Can Kurdistan be the new Dubai?

By Michael Rubin:

Almost two decades ago, I made my first trip to the Persian Gulf. It was a starkly different place than it is now. Dubai International Airport was a single terminal. My Dubai hotel cost $25 a night, and old, traditional buildings still existed among high rises which are mere shadows of those which would come in the last decade. Doha was a quaint, dull town. Unpaved alleys and mud buildings still lined parts of Riyadh, and Bahrain—where I was working as an economic intern at the U.S. embassy—remained unmarred by Western fast food chains like McDonalds and Kentucky Fried Chicken.

Today, of course, the Gulf Cooperation Council (GCC) states are far different. They are banking and commercial hubs. The service industry thrives. Western universities and art museums rush to open branches. How did the GCC states transform themselves into international economic hubs with per capita incomes among the world’s highest?

The answer is not simply oil. After all, while Abu Dhabi has great oil resources, Dubai does not: Dubai produces now only between 50,000 and 70,000 barrels per day, less than one-fifth of what it produced 20 years ago. Today, Dubai accounts for only 2 percent of the United Arab Emirates’ total gas revenue. While Dubai’s wealth is obvious despite the global economic downturn, less than six percent of Dubai’s revenues come from oil and gas. Bahrain’s reserves are also slight, and shrinking.  Today, Bahraini production is just 40,000 barrels per day. In contrast, the Kurdistan Regional Government reported oil exports in recent months of 160,000 barrels per day, and Barham Salih, the regional prime minister, said last month that exports might increase to 175,000 barrels per day. Both Dubai and Bahrain may easily exhaust their oil resources by the time babies born today enter college.

The secret to Dubai and Bahrain’s success has less to do with the oil boom, and far more to do with their own battles with corruption two decades ago. Take McDonalds: Few enjoying a Big Mac or large fries think about profit margins, but no investor would put down the millions of dollars necessary unless they believed they would make a profit. At the same time, like Coca Cola and Starbucks, McDonalds is a marquee brand which promises not only financial reward but also prestige. Naturally, then, just as in Kurdistan, ruling family members wanted to be involved.

The problem was that while kickbacks to silent partners or “licensing fees” might normally be ten percent or so, royal family members expected twice that, a figure above the profit margin yet still only half that which regional leader Masud Barzani’s sons have demanded. Under such circumstances, the only way for foreign investors to break even was not to invest. While Bahrain, Dubai or, for that matter, Iraqi Kurdistan, might look like an impressive market to those living there, the fact is that there are dozens of markets emerging anywhere in the world at any time, and foreign investors will favor those which are least corrupt and most stable.

Change came to Bahrain, Dubai, and Qatar when leadership changed. The new leaders did not eliminate corruption, but they did not tolerate lawlessness or dysfunctional levels.  As investor confidence grew, economies took off. In 2000, annual per capita income in Bahrain was just $12,000 in current dollars. By 2005, it was $18,000; and in 2007, it exceeded $27,000.  Between 1995 and 2005, Dubai per capita income increased 94 percent, to $31,000. In the short-term, constraining corruption may have cost the leaders’ brothers and nephews some money, but in the long-term, they reaped far greater reward and, more importantly, ordinary people also grew wealthy, amplifying investment and bettering quality of life.

While Kurdish leaders liken themselves to Dubai, a better analogy might be to Turkmenistan. Turkmenistan may not be landlocked, but with its only coast on the Caspian Sea, it might as well be. Kurdistan might be more democratic, but in both it and Turkmenistan corruption has hampered economic development. Two decades ago, investors believed that Turkmen gas could be the future. The ultimate irony is that Kurdistan has attracted some of the same officials, a former American ambassador to Iraq among them, who once trumpeted Turkmenistan’s potential.

New travelers to Kurdistan may marvel at recent construction and shiny skyscrapers. They do not realize that the vacancy rate in these new properties hovers around 80 percent. The few tenants are government enterprises, not private companies. The Turkmen capital of Ashgabat, meanwhile, is famous for putting shiny glass or mirror veneers on decrepit old buildings. The effect is the same. Neither is able to hide fundamental economic and political problems for long.

