It is a measure of how safe the Iraqi Kurdish region is becoming that travel publisher Lonely Planet is planning to include a new chapter on the region in its forthcoming guide to the Middle East.

The few tourists who are not deterred by Iraq’s daunting international reputation have much to see: the imposing citadel at Irbil, which is the world’s longest continually inhabited settlement; the dramatic hilltop orthodox monastery at Mar Matti; and traditional stone villages perched on rocky outcrops.

Yet when they arrive at Irbil International airport or cross the Turkish border at Ibrahim Khalil, they will receive a warm welcome but find few hotels and little infrastructure.

Mains electricity is limited even in the largest cities, where streets hum to the buzz of private generators. In the picturesque mountains, electricity is virtually unknown. Roads are potholed and poor, making travel slow.

The Kurdistan Regional Government (KRG), which runs much of northern and eastern Iraq, knows tourism is a sector that carries huge potential. But, according to KRG Tourism Minister Nimrud Baito Youkhana, the government has no illusions about the costs of development.

Rebuilding infrastructure

“We don’t have anything yet,” says Youkhana. “We start from zero because everything has been damaged badly in the past 35 years. We have a budget from the government but it is not enough. The priority now is on rebuilding the roads and electricity network, but in four to five years we think tourism development will be a priority.”

In the late 1970s and throughout the 1980-88 Iran-Iraq war, the Kurdish region was the scene of ugly guerrilla warfare. By 1988, Saddam Hussein had plotted to destroy the Kurds with the Anfal campaign - poison gas attacks, mass executions and the destruction of 4,000 villages - which killed about 200,000 people.

During the 1990s, when Hussein’s army was kept out of the Kurdish areas, the region suffered during a brutal civil war and the effect of two embargoes: one levelled internationally on Iraq, and the other levelled by Baghdad on the Kurds. The main Kurdish parties were so disunited that it was impossible to use a mobile phone from one party’s area in territory controlled by the other. “We have had self rule since 1991,” says one Irbil-based lawyer. “But we have only had a real government since 2003.”

The region is so undeveloped that Youkhana, one of the KRG’s Assyrian Christian ministers, is working blind. There is no official data to show the number of hotel beds or how many foreigners visit the Kurdish region. “Until now, we have had not had any statistics,” says Youkhana. “But we are working to get figures from the hotels and airport to develop a database.”

Because of its lack of funds, and the immediate demands of almost total reconstruction, the KRG has instead sought to develop its tourism facilities through private investment.

“Our ministry’s strategy is that our projects depend on investment, none of them come from an official budget,” says Youkhana. “All hotels, resorts and so forth must be private.”

Potential investment

According to the Kurdish Board of Investment, 24 tourism projects have been granted licences, with a total projected investment of $6.8bn.

However, of that figure, $6bn comes from a single resort project planned by the UAE’s Damac Properties on a hilltop near Irbil, on which ground has yet to be broken. But that still leaves $800m in potential investment.

And while three new five-star hotels, including a Rotana and a Kempinski, are rising in the suburbs west of Irbil, almost all the guests are businessmen using the Kurdish region as a safe base for their forays into the Iraqi market.

In its rush to attract foreign investment to the Kurdish region, the KRG passed a generous investment law in 2006 that makes foreign companies exempt from tax and import duties for 10 years, and allows them to repatriate their profits, bring in their own workers and own land.

The KRG’s determination to frame its own laws has dismayed some politicians in Baghdad, who worry that the region is moving from simple autonomy towards full-scale secession. However, Kurdish officials maintain that the terms of their investment law have been accepted by the Iraqi government - an important requirement for potential investors concerned about the legal status of their projects.

“According to the constitution, the Kurdish region has the right to make its own laws if they do not contradict Iraqi national laws,” says Hayder Mustafa Saaid, director general at the Kurdish Board of Investment. “We have a very friendly relationship with the Supreme Investment Board of Iraq. They did seminars here and we have been invited to Baghdad.”

