Revving up: Iraq's car factory shows road ahead for industry

Revving up: Iraq’s car factory shows road ahead for industry

Though Iraq's industrial sector contributes only 2 percent to the GDP, the government has pumped $2 billion over the past three years into some of its 260 factories

July 28, 2011 12:01 by Reuters

In a country only slowly recovering from the impact of war and economic sanctions, Iraq’s state-owned car assembly plant is a hive of activity.

Workers bustle around, fixing tyres and bumpers on to trucks. The sprawling plant in the town of Iskandariya, 40 km (25 miles) south of Baghdad, is filled with brand new vehicles.

It has contracts with Scania, Mercedes-Benz and Renault, and has also linked up with China and Iran, importing car parts from those countries to be assembled in Iraq where China’s Chery, as well as Toyota and BMW, are popular brands.

Within 10 years the bigger components should be produced in Iraq and the goal is eventually to manufacture a vehicle that is 100 percent Iraqi.

But most of the country’s dilapidated factories are still lying idle more than eight years after the U.S.-led invasion. Some were looted while others are located in areas that are still considered unsafe.

High electricity costs, neglect, a huge overhang of workers at state factories who cannot be laid off, lack of investment and the influx of cheap imported goods also impede recovery.

Iraq’s industrial sector contributes only 2 percent to the country’s gross domestic product, according to the central bank. In an effort to revive the sector, Iraq has pumped $2 billion over the past three years into some of its 260 factories, owned by 76 firms.

“Most of our factories were losers,” said Adel Karim, a deputy minister of industry and minerals. “Now we have eight companies which are profitable and by the end of the year we hope to reach 20.”

The State Company for Automotive Industry, established in 1976, lay idle from 1991 until 2005 when a series of contracts helped restart work at the plant.

It signed a $42 million contract with Volkswagen’s Swedish brand Scania in 2008 to assemble 500 trucks and has also entered into deals with Germany’s Mercedes-Benz and French carmaker Renault to assemble vehicles, mainly trucks.

In May, another contract with Scania was won to assemble 5,000 trucks and buses over a five-year period, with an annual production target of 800 vehicles.

As part of the agreement, Iraq must manufacture some parts, such as tyres and batteries, locally.

“Until June 2010, the company was considered a loss-making company and our sales did not exceed 500 million (Iraqi dinars, or $428,000) a month. We have currently reached 8.5 billion a month,” said Adnan Razeen, director general of the State Company for Automotive Industry.

“Within a 10-year period we will be able to manufacture bigger components of the truck in Iraq and this is our plan … to have a 100 percent Iraqi truck.”

TOO MANY EMPLOYEES

Karim said one of the biggest problems facing the ministry was overstaffing at factories. Under centralised economic policies established decades ago, the government is Iraq’s largest employer and has difficulty letting workers go, leaving state-run firms hugely overstaffed.

The state car company finally started using all its employees this year. In 2010, 1,500 of its 3,700 paid workers had nothing to do.

Similarly, Iraq’s General Company for Leather Industry needs only 2,400 of its 4,170 staff. Yet unlike Iraq’s car assembly company, the leather goods firm, which was set up in 1936, is struggling to get back on its feet.

“We need investment, we need state funding, we need to train our staff and we need to protect the local products,” said assistant general director Saadi al-Maliki.

Maliki said the company supplies most of its leather shoes, bags and jackets to Iraq’s interior and defence ministries, with only 5 percent reaching the local market. He said Iraqis tended to prefer fashionable Chinese or Turkish shoes and clothes rather than locally produced goods.

One means of bringing in new investment is privatisation but, there too, excessive staffing is a hurdle, Karim said.

“The investor would dispense of a huge number (of employees) and would keep only 10 to 20 percent of them. That would have a negative and catastrophic result on the state,” he said.

As a result, Karim said Iraq was trying to unlock the potential of its industry through joint venture contracts with foreign and local firms. Editing by Serena Chaudhry, Jason Neely and Robert Woodward)

($1 = 1168.000 Iraqi Dinars)