If Kurdistan is to thrive, the leadership must get serious about tackling corruption. At present, investment is difficult without a Kurdistan Democratic Party (KDP) partner. Barzani’s sons demand extortionate amounts, and use the security service to punish those who do not make their payments. Foreign investors will not gain necessary permanents unless they pay signing bonuses up to $50,000, and acquiesce to a KDP appointee as their accountant. The biggest difference between Kurdish officials is not whether they are corrupt or not, but the degree to which they physically hurt people who get in their way. When I speak to Kurds, the only figure whom they consistently say is corruption-free is Najmaldin Karim, the governor of Kirkuk. While I do not care for Dr. Najmaldin—he was the one, after all, who spread the lie that I was a “Turkish agent” to blunt my criticism both of corruption and Kurdistan Workers Party (PKK) tactics—it is nonetheless to his credit that he has resisted the temptation to cash in on his position, even if he found political integrity more difficult.

The future may look bright in Kurdistan, but, oil alone will not grease Kurdistan’s transformation. If Kurdistan is truly going to become a new Dubai or Bahrain and bolster its wealth and living standards to first world levels, it must rein in corruption or change the leadership which refuses to do so.

Copyright © 2011

9 Responses to Can Kurdistan be the new Dubai?
  1. Dr.Abdul wahed Jalal
    December 31, 2011 | 03:15

    Dear Mr Rubin thanks for such a wonderful article. I personally believe that every thing is possible. The Kurdish leaders should develop in their mind an ultimate target. They have to develop a kind of conceptual blueprint that define our path to social, economic, and political development. We have to have a vision. Such a blueprint implied a clear idea of where we want to go and what we want to be. The Kurdish leaders must develop that in their mind. They have to have a plan to make Kurdistan developed, modern, and democratic according to our historic pattern, with our own distinctive ethical and moral values intact. We can not become Dubai or like any other developed economy unless the leaders emphasize in establishing a fully caring and sharing society. We want the Kurdish leaders with a human face and big human heart.

  2. Baqi Barzani
    December 31, 2011 | 04:12

    Dr.Michael Rubin

    Changing the leadership in Kurdistan is not easy as pie due to external backing KRG is enjoying. Incumbent authorities are genius enough. To ensure their continued ruling, they knowingly got certain powerful countries involved in the ongoing corruption who must protect them in order to protect their own economic interests. That is why KRG has agreed to defraying companies like Exon billions of free dollars to just adopt their offer to head to Kurdistan and invest.

    Corruption can only be minimized. Even lets suppose there are honest people working in KRG, they have 2 choice: to either go with the flow or quit.

    Kurdish masses have tried in the past to rectify KRG, but repeatedly failed.Thanks to certain countries and companies for their unjustifiable support.

    The US has no intention to disrupt the status qua prevailing in Iraqi Kurdistan for sometimes, as well.

    Sooner or later, the general public will run out of patience once again, and will have to change the current corrupt system. However, for that to transpire, patience is key.

  3. Kuvan Bamarny
    December 31, 2011 | 08:03

    kurdistan can be way way better then Dubai but that would depends on the security and stability of kurdistan.

  4. Haval
    December 31, 2011 | 10:15

    Michael i don’t agree with that point that most of the tenant in Erbil building, government enterprise .PWC has office in English village so many other private companies .A lot of private companies from Lebanon and Gulf state has offices in Erbil.SMALL travel agent paying three thousand dollar as a rent for their office in Erbil.Yes corruption is a big problem but at least the opposition working hard and Barzani tribe shown well to sorted .Kurdistan as emerging market in the middle east is the most secure investment you can have.the yield on your investment is incredible you can not get it anywhere else in the world. Barzani Father and son eventually they do realise the demand of people is legitimate,and they can not act like this forever.

  5. Bakir Ahmad
    December 31, 2011 | 19:52

    When corrupt Barzani and his blood-leeching offspring are got ridden of, then change is likely and that is when Kurdistan will experience real peace.

