Mission possible: Baghdad is booming

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1:04The Economist

1:11Hello and welcome to The Intelligence from The Economist. I'm your host, Rosie Blore. Every weekday, we provide a fresh perspective on the events shaping your world.

1:26There's an area in Washington, D.C. that was once called Swampoodle. Doesn't sound too appealing, does it? But since developers built a metro station, New Housing, and renamed it Noma, it's become one of the fastest-growing neighborhoods in America. And ghosts, spirits, and fortune-telling are part of daily life in Hong Kong. But who are the experts who guide people's views on them? and what happens when they start to have discernible effects on key industries.

2:03First up though.

2:15Muhammad al-Sudani:So the sounds you hear are the hustle and bustle of the passport office in central Baghdad. Gareth Brown is a Middle East correspondent. I visited the passport office because it's a small institution, but it's also representative of a wider bureaucratic change that has been happening in Iraq in the last three or four years. Once this process would take many months, but due to the digitalisation of the process and a general streamlining of bureaucracy, you can now get a new passport in about 45 minutes here. The officials working here say they think it's the fastest passport renewal service in the world.

2:55Muhammad al-Sudani:I can use the timer if you want. I can. That's OK. You're that confident? Yeah, I am. You put the stopwatch and you run it down. Yeah, that's all. OK. The digitisation is something simple, but it has an enormous impact. It has dramatically boosted revenues. Up until 2023, annual customs income never exceeded about 900 billion Iraqi dinars. And in 2024, it jumped to 2.1 trillion. This year, it's expected to top 3 trillion.

3:29So everything here now, you can, like the civilians, they can just bring their national ID. That's it. And old password. If you have an old expired password, that's it. This is the scan, this is the passport, this is like fingerprints, eye prints.

3:45Muhammad al-Sudani:What's the price? How much is a new price? And I also had an opportunity to sit down with Prime Minister Mohammed Shia al-Sudani and interview him. The government started with a strong development plan. After all of the years of chaos, war, disruption, you know, bear in mind that only 10 years ago ISIS controlled a third of the country, Iraq feels like it might be on something of a different path. Gareth that's an extraordinary turnaround and fast as well you said that you met the prime minister what did he have to say so prime minister Sudani was obviously very keen to tout his achievements in his three years in office you know it was interesting I went to meet him in the prime minister's office which like many government buildings in modern day Iraq was once a palace of Saddam Hussein's and I think the first thing that struck me when I went in he had this massive television in his office.

4:40Muhammad al-Sudani:And I sort of said, I think that's the biggest TV in the country. He said, well, this is the biggest office in the country. He was quite friendly. So he really described how, you know, Iraq is in this unprecedented security situation the last few years.

5:03Muhammad al-Sudani:Terrorism has really subsided. there hasn't been a major security incident since he's been prime minister. You know, the threat of ISIS is largely defeated. Then when I left, I sort of had a moment to reflect. I was in a corridor and I sort of imagined 20 years ago, American soldiers probably using this as some sort of base or administrative building and they would have been walking these corridors. And that got me thinking about sort of veteran journalists who covered the US invasion in Iraq in 2003, and how many of them would recognise this city? I mean, I was there earlier this year, but before that, it had been a few years since I'd been in Baghdad and there were really parts of the city I didn't recognise.

5:45Muhammad al-Sudani:And I think that's something you can extrapolate and take wider lessons from regarding the country writ large. You're saying that Baghdad is unrecognisable. Is Iraq experiencing a construction boom? Absolutely. There's buildings being thrown up at incredible rates. Bridges over the river, flyovers, streets which were once rubble are now quite nicely lined. There's cafes and restaurants. I even drove past one quite cute looking fromagerie. And you just have to look out across the city and you see the amount of cranes, the roaring of saws and drills. You know, it's a city that's almost being rebuilt in some regards.

6:31Muhammad al-Sudani:so sudani said that you know some of this is public money but also a lot of it is private money he's bringing in foreign investors and they're carrying a lot of the weight in this construction boom the private sector is doing a lot so in baghdad alone at least four new hospitals Schools have opened under Sudani, including Iraq's first dedicated cancer centre. And a Korean-designed ICU hospital, the director of that facility, said he hopes it will become the best in the Arab world. Over 1 ,700 schools across the country have been constructed or rebuilt. And about half a dozen luxury hotels are set to open in Baghdad.

7:11So how has Sudani's government done this and brought the private sector along with it?

7:16Muhammad al-Sudani:I think there's a few reasons for this construction boom. One is the security and stability and this real period of calm. So BP has recently resumed operations and talks run away with ExxonMobil and Chevron. Another is reforms he's made to the banking sector. And I think thirdly, Sudani's role himself. He has quite often acted more as a project manager or a factory foreman than a political leader. And he's become directly involved in many projects, you know, ringing people up and saying, what's going on with this project? He's formed these new committees, which basically have the power to grant permits for major projects.

