Buy stock in Iraq? Not yet.

Let's say you think that Iraq is headed in the right direction. You want to support its move to a freer society and you have a taste for risky investments. Is it time to put some money behind your hunch?

Not so fast, most investment experts say. American investors can't buy shares of Iraqi companies and most foreign firms doing work there are too big for their Iraq business to contribute much to the bottom line.

But keep an eye on developments, these experts add. The Jan. 30 election - the first step toward drafting the country's new constitution - is not the only nation-building going on.

For example, some of the ministries that will be responsible for investment and development in Iraq are already up and running.

"These ministries will stay," says James Loftis, an attorney in Houston who has studied the potential problems of investing and contracting in Iraq. "It's a situation where the creation of a bureaucracy is a good thing. People are beginning to realize that the government they have there will stay."

Then there's Iraq's stock exchange, opened this past June in a former Italian restaurant in Baghdad. For the moment, trading in the 70 listed companies is limited to Iraqis. But demand is growing - trading over three recent sessions reached 50 billion Iraqi dinar (about $34 million) - and there's talk of opening trading to foreigners.

No one underestimates the serious dangers posed by insurgents. The exchange itself is heavily guarded. But over the long term, such steps should lead to a more favorable investment climate, some experts say.

One factor that should work in Iraq's favor is its people, says Mr. Loftis, who is cochairman of the international dispute resolution practice at his law firm, Vinson & Elkins LLP. Until 1979, when Saddam Hussein took full power, Iraqis were among the most highly educated people in the Middle East, he notes. Also, before 1979, the country was a net creditor nation, which means it was lending out more than it was borrowing. Finally, unlike Russia, which operated under a communist system for more than 70 years, many people in Iraq remember how a capitalist, market-driven economy works, which should give it a head start in rebuilding.

"Things are coming back," says Thomas Lydon, president of Global Trends Investments in Newport Beach, Calif. Gradually, Mr. Lydon says, the country's infrastructure, including its water and power systems, its streets, and its educational institutions are being rebuilt.

At this point, he notes, most American investment in Iraq is coming from large, blue-chip companies, such as Hewlett-Packard, IBM, Motorola, PepsiCo, and Coca-Cola. "There are a number of major companies trying to get a foothold there," Mr. Lydon says. In addition to technology and consumer-goods companies, construction and heavy-equipment companies, such as John Deere and Caterpillar, are doing business there, Lydon adds.

With a population of about 37 million, Iraq is not big enough to make a significant difference on the bottom line for most of these large international companies, he notes.

One exception may be Halliburton, the oil products and services company. Halliburton, together with Kellogg, Brown & Root (KBR), its engineering and construction division, already has a large and growing presence in Iraq, Loftis notes. "They will clearly benefit."

While large American companies are operating in Iraq, or thinking about doing so, a number of companies in Europe and the Middle East also are looking for ways to grow their businesses there. For example, Orascom Telecom, the largest cellular-phone company in Egypt, has been working in Iraq, says Todd Henry, international equity specialist with T. Rowe Price in Baltimore. But given the increased risks to its workers, the company recently said it is considering withdrawing from Iraq.

Even if Orascom does stay, Mr. Henry says, Iraq is not likely to make a big contribution to the company's total sales, since he expects most of its growth will continue to come from Egypt.

On the financial side, a few banking companies, including HSBC and Standard Chartered of Britain, have been granted licenses to open branches in Iraq. In addition, the Export & Finance Bank, a Jordanian investment bank, and the National Bank of Kuwait are hoping to help finance Iraq's reconstruction.

Even with financing from international banks, "it's still too early" for investors to capitalize on rebuilding in Iraq, says Michael Donnelly, portfolio manager of the American Century Emerging Markets Fund in Kansas City, Mo. "It's not feasible for companies to transport large numbers of staff over there. It's still too dangerous. Even some of the Middle Eastern companies we talk to are pretty wary about sending people there."

According to a recent article in Workforce Management magazine, more than 200 civilians working for US contractors have been killed in Iraq since the spring of 2003. More than a third of them were Americans, the magazine said.

Despite these risks, the long-term outlook for development and investment in Iraq is favorable, Lydon says. "There are still many major companies trying to get a foothold in there."

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