Iraq Is a Hard Sell

By Vivienne Walt/Baghdad

Chris Mulhern sits in a fifth-floor office in west Baghdad, having just completed an 11-hour flight from Los Angeles to London, a five-hour jaunt to Jordan and then a 90-minute hop across the desert to the Iraqi capital. It is that final leg that gives Mulhern a taste of what lies ahead. As the pilot begins his descent into Baghdad airport (put your tray tables in their locked-and-loaded position), he takes the plane into a maneuver called "the corkscrew," a tight downward spiral from about 1,000 ft.--in theory, steep enough to throw off the heat-seeking missiles sometimes launched by insurgents below.

With a lurch of motion sickness, Mulhern thinks, not for the first time, What a great place to make money.

The pilot's precaution would be enough to make most investors turn tail. At home in Santa Monica, Mulhern, 34, watched the Iraq war and its bloody aftermath unfold on television and reached a different conclusion. If he arrived early, preferably first, and offered high-tech capability to Iraqis starved of it, customers would probably pour in. "This is the perfect storm for business," he says. "This is an extremely educated country with a lot of money, and you're starting everything from scratch. It's like a land grab." That is, if you live long enough to grab. Being an entrepreneur in Iraq may be among the most terrifying jobs in business today.

When U.S. troops ousted Saddam Hussein a year ago, American officials and companies held certain assumptions about Iraq's prospects. With the dictator gone, businesses would reopen and drive an economic boom with their newfound freedoms. Traders would pile across the six borders, selling goods to consumers denied foreign items during 13 years of sanctions. Entrepreneurs would scramble for reconstruction contracts worth billions. Investment would pour in from millions of Iraqi exiles--including hundreds of thousands in the U.S.

One year on, the reality is vastly more complicated. In some ways, business is brisk. The new Iraqi dinar has shown surprising strength, given the violence, rising 30% against the dollar since it was introduced by U.S. officials last December, as Iraqis have begun to earn and spend far more money than ever. Baghdad's stores--depleted by the embargo--now have stacks of televisions, microwave ovens and Dell computers, and satellite dishes are propped on the balconies of most Baghdad apartment blocks. The roads are jammed with BMWs and Mercedes freshly imported from Dubai. In February another item banned by Saddam--the cell phone--finally hit the streets.

But the basic institutions are barely in place. There is still no retail bank in Iraq. No taxes have been collected. Even the normally upbeat U.S. officials admit that the prediction of foreign businesses storming the gates was off the mark. "People are afraid to set foot in here," says Olin Wethington, deputy director of economic policy for the coalition and the top U.S. Treasury official in Iraq. Rather than open offices in Baghdad, companies have dispatched small reconnaissance missions. "They're scoping out opportunities, anticipating that sometime the security situation is going to die down," says Wethington, who--like the rest of the occupation officials--works and sleeps in the heavily cordoned-off Republican Palace, rarely venturing beyond the tanks at the gates.

The drumbeat of attacks by insurgents is continuing, averaging 17 a day against U.S. soldiers and Iraqis working with them. There are also attacks against Western civilians, although the number is unknown. At dawn one February morning, two grenades hit a house in western Baghdad where Westerners lived. (The armed guards outside refused to tell TIME what the residents did for a living.) Elsewhere, foreign firms operate with no signs on their doors, and their personnel drive their cars into gated yards blocked from street view. Mulhern, well built and well dressed, with his head fashionably shaved, says he began feeling like a marked man during his only other trip to Baghdad, last summer. He left in July, feeling uneasy; three days later, the Jordanian embassy in Baghdad's upscale Mansour neighborhood was devastated by a suicide bomb a few doors from where he had spent six weeks, sleeping mostly outdoors on the roof to escape the suffocating heat. "There were body parts on our roof," Mulhern says he heard from colleagues. Several streets in Mansour, where scores of Westerners live, are cordoned off by blast barriers and patrolled by private security guards wielding AK-47s. "Companies are spending a ridiculous amount on security," says Oliver Westmacott, who is in a position to benefit. The British entrepreneur, 28, started a training and risk-analysis security business in Iraq that is proving to be "hugely lucrative."

American entrepreneurs in Iraq have learned that they need to be secretive about who they are and what they do. "We are targets," says one, a 28-year-old from Sacramento, Calif. With Baghdad still ablaze last April, he and a partner drove into the city the day the war ended and quickly found business, mostly in printing public announcements that needed quick distribution. It kept them lucratively employed for nearly 10 months. After being featured in a men's magazine in February, the two received death threats at their Baghdad home and hurriedly left Iraq, telling TIME they would not return for several weeks. The president of Mulhern's small high-tech start-up, based in California, has asked that neither the company's name nor its specific task in Iraq be disclosed because of safety fears.

Sooner or later, the lure of profit will steel the nerves. "If there is business here, if there are contracts to be had, people will come," says Stephen Orr, 41, from Mill Valley, Calif. A former assistant vice president at Merrill Lynch, Orr has spent months in Iraq helping the Iraqi-American Chamber of Commerce organize an international trade fair, Destination Baghdad Expo, which is scheduled to take place in the city next month. Only about 20 U.S. companies, including General Electric and Motorola, have registered. Orr suspects that many companies are discreetly sending Iraqi representatives to seek out contracts, even though "the tall redheaded guys like me might stay away."

Insurgent attacks on Westerners are not the only security risk. Iraqi businesses, which run entirely on cash, face old-fashioned armed robbery. Omar Tabrah, who with his brothers owns Baghdad's busiest money-transfer business, has lost about $850,000 to bandits in multiple holdups during the past six months. "That's a lot of money, but we'll make it up quickly," says Tabrah, 36. "We can close our company, and I can stay home with my wife and kids, but I won't do that."

Coalition officials tout the theory that a thriving middle class will inevitably demand an end to violence and ensure a peaceful democracy. "If you have a job and a home and a cell phone, you'll be a lot less eager to launch attacks," says Tom Foley, an investment banker from Greenwich, Conn., who runs private-sector development for the coalition in Baghdad. His argument may not be proved for years. But the belief that companies can help foster democracy while earning money has been a strong draw for Iraqi emigres. After decades of exile in the U.S., Sabah Khesbak, 50, flew home to Baghdad last October and landed a $500,000 contract for his engineering company in Tustin, Calif., to design four suspension bridges in northern Iraq.

But the land grab that Mulhern describes has in fact barely begun. Sure, Pepsi signed a new deal with its old bottler. Drive around Baghdad, though, and you will see little outward sign of Western business at work yet--no McDonald's, Pizza Huts or Ford dealerships. "Who would be willing to come here?" Khesbak asks, laughing. "You have to be a little crazy."

Amid the craziness is hard-nosed business smarts, say those who are here. Of the $18.6 billion in reconstruction money approved by Congress, about $10.2 billion will be contracted out by July in tenders, much of it probably going to companies that are not yet here, according to the American administrator in Iraq, L. Paul Bremer. The entrepreneurs on the ground say the know-how they have developed through these hair-raising months will give them a hugely valuable edge over latecomers. Despite anti-U.S. sentiments among some Iraqis, most are hungry for things American after years of living under the embargo and being barred from traveling to the West. U.S. officials still expect big American companies with the new construction contracts to flood the country with subcontracting deals and other spending. Westmacott and Mulhern will be here, waiting. They are guessing that the latecomers will need everything from high-speed Internet service to luxury housing and security. All of which proves their point: for the stouthearted, this is a great place to make money.