On a bright spring day last month, the Faruk Group chief executive, Hawre Daro, sat at the end of a huge glass table in a flashy fifth-floor boardroom and talked of his company’s – and his own – big plans for the future in a wealthy, stable and largely safe Iraqi Kurdistan.
At Faruk’s headquarters in the south-east Kurdish city of Sulaymaniyah, Mr Daro spoke of new cement factories and outlined future plans for the telecoms giant Asiacell. He discussed a US$2 billion tourism project at Dukan Lake. But mainly, he talked of Iraqi Kurdistan and the role that Faruk, one of its biggest companies, will play in it.
Then he said something that, mere weeks later, was to prove apt: “This is a very difficult country to predict.”
Fast forward a month, and huge swathes of two of Iraq’s major cities, one of which is a mere two-hours drive from the Faruk office, have been occupied by extremists under the banner of the Islamic State of Iraq and the Levant, and refugees from Kirkuk and Mosul are flooding into Iraqi Kurdistan.
Erbil, the Kurdish capital, and Sulaymaniyah may be safe, but the road to Baghdad is closed and checkpoints manned by violent Islamists are a mere 20 kilometres from the positions held by Kurdish peshmerga forces. The government in Baghdad appears powerless to stem the tide of militancy in the centre of Iraq.
The Kurds, never great friends with the central government to the south due to very vocal spats over budgets and oil revenue – not to mention four decades of bloody history – now have far worse neighbours. They are faced with an Iraq that appears to be disintegrating.
“I don’t see the future of Iraq that I saw a couple of weeks ago,” Mr Daro now says from Sulaymaniyah.
“I don’t see that federalised Iraq, ruled from Baghdad. I don’t think the Sunni areas can be retaken by force. If Iraq continues as a country, what needs to be done is create semi-autonomous regions and have no centralised government. Or a situation more like the UAE.”
As the chief executive of a company that does the bulk of its business in Iraq, Mr Daro sees the crisis as one of Faruk’s biggest challenges yet. Asiacell, the jewel in the company’s crown, serves 11 million people in Iraq and 70 per cent of the cement produced by the firm’s construction arm is sold to the south.
With the outbreak of war, those doors have slammed shut.
“The road to Baghdad has been closed, so we’re not selling much of our cement down south. We’re trying to find alternative roads and markets, although I don’t see this continuing forever,” says Mr Daro.
Long-term, Mr Daro says, the bulk of Faruk’s interests had relied on the reconstruction of Iraq in the years ahead. The company has two cement factories and is building a third. It is also building an aluminium factory, due to open next year, and a steel mill in 2016. The bulk of this output was due for the south rather than the Kurdish region. But with the latest conflict, overcapacity becomes a worry.
“I think now we have to think about our future investments and whether to look at all of Iraq as one market, or to concentrate on Kurdistan. If it is the Kurdistan market then we have to be a bit more careful. I think some of the developments that we have planned need to be delayed for a while,” he says.
Not least, Mr Daro says, is Faruk’s $2bn Dukan Lake project, which would have turned a largely untouched area of mountains into a massive hospitality development worthy of Dubai. The project was to be targeted at Iraqi investors, thousands of which have traditionally travelled to the Kurdish north for a break from instability in the south.
It was not going to be Faruk ’s first venture into hospitality. The company, founded by the billionaire Faruk Mustafa Rasool, has three hotels in Sulaymaniyah, as well as a new hospital that the firm hopes can cash in on the growing demand for medical tourism.
The three hotels – the Grand Millennium, the Millennium Kurdistan and the Copthorne – are at less than half capacity, each averaging 150 to 200 guests per night, but the properties are well served to cash in on the Kurdish region’s status as a business hub if and when the current crisis subsides.
Despite the domestic focus of many of Faruk’s companies, there has been no love lost between certain areas of the firm’s business and Baghdad, most notably when it comes to the government mandating in 2012 that Asiacell list on the Baghdad exchange. Faruk had been looking at listings in Dubai and London, Mr Daro says, but the law forbade it.
“It was part of our license agreement that we were supposed to list. We objected, we said that it is not correct. The size of the stock exchange was so small volume, and we knew that bringing in a giant such as Asiacell (was a mistake),” he says.
It is a major gripe of Faruk that Asiacell accounts for about 60 per cent of the value of the ISX and that the company, which was valued at about $4.5bn, has to make do with a market that trades only $1m per day.
“It just doesn’t make sense. Why does a company want to list? In order to have shareholders – local shareholders are part of operations, but if they don’t go to the stock market and buy shares what can you do? You cannot force people to buy shares. The partners ended up buying back most (of them),” he says.
In the run-up to the instability in the south, Iraqi Kurdistan had increasingly begun to act unilaterally in its negotiations with the outside world. The region recently began exporting oil through a pipeline to Turkey, although its efforts at selling it on the open market have stalled because of protests from Baghdad.
Since the peshmerga drove ISIL out of the city of Kirkuk, the Kurds appear to have a strong argument to push on with their own oil exports. It is not clear whether the Kurdistan Regional Government (KRG) will help Baghdad to deal with ISIL in the Arab areas south of the de-facto Kurdish border, but if it does, it will likely expect major concessions from the south. If it does not, Baghdad will be increasingly powerless to stop the Kurds from going it alone.
One month ago, Mr Daro had opposed independence for Kurdistan, arguing that trade and economic links with the south were essential for a strong Iraqi Kurdistan. Now, with Iraq on the verge of collapse, he is not so convinced. “We can be very good neighbours,” he says.
Generally, Mr Daro believes that the Kurdish region will emerge stronger from the current crisis – whether it remains part of a federal Iraq or as an independent Kurdish state, and whether as partners with Iraq or as neighbours.
“If our government continues the market economy that they are running right now we will definitely be able to fix the situation,” he says.
For Faruk in particular, versatility will be the key to weathering the crisis. Mr Daro has already alluded to the unpredictability of Iraq, which he says has already forced the firm to take significant risks in the past. But equally this has forced the firm, in the past, to take the bull by the horns.
“If we as an Iraqi company were to (act) as a Western company, we would not do a single piece of business, because everything we touch is so extremely risky,” he says.
“We just need to be very flexible. Very few companies in the western world are able to do that, because they are perfecting what they have done for 80 to 100 years – it would be very difficult for them to change their business, to do something else. But for us, I think that is what we’re doing right now. Trying to find other ways to do business.”
June 21, 2014