export trade.
Jordan was a natural draw for Jalal, who knew the Amman-Baghdad nexus. The al-Gaaods had links that predated the Saddam era. Sanctions were not the only menace that prompted the brothers to move part of their capital out of Iraq; Hussein and his family enriched themselves by shaking down Iraqi businessmen and investors. Talal was forced to give some of the family's land to Uday Hussein, Saddam's notoriously corrupt and sadistic son. When the brothers were "asked" by the regime to invest in a sports club operated by Hussein cronies, they did as they were told.
Later the al-Gaaods were somewhat shielded from Hussein. As sanctions weakened the dictator's coercive might, he had to rely on tribal sheikhs to keep order and control restive elements -- just as the Ottoman Turks and British occupation forces in Mesopotamia had before him, and as American forces in al-Anbar province are doing today. The al-Gaaods are prominent members of the al-Dulaim, a Sunni tribe in western Iraq whose members became well represented in senior positions of Hussein's government and to whom the leader was especially beholden. The al-Gaaods therefore enjoyed protection as well as some privileges.
While the government continued to subsidize Iraq's agricultural sector, the al-Gaaods used their contacts to broker deals for imported farming equipment. Later they leveraged tribal contacts to emerge as skilled brokers in the lucrative oil-for-food program, in which Baghdad was allowed to sell petroleum for humanitarian items.
The notoriously corrupt program was populated by shady dealers close to the regime. The al-Gaaods naturally attracted attention. A September 2004 report by the Iraq Survey Group, a U.S.-led task force that investigated Iraq's suspected weapons of mass destruction program, focuses heavily on the dealings of Sattam Hamid Farhan al-Gaaod, one of Jalal's cousins. It identifies Sattam as "one of Saddam's most trusted confidants in conducting clandestine business transactions" and says he ran a network of front companies from which he and his associates worked the oil-for-food program on behalf of the regime.
Jalal, who appears in the report as the owner of an al-Gaaod family subsidiary, dismisses the report's findings. Following the collapse of Saddam's regime, he says, U.S. agents thoroughly investigated the family business and found nothing. "They pored over every line of credit," he says. "They were going on rumors and false information."
Still, Jalal acknowledges that the family owes much of its wealth to the oil-for-food program. When U.S.-led coalition forces invaded Iraq in March 2003 and toppled the regime, the al-Gaaods more than doubled their payroll to 120 hires. Most of the new staff were recruited in Baghdad, flown to Amman for training and then returned to Iraq. Hopeful that Iraq would stabilize, Talal began shopping for a six-seat corporate jet and a Boeing 727 cargo carrier.
But by 2005, with the insurgency in Iraq building steam, the al-Gaaods and their staff were spending far more time in Amman than in Baghdad. Soon they were joined by a legion of other Iraqi businessmen -- and their riches. Unlike most of their compatriots, who were content to take equity stakes in real estate projects or investment firms, the brothers had blue-sky dreams for Jordan. The romantic Talal even spoke of a revived Arab Federation, the short-lived union between Iraq and Jordan that collapsed after a 1958 coup. "We feel an obligation to the people of Jordan," he said in an interview in March 2005. "We want to change the vision of Jordanian business."
Since his death last year, Talal's vision has been undercut both by the sectarian war in Iraq and by petty politics in Jordan. The brothers' bold and politically controversial plan to refine and transport oil from Iraq's al-Anbar province to the western Levant has stalled. So has their scheme to redevelop the 1,200-acre King Hussein Sports Complex in downtown Amman.
The brothers wanted to replace the complex -- a vast but neglected compound of athletic facilities and conference halls -- with a massive $3 billion city-within-a-city, including parks, residential and commercial real estate, hotels, a trade exposition center, a museum and an opera house. This was serious business to the al-Gaaods; Talal brought in Japan's Mitsui & Co. and China Petroleum & Chemical Corp., or Sinopec, as principal backers of the project, which the brothers estimated would take ten years to develop. In 2003 they unveiled their blueprints and project proposal for King Abdullah II and his brother, Prince Faisal, at the royal palace. Their meeting was a success; the al-Gaaods were encouraged to proceed.
