Iraq's Cabinet Launches London Investment Drive to Compensate for Falling Oil Price

Iraq's entire cabinet lands in London on Thursday on an investment drive to help build a country whose future seems increasingly linked to foreign money instead of its own dwindling oil wealth.

The fall in the price of oil and the knock-on effects of the global financial crisis have thrown the brittle nation's budget projections into chaos, with the government admitting it faces a serious revenue crisis in 2010 that could derail almost all of its blue-sky projects.

Ahead of the London visit, Iraq's finance minister, Baqir Jabr al-Zubeidi, conceded that the country faces a large budget shortfall.

He said oil revenues were already down by $4.5bn (£3bn) on projections made for the financial year and are likely to fall further. "This time last year, in May 2008, the export market was 2m barrels per day and the oil price was around $130 a barrel," he said in an interview.

"Until now, we haven't this year reached $50. The price is hovering around $42-$43 and exports are also right down. In my view if we stay at less than $50 and less than 2m barrels per day, we will have to produce a supplementary budget well into debt."

He suggested that ministers might have to ask government employees to take a 20% cut in salaries. Several ministries have already frozen employment plans, jeopardising the integration into public sector jobs of up to 90,000 former militants.

The government is increasingly preoccupied with how to build a society from scratch. Security gains have led to increasingly insistent demands from an impatient public for services to be delivered.

There has been no shortage of investment interest from Britain, with 200 British and foreign firms due at the two-day summit at the Landmark Hotel. Around 200 more have had to be turned away.

Oil had long been seen as the main engine of Iraq's economy, but with its cash-flows looking increasingly unreliable, a society geared wholly towards an omnipotent public sector is now having to face co-operating with the private sector.

Gordon Brown will on Friday sign a partnership with Iraqi prime minister Nour al-Maliki during a Downing Street reception as Britain seeks to cash in on Iraq's development.

But business leaders who have traveled to Iraq in the past two months have been left with a sense that new alliances in such a nascent state are a long way from maturing.

"They are still in a stage of building up private sector awareness," said Britain's ambassador to Iraq, Christopher Prentice. "Iraq needs a wide education campaign to re-program 30 years of thinking.

"Public-private sector partnerships are still at an early phase. Successful joint ventures and public-private enterprises will be the agents for change."

Al-Zubeidi said a change in thinking had been forced on the government. "I think we have to open more to the international private sector," he said.

"Our oil technology is 50 to 60 years old, flared gas is being burned for nothing, the housing sector is at least two million units short and our hotel sector is totally ill-equipped."