Orange’s Iraq misadventure shows how EU fails companies abroad

Orange’s Iraq misadventure shows how EU fails companies abroad

The news that Siemens has landed a major deal to supply components and services to Iraq’s electricity sector shows there is plenty of potential for high-value business arrangements between the European Union and Middle Eastern and North African (MENA) countries. However, the business environment for EU companies trading with MENA partners is still fraught with problems due to corruption and political wilfulness – a situation the EU rarely acknowledges, let alone addresses.

The EU likes to project an image of being a universal upholder of rule of law, yet its record of holding MENA governments accountable is dismal, primarily because it is not always deemed politic to take potentially lucrative partners to task over legal and rights issues. This failure to insist on accountability extends also to business matters, often resulting in European firms finding themselves at the whim of foreign governments without being able to turn to Brussels for backup.

Telecoms fiasco

As a case in point, France’s Orange and Kuwaiti logistics firm Agility have filed a claim in the US against three directors of Iraq’s third-largest telecoms operator, Korek. The company was founded in 2000 by Sirwan Barzani, one of Kurdistan’s most powerful businessmen. More recently, Sirwan Barzani and other local investors have been accused of misappropriating funds which were used to buy off local regulators, who later stripped the foreign investors of their stake in Korek.

In 2011, Orange and Agility took an $800m stake in the company with a deferred call option that would have allowed the two investors to eventually take control of Korek. However, Iraq’s telecoms regulator ruled that ownership should revert to its original structure, effectively revoking the investors’ rights in a move that Agility and Orange believe was carefully calculated to prevent them from completing their acquisition.

The case highlights the pervasiveness of corruption and collusion between business and politics in Iraq, even at a time when the country has been identified as a largely untapped opportunity for leading foreign firms. Could the allegations against Sirwan Barzani and his cohort cause enthusiasm to dampen? They are serious enough that the case will now be heard by the International Centre for Settlement of Investment Disputes (ICSID), where Agility and Orange are hoping for compensation for their losses. France and the EU, however, have remained silent on the matter, despite the fact that it severely undermines their own reconstruction efforts in the region.

Overflowing corruption

Iraq is not the only MENA country where the EU is ignoring systematic corruption. In Morocco, where Spanish firms in particular have a significant presence in the agricultural, construction and chemical industries, 53 percent of all firms consider bribery a major obstacle to their activities. Despite this ugly reality, the EU-Morocco Free Trade Area has nonetheless pushed for increased trade and interests of European companies in the country since 2000, with Morocco portraying itself as a gateway between Africa and Europe.

The issues this culture of bribery has caused for European businesses has not been enough to stir Brussels into action. In fact, the EU is hardly in a position to be too demanding of Rabat, as the country is a pivotal partner in addressing the migration crisis. As such, European policymakers have preferred dealing with reforming Morocco’s border controls and migration policy, while ignoring the business environment for its firms. Without European pressure to improve the structural economic issues favouring corruption, however, Europe’s companies will continue to face a corrupt business environment.

Bowing to Saudi Arabia

Corruption aside, European firms are sometimes subject to the whims of governments for political ends, as evidenced by Saudi Arabia’s targeting of German firms during a diplomatic row. In May 2018, Saudi Arabia’s de facto leader Mohammed bin Salman decreed no new government contracts would be awarded to German companies after comments by then-Foreign Minister Sigmar Gabriel about the political crisis in Lebanon and Yemen ruffled Saudi feathers. Riyadh made it clear it wouldn’t consider German commercial bids unless Berlin changed its diplomatic tune, with Saudi leaders apparently primed for a spat because the German government had failed to publicly applaud the country’s modernisation drive.

There’s little doubt the dispute impacted the profits of major multinationals like Bayer and Siemens, and the row was only settled after Germany signed off on an arms deal and humbly apologised for the “miscommunication” – a humiliating sign of European impotence that proved even more ill-judged in light of Jamal Khashoggi’s murder a few months later. Saudi Arabia’s bloody intervention in Yemen remains a subject of controversy in Germany, where the coalition agreement specifically excludes the sale of arms to countries involved in the conflict. How the German government has reconciled its recent arms deliveries with the terms of that ban is anybody’s guess.

Pushing for change?

Small as they may be, there are signs that MENA countries are shifting their practices to improve the transparency of their business climates. A World Bank study last year showed that governments implemented a record number of reforms to improve the business environment, with many prioritising initiatives that helped to create jobs, boost private investment, and strengthen protections for investors. All of this is welcome news for EU companies looking to collaborate with MENA partners.

However, there’s still much to be done. So long as the European Union refuses to respond to its regional partners’ shortcomings, there will be little incentive for genuine and sustained reform to tackle corruption and arbitrary behaviour. Only by planning and effecting a longer-term, more in-depth foreign policy in the region can Europe shed its role as a disinterested bystander and fully engage with the political, social, and economic transformations that are long overdue.

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