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Cablegate: Mnd-C Economic Situation: A View From Mnd-C Polad

VZCZCXRO4954
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0747/01 0731307
ZNR UUUUU ZZH ZDK
P 131307Z MAR 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 6208
INFO RUCNRAQ/IRAQ COLLECTIVE
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 05 BAGHDAD 000747

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAID IZ
SUBJECT: MND-C ECONOMIC SITUATION: A VIEW FROM MND-C POLAD

BAGHDAD 00000747 001.2 OF 005


1. SENSITIVE BUT UNCLASSIFIED -- ENTIRE TEXT.

2. (SBU) SUMMARY. In the Multi-National Division Center
(MND-C) area of responsibility (AOR) improved security, the
return of stability and normalcy, the emergence of economic
activity and our increasing ability to engage with Iraqis
have combined to create a window of opportunity to generate
sustainable jobs, income and economic growth. However,
maintaining positive momentum will be a challenge as
Commander,s Emergency Response Program (CERP) and USG
civilian agency funding shortfalls constrain our ability to
continue both local reconstruction projects and micro grants
programs to spur local economic activity. Government of Iraq
(GOI) funding processes are not yet efficient enough to
compensate. Transitioning from security and stability
operations to building government capacity at the nahiya,
qada and provincial level is crucial. With the passage of
the 2008 national budget, substantial new funding will be
allocated to the provinces in the MND-C AOR (Baghdad, Babil,
Wasit, Karbala and Najaf). Provincial level governments must
demonstrate that they can execute their budgets to complete
sorely needed reconstruction and infrastructure projects and
to provide basic services.

3 (SBU). MND-C has effectively used micro grants to kick
start local economic activity; however, this nascent economic
activity may not be sustainable without access to credit
resources that can offer loans at reasonable interest rates.
The need for USG civilian agency resources and expertise is
increasing as are opportunities for private sector
investment, particularly in industrial, agricultural and
tourism enterprises. We are at the front edge of
reestablishing vocational training facilities in the MND-C
AOR but much greater effort and resources will be needed in
this area to prepare Iraqis to rejoin the civilian workforce.
A concerted national and provincial level effort to enact
policies, direct resources and support initiatives such as
&Buy Iraqi First8 to capitalize on ongoing business
development and to encourage private investment appears to be
lacking. MND-C Commanders are concerned that without
continued emphasis and resources directed at developing
long-term, sustainable economic growth that this window of
opportunity may close. Of particular concern is the
transition of Sons of Iraq from their current security roles
to the civilian workforce. END SUMMARY.

MND-C AOR ) ECONOMIC DEVELOPMENT HURDLES
----------------------------------------

4. (SBU) MND-C,s AOR consists of the southern rural
districts of Baghdad (Mahmoudiyah and Madain qadas), Babil,
Wasit, Karbala and Najaf provinces. Farmland makes up 70% of
the MND-C, with the land between the Tigris and Euphrates
Rivers renowned for its fertility. However, Saddam era
policies, wars and neglect have set the agribusiness sector
back twenty years. Many other factors exist that inhibit
economic development throughout the area: provision of basic
services such as drinking water, sewer, electricity, and fuel
is inconsistent; infrastructure such as water pumps,
irrigation canals, water treatment plants, electrical
substations and power lines is insufficient, damaged and/or
destroyed; formulation and execution of government budgets is
halting and slow; existing state run enterprises are
non-operational or only in the beginning stages of
revitalization; there is insufficient investment into the
private sector and credit resources are lacking. As a
result, unemployment and underemployment rates are high.
Currently, the largest single employers in the MND-C AOR are
the GOI (both security forces and civilian workers) and the
U.S. military (through the Sons of Iraq security program).
SECURITY IMPROVING
------------------

5. (SBU) MND-C,s relentless pursuit of the enemy, combined
with more capable Iraqi Security Forces (ISF) and bolstered
by Sons of Iraq (SOI) has created security conditions that
allow for a return to normalcy/stability in virtually the
entire MND-C AOR. MND-C forces live among the population on
56 patrol bases and combat outposts throughout the MND-C AOR
providing security and bringing stability to local
communities. Joint operations between MND-C and ISF are
increasing with ISF often taking a lead role. SOIs operate
in their local communities manning check points, providing
intelligence that has led to the capture of nearly 500
insurgents and locating and turning-in weapons caches and
IEDs. Since June 2007, attacks in the MND-C AOR have
decreased by 77%. Civilian casualties have decreased by 61%,
MND-C casualties have decreased 67% and Iraqi security force
casualties have decreased 87%. During the final week of
February MND-C forces did not suffer a single casualty ) a

BAGHDAD 00000747 002.3 OF 005


significant milestone.

