Iraq's Economic Prosperity

Michael Rubin

". . .Other indicators suggest Iraqis have confidence in their future. The Iraqi dinar, freely traded in international currency markets, is stable.

When people fear for their future, they invest in gold; jewelry and coins can be sewn into clothes and smuggled out of the country. When people feel confident about the future, they buy real estate. Property prices have skyrocketed across Iraq. Decrepit houses in Sadr City, a Shiite slum on the outskirts of Baghdad, can easily cost $45,000. Houses in upper-middle-class districts of Mansour and Karrada can cost more than 20 times that. Restaurant owners spend $50,000 on top-of-the-line generators to keep open despite the frequent blackouts. In September 2005, there were 40 buildings nine stories or higher under construction in the Kurdish city of Sulaymani. Five years ago, there were none. Iraqis would not spend hundreds of thousands of dollars on real estate if they weren't confident that the law would protect their investment.

Iraqis now see the fruit of foreign investment. A year ago in Baghdad, Iraqis drank water and soft drinks imported from neighboring countries. Now they drink water bottled in plants scattered across Iraq. When I visited a Baghdad computer shop last spring, my hosts handed me a can of Pepsi. An Arabic banner across the can announced, "The only soft drink manufactured in Iraq." In August, a Coca-Cola executive in Istanbul told me their Baghdad operation is not far behind. Turkish investors in partnership with local Iraqis have built modern hotels in Basra."

Do we have some "leading economic indicators" described here? For economic prosperity people need to expect that government will enforce property rights and contracts over time. Without such assurance, people see few incentives to invest because the returns to investment occur after a period of time. Rubin's commentary suggests that with people purchasing land and with foreign investors creating new investments, Iraq's future may well include an increasingly prosperous economy over time.