With the regulatory framework in place for investors to look at new projects, the Tourism Ministry focuses on directing them towards the areas most suited to their funds.

“We encourage investors to come and offer facilities to make the work easy,” says Youkhana. “Our main strategy is to control these projects in the type of services they offer and the conditions of operating hotels and projects.”

One of the most important areas for development will be the region’s archaeological sites, taking in Babylonian-era ruins as well as some unusual forms of Islamic architecture and early Christian churches.

“This ministry has control of the archaeology,” says Youkhana. “The KRG is part of Iraq, a country known as the cradle of civilisation. Many civilisations have come here and left their mark on the region. We will find these places and make them attractive to tourists.”

As part of this effort, the ministry is working with the UN Educational, Scientific & Cultural Organisation (Unesco) to draw up a comprehensive database of archaeological remains in the Kurdish region. This will help to determine which sites should be developed as part of efforts to attract tourists.

Studies are already under way to develop some areas: Lebanese engineering consultant Khatib & Alami has prepared a masterplan to develop the 20-square-kilometre Mount Sefin area near Shaqlawa, and is looking for developers to help create a resort.

Project planning

“We have to do studies to decide what type of projects we need, where they should be done and what the economic advantage is of each,” says Youkhana. “We are planning an overall master study, which will take two years. We are looking for a consultant to do it and for financing. Discussions have taken place with the Italian government to support the project.”

While the wealthier investors tend to be foreign, most of those willing to put their money into the region are Iraqi Kurds, including many who spent years working in the West.

One is Azzam Kasra, who worked with three partners to develop the $85m English Village housing complex in Irbil, which is now used for office space by many of the international companies working in the KRG.

“We first thought of the project in May 2006 and now all the houses are pretty much finished,” says Kasra. “It is quite rapid, but that is how things are here. The reality is that you need to work here on an equity basis.”

While investors tend to be Kurds, the bulk of tourists are Iraqis from the south, eager to escape the violence and hot weather for the more peaceful mountains of the north.

“Most of the tourists we receive are Iraqis coming from Baghdad,” says Youkhana. “So last summer we encouraged the Tourism Ministry in Baghdad to make tour groups. But it is hard to balance secu-rity and the number of people who are coming in. Everybody coming from the south is searched before entering the Kurdish region.”

That strict security is the reason the KRG has suffered so few major terrorist attacks over the past two years.

But for all the improved conditions, few foreign tourists are coming. Youkhana talks proudly about the arrival of a group of retired people from the US in 2008, and discussions are under way to bring more tour groups in from Australia and Europe this year.

Some backpackers are also coming in through Turkey, but the numbers are limited by a low-level conflict between the Turkish army and the Kurdistan Workers Party (PKK) in the southeast of the country.

The most important issue will be increasing the number of flights direct to the Kurdish region and bringing down the comparatively high prices. An Austrian Airlines ticket to Irbil from London costs about $1,100, a price comparable with those of Royal Jordanian and the few charter companies that travel to the area.

Frustratingly for Youkhana, bringing more airlines in is something that neither he nor his KRG colleagues can control. All air licences are awarded by the central government in Baghdad.

“There are now charter flights to Dubai, Germany, Sweden and Turkey,” he says. “But the prices are too high, so tourism is essentially only for the privileged.”

Hotels are expensive by regional standards too, something that Youkhana hopes the arrival of more high-quality accommodation will help. Ultimately, providing decent infrastructure will be crucial to attracting business.

However, as every seasoned Kurdish politician knows, the ultimate task is to guarantee political stability, something that has been missing for decades. “The type of tourism we end up with will depend on the type of investors and, most of all, on the political development of Iraq,” says Youkhana. “If Iraq stabilises, we will get the investment. Right now, delegations come from Europe and the US to assess the situation, but not yet to invest.”

Key fact: The number of tourism projects granted a licence in the KRG region - 24