The National speaks to entrepreneurs in three sectors about trade and the future of Kurdistan.
Paul Bailey, 31 Managing director, Definitus
Paul Bailey knows a thing or two about getting in early. He moved to Erbil in 2007 from Abu Dhabi, looking to capitalise on the passing of Iraqi Kurdistan’s first oil and gas law as an advisor to international oil companies.
It was not long before Mr Bailey realised that there was plenty of options outside of oil and gas. As Erbil grew and Iraqi Kurdistan became more stable, opportunities emerged in a diverse range of sectors all faced with the same problem: a lack of funding.
“Definitus was set up to practice that which I had been preaching to others,” says Mr Bailey sitting outside the Munch Café on Gulan Street, on a warm evening in Erbil, the capital of the Kurdistan autonomous region in Iraq.
“One of the greatest challenges that we see in our work here is a lack of access to capital, whether that be reasonably priced debt finance or equity investors willing to buy into the market,” he says.
Definitus often invests its own capital into development projects and start-up companies, but also helps businesses raise capital or divest interests prior to sale – across agriculture, construction, food and beverage and the oil and gas sectors.
As an Iraq old hand – Mr Bailey has worked in Baghdad and Basra as well as the north –his firm is often asked to help new entrants make some sense of the market.
“If you arrive in Erbil expecting it to be like the UAE then you will be disappointed,” he says.
“As a frontier market there are a number of things that at first appear more difficult than they need to be – but that is part of working in new and developing places.”
First among these is bureaucracy, admits Mr Bailey but there is also the language barrier – unlike much of the wider Arabian Gulf, international business tends to be conducted in Kurdish, Turkish or Arabic rather than English.
Then there is security, with the bombings that stuck Erbil in September a stark reminder that behind the boom-town moniker, it remains a city just a stone’s throw away from war-torn Syria and instability in the rest of Iraq. But Mr Bailey remains bullish.
“New York, London, Madrid and Mumbai have all suffered terrorist incidents within recent memory. Each incident is a tragic waste of life but each city remains an international business hub,” he says.
As for those looking to follow his lead, Mr Bailey has some advice: “You have to commit. Business success will come here over time and over copious cups of tea. A full-time presence, or the appearance of a full-time presence, will be necessary,” he says.
“And if you decide to commit, commit early and be part of the growth engine, rather than waiting on the sidelines, deciding to enter the market only when it has become saturated.”
John Downe, 39 Managing director, Azure
As a veteran of Egypt, Oman, Bahrain and the UAE, John Downe’s wife always says her husband learned the art of negotiation in the souk.
Now based in Erbil, Mr Downe will this month open Iraqi Kurdistan’s first serviced offices, providing a base for both entrepreneurs and international companies in a city that is seriously lacking quality commercial space.
“Erbil is one of the last major cities in an oil-rich region of the Middle East without serviced offices and it has huge growth potential,” he says.
“International oil companies are piling in, as are every aspect of services that support them – lawyers, construction companies, oilfield services.”
Traditionally in Erbil a company would rent a villa in the city, with employees working downstairs and living upstairs, but demand is increasing for proper office facilities. Not only do villas often mean a year’s rent upfront, but also, Mr Downe says, they are perceived as “less professional” than genuine commercial space.
However, finding such space is a challenge. A recent report by the Erbil property consultancy IKG found more than 80 per cent of both existing and future commercial stock in the city is grade B or C, and – with a few exceptions – far below international standards. Mr Downe’s company, Azure, seeks to fill that gap.
“There is huge opportunity if you can offer something fresh, transparent, cool and different, so that’s what we’ve tried to do – both with things like all inclusive pricing but also the little extras: daily croissants and towels in the showers,” he says.
Mr Downe moved first moved to Bahrain after completing his Arabic degree and MBA, joining the corporate finance team of Ernst and Young and later forming a venture capital and mergers and acquisition advisory. In many ways, he says, Erbil – where he moved this year – reminds him of the early days of the Gulf.
“In some aspects, it’s like being in Dubai many years ago. There is huge unmet demand and being a very networked place, you can find out what is happening fairly easily, if you are plugged in. I hope what we and other entrepreneurs are doing here now will be looked back upon as real pioneering spirit,” he says.
Hemin Osman, 23 Broker
It goes without saying that as a Damascus-born but London-bred broker, Hemin Osman, 23, had to cope with a very different landscape when he moved to Erbil 18 months ago.
Moving from a job in the City of London – where the internet has made face-to-face contact almost redundant – he found himself driving three hours to Dohuk or Sulaymaniyah simply to make run-of-the-mill changes to contracts.
“The key difference with business here is that most of my deals and transactions are done either in person or on the phone. This is a complete contrast to working in the City, where most things are done over the internet and by emails,” he says. “Clients here feel more secure the more personal their interaction is with you.”
Although not a new industry, the financial services sector has traditionally been totally unregulated in Iraqi Kurdistan, with only a handful of companies regulated by the financial conduct authority (FCA) in the United Kingdom.
Brokerage services, however, are relatively new, having started in 2008. As a result, clients in Iraqi Kurdistan tend to have issues with trust – and not unfairly, given the history of over four decades of Saddam Hussein.
“In Kurdistan and the rest of Iraq there is a general lack of trust in the financial sector, which stemmed from the Saddam era, where many people’s assets were frozen by the central government. As a result, people preferred to keep their cash at home in a safe rather than a bank,” he says.
Mr Osman says clients are beginning to warm to the idea of brokerage services, however, especially when they learn their funds are held in the UK and insured and protected by the FCA. That said, preferences tend to remain conservative – commodities and currency dominate.
“It is a commodity driven economy, so many people are interested in trading what they know – oil, gold, silver – but there is also high demand for currency. We offer them two main types of service either they can execute their own positions or we can have leading hedge funds in the UK manage their accounts,” he says.
As a returnee – one of thousands to move back from Europe to the region since the downfall of Saddam – Mr Osman feels a personal desire to see things in Iraqi Kurdistan improve. He hopes as time passes, investors in Iraqi Kurdistan will get over their trust issues, but also that the regional government will take further steps to reduce bureaucracy and other hurdles to individuals and companies.
“I have big dreams and aspirations for Kurdistan but to make doing business here more pleasant the government need to reduce red tape and make governmental procedures easier,” he says.
“That will encourage more businesses to invest in the region.”