Resilient Iraqi Businesses

Stephen DeAngelis

April 24, 2008

Long time readers of this blog know that my company, Enterra Solutions®, is working in Iraq to help stimulate its economy. Except in the Kurdistan region of northern Iraq, the Iraqi economy remains depressed as a result of a number of factors including concern for security and lack of infrastructure. James Glanz, a reporter for the New York Times, provides an excellent insight into the struggles that businesses in Iraq face [“Devising Survival at Factory in Iraq,” 15 April 2008]. Businesses that have survived since the American invasion deserve to be called resilient; but “resilience” in this case means they have survived rather than flourished. Glanz focuses on a once-prosperous shoemaker.

“Before April 2003, when the maze of crooked lanes that branch away from Rasheed Street [in] downtown [Baghdad] were crammed with hundreds of small leather goods factories, Hassan Attiya, now 43, designed fancy women’s shoes under his signature ‘Cowboy’ label. And his workers manufactured and sold them by the thousands. Now Mr. Attiya, humbled by security fears, the shuttering of Iraqi tanning factories that provided his raw materials and an avalanche of cheap imports from China and Syria since the invasion, hangs on in a crumbling former dentist’s office with a handful of workers.”

Attiya’s story underscores the enormous challenges facing businesses in Iraq; including, competition from outside sources (Chinese goods) and lack of internal infrastructure. They face one other big challenge as well — corruption.

“If all that were not crushing enough, as widespread violence generated by fighting in the south last month forced Mr. Attiya to close his factory, policemen in Baghdad stopped a car carrying goods he had ordered from Syria. The policemen said they were looking for weaponry, but when the search was over a package containing good-quality faux diamonds for his shoes had vanished. It was worth $1,200, perhaps a quarter of Mr. Attiya’s working capital.”

Businesses require resources, capital, and people — the same assets that need to move internationally in order to keep the global economy on track. Enterra Solutions is working to help ensure that businesses have access to all three. While private interests can help in the business sector, governments must ensure a secure environment. One area where Enterra Solutions can help is addressing the corruption problem. By implementing Development-in-a-Box™ best practices and international standards, the system can become more transparent and trustworthy. Mr. Attiya, however, has received no outside help. Relying on his native instincts, he has managed to survive.

“Still, as grim as Mr. Attiya’s fate has been, there is also a gleam of light to be found …: surrounded this month in his reopened factory by piles of mauve, green, silver, white, gold and black leather shoes with flamboyant curves, in-your-face spike heels and whimsical trimmings, he has somehow survived as a private businessman. And in the shoe business, at least, Mr. Attiya is not alone, surprisingly, after all the devastation and upheaval in Iraq since 2003, although he says that he has received no help whatever from his seemingly oblivious government or from the Americans.”

As Glanz reports, much of the support provided by the U.S. has gone to help state-owned businesses. The reasons for this are pretty obvious — those businesses employed a large number of workers and the U.S. is trying to get the Iraqi government back on its feet. The U.S. Government also wants the Iraqi central government to get credit for resurrecting its economy.

“In the five years since the invasion, a great deal of concern and financial support has been showered on the approximately half-million workers who were idled when American occupation authorities shut down Iraq’s enormous Soviet-style factories, called state-owned enterprises. Much less attention has been given to the far larger number of private businessmen, manufacturers and entrepreneurs whose livelihoods were ruined when the invasion turned society and commerce upside-down.”

Mr. Attiya deserves all the more credit for being resilient because his plant suffered the kind of devastation that destroyed so many other factories following the downfall of Saddam Hussein. The looting and vandalism put thousands of factories out of business and the insurgency made sure that they weren’t able to rebuild. But, according to Glanz, things are starting to change.

“The disastrous looting that drove some of that collapse makes reliable records hard to find, but a comparison of government and trade union figures suggests that in the leather-goods business alone, from 3,000 to 4,000 private factories employed from 100,000 to 200,000 workers, although not all were full time. Those figures do not count the thick undergrowth of deliverymen, salespeople, restaurateurs and tea hawkers who were supported by that commercial activity. Nearly all of those leather goods factories closed in 2003, but now there are signs that some of them — probably no more than 5 to 10 percent, but still accounting for thousands of jobs — have adapted, sometimes in ways that would have been unthinkable just a few years ago.”

I’m glad that Glanz highlighted the fact that it is not only the employees of a factory who are affected when it closes. The horizontal economic effects can be just as devastating to other sectors. This was demonstrated pretty well after the 11 September 2001 terrorist attacks. Not just the airline industry was affected, but the travel industry, the insurance industry, and so forth. The good news is that the opposite effect can also take place. Get a factory back on its feet and other sectors of the economy also benefit. The biggest reason things are changing is that some areas in Iraq are becoming more secure.

“Security improvements after the American troop increase last year have helped by making customers more comfortable in some of the markets and allowing sales representatives and delivery vans to travel outside Baghdad. … Conversations with several dozen workers, managers and owners suggest that more than any other factors, persistence and good old entrepreneurial opportunism is what has allowed the local shoe business to maintain its presence. Majid Mishari, the owner of Marakish, said he could not open his factory’s doors at all in 2003 or 2004, and when he tried starting up again for a few months in 2005, thieves or insurgents in the Anbar desert intercepted a $45,000 shipment of leather from Syria. … He managed to stay open for six months in 2006. And since security began improving early in 2007, he has been open continuously.”

Glanz goes on to note that Mishari faces a number of financial issues, including the fact that he has had to write off a lot of bad debt.

“If Iraq were fully at peace tomorrow, though, Mr. Mishari would still literally be paying for the violence that has shaken his country for so long. He throws open cabinet after cabinet filled with stacks of what he says are unpaid invoices: many of them are for orders sent to shop owners who were killed or disappeared, or used the war as an excuse for not sending payment, he said. So Mr. Mishari has improvised, managing to get a rare bank loan for 100 million dinars, about $80,000, and is preparing to sell his house in the Karada neighborhood if his revenues do not allow him to make the payments.”

The businessmen who have managed to survive have demonstrated an entrepreneurial spirit that is worth cultivating. Who can doubt their intelligence or business skills? They have survived where so many others have failed. Glanz reports on a couple of strategies they have used to survive.

“In Western marketing parlance, Mr. Mishari and Mr. [Sudani Muhamad] al-Sudani, [acting director and general manager at the Marakish shoe and slipper factory], have established a niche catering to Iraqis who are willing to pay his going price of 20,000 Iraqi dinars a pair, or about $17, for something a little classier than the synthetic leather shoes from China that generally go for under $10. Mr. Sudani has adapted in another way, one long familiar in the West but as novel as political ads here: he attacks those Chinese imports as the product of soulless, mechanized assembly lines. ‘We have lines of human beings who put their craft into this factory in order to make this product,’ Mr. Sudani said. ‘The main thing for my business is that people realize my Iraqi products are good and last a long time and the others are a waste of money.’ Since the imports started appearing after the war, Iraqi consumers have become more sophisticated about the differences in quality, said Amir Abdul Zahra, 40, a trader from Karbala who was at the Marakish factory recently to purchase inventory for his shops.”

Glanz concludes that not everything is sunshine and light in the shoe business in Iraq, but his article does help us understand that there is an indomitable spirit to be found in people in all countries. Finding them and helping them to build upon what they have already managed to achieve is one of the things that Enterra Solutions is aiming to do with Development-in-a-Box.