Czech-ing out Iraq
The Czech Republic's 12-year-long economic embargo against Iraq ended as far back as June 2003, but it took some time for Czech companies to take more than tentative business steps in rediscovering the war-torn country. Nonetheless, in the past couple of years several Czech firms have started enjoying the fruits of negotiations and lucrative contracts have been secured, mainly for supply of equipment to Iraqi refineries.
Basing their figures largely on as-yet-unsealed deals, representatives of the Czech Embassy in Iraq forecast that Czech exports to Iraq will hit a record high this year and continue to flourish thereafter. If contracts held by companies such as foreign-trade company Technoexport, engineering firm Prokop Engineering Brno and industrial-equipment exporter Inekon Group are successfully carried out, the annual value of Czech products and services flowing into Iraq will reach $200 (zł.566) million by the end of the year, according to Czech Ambassador to Iraq Petr Voznica.
The export value for the first quarter of 2007 was $24.5 (zł.69.4) million, Voznica noted, compared to the $21 (zł.59.5) million recorded for the whole of 2006. Explaining the longer-term assessment of predicted growth, Voznica said that signed contracts held by Czech companies are worth around $1 (zł.2.83) billion altogether and the various projects tied to the contracts are expected to be completed between 2009-2012.
One of the most recent contracts was signed in March by Iraq's Ministry of Oil and a joint venture formed by Technoexport and Prokop Engineering Brno. Under the CZK 2.5 (zł.0.34) billion deal, the firms will supply a crude-oil distillation unit for a refinery in Basra.
So far, the largest contract in terms of financial volume in modern Czech history has been secured by Inekon Group. The Prague-based holding last year signed a ?328 (zł.1,255) million contract for building a cement works in the Kurdistan region, in the north of Iraq.
In the past three years, other Czech companies - including engineering and contracting company Chemoprojekt, assembling firm EGE-montáe and water-management company Sigmainvest - have also closed contracts for projects in Iraq worth tens of millions of dollars. But the question of how many of the deals will actually be carried out remains. "I can't stick my neck out on this [and say that all the contracts will eventually be implemented], but we [the embassy] are doing our best to achieve this," Voznica said.
Slim odds
The odds that all the extensive projects in Iraq will eventually be put into practice are very slim, as the situation in the country is too complicated, remarked Essam Hafoudh Al-Zand, owner of PR & Consulting Czar, a Prague-based consulting company that provides services to Czech firms interested in exporting to Iraq. According to Hafoudh Al-Zand, the Iraqi economy isn't yet strong enough to support large projects, the safety situation there has worsened, and widespread corruption and a lack of reliable partners makes doing any business there especially difficult.
"Many contracts are being signed, but this is also how the business often ends," said the Iraq-born entrepreneur, who also operates marketing agency Czech Trade Center in Baghdad.
Some Czech firms have already experienced the Iraqi pitfalls. Inekon Group, which in January 2006 signed a contract with a private consortium to build cement works in northern Iraq, hasn't started the work yet. The trouble is that the private consortium's Middle Eastern financial partner cancelled the contract, which led to the company losing its financing, said Josef Huek, general director of Inekon Group. "The situation in Iraq is complicated and safety has worsened," he said.
Since last fall, Inekon's partner in Iraq has been trying to find another financing approach. It is now finally closing in on an agreement with a bank, meaning the construction of the cement works should start this year, Huek commented, adding: "Construction will begin immediately when we get the deposit of 25 percent [of the project's value]."
On the other hand, Technoexport, which has signed a contract with the Iraqi Ministry of Oil, has already secured project financing, said Michal Krejčík, the firm's commercial director. According to Krejčík, financing of the project will be done through Trade Bank of Iraq, a consortium of major global financial institutions led by JP Morgan. Construction of the crude-oil distillation unit should start in H2 of 2007 and be completed in 2009.
Technoexport is already working on two other projects in Iraq. Together with Prokop Engineering Brno, it's building a crude-oil distillation unit for a refinery in Daura. The $40 (zł.113) million project is about half-done and should be completed at the end of 2007 or beginning of 2008, according to Krejčík. In its other project, Technoexport, together with other Czech companies, is building an isomeration unit for a refinery in Baiji.
Unstable and insecure
While the big established players like Technoexport and Inekon Group can succeed in Iraq despite obstacles, small Czech companies can find it more difficult to penetrate the emerging market. "There isn't enough potential for Czech companies in Iraq now," said Ale Říháček, director of public relations at Czechtrade, the state agency that promotes the exports of mainly small and medium-sized enterprises. "The market there is unstable and insecure ... companies aren't mad about going there," Říháček, said.
That's why Czechtrade isn't currently planning to open a branch in Iraq, Říháček commented. The closest branch of Czechtrade, which has offices in 33 countries, is in Dubai. Despite there being no Iraq office, the head of the commercial department at the Czech Embassy in Iraq, Jaroslav Reif, said there is strong potential for Czech firms in the country and so Czechtrade should "very intensively" consider opening a branch in Kurdistan. "This is an area where it would be possible to open a branch," he said.
Last year, according to the Ministry of Industry and Trade (MPO), there were 53 Czech companies exporting to Iraq. They were mostly operating in the areas of engineering, oil extraction, water management and sewage plants, construction and agriculture.
Government aid
The notion that not all the contracts closed in Iraq will eventually be realized is supported by the MPO report on the usage of financial resources allocated for the post-war reconstruction and recovery of Iraq. In 2004, the cabinet agreed to allocate CZK 235.9 (zł.31.7) million, via the MPO, for companies to carry out projects and conduct project studies aimed at restoration in Iraq. Of the 12 projects, seven haven't been implemented, noted the MPO. Three of the seven remaining projects should be implemented this year, the report said, citing the complicated safety situation in Iraq as the main reason for the delay.
The MPO and the government in general lack a proper strategy for how to help Czech firms succeed in Iraq, according to Hafoudh Al-Zand. "The Czech Republic has many high quality experts and technologies but the country has poor marketing ... and when you add that to the lack of information provided to Czech firms, here it's hard for them to succeed in Iraq," he said.
Not only marketing but also state subsidies that would enable pioneering projects in Iraq are essential for local firms' success there, observers say. "The Czech government should actively contribute to bringing Czech firms to Iraq and open the door for them there," the Czech Embassy's Reif said, adding that state aid is essential for firms to penetrate the market. He cited the example of supplying equipment for purifying and bottling to create potable water. According to Reif, if the state invested into supplying the initial sets of equipment, then it would be probable that the Iraqi side would order more sets and pay for them, with the state eventually getting its subsidy back in taxes paid by the firms.
Although the Minister of Foreign Affairs, Karel Schwarzenberg, told journalists last month that he was delighted with Technoexport's contract and would support the firm's activities in Iraq, Hafoudh Al-Zand remains skeptical. "The Cabinet is pedaling hard, but it looks as if it's sitting on an exercise bike," he said. "Despite the effort it doesn't move forward."
Petra Breyerová
This is an edited version of an article which originally appeared in Czech Business Weekly