But politics intervened. Not long after getting the green light, the al-Gaaods were told they could develop only half the site. Then articles critical of unnamed rapacious developers began to appear in the local press, and parliamentarians started objecting to the project on environmental grounds. Jalal suspected pressure from Jordan's increasingly influential Islamist political groups. "They cannot coexist with modernity and development," he says.
The al-Gaaods put the project on hold and turned instead to a smaller-scale scheme to build a $75 million, 30-story luxury hotel. They purchased land a year ago in Amman's Shmeisani financial district for 10 million Jordanian dinars ($14.2 million), and the project was approved by the city planning commission. But when Jalal and his team gave a formal presentation to the mayor, they were told all new development would be suspended while the city drafted a new zoning law.
To be sure, Amman badly needs such a law. The city is a dreary conurbation of low-lying cinder-block homes and office buildings interrupted by the odd, and frequently garish, five-star hotel.
Muunther Saket, deputy general manager of Allied Planning & Engineering Corp., one of Amman's top construction management firms, agrees the city council's zoning reform efforts could use more input from the investment and construction community. And he says that uncertainty over how the law will shake out has cast a pall on new development.
"There has been no proper consultation with the stakeholders, the people who will be affected," Saket says. "Largely as a result, there is a growing fear among investors that their projects will become invalid once the new laws are issued."
But continued delays in the formation of the law has frustrated al-Gaaod as well as other investors. He has been told by his contacts on the planning commission to have an exit plan ready if his Shmeisani property is not zoned for hotels. He estimates that would mean a $25 million write-off.
BUT AL-GAAOD'S TABOUK HAS NOT BEEN WITHOUT success in Jordan. Subsidiary al-Baraka Investment & General Trade Co. is due this month to open the al-Baraka Mall, a Jd50 million complex in the Swaifieh shopping district with more than 25,000 square meters of space that can accommodate 70 shops. (Some 140 businesses applied for tenancy, according to Jalal.) But, says al-Gaaod, "The Jordanian government has lost a very critical year. If things continue as they are, we'll have to reconsider our options" for future investment.
Giving a tour of the nearly completed al-Baraka Mall, al-Gaaod leans against the steel frame of the glass dome that will flood the arcade below with sunlight and reflects on his experiences in Jordan. He is proud of the development, which is several grades above similar retail facilities in the kingdom in both size and quality of design and construction. It may be the closest he gets to fulfilling Talal's dream.
If anything, the tumultuous aftermath of Saddam Hussein's removal has estranged Iraq and Jordan from each other. The Iraqis brought their wealth to the kingdom but also crime and inflation. There is growing tension between the Shiite-led government in Baghdad and Jordan's Sunni monarch, who last year warned of a "Shiite crescent" raking across the Middle East. As al-Gaaod boasted of the mall's anchor tenant, the upscale Lebanese retailer ABC, there was ominous talk in Washington and the Middle East of a wider war that would pit Sunni Saudi Arabia, Jordan and Egypt against Shiite Iran and its co-religionists among Gulf emirates and Lebanon's Hezbollah. At the epicenter of this sectarian earthquake, of course, would be Iraq, the country that has lost two generations to war, tyranny and isolation.
Iraq will need investors unsullied by years of tribal and sectarian violence, al-Gaaod says. "I am not ethnically or religiously defined. I am defined by my profession. How many Iraqis like me are left in this world?"
For now he is still hopeful there is a future in property development in Amman, which he expects to finance largely through bank loans. As for al-Baraka Investments, al-Gaaod anticipates growth of some 15 percent over the next five years -- or 25 percent, if the situation in Iraq reverses and the country finally readies itself for development. Property development is "closer to what I know, which is architecture," Jalal says. "Hopefully, we can make some important changes here."
At the mall al-Gaaod solicitously helps his visitors down several flights of unlit and unfinished floors to street level. There in upscale Swaifieh he says goodbye and disappears among so many other rich Iraqis who, unlike him, are just passing through on their way to someplace else.
WHEN ASAD AL-KHUDHAIRY LEFT BAGHDAD in December 2004, his final act was to enter negotiations with HSBC Holdings for the sale of a controlling stake in Dar Es Salaam Investment Bank, a Baghdad-based lender that was established by the family in 1992. The bank, with 14 branches throughout Iraq, was the first in the country to offer ATM services and the first private lender to issue a Visa Gold credit card.