  6. H.C. Lawrence Smith
    January 2, 2012 | 01:44

    Dr. Michael,
    Thank you for this insightful article and I hope to see you again in USA. Having returned last month from almost 5 yrs in Iraq, I am one of those who believes that the KRG can become a Dubai-like entity within a larger Iraq. As an employee of an NGO working with the KMoI in the security sector, I will tell you that there while there were reported cases of minor officials crossing the line in a limited market of licensed companies, with operating costs equal to or less than Baghdad, business was sustained and clients kept coming, despite political attempts to restrict commercial work. Effective govt security management is an FDI stimulant, and greater transparency will occur if the KRG vision for business expansion is to outpace the Baswari (Basrah) desire for the same thing. I’m betting on the boys from Hawler.

  7. Rizgar Khoshnaw
    January 6, 2012 | 01:18

    Dear Dr. Rubin,

    I totally agree with you. It is absolutely disgusting what is going on in Kurdistan nowadays when it comes to corruption. Believe me, there is a lot more of it in Kurdistan than people realize! I have been working/visiting Kurdistan for the past fourteen years and I have seen it all!

    I will only give one example of this rampant corruption cases. About three years ago a very close friend of mine was in the process of building a very large size shopping center in Ankawa ( Juts out side of Arbil) and he only needed ONE more signature in order to get his license to begin construction. The “politician” or as we say in Kurdish the “masool” demanded 60% of the total project value up front payment just for that ONE signature! the project value was over $10 million. Needless to say, my friend gave up and left this project and went back to Baghdad.

    Kurdistan will NEVER be like Dubai. Most Kurdish politicians are too corrupt that they have no interest in their people and region BUT their own interest.

    One final thing that I would like to mention is that Dr. karem Najmaldin might not be corrupt yet, but believe me his time will come. Furthermore, he has no interest in “helping” the Kurds, but his name. I know him and he has proved to me (incident that goes back eleven years ago) that he does not care to do anything for his people!!

    Rizgar Khoshanw

    • Halmet
      January 8, 2012 | 06:12

      Kak Rizgar,
      You are right. There’s another Kurdish individual in your area D.C. wanted to build the Dihok Hotel but KDP “masool” demanded 50% of the profit without chipping in a penny. The man declined the deal and I guess someone else built it or in a process of completing it.

      Kurdistan is a lawless state/land or may be a wild wild west. Two families with the bunch of thugs around them are stealing the national money and call themselves presidents and politicians. In fact, I would say that 90% of Kurdish people are on welfare program. People literally do nothing and get government salary. Ironically many believe that the government’s obligation to take care of them.

      It’s a crime against statehood to compare Kurdistan to Dubai because Dubai is one of the most progressive cities in the world and its quite an embracement to compare the both.

      Sometimes people and even intellectuals talk about independent. If Baghdad cut the 17% share of the national budget, the Kurds will be homeless. If such event occurs, I bet you that the politicians will run to Baghdad and sign a protocol to be part of Iraq for another 200 years.

      Just add another point about Dr. Nicimdeen Karim who was a doctor in the US. I heard that he was making millions in the USA as a doctor but decided to return to help the Kirkukies. So far he’s doing good and kept his reputation up and im crossing my fingers for him.

      • Rizgar Khoshnaw
        January 8, 2012 | 15:54

        Kak Halmet,

        I am glad to see that there are people out there that have experienced the same things in Kurdistan as I have. This only proofs that what I saying is the truth and common practice in Kurdistan. For this reason, we will not see the Kurds have a nation of our own as long as the system is very corrupt and the leaders do not care about their citizens.

        As to Dr. Najamaldin, I have such opinion of him ONLY because I have had a real life experience with him. It is true that he very wealthy back in the US, but as we all know how human greed can take over once they take a position of power!

        My experience with him was eleven years ago when I contacted him for help. He has known my family since the 1970’s and was a very close friend to my oldest brother, Dr. Hewa, since then. The reason that I contacted him and went to see him in Washington,DC is to ask him to help me to print my book that I wrote about the oil-for-food scam and mismanagement. The book that I wrote that took me four years of research ( and 25 trips from Washington to Kurdistan at my expense) was to help my fellow Kurds and NOT to make money off of it. In an e-mail he sent me, he said that he can not help because that is not something that he can do or get involved it!!

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