Iraq Is a Hard Sell

Chris Mulhern sits in a fifth-floor office in west Baghdad, having just completed an 11-hour flight from Los Angeles to London, a five-hour jaunt to Jordan and then a 90-minute hop across the desert to the Iraqi capital. It is that final leg that gives Mulhern a taste of what lies ahead. As the pilot begins his descent into Baghdad airport (put your tray tables in their locked-and-loaded position), he takes the plane into a maneuver called "the corkscrew," a tight downward spiral from about 1,000 ft.--in theory, steep enough to throw off the heat-seeking missiles sometimes launched by insurgents below.

With a lurch of motion sickness, Mulhern thinks, not for the first time, What a great place to make money.

The pilot's precaution would be enough to make most investors turn tail. At home in Santa Monica, Mulhern, 34, watched the Iraq war and its bloody aftermath unfold on television and reached a different conclusion. If he arrived early, preferably first, and offered high-tech capability to Iraqis starved of it, customers would probably pour in. "This is the perfect storm for business," he says. "This is an extremely educated country with a lot of money, and you're starting everything from scratch. It's like a land grab." That is, if you live long enough to grab. Being an entrepreneur in Iraq may be among the most terrifying jobs in business today.

When U.S. troops ousted Saddam Hussein a year ago, American officials and companies held certain assumptions about Iraq's prospects. With the dictator gone, businesses would reopen and drive an economic boom with their newfound freedoms. Traders would pile across the six borders, selling goods to consumers denied foreign items during 13 years of sanctions. Entrepreneurs would scramble for reconstruction contracts worth billions. Investment would pour in from millions of Iraqi exiles including hundreds of thousands in the U.S.

One year on, the reality is vastly more complicated. In some ways, business is brisk. The new Iraqi dinar has shown surprising strength, given the violence, rising 30% against the dollar since it was introduced by U.S. officials last December, as Iraqis have begun to earn and spend far more money than ever. Baghdad's stores depleted by the embargo now have stacks of televisions, microwave ovens and Dell computers, and satellite dishes are propped on the balconies of most Baghdad apartment blocks. The roads are jammed with BMWs and Mercedes freshly imported from Dubai. In February another item banned by Saddam the cell phone finally hit the streets.

But the basic institutions are barely in place. There is still no retail bank in Iraq. No taxes have been collected. Even the normally upbeat U.S. officials admit that the prediction of foreign businesses storming the gates was off the mark. "People are afraid to set foot in here," says Olin Wethington, deputy director of economic policy for the coalition and the top U.S. Treasury official in Iraq. Rather than open offices in Baghdad, companies have dispatched small reconnaissance missions. "They're scoping out opportunities, anticipating that sometime the security situation is going to die down," says Wethington, who like the rest of the occupation officials works and sleeps in the heavily cordoned-off Republican Palace, rarely venturing beyond the tanks at the gates.

The drumbeat of attacks by insurgents is continuing, averaging 17 a day against U.S. soldiers and Iraqis working with them. There are also attacks against Western civilians, although the number is unknown. At dawn one February morning, two grenades hit a house in western Baghdad where Westerners lived. (The armed guards outside refused to tell TIME what the residents did for a living.) Elsewhere, foreign firms operate with no signs on their doors, and their personnel drive their cars into gated yards blocked from street view. Mulhern, well built and well dressed, with his head fashionably shaved, says he began feeling like a marked man during his only other trip to Baghdad, last summer. He left in July, feeling uneasy; three days later, the Jordanian embassy in Baghdad's upscale Mansour neighborhood was devastated by a suicide bomb a few doors from where he had spent six weeks, sleeping mostly outdoors on the roof to escape the suffocating heat. "There were body parts on our roof," Mulhern says he heard from colleagues. Several streets in Mansour, where scores of Westerners live, are cordoned off by blast barriers and patrolled by private security guards wielding AK-47s. "Companies are spending a ridiculous amount on security," says Oliver Westmacott, who is in a position to benefit. The British entrepreneur, 28, started a training and risk-analysis security business in Iraq that is proving to be "hugely lucrative."

American entrepreneurs in Iraq have learned that they need to be secretive about who they are and what they do. "We are targets," says one, a 28-year-old from Sacramento, Calif. With Baghdad still ablaze last April, he and a partner drove into the city the day the war ended and quickly found business, mostly in printing public announcements that needed quick distribution. It kept them lucratively employed for nearly 10 months. After being featured in a men's magazine in February, the two received death threats at their Baghdad home and hurriedly left Iraq, telling TIME they would not return for several weeks. The president of Mulhern's small high-tech start-up, based in California, has asked that neither the company's name nor its specific task in Iraq be disclosed because of safety fears.