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Iraq deals at foundation of rebuilding?

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KAI RYSSDAL: The Iraqi economy is still a ways away from anything resembling normal. But foreign investment in Baghdad is definitely picking up. We learned today three of Iraq’s biggest state-owned cement firms have signed deals with outside investors from Romania, Germany and Lebanon. If you’re sitting there right now scratching your head trying to figure out why cement might be important in Iraq, I’ve got one word for you: Reconstruction. And on top of that, Jeremy Hobson reports the business models these deals propose may be signs of things to come for Iraqi industry.

Jeremy Hobson: The dream of Bush administration officials post-invasion was this: Open Iraq’s state-owned businesses up to the free market and investors will come swarming in. That didn’t happen — the security situation was simply too risky for foreign companies. Today’s news, though, marks a step toward a reasonable compromise, says Michael O’Hanlon of the Brookings Institution.

MICHAEL O’HANLON: It’s a small step. But I think, you know, it’s very little, very late compared to what the hopes had been for Iraq becoming the beacon of democracy and free-market enterprise.

But the cement industry compromise makes sense for both sides, says Frank Dubois at American University’s Kogod School of Business. For Iraqis who want to retain control of a state-owned industry…

FRANK DUBOIS: The critical issue for them is job protection. And I think if there’s state-owned component to the sources of production there, then they have a lot better bargaining power with the private companies that are bringing the technology in in terms of retaining employment.

For foreign investors worried about security but still interested in tapping into an emerging economy, the production-sharing deal offers them one foot in the door until security improves. And they’ll be rehabilitating existing factories. That’s a lot easier than building new ones that require government approval.

DUBOIS: One foot in the door. Hopefully the doors going to open wider two, three, four, five years down the road.

And since cement is needed for nearly everything that’s being rebuilt in Iraq, foreign investors are betting the once-booming cement industry could end up being quite lucrative by then.

In Washington, I’m Jeremy Hobson for Marketplace.

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