8:02Muhammad al-Sudani:One businessman said to me that these new committees Sudani has created can clear permits in one day that would have taken years and different permissions from seven or eight ministries. So that has sort of been his strategy, is to get hands-on involved in, you know, pushing projects through the Iraqi bureaucracy and following up to make sure that, you know, contractors and the private sector are delivering.

8:33Muhammad al-Sudani:Sudan wants to diversify the economy, which is obviously heavily reliant on oil. There's plenty of that. But he says sort of reviving other sectors is critical. He talks about things like tourism and even exporting Iraqi goods.

8:51That all sounds fantastic and impressive. The cynic in me says it can't all be sunshine.

8:57Muhammad al-Sudani:No, absolutely. I mean, his list of failures is quite long too. He hasn't really made any headway shrinking the public sector. Almost a quarter of Iraqis are on the public payroll in some form, if you include the salaries of civil servants and pensions and social welfare payments. It's one of the most swollen public sectors anywhere in the world. He made some efforts to reform the energy sectors, but they really went nowhere because he came up against the vested interests of certain groups. and he's also really avoided any sort of direct confrontation with the myriad of militias, some which are purely Iraqi, some which are very much loyal to Iran.

9:37He hasn't picked that fight

9:40Muhammad al-Sudani:and I think that's disappointed some people, especially in America, where there's a lot of pressure for him to go harder on the militias. What he's done with them is essentially try to get them to take up business instead of violence. He's tried to get them to build or form companies bid on contracts and get rich and invest. And that has brought some of these militias into the state.

10:10Muhammad al-Sudani:So, Sudani described his strategy as positive neutrality. This idea of trying to keep Iraq out of regional conflicts. And I think that was most obvious. With the 11-day war in June between Israel and Iran, Many people expected the militias in Iraq to get involved on Iran's side, and they didn't. And I think Sudan played quite a big role in keeping Iraq out of that conflict, which seemed to pull in almost every other regional actor. But I think Ghalil's really worried that he's basically giving these militias government cover to get rich and to become more powerful. So it's a managed threat, at least for the time being.

10:50How does Iraq stay on this path of prosperity?

10:54Muhammad al-Sudani:Well, we're going to find out in November when national elections are scheduled and Sudani is running again. He says he wants a second term to finish what he started. He's assembling this sort of hodgepodge coalition of businessmen, some of the Kurdish parties, and some of the less Iran-inclined militias. And I think he's banking on the fact that Iraqis, especially in the cities, will be grateful for the infrastructure developments they've seen in the last two or three years. But it's not going to be easy. He really has sort of fallen out with this organisation known as the Coordination Framework, which is basically an umbrella group for the Shia political parties, some of which have militias.

11:31Muhammad al-Sudani:And I think they see Sudan's technocratic style of governance as a threat to their entrenched interests. And if they unite behind another candidate, it could be very difficult for Sudan to get another term. But another thing that Sudanese did is in 2023, he carried out a census which showed the country's population is ballooning. It grows by nearly a million people every year. It's 46 million now. There are 20 million more Iraqis alive now than there were before. The US invasion is a very young population. So there's massive sort of potential for the country there. and you know whether Sudani comes back in November after the elections or someone else I think in all of the international firms who are starting to invest but also the people who are benefiting from these hospitals and bridges will hope that the country can maintain this trajectory of stability Gareth thank you very much thank you for having me

12:42This episode is brought to you by Capital One. Capital One's tech team isn't just talking about multi-agentic AI. They already deployed one. It's called Chat Concierge, and it's simplifying car shopping. Using self-reflection and layered reasoning with live API checks, it doesn't just help buyers find a car they love. It helps schedule a test drive, get pre-approved for financing, and estimate trade-in value. Advanced, intuitive, and deployed. That's how they stack. That's technology at Capital One. If you've got a teenager, it's time to have the talk. You know, about investing. With the new Schwab Teen Investor account, teens can gain hands-on investing experience and build positive money habits.

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13:42Housing is one of those really boring topics that many of us absolutely love to talk about, and the challenges are depressingly similar across much of the world. Too little of it, and gobsmackingly expensive, in the places people think they want to be. But on occasion, those clever marketing folk do a brilliant job of recreating a neighborhood, and sometimes, shockingly enough, new apartments even get built. Noma is a neighborhood in Washington, D.C. It's just next to the old main train station, Union Station. And until about 10, 15, 20 years ago, it was pretty thinly inhabited, post-industrial land, not very much going on.

14:26Archie Hall is the U.S. economics editor. And yet it's one of the fastest growing neighbourhoods in the country. It's added more new apartments in the past eight years than any other area in the country and the surrounding zip code and is in many ways probably a template for what a lot of new development in America is going to have to look like as suburban sprawl reach its limits and cities start having to build up as well as out. So tell me, Archie, what is Noma and what's it like? So originally this neighbourhood was called Swampoodle, but it was an area that was pretty heavily inhabited in the 19th century.

