Gary Kent is the Director of the All-Party Parliamentary Group on the Kurdistan Region. He writes in a personal capacity.

Ten years ago, the local Communist Party leader told a British delegation that: “we don’t have a bourgeoisie – can we borrow yours?” The plea for British investment and expertise was widely shared in a place wrecked and isolated by dictatorship for decades, but that was beginning to pick up the pieces.

That place was the Kurdistan Region in Iraq. As Kurds made their peace with the rest of Iraq, they attracted billions of pounds of investment, including from British companies. The area went from being an impoverished enclave to an autonomous region with double-digit growth, soaring living standards, new infrastructure, a brand new energy industry, and better relations with neighbours that had been enemies.

All that came to a shuddering halt three years ago, thanks to obstructiveness in Baghdad – and then war with Daesh. First, Baghdad unilaterally cut all federal budget payments under the equivalent of the Barnett formula. Then Iraq collapsed as Daesh captured the second largest city of Mosul, and a third of the country fell into their hands overnight in. Daesh next turned on Kurdistan, and came within artillery distance of the capital, Erbil. They were beaten back by Western airstrikes, and the Peshmerga have since regained nearly all territory lost.

But the cost of war has hobbled the economy. Apart from direct military costs, Kurdistan is coping with an increase of a third in its population because nearly two million internally displaced people from Mosul, and refugees from Syria, fled there. The strain on services is huge, with once near-continuous electricity, for example, slashed to a few hours a day.

Regular payments from Baghdad resumed, but payments were soon reduced arbitrarily. Kurdistan now relies on revenues from its own oil exports, but the other part of the perfect storm affecting the Kurdistani economy is the massive slump in oil prices. Revenues and spending are out of sync, and the deficit adds to the debt every month, while civil servants and the Peshmerga have not been paid for months. Austerity is the order of the day.

But another part of the equation is that the Kurds failed to mend the roof while the sun was shining. They have a workforce of two million people and 70 per cent of them work for the state, with very low productivity and often in ghost jobs. It is part of the legacy of two parties rewarding and maintaining supporters in the absence of a stronger state, taxes and welfare.

The private sector could, however, be a major motor of growth and innovation in expanding the economic base away from reliance on oil, which provides well over 90 per cent of income. It offers alternatives, such as agriculture and tourism. If you travel between the cities, you will see vast and verdant plains between the mountains and the waterfalls that could be a major income generator and allow Kurdistan once again to be the bread basket of Iraq.

What Richard Hammond on Top Gear called the most beautiful place he had visited could provide holidays for those yearning for solitude, healthy walks, skiing, and seeing some of the 30,000 archaeological sites and historical battlefields – as well as the oldest continually inhabited city in the world. And there’s vibrant city life with good hotels, restaurants, and parks that used to served as Saddam’s military bases. Just before Daesh came on the scene, Erbil was pronounced Arab Tourism Capital of 2014.

The Kurds should see the economic heart attack, as one Kurdistani MP describes it, and the oil price slump as blessings in disguise, though many hard-pressed Kurds will understandably see this as well hidden. The old economy was doomed anyway. The Kurds are trying to close the gap, restructure and privatise. British assistance, including “tough love” loans, is essential, and would be a worthwhile investment in an ally that is the most effective part of the resistance to our common enemy, Daesh.

Investors are understandably wary of Kurdistan, but the far-sighted will realise that the Kurds will survive and economic opportunities will return. Showing an interest in the tough times will repay dividends when things improve. The key to greater political and economic pluralism is small and medium-sized businesses that can mop up those people leaving the public sector, and spread dynamism. The European Technology and Training Centre in Erbil, of which I am Deputy Chair, is setting up a Kurdistani Academy for Enterprise and Management to encourage potential Kurdistani Gates’s and Jobs’s.

Another major issue raised by the hostile approach of Baghdad and the virtual collapse of Iraq is whether Kurds in Iraq can, during the coming years, move towards independence. The UK and other Western powers stress the need for a One Iraq policy, since they are wary about chaos and instability. That judgement was questioned by the Foreign Affairs Select Committee last year, and is discussed in detail by the recently-launched report of the All Party Parliamentary Group on the Kurdistan Region. The British bourgeoisie and the diplomatic and economic resources of the British state are still needed.

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