Corruption and cronyism hinder Iraq’s Kurdistan region

By Triska Hamid – The Financial Times – 7.9.2012  – Kurdistan president Massoud Barzani and his relatives control a large number of commercial enterprises in Kurdistan region of Iraq, with a gross value of several billion US dollars. The family is routinely accused of corruption and nepotism by Kurdish media as well as international observers. Korek, owned by a nephew of Kurdistan president Massoud Barzani, which was established in 2001 in the region and over 3 million customers.

The Kurdish city of Erbil in the north of Iraq is often described as “the new Dubai” because of its booming development since the fall of Saddam Hussein’s regime in 2003.

But beyond the gleaming new suburbs, five-star hotels and flashy cars lies an ancient city in which critics say corruption remains a problem and the lines dividing government and business are unhealthily blurred.

“Corruption in Iraq’s Kurdistan region is reflective of the corruption that constitutes a problem for the wider Middle East, including Iraq as a whole,” says Jason Vincent of, a political and security analysis firm based in the UK.

Since 2006 more than $21bn of investment has poured into the three governorates administered by the Kurdistan Regional Government KRG, with most of the spending concentrated in the construction sector. The KRG has been promoting its autonomous region as “the other Iraq”, a gateway to the rest of the country. It claims to have one of the most liberal investment laws in the Middle East – and with 45bn barrels of estimated oil reserves, it has managed to attract some of the world’s biggest companies to its provinces.

But while Kurdistan can boast an environment that is more secure and stable than the rest of Iraq, it still suffers from similar troubles to those that have hindered the country’s development for decades. The notion of wasta – the principle of whom you know, rather than what you know – is entrenched in society, a backbone of conducting business and getting things done. Bureaucrats responsible for dealing with companies can be corrupt, or incompetent, or both, sometimes awarding contracts to their own companies.

“I come across civil servants who do not know their own regulations or are unsure of how to deal with a query,” says one local businessman, who asked not to be named. “There have also been cases where civil servants have asked me for extra money to process applications quicker or asked for a non-mandatory fee.”

The KRG’s Commission of Governance and Integrity has identified widespread corruption and mismanagement in several branches of government. The commission describes the tendering process for contracts and projects as “very underhanded, corruption-ridden and lacking in transparency”.

While there have been some high-profile moves to combat graft, notably by removing the power to award contracts from the housing ministry and giving it to local governorates instead, critics fear this may have the downside of giving political parties some sway over the tenders awarded.Many of the region’s new investment projects are perceived as having the support of either the Patriotic Union of Kurdistan (PUK) or the Kurdistan Democratic party (KDP).

In the telecoms sector, Korek Telecom is chaired by the nephew of Massoud Barzani, the KRG president and KDP leader – although the company denies it receives special treatment. Asiacell is widely seen as being close to the PUK and until recently it enjoyed sole operating rights in PUK strongholds – a monopoly mirrored by that previously held by Korek in KDP areas.

Both companies say there is nothing improper about their operations. Diar Ahmed, Asiacell’s chief executive, says the company was politically neutral: “We don’t see ourselves [as] affiliated to any political faction in Iraq. We are 100 per cent a civic company and we serve the whole country.”

Ghada Gebara, Korek’s chief executive, defended the company’s former monopoly in KDP areas, saying it was permitted under the licence it was granted.While many multinationals believe there are rich pickings to be had in the Kurdish region as the state emerges from decades of stagnation, the complications of the business environment still make it a tricky proposition for investors.

Thomas Donovan of the Iraq Law Alliance, a legal services firm, says that many of the difficulties – also including potential sovereignty disputes with federal Iraq – are for now “simply overlooked by the aggressive pace of development.”