15:01And the original inhabitants, with a lot of Irish immigrants, were turfed out to build that train station initially. And for a very long time after that, it was mostly industrial. About 20, 30 years ago, as Washington DC de-industrialized, as a lot of the kind of need for all that heavy-duty kind of industrial land near the train station fell away, there was a desire to find more housing and find more places to put people. And so a lot of money, some from the local government, some from the federal government, some from house builders, went into building a new metro station, a new underground station nearby, enabling it to be really well-connected to the rest of the city and people of Lockheed In.

15:44Walking down the street and past a pretty quintessential Noma scene. So on one side over here, we have a newly built apartment building. there's still empty retail space underneath and huge signs saying retail opportunity in very big letters then on the left is a very large animal hospital with a big sign with quite cute dogs saying walk in welcome otherwise looking up it's kind of more apartment buildings all in this very sort of fairly modern glass heavy kind of blocky style as i keep walking we get to a construction site most of the building looks like it's up there's sort of brick work and they're doing some of the cladding now.

16:23And wandering around the streets are pretty full.

16:28And these people are often called yimbies, is that right? Yes, in my backyard. Explain that to me. So people may be more familiar with the term nimby, the no in my backyard, the yin to the yang of the yimby. The nimby is generally kind of stereotypically are people who own property in an area and are really vehemently opposed to developments in the area. That might be because they worry Their property value might go down. It might just be because they like their neighborhood as it is and don't want new people coming in. But that's posed a real problem in lots of cities, not just America, but around the world, where you have growing populations, really, really productive city centers, and a real demand to kind of get people in there and a lack of supply of housing to keep up.

17:08And the result of that, as anyone who's tried to rent in a big city in America or elsewhere will be all too familiar with, is a huge surge in housing costs. So Noma is a bit of an example of the kind of opposite theory of the case. What does it look like if you actually do really flood an area with new housing supply? The scale of new building is absolutely colossal. And what that's meant is there's been a real kind of arrival of lots and lots of new people. And a good chunk of those are people, given it's Washington, D.C. and given it's people who do often work in policy, are themselves actually very ideologically committed to the idea that we should build lots and lots of new housing.

17:43So several of the main kind of quote-unquote YIMBY think tanks, for instance, are actually based out of NOMA. So what does the rise of these YIMBYs say about housing in the US more generally then? First of all, it says there's a big problem. Housing policy is not what you conventionally call a sexy policy area. It's often a little bit boring, a little bit procedural, a little bit kind of weird and hyperlocal and predictable. And so the fact that there's so much energy, frankly, at this stage, also so much money kind of being poured in to trying to change policy in this area, in America and also in Britain and Europe and Australian countries around the world facing these problems is a real indication of just how bad housing costs have got, particularly in the centres of really big cities, which as every rich country's moved towards more of a services-based economy and where more and more of the kind of economic output of these places come from.

18:37And so you have this dual problem of housing constraints, both meaning housing is really, really unaffordable and therefore difficult for people to access and people get unhappy and people start looking at policy solutions, but also starting to become a real constraint on growth as well. In America, there's less of a growth problem there is in, say, Britain or much of Europe, but there's still a real anxiety that growth is being choked by lack of affordability of housing. And has this project actually worked? Has it made housing more affordable? It's very difficult to say. Washington's been one of the cities that's really been flooded with new housing.

19:07So Noma's one example of this. A neighborhood called Navy Yard, a little bit south of Noma, which is a kind of similar timeline and energy, but a bit more of a kind of Trumpy reputation. It's maybe more of a right-wing crowd, and Noma's slightly more of a left-wing crowd. But there's been a real addition of lots and lots of new housing, also in some of the suburbs around D.C. as well. And if you look at the kind of largest American cities, house price growth in Washington has been slower than pretty much any big city since about 2015 or so. So very, very loosely, you could totally see Washington as a success story.

19:38Now, trying to do kind of firm analyses and pitting that down is difficult. People often look also to cities like Austin in the South, where there have also been initially a big price run-up as people really moved in, but also a bit of a decline as lots and lots of new housing has arrived to suggest that this kind of works. But the real kind of YIMBY demand of loosening zoning rules around the country and make it consistently easier to build is still really in very early stages. And Archie, the all-important question, I know you've moved to DC recently. Are you going to be a Noma inhabitant? This was a difficult one because I'm personally very firmly committed to the idea that house building is really important.

20:14We need lots, lots more neighborhoods like Noma, not just in DC or America, but around the world. Slight guilty confession though, I find the architectural style not quite to my tastes. And so I've decided to live elsewhere. Great to talk to you, Archie. Thank you so much. Thank you.