Al-Khudhairy arrived at Dar Es Salaam with 30 security guards armed with machine guns; after hours of discussions he headed straight for the airport. (In October 2005, HSBC announced it would buy 70 percent of Dar Es Salaam; it didn't disclose the price, but a source close to the transaction put it at $50 million.)
Only 45-year-old son Faisal, the eldest of al-Khudhairy's three children, is still in Iraq, where he tends to the family's remaining businesses, which include a $300 million construction operation, Baghdad's Summerland Hotel and a citrus farm in the southern city of al-K¯ut. Annual turnover from these assets is about $100 million.
Al-Khudhairy is concerned about his son. "I worry about him very much," he says in a telephone interview. "Last night I couldn't sleep because I was told by someone that there was some kind of accident, and I was relieved to hear from him this morning." (Faisal travels under the protection of the family's own security company, according to Asad.)
From Baghdad, al-Khudhairy moved to Amman. He had been dividing his time between the two capitals since the 2003 invasion of Iraq. But aside from a $2 million equity stake in a commercial office center, his investments in Jordan don't amount to much.
Now al-Khudhairy is planning to move the family's Baghdad-based pharmaceuticals company to Oman. He expects to spend $30 million to $40 million to replace equipment it was forced to leave behind in Iraq and another $10 million to relocate staff. His firm is also building a steel mill in Bahrain, which offered the company generous tax concessions and free land; the company is investing about $8 million in Indian machinery for the mill. Egypt is also courting Iraqi industrialists, and al-Khudhairy says he is examining opportunities there.
Unlike the nouveau riche al-Gaaods, the al-Khudhairys belong to the nobility of Iraq's merchant and industrial classes. The family runs subsidiaries engaged in finance, agriculture, trade, hotels and banking. Its bloodline dates back to the early 17th century, when the Ottoman emperor Murad IV recruited members of the al-Khudhairy clan to help liberate Baghdad from the Safavids of Persia. The family settled in Baghdad, according to Asad, and in 1758 its patriarchs began a long reign as leaders of the city's chamber of commerce. In 1917, Abdul Kader al-Khudhairy, Asad's uncle, intervened on behalf of hundreds of British soldiers who had surrendered to Turkish forces and were about to be massacred. "He bought them from the Turks and held them on his farm under his flag until the British came for them," says Asad. "For that he received a knighthood after the war. All the documents are at Somerset House in London."
Al-Khudhairy is a refugee not only from war, but from the debris of Iraq's modern golden age. He obtained a graduate degree in civil engineering from London University in 1961 that was paid for, as was the case with many Iraqi professionals from his generation, on a full state-sponsored scholarship. He promptly returned to Iraq and introduced construction and engineering to the family's primary business lines of trading and agriculture. He also helped, alongside crews from U.S. company Kellogg, Brown & Root, to develop Iraq's bountiful oil fields. "The best years for Iraq were under the socialist regime," says al-Khudhairy, referring to the decade after the Ba'ath Party seized power in a bloodless coup in 1968. "Everyone was rich, everyone was happy, everything was owned by the government."
After Hussein usurped the presidency in 1979 and grew increasingly repressive, the al-Khudhairys, like the al-Gaaods, accommodated the regime when they had to but otherwise kept their distance. Despite their social standing, they weren't completely insulated from Hussein's reach. Like other industrialists, they never reported the revenues of their subsidiary companies and often registered them under the names of their grandchildren to avoid shakedowns by Hussein and his cronies. Saddam seized the al-Khudhairy ancestral villa, a sweeping estate on 3 hectares (7.4 acres) along the banks of the Tigris.
When the regime fell, looters stripped al-Khudhairy factories down to their foundations. Before the insurgency gained momentum, al-Khudhairy opened offices and an apartment in Amman to support his empire in Iraq but also as a hedge against the unexpected. Like the al-Gaaods, the al-Khudhairys had long-standing connections in Jordan; under the embargo, says Asad, they smuggled pharmaceuticals plant equipment from the country into Iraq by bribing United Nations inspectors. They covered letters of credit via bank accounts in Jordan and Lebanon, a clear but common violation of the sanctions regime.
