Businesses are closing every day as Iraq prepares for war

While the UN weapons inspectors extend their search, all the economic gains of the post-Gulf War years are being lost

United Nations weapons inspectors continued their checks around Baghdad yesterday while the death toll from an attack by American and British warplanes was being exaggerated in the capital.

The rumours added to the fatalism of the Iraqi people, who see the inspections as merely a cosmetic precursor to a US-led invasion. Even before the first shots have been fired, the already tottering Iraqi economy is on the brink of collapse under the threat of impending conflict.

The slow return towards normality since the Gulf War has disappeared, and businesses large and small are winding up every day. The GDP, which fell by 75 per cent between 1991 and 1999, is in free-fall again.

Before Saddam Hussein embarked on his disastrous wars with Iran and the West, the standard of living in Iraq was judged by international bodies such as the World Bank to be reaching First World standard. In the aftermath of the Gulf War, it dropped to almost "Fourth World" standards.

But, since then, the economy has seen an upturn thanks to a deal by Iraq on trade with the UN, as well as profits from the illicit export of oil through Kurdistan and Syria. The Baghdad trade fair drew record numbers of international companies keen to get a slice of the petroleum-fuelled action.

But all that has gone into reverse. Hotels such as the al-Rashid and the Sheraton no longer bustle with businessmen from Paris, Hamburg and Moscow or local wheeler- dealers in their fake Versace suits. The only foreigners evident are journalists, aid workers and weapons inspectors.

Ibrahim Hassani's small furniture business was started with capital sent by his two brothers in Germany. It has built up over the past three years, and he was planning to open a second shop. Instead, he is now making the final preparations to close.

"When people expect war, they are not going to spend money on dining tables and wardrobes," said 38-year-old Mr Hassani. "What little they do spend is going towards collecting food and other essential supplies.

"Everything I have is in this business. But the only realistic thing now is to sell the stock, however little I get for it. I employ nine people, including in my workshop. But I will have to sack them. What can I do? My sales have fallen by 75 per cent in the past six months, and I know 10 others who are in the same situation."

For Faris al-Hadi the drop in revenue has been 70 per cent. His company, the Qareeb Trading Agency, has the dealership for a range of international brands such as Samsung, Tefal, Moulinex and Rowenta.

"I started in business with my father in 1958, and in the past, when things were good, we dealt with lots of British companies. I used to go to England a lot. But I have never seen it so bad as now," he said. "11 September was the beginning of things going wrong for us, and then it has just got worse."

Mr Hadi and his business colleagues do not hide that one source of import was illegal, through the Gulf states on small boats. But activity by naval vessels there has been increased, including by Iranian ships. Supplies have been impounded and are only redeemable at high cost. "There are people ready to take advantage of the situation Iraq is in now," Mr Hadi adds.

Some businessmen, including 61-year-old Basoom Antoon, find themselves not only in dire commercial straits but also caught up in the country's political fortunes. His company, Nineveh, produces paint and, under the new UN resolution, it is likely to be declared by the Iraqi regime as a place which has potential for "dual use" – military and civil – and so will be inspected by UN monitors.

As with so much in Iraq, past British connections are evident. On Mr Antoon's office wall is a photograph taken with colleagues at Carshalton, Surrey, in 1977, when he went to an industrial seminar organised by Unilever. His machines bear the fading manufacturers' names of "Sheen Instruments of Richmond, Surrey", "Torrance", and "Micromark" of Durham.

"We use titanium dioxide, solvents and pigments for our paints, and they think we are are going to use them for what, Scuds?" Mr Antoon laughs.

"They are welcome to come here any time. We have been here 35 years, and we have always welcomed foreign visitors." He becomes serious. "We used to have 20 workers, now it is down to 12. It is very, very tough now. People are not buying. Why should they paint a house which might get bombed? It is not as if we can sell our goods abroad. That ended a long time ago."

Foreign traders who had been working with the regime as brokers, especially in the oil business, see the vast sums they made disappearing if America does come and introduce such pillars of democracy as Exxon and Mobil.

A Lebanese entrepreneur, who spent six months of the year in Baghdad, is now upping sticks. He will not be renewing the lease on his five-bedroom house in Arasat. "We have had the good times, it is now time to be prudent," he says.

Among the measures recently introduced by a beleaguered President Saddam is the removal of the draconian tax on those wishing to leave the country, even for short trips abroad. Many young people are now in a rush to make the journey – one way.

Ahmed Mohammed Nasrullah, 27, speaks English and German and has a degree in mechanical engineering. For the last two years he has been working as a security guard.

"I want to get out of here, like so many of my friends, and I shall do so," he says. "My mother cries because she knows that I have made up my mind. I am afraid I shall never see her again. I shall probably lose my job soon anyway, but I don't want to lose my life. There is no hope left here."