Muhammed Muheisen  /  AP
An Iraqi man holds an AK-47 while celebrating news of the capture of former Iraqi leader Saddam Hussein in downtown Baghdad Sunday. Analysts said they expect Iraq's security situation to eventually improve, thus improving the climate for business.
By John W. Schoen Senior Producer
msnbc.com
updated 12/19/2003 4:16:50 PM ET 2003-12-19T21:16:50

The capture of Saddam Hussein Saturday sparked euphoria in many corners of the business world – including investors, companies and governments hoping the removal of the deposed dictator will accelerate the rebuilding of Iraq and its economy. But that euphoria was tempered Monday by the reality that a host of hurdles -- including the likelihood of continued attacks by guerilla forces -– must still be overcome before business returns to anything like normal in Baghdad.

Saddam’s capture gave a strong and immediate psychological lift to anyone hoping to participate in the rebuilding of an Iraqi economy that has been laid to waste by more than a decade of war and international embargoes.

Analysts said that the successful raid on Saddam’s underground hideout could mark a turning point in the ongoing Iraq conflict.

"It could be the beginning of the end of the war," said UBS Securities equity strategist Shoji Hirawaka.

Spirits were also lift in the corporate headquarters of companies hoping to bid on rebuilding contracts and vie for a piece of a market long denied access to a wide variety of products and services.

“There is a need for everything from quality food stuffs to improved medical care to rebuilding infrastructure to entertainment,” said Jim Placke, a senior fellow at the Brookings Institution. “It's ... almost endless.”

But that euphoria quickly gave way to more sober reflection about the long road that lies ahead for the companies, countries and non-governmental organizations involved in reconstruction. Military analysts say attacks on U.S. troops and Iraqi police will likely continue for some time.

And despite a flurry of initial bids from companies interested in building basic infrastructure – like roads or telecommunications systems – firms are still warily looking for signs that Iraq is a safe place for their employees to do business. That's especially true for companies hoping to help Iraq upgrade it's creaking oil infrastructure.

"I think companies are basically watching and waiting,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. “The first issue is security; you can't really go in there and begin doing anything. The second thing is you can't start investing any significant amount of money until have you a legal system in place and a government contract, all the things for security in that investment. And that will take a couple of years."

Crushing debts
Even as Iraqi shopkeepers and small businesses struggle to get back on their feet, any effort to rebuild the Iraqi economy faces the huge task of unwinding crushing debts left behind by years of Saddam’s use of the national treasury as a personal piggy bank. Russia, Baghdad's biggest creditor at $8 billion, has made it clear that has no intention of writing off that debt.

In all, Iraq owes some $40 billion to the U.S., France, Germany, Japan, Russia and other countries among 19 nations that belong to the Paris Club, an umbrella organization that conducts debt negotiations. At least an additional $80 billion is owed to other Arab countries and nations outside the Paris Club.

On Monday, Secretary of State James A. Baker, as a special White House, begin a trip to those creditor countries to try to win wider support for the reconstruction and concessions on some of that debt. On the eve of his departure, long-time opponents of the war, including France and Germany, were upbeat about the news of Saddam’s capture. German Chancellor Gerhard Schroeder sent Bush a letter of congratulation expressing "much happiness" over the arrest. President Jacques Chirac of France, where Baker's mission begins Tuesday, called it a major event that will contribute to democracy and stability "and allow the Iraqis to master their destiny."

Video: Oil firms wary But Baker’s talks will likely include a fair degree of horse trading over the even thornier question of who will be eligible to bid the billions of dollars reconstruction work. The Pentagon announced last week that companies from Russia, Germany, France and others that opposed the war will be barred from bidding on projects financed by U.S. grants of $18.6 billion. The list of 63 nations eligible to bid ranges from longtime trading partners such as Britain, Spain, Italy and Australia, to Ethiopia, Rwanda and Tonga.

On Monday, the Pentagon delayed a bidding conference scheduled for this Friday for companies that want to compete for a piece of the rebuilding pie. The meeting will now be held early in January.

Even if the bidding ban remains in place for countries that opposed the war, some still hold out hopes of picking up subcontract work. French telecommunications equipment giant Alcatel, for example, has already joined with Egyptian group Orascom and U.S.-based Motorola to build a mobile phone network for Baghdad and central Iraq. Other French firms are already operating in Iraq and more were likely to follow, said Serge Boidevaix, president of the Franco-Arab Chamber of Commerce in Paris.

"American companies aren't going to send Americans over there to do the reconstruction, they're going to use subcontractors," he said. "When the U.S. Army is losing people everyday, what American company is going to send people over there to dig trenches? Let's be serious."

But the larger question is: Who will pay for these contracts once American grants have been spent? Even after the shooting stops, a legal infrastructure is in place, external debt is restructured, and peace is restored to the bidding process, much will depend on how quickly Iraq can generate bigger revenues from its decaying oil industry.

Initially, that appeared to be a matter of updating ancient refineries, pipelines and pumping stations. But oil industry experts say it's becoming increasing clear that the damage to Iraq’s oil infrastructure may extend far below the surface.

“There is is a growing realization that the sub surface fields themselves have been damaged by years of misproduction,” said Yergin.

“People feel (oil) is a bank account" that can be withdrawn any time, he said. "But it is under pressure under ground and if you produce too fast you damage the pressure and the long-term prospects for the field.”

(CNBC, Reuters and The Associated Press contributed to this report.)

Video: Back to business in Baghdad?

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