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Saturday Feature
 
Competition hits security groups in Iraq
James Boxell from London
11/12/2005
 

          When ArmorGroup joined the London Stock Exchange (LSE) at the end of last year, the phenomenon known as the "Baghdad bubble" was at its height.
Dozens of small private military companies (PMCs), many of them British and similar to Armor, had poured into Iraq to offer armed security for contractors, government officials and aid agencies.
Billions of dollars of US money were earmarked for reconstruction and PMCs were needed to fill gaps left by an overstretched army.
But while PMCs have amassed fortunes in Iraq and created a nascent industry worth about $2.00bn, David Claridge, managing director of Janusian, another London-based private security group, suggests the "post-war days of a Marshall plan for Iraq are over".
Intense competition has driven down prices for security services. Political uncertainty and the escalation of violence have hampered reconstruction, delayed contracts and increased costs.
The share-price performance of Armor -- chaired by Sir Malcolm Rifkind, the former foreign secretary and a vocal opponent of war in Iraq -- reflects the new financial reality.
Five months after its December flotation, the shares had more than doubled. But, since April, they have fallen steadily and now hover about the float price.
In its maiden interim results in September, Armor, which makes 60 per cent of its revenues in Iraq, reported that, while sales rose by 28 per cent, profit margins halved at its protective security business.
Christopher Beese, Armor's chief administrative officer, says large contracts are still being won in Iraq and that the more difficult trading environment represents a natural "settling of the market, though there is a danger of that sounding trite given the violence".
He adds: "In the early days, you just had to get the job done so there was the possibility for significant margins but I do not think that will be so easy now. Buyers are more cautious and budgets are tighter, although these are signs of a maturing market."
In a tightening market, suppliers are also looking to consolidate. Last week, Aegis Defence, the privately owned London-based company that oversees more than 20,000 armed expatriates in Iraq, acquired Rubicon International Services.
A senior security industry executive who has worked in Iraq argues that many prime reconstruction contractors -- the biggest customers for many PMCs -- are retrenching to Afghanistan.
He argues that there is still plenty of funding for Iraq, especially from the US and Japan, but it is "difficult for contractors to make money out there because of the expense of security".
Meanwhile, the country's interior ministry has installed a new regime for licensing foreign security companies.
The more established PMCs are committed to a long-term presence in Iraq but this will mean they need an Iraqi face to win work.
Mr Claridge, at Janusian, which employs 500 Iraqis and 40 or 50 expats, says: "If we were simply staffed by South Africans or Fijians driving about in SUVs, we would be despairing."
Elsewhere, ArmorGroup has formed a joint venture with Kubba Holdings, an offshoot of a well-connected Shi'ite family, the Kubbas, which has businesses in many sectors in Iraq.
Tim Spicer, chief executive at Aegis, says the country is going through the process of "Iraqi-isation, wanting Iraqis to have part of the action".
But there are problems. A US government audit had not provided sufficient documentation to show its Iraqi employees had been vetted properly.
The question for the private security industry now is how it uses the lessons -- and cash -- from Iraq. Established companies such as Armor, Control Risks and Kroll have offered security services for years to clients working in dangerous parts of the world.
But Iraq has established new relationships between suppliers of private military services and governments and large corporations.
Mr Spicer says many of the smaller PMCs may "bank the money and go and live in Bermuda".
But companies such as his own, which has aspirations to match the longevity and business diversity of larger groups such as Kroll and Control Risks, will want to use the experience as a blueprint to win work elsewhere.

 

 
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