U.S. Falters In Bid to Boost Iraqi Business
Friday, August 24, 2007
More than a year after the Pentagon launched an ambitious effort to reopen Iraqi factories and persuade U.S. firms to purchase their goods, defense officials acknowledge that the initiative has largely failed because American retailers have shown little interest in buying products made in Iraq.
The Pentagon thought U.S. firms would be willing to help revitalize the war-torn Iraqi economy and create jobs for young men who might otherwise join the insurgency. But the effort -- once considered a pillar of the U.S. strategy in Iraq, alongside security operations and political reform -- has suffered from a pervasive lack of security and an absence of reliable electricity and other basic services.
Iraqi officials have recently highlighted pending deals with retailers such as Wal-Mart and J.C. Penney, businesses that they said were considering purchasing Iraqi products from the few local factories that have restarted. But the two companies said last week that they are not in negotiations to buy Iraqi products, citing Iraq's uncertain future and the questionable viability of potential suppliers there.
Three officials who have worked with the Pentagon's Task Force to Support Business and Stability Operations in Iraq said in recent interviews that, although some factories have achieved limited success, the larger effort to link Iraqi industries with U.S. retailers has been a "failure."
In an interview last Friday, Paul A. Brinkley, the deputy undersecretary of defense in charge of the task force, acknowledged that promising opportunities with U.S. companies have slipped away as the war's popularity fell. So far, only one American company has agreed to purchase clothing from an Iraqi factory, in Mosul.
"I thought we would be further along at this point, but we have a lot of momentum building in terms of support and a lot of momentum building in terms of finances," Brinkley said. "America's economic might has still not been brought to bear in Iraq."
The task force, launched in summer 2006, also faces growing internal turmoil. In recent weeks, the Defense Department's Office of Inspector General began an investigation after allegations by two task force officials that Brinkley engaged in erratic behavior, public drunkenness, mismanagement, waste of funds and sexual harassment. The officials recently left the task force after returning early from a trip to Iraq and presenting Pentagon officials with a 12-page memo outlining the allegations. Investigators began interviews last week.
Brinkley declined to address the allegations, calling it a "personnel situation" that was going through official Pentagon channels. He said that the task force has been as "transparent and open as it can be" and that he has not been involved in any questionable workplace activities in his career. "I have never, ever, behaved inappropriately with any member of my organizations," he said.
The task force has had to shift its focus to retailers and other firms in the Middle East and Europe, Brinkley explained, because it has had little success persuading U.S. companies to buy Iraqi-made clothes, industrial equipment and other products. He is in the midst of distributing $50 million in U.S. taxpayer money to Iraqi factories, and task force officials said they plan to announce more factory openings and one international sales contract worth more than $9 million in the coming weeks.
Though officials who work with Brinkley say that he has made a valiant attempt to restart Iraq's former state-owned enterprises, the results have been modest, with just nine factories restarting -- and even some of those remain unable to produce goods because of spotty electrical service, insufficient training and other problems.
The task force's assumption from the outset -- one shared by top U.S. commanders in Iraq and senior leaders at the Pentagon -- was that jump-starting Iraqi factories would push young men into paying jobs and away from violence.
But, in the past year, only 4,000 jobs have been created in Iraq's former state-owned enterprises, according to the task force's data, far short of the stated goal in December of having more than 11,000 employees back at work this year. Less than 5 percent of the 200-plus Iraqi factories have been reopened. Brinkley said that he still believes that several could open this year but that progress has been slower than he expected.
"It's not as quick as we originally thought, but it is happening," said Robert Love, the task force's operations director. "We are just coming out of a very turbulent period."
Those results come against the backdrop of a grim overall economic picture. According to official Iraqi statistics, unemployment is estimated at 18 percent, with underemployment at 38 percent, but U.S. officials have estimated that the joblessness rate is much higher. The Iraqi government, according to a Pentagon report delivered to Congress in June, has made little progress in providing key public services such as water delivery and sewage removal, while the oil sector has struggled with security problems and the government's failure to establish a long-awaited hydrocarbon law.
Another problem, Brinkley said, is that Iraqi consumers have shown a strong appetite for imports, after years of having to buy Iraqi products under Saddam Hussein. Brinkley said one Iraqi leather factory stamps "Made in China" on its soccer balls to persuade Iraqis to buy them.
What Brinkley described as an early "groundswell" of support from U.S. companies has waned. Business experts said that was caused by the uncertain security situation, concerns that supplies could get cut off and the prospect that Congress could end the U.S. involvement in the war.
Mike Longo, president of Memphis-based Shelmar Inc., said he has signed a contract to buy about $10,000 worth of boys' shirts and jogging suits for his 51 stores in seven Southeastern states -- the only U.S. contract of its kind so far. Longo, a West Point graduate and an infantry officer for nine years, said he will put most of the clothes on the shelves of his unbranded stores this fall but will not emphasize their Iraqi origins.
"We were confronted with an opportunity that made economic sense for us, and we also think it's the right thing to do," Longo said, praising the quality of Iraqi clothing samples. "I think what the task force is doing is very worthwhile and deserves people's support."
Brinkley has flown nearly 100 business leaders and experts into Iraq -- for an estimated cost of more than $10,000 each -- to examine the factories and to consider helping in some way. Those who have taken the trip said they found some factories that were beyond repair and others that inspired them.
Larry Milam, a senior business analyst who visited Iraq in February and May, said the trips were "enlightening" and "motivating." Milam was a West Point classmate of Army Gen. David H. Petraeus, the top U.S. commander in Iraq. He said he approached the task force because he wanted to help.
"I came back thinking that we definitely found some opportunities, and there was a chance to get some business going and get people employed and accomplish the goals of all of this, which was to get people an income so they don't need to accept money to plant an IED or fire a weapon at U.S. troops," Milam said, referring to an improvised explosive device. "We have tried to get products into the major outlets with whom we work, and, to be honest, we have not been successful. We have been given any number of reasons, but what it all boils down to is the uncertainty around the situation in Iraq."
That uncertainty is shared by companies that officials have said were ready to join the effort, such as Wal-Mart and J.C. Penney. "We are not in negotiations to sell these goods," Wal-Mart spokeswoman Mona Williams said last week. Darcie Brossart, a spokeswoman for J.C. Penney, echoed that sentiment. "J.C. Penney is not planning any production in Iraq. However, we did speak to a number of people regarding manufacturing and gave them ideas on how to alter trade policy to advantage Iraq," Brossart said.
John H. Sununu, president of the consulting firm JHS Associates, said that he has been interested in the idea for more than a year. He noted that he has been talking to clients about acquiring Iraqi products or using Iraqi services but has not gained much traction.
"If all the companies were doing was for the short term, they could do it altruistically," said Sununu, a former Republican governor of New Hampshire and a chief of staff for President George H.W. Bush. "For the long term, there has to be some potential for it being a good business decision, as well. They're struggling with balancing their natural inclination to do good with their business inclination to have to do well."