Why I'm still bullish on Iraq

About six months ago, I wrote a post titled Why I'm Bullish on Iraq, where I explained several reasons why I am optimistic about Iraq's future. For those of you not familiar with the word, "bullish" is a stock-market term used by an investor to describe his feelings towards a stock or a market that he thinks is going to go up in the future (as opposed to "bearish" which is something he thinks will go down).

A few nights ago, when I was sitting down to dinner in New York with Baghdad Treasure, I had a lengthy conversation about why I still feel bullish about Iraq's economic prospects. I thought it prudent to capture a few of my thoughts in this post.

A lot has happened in the last six months that has led many people to question the long-term viability of Iraq. Fayrouz was so disgusted by the events in Iraq a few weeks back that she announced the closing of her blog (fortunately she recanted since then and has continued to write). Here in the United States, the news media seems to have grown increasingly negative in their outlook, and positive stories about Iraq have become more and more scant.

Many people out there may think I'm nuts for saying this, but I am still quite bullish on Iraq's future prospects, and the events of the last few months have made me even more convinced of this. While things in Iraq are still not good, it seems to me that country has finally gotten on the right track and is taking gradual steps in the direction of stability.

The most encouraging sign I have seen is the engagement of the Sunnis along with other groups in the constitutional referendum in October, which appears is a trend that will continue in next week's election. This is important, since about 90% of the insurgents are local Iraqis (mostly Sunnis) who feel disenfranchised in the current political process and government. When people feel disenfranchised, they feel that the government does not represent them or their needs. This feeds into feelings of resentment towards the government and may lead some to take up arms against that government.

This disenfranchisement showed itself strongly in the election of the interim government a year ago, where many Sunnis boycotted the polls. However, in October, the Sunnis did make a strong showing, and even though the constitution did pass, the Sunnis were quite engaged in the process.

Even more encouraging was the Sunnis attitude after the constitution passed. Even though there were a few allegations of irregularities, the general feeling seems to have been that they will try to make the best of the new constitution even though they would have preferred the vote be "no". Anybody can be a gracious winner, but it takes a real man (or woman) to be a gracious loser, and the Sunnis of Iraq have really shown a mastery of that art in the aftermath of the October referendum. Many stable democracies have much greater problems around election time around the losers accepting the results, and the Iraqis (particularly those who voted "no") should feel a sense of pride in their self-restraint.

It seems likely all the ethnic groups in Iraq (including the Sunnis) will be fully engaged in the elections next week, and if so, the government that is elected will resemble more of a cross-section of Iraq than the current government. If this happens, and Sunnis feel a greater engagement with the political process, they will feel less motivation to take up arms against it.

The first real step in the stabilization of Iraq will likely be the evaporation of the insurgency. Note, I am not saying the defeat of the insurgency, rather its evaporation: insurgents realizing that they don't need to fight anymore, putting away their guns, and going home. This process would likely need to be accelerated through a negotiation between the newly elected government and some of the insurgent groups that might result in some sort of amnesty for those fighters who renounce violence.

The violence and instability in Iraq is like a ball and chain around its leg, weighing it down and preventing its economy from developing to its full potential. Instability translates into uncertainty and risk, and investors hate risk. However, when these shackles are released, Iraq will become a more fertile ground for investment and the economy will start to improve.