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A Risky Investment April 18, 2007

Posted by Charley S in Idiocy.
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http://www.businessweek.com/smallbiz/content/apr2007/sb20070416_924680.htm?chan=smallbiz_smallbiz+index+page_top+stories

When most people think of investing, one of the most important factors is risk.  A basic rule is that the more risk you take, the higher the potential is that you will have a high return.  So, for normal people who don’t want risk they put their money in a mutual fund or a money market account; if people want risk they may invest directly into stocks.  The investors in this article have a very different conception of risk.  They are looking to start a 5 star hotel in the middle of the green zone in Baghdad, Iraq.  Here, there is a lot more risk than we are usually used to.  There is the danger that the country will collapse, no one will actually visit the hotel, suicide bombers, truck bombers, and random bullets flying into peoples rooms.  The people in charge state that security will be the most important part of the hotel, and who can argue.  They also state that there is currently a market for this product (which will cost $1500 a night) who as of right now live in standards comparable to a highway motel in the U.S.  I’m not entirely sure what I think about this business idea, but I know that I probably would not invest all my life savings into it right now.  These investors are placing their trust in the Iraqi government to be stable for a long time, which I am not too keen on. 

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Comments»

1. Janine - April 19, 2007

This is an interesting development. On the one hand I want to applaud the efforts to bring the country and the city of Baghdad to a higher level of industrialization. Yet, Charley is right, the risks are huge, and how wise is it to invest tons of money into something that could be destroyed with one bomb or public dispute.

Yet, here is why I think there is a reason to go ahead with their plan. My family is from Lebanon, and I have been there mnay times. Now, I am not sure some of you know, but Lebanon was in a major civil war for many years. They also have had continuous strife with Israel. That being said, the country was in ruins. Yet, what the Lebanese and other international investors did was to invest in the country. They opened luxery apt. and luxery hotels, in fact many American-based hotel chains are in Beirut right now. The threat of some bomb or continued warfare had not diminished really, but I think what worked was that the Lebanese particularly started to see again how beautiful their streets and their city could look. It boosted moral. I am not saying that building hotels and idustrializing Beirut made the fighting stop. But you can see there is more. There is potential in these terror striken areas. So this investment could possibly prove wonders!

2. Jordi - April 19, 2007

War is nto a uniform event. As bad as Iraq seeemd, the last week seems to have gone from bad to worse. The elected governemtn, flawed form the beginning, may have been effectviely ended with teh green zone bombing and the withdrawla of Moqtada al-Sadr from the government. 1/5! of the popualtion is displaced internally or living abroad. They took human, financial, and social capital with them. Lebanon, like SriLanka, and the Balkans in the 1990s, and Israel, No. Ireland, and Algeria, (and most of Centrla america in the 1980s) went through a long civil war that varied in intensity. Under those conidtions, where risk may be high but it is relatively stable, peopel can make investement decisisons.

One way to look at Iraq is to see how the amount of risk is high and so variable. If you knew that the international community and/or US would be in Baghdad for 10 years, than $1,500 for secuirty seems like possibly a good (profitable) decision. Especially if you can get an insurance policy built into that price!

People respond in all sorts of hellish situations in all sorts of ways. Look at the history of life in the concentration camps in WWII or in the Warsaw Ghetto.

Side question: who will pay that $1,500? Private contractors (which are used at a high rate in this war)? Who pays for contracts? US taxpayers. If contractors are a substitute for US military, then why are we paying for housing the same function in a privtae hotel instead of on a US base?

3. wilson7 - May 1, 2007

I would not invest my money into this hotel for several year if at all because of the location and the price. Who do they plan on having stay in this hotel? The must think that they rich people are going to come here to say it is going to cost $1500, but I do not think many rich people are willing to stay in Baghdad with all that is going on over there right now. It is not the safest place to be right now, and I do not think that the people that are going to own the hotel will be able to guarantee the safety of the people who are going to be staying there. Even though bombings or shootings can happen anywhere it is more likely to happen in Baghdad. I would like to see where this is going to go and I am definitely going to keep tabs on this investment.

4. silviamocanu07 - May 3, 2007

I think this is certainly a very bold endeavour. At the same time, I can not help bur think that it is also foolish. The risk involved in Iraq comes from the general environment and it represents far more of a threat than the simple instability of the financial markets or losing money on a stock investment. It involves the risk of loss of human life, which brings me back to the question asked in one of the above comments: who will actually pay $1,500/ night to stay in a hotel in Baghdad? Is there any confidence from outside of Iraq that the country will achieve politic stability in the near future?

5. collage9 - May 3, 2007

This is indeed a very risky investment. I don’t think you can really trust anything that is going on in Iraq right now. Deciding to take on a project like this in such an unstable environment could be disastrous. My concern is not so much with who is going to want to stay in the hotel, but how they are going to keep it safe. With the bombings and such that occur there on a regular basis, the security at this place is going to have to be extremely intense. I could see the hotel having a lot of problems with regards to this issue and really think it could lead to the downfall of this type of project. Having such a nice place in the middle of Baghdad could create a target for some of the terrorists over there.


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