Japan Firms Missing Opportunities As Iraq Rebuilds

TOKYO (Nikkei)--Japanese firms used to have a strong presence in the infrastructure market in Iraq, but they are now getting shoved aside by their Western and South Korean rivals.

Ten years after the start of the Iraq War, the oil-rich, Middle Eastern country is struggling to rebuild itself. Yet it has also emerged once more as a major resource-rich nation, with plenty of space to ramp up crude oil production. This is providing opportunities for foreign companies that specialize in the development of infrastructure.

According to one private-sector research firm, infrastructure deals involving foreign companies in the country were valued at an estimated 55.67 billion dollars (5.34 trillion yen) in 2011. The figure has risen about 20-fold over the past four years.

Last year, South Korea's Hanwha Engineering & Construction Corp. signed an 8 billion dollar (768 billion yen) deal with the Iraqi government to build 100,000 homes in Baghdad. South Korea firms accounted for about 22% of all commercial transactions in Iraq in 2011, above companies from all other nations. Japanese firms only accounted for 1-2%.

UFO Robot Grendizer

At an international trade fair in Baghdad in November, the Japanese pavilion displayed an inflatable UFO Robot Grendizer figure measuring 6.5m in height. The Japanese anime character was shown on TV in Iraq under the government of former leader Saddam Hussein. The robot character is widely recognized in the country.

It was the first time in 23 years that a Japanese pavilion had opened at a trade fair in the country. Many Iraqis gathered around the robot and took photos with it.

Japanese companies won a number of contracts for major construction projects in Iraq in 1979 and 1980. They built refineries, electric power plants, roads and homes, all paid for by revenues from the country's oil industry. Many of these facilities and roads are still in use.

"Confidence in Japanese products and technologies is deeply ingrained in Iraq, just like UFO Robot Grendizer," said one Japanese government official based in the region.

But in recent years, Japanese firms have barely had a presence in the country. One senior Iraqi government official told Yushi Nagata, chairman of Toyo Engineering Corp. (6330), that while the country appreciates the past contributions of Japanese firms, they are now in danger of being overlooked for new projects.

Security Risks

Japanese firms have failed to establish a strong presence in Iraq since the end of the Iraq War, but that does not mean they do not care about the market. Security fears are preventing many companies from taking part in the nation's efforts to rebuild itself.

More than 4,000 people fall victim to violence in Iraq every year. Japanese firms with operations in the country use bulletproof vehicles, while their employees wear helmets and Kevlar vests.

One Japanese government official said that there are only a few dozen Japanese nationals in Iraq, including diplomats. But there are roughly 500 South Koreans and 10,000 Chinese working in the country at any given time.

The Middle East is the only region in the world that can meet growing demand for crude oil in emerging markets, even with the ongoing shale gas revolution in the U.S. "The success or failure of increased crude oil production in Iraq determines global supply and demand," said Fatih Birol, chief economist at the International Energy Agency.

Japan depends on the Middle East for most of its crude oil imports. It can't afford to lose more opportunities in the growing Iraqi market, but security measures for company employees have become more important than ever since the hostage crisis in Algeria in January, which resulted in the deaths of 10 Japanese nationals, among other foreign expatriates.

The Japanese government should support Japanese companies in Iraq and actively compete for access to crude oil.

--Translated from an article by senior Nikkei staff writer Hirofumi Matsuo

(The Nikkei Business Daily, March 19 edition)

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