Risking Everything in Baghdad

BAGHDAD — Bassam Talal, a wisp of a man with large ears and doleful eyes, is in his element on the floor of the Iraq Stock Market. Every Monday and Wednesday morning, he pirouettes between the other 50 or so brokers, nipping up to the white boards that line the wall of the trading pit. He marks 10,000 shares of Baghdad Carbonated Drinks bought for 2 dinars a share (a $13 trade), 5,000 shares of al-Hillal Water Company sold for 2.05 dinar a share (less than $7). He waves colored order slips above his head and darts between the white boards and the investors, separated from the pit by a waist-high barrier. About 200 individual investors eye the Arabic scribbles of the orders on the wall. Some bring opera glasses. They’re mostly older, heavyset men in suits, with a few traditionally dressed Bedouin guys hanging around. When the see a price they like, they gesture to Talal or another broker and point.

All investment comes with risk, but Iraq’s investors face special — and deadlier — risks. Baghdad is the prize in a civil war that rages even as the Iraq Stock Market attempts to rebuild itself and Iraq’s shattered economy. The fighting that often rages outside the old hotel which houses the bourse is marked by violence that is indiscriminate and savage. In Baghdad, car bombs, ethnic cleansing and massacres are the hallmarks of this fight. Located in Hayy al-Awaya, a Christian neighborhood, massive concrete barriers surround the entrance to deter car bombs, and grim gunmen carefully search anyone who gets close.

“During the session, I have about 15 minutes of watching the prices,” says Taha Ahmed Abdul Salam, the president of the Exchange. “The rest of the time I will be in the street watching my guards who are watching the buildings. And I have some information from the police. When I hear something bad, believe me, I will go and search around the building myself.”

He’s constantly engaged in a juggle of security and business. His refusal to halt trading for anything is a point of pride for him, a show of defiance. On Feb. 22, the day the Askariya shrine in Samarra was destroyed, touching off Iraq’s latest round of violence that has yet to subside, “I didn’t stop the trading,” he says. “I let the trading go on, and I didn’t mention anything to anybody.”

The story of the Iraq Stock Exchange has as many ups and downs as a penny stock. It opened in 1992, but Saddam’s government heavily regulated and manipulated it, and often used it for money laundering. Prices were only allowed to move 5 percent in either direction. By the time U.S. troops bore down on Baghdad in April 2003, about 140 companies were trading on it and its clientele was composed of businessmen and wealthy Ba’athists who had socked some cash away. The Americans closed the old market but re-opened it in June 2004 under Coalition Provisional Authority Order No. 74. The new market has just 15 companies, many of the old brokers and traded about 500 million Iraqi dinars a day back then — about $333,000.

Today — from a business point of view — things aren’t much better. Though there are 94 companies listed, the market sees only about $1 million in business each session, Salam says. Banking is the largest and most active sector, because they have holdings of hard currency and have formed partnerships with foreign banks like HSBC.

The high-point of the market, according to data provided by the economic section of the embassy, was around the end of October, when the permanent constitution was approved. Total market capitalization surged to almost $2.5 billion, but it’s since plummeted to $1.25 billion as the political process drags on with no end in sight. (Iraq’s market is the smallest in the region, with even the Palestinian stock market dwarfing it at $25 billion — and they don’t even have a real state yet.)

Although it’s legal for foreign investors to own up to 49 percent of an Iraqi company, it’s not yet been implemented because of technical hurdles, which means the flood of foreign investment predicted when the market reopened hasn’t happened yet. What local investment there is also sidelined because of a steady exodus of wealthy Iraqis and their money to neighboring countries drives a vicious cycle of violence, insecurity and poor economic performance that might lessen the violence.

“People are worried about their money,” says Talal in a break from trading. “The price drops continue, so people are trying to sell as fast as they can so they don’t lose a lot.”

There is a notional regulatory regime with the Iraqi Securities Commission, but there Salam and the brokers, who own the market, do the real regulation. They all know one another from the old Saddam-era exchange, which helps prevent insurgents or criminals from gaming the market. Such familiarity feels good to Iraqis, but it seems sketchy to westerners used to more transparent, rules-based trading rather than a system run by a bunch of buddies.

But if you talk to June Reed, a senior consultant for private sector development at the embassy, things are going pretty well. “This market has functioned very well through several interim governments,” she said. “Make no mistake: There is investment in Iraq.”

Reed, a former investment banker from New York for Merrill Lynch and Credit Suisse, refused to budged off her cautious optimism about the market, stressing that great things were in store for the Iraq Stock Market when a permanent government is in place and a planned automation program is established. “Here it is truly the potential that is the most important thing,” she says. But given the archaic, anarchic and opaque nature of the market (“It was unusual to see grease boards, handwriting, etc.,” Reed says) any foreign investors are rightly worried that they could lose their shirts before they ever know what happened.

In the coming weeks, she says, that’s going to change, thanks to a proposed automated system for trading securities that will create a central, networked electronic depository, due to be completed by the end of the year. There will be automated sales, clearing and depository functions like the NASDAQ, she says. “It’s very high tech.” Brokers like Talal will be able to respond to orders from his desk at his firm, the Nineveh Brokerage, rather than navigate the IED-peppered streets of Baghdad. There are even plans for trading over the Internet.

But as the American military has learned, whiz-bang technology alone won’t make people feel safe enough to invest big money into a place like Iraq. The lack of political stability leads to a security vacuum, which leads to car bombs, which leads to further capital flight. “The situation right now in Iraq is not stable. There are many challenges for the stock exchange,” says Salam gloomily. “The investors are all waiting for things to happen to the economy, the services. I believe everyone here is waiting for good things to happen.”

[Ed. note: I wrote this for Fast Company after I left Baghdad, but it was killed because I had the bad luck of filing it the day before the NYT story ran. Such is the journalism biz. But better to blog than to never been seen at all!]