Now the al-Khudhairys and Jordan are parting ways. "I'm sure I'll come back to Amman from time to time," al-Khudhairy says. "But over the long run, I don't think Jordan can handle so many people. I hope it doesn't destabilize, but we're playing it safe."
He is taking a similarly realistic stance toward his homeland. "Should things get better in Iraq, of course we'll return," he says. "But we believe that won't happen for ten years."
Pipeline to Nowhere: The Mirage of Iraq's Reconstruction
Since the U.S.-led invasion of Iraq in 2003, hopes for the country's economic and political revival have been repeatedly dashed by religious and ethnic rivalries and terrorism. Few know the painful journey from optimism to disillusion better than Jalal al-Gaaod.
After coalition forces toppled Saddam Hussein, Jalal's brother, Talal, was running the family's Baghdad-based construction and industrial business, Tabouk Group Holding Co., and looking for ways to capitalize on regime change. Talal, with the support of the Jordanian government, hatched a plan to build an oil pipeline and refinery complex that would pump crude from al-Anbar province in western Iraq to a refinery in the Jordanian town of Zarka and then deliver refined oil to the Red Sea port of Aqaba.
For Talal, an influential member of the powerful al-Dulaimi tribe that dominates the province, the plan was designed to serve several purposes. It was to boost Iraq's production capacity by 1.2 million barrels of oil a day -- more than a third of its prewar level -- giving a sharp boost to the war- and sanctions-ravaged economy. It also aimed to give the province's disenfranchised Sunni population a significant share of the country's oil revenues. (Existing pipelines travel through Shiite-dominated southern Iraq, where the country's biggest oil fields are located, to terminals in the Gulf or through the Kurdish north to Turkey.) The project also promised to spur economic development in Jordan, which suffered badly from the war and the preceding period of sanctions imposed on the Hussein regime.
Talal, a Sunni tribal leader with close ties to the region's sheikhs, lined up a guarantee of roughly $2 billion in funding from Mitsui & Co., the giant Japanese trading company, which intended to take exports from Aqaba to Japan. Then he tried to win crucial U.S. backing for his ambitious plan, a confidential summary of which had already been circulating at the highest levels of the Pentagon.
In July 2004, Talal and a delegation of leaders from the al-Dulaimi tribe gathered at the Sheraton Amman Hotel to pitch the plan to Evan Galbraith, who was the adviser to the U.S. mission to the North Atlantic Treaty Organization for thenDefense secretary Donald Rumsfeld. The American response was noncommittal.
Paul Hughes, a retired U.S. Army colonel who served in Iraq immediately after the fall of the Hussein regime, says he was briefed by Galbraith on the project shortly after the envoy had returned from Amman. "Galbraith thought it was a great idea," Hughes tells Institutional Investor, "particularly as something that could have been unveiled before the U.S. midterm elections. But wiser heads prevailed." Galbraith and the Pentagon declined to comment.
The problem, says Hughes and other security experts, was that the project could easily have become a target for insurgent activity and would have required vital U.S. military resources for its defense. The surge in sectarian violence in 2004 underscored that risk.
Efforts to keep the project alive continued nonetheless. The Jordanian government sent a formal proposal to Iraq's theninterim prime minister, Ayad al-Allawi. The proposal got bogged down, however, by infighting between Sunni and Shia elements within the government. Those tensions stymied efforts to agree on a national petroleum law to share the country's oil wealth among its Shiite, Sunni and Kurdish populations, a vital precondition to the pipeline project. A draft law, which was to have been agreed upon this year, remains stalled in parliament.
For Talal al-Gaaod, the refinery and pipeline project would have been a step toward a stable and prosperous Iraq. But he never saw his vision fulfilled. He died of heart failure in Paris last year. His surviving brother, Jalal, who continues to run the family business from exile in Jordan, harbors few hopes that the plan -- and Iraq's economic and political fortunes -- will be revived anytime soon.
"The pipeline offered so much opportunity," he says. "But since Talal's death and the security problems, it's gone nowhere."