6. (SBU) As a result of the improved security environment,
MND-C soldiers and embedded Provincial Reconstruction Teams
(ePRT) and Provincial Reconstruction Team (PRT) members are
able to regularly operate in local communities developing and
strengthening relationships with Iraqi citizens, business
organizations, agricultural unions, governing councils and
tribal sheiks. &Security can no longer be used as an excuse
not to conduct business in the MND-C AOR.8

CERP
----

7. (SBU) To stabilize communities, spur reconstruction and
kick start local economic activity, MND-C forces have
utilized Commander,s Emergency Response Program (CERP) funds
throughout the MND-C AOR. CERP has funded humanitarian
assistance, community clean-up, reconstruction (government
buildings, schools, medical facilities, water treatment
facilities, water pumping stations) canal cleaning, road
maintenance, bridge repairs, market development, training
opportunities and quality of life projects (athletic fields,
parks), etc. MND-C has initiated over 1200 CERP projects,
infusing $137 million into the economy and has paid out
nearly $750,000 in micro grants for small business start-ups.
In many Iraqi communities throughout MND-C AOR, MND-C
soldiers are seen as effective agents of reconstruction and
assistance. CERP funds also pay the salaries of over 35,000
SOIs in the MND-C AOR - $11 million per month. Not only has
the SOI program improved security and made Iraqis feel safer
in their own communities; it also provides jobs and incomes
for military aged males, and an infusion of cash into these
communities.

8. (SBU) MND-C soldiers and interagency ePRT/PRTs have
successfully developed and implemented reconstruction
projects and programs in cities, towns and villages
throughout the MND-C AOR utilizing CERP funds. In Jurf As
Sakhr, a town that had once been an Al Queda stronghold,
MND-C soldiers secured the town and established a local
patrol base. USAID representatives in the local ePRTs were
then able to launch a program to identify and train local
merchants and craftsmen, assist in the development of
business plans and then provided $14,000 in micro grants that
financed the establishment of forty-five small businesses.
In Salman Pak, MND-C soldiers routed Al-Queda and then
rebuilt the local governance center, a medical facility,
schools and a marketplace. After almost five years of having
to operate in another town, the Madain qada council was able
to return to its traditional seat in Salman Pak. MND-C has
worked in conjunction with Iraqi government entities
throughout the area to repair pump stations and clean
irrigation canals. While there is still work to do, water
flow has been reestablished in much of the irrigation system,
resulting in irrigation water reaching large swaths of
farmland. Where water flow has been restored farmers are
plowing fields, planting crops and vegetables and raising
livestock. However, CERP and other USG funding limitations
will constrain our ability to execute these types of local
reconstruction projects and micro grant programs; while GOI
funding processes are not yet efficient enough to compensate.

CAPACITY BUILDING AND BUDGET EXECUTION
--------------------------------------

9. (SBU) Per Operation Marne Fortitude II launched on
January 1, 2008, MND-C is endeavoring to increase the
capacity of provincial governments, strengthen Iraqi Security
Forces and create economic growth while maintaining the
security gains from the force surge. MND-C,s transition
from stability operations to capacity building is currently
underway. MND-C and the ePRT/PRTs are engaging nahiya, qada
and provincial departments and councils throughout the AOR.
USAID,s Local Governance Program provides training and
guidance and continues to assist with strengthening linkages
between levels of government. With the passage of the 2008
national budget, substantial new funding will be allocated to
the provinces in the MND-C AOR (Baghdad, Babil, Wasit,
Karbala and Najaf). In February, Ambassador Crocker directed
PRTs that "Improving budget execution must be our top
priority this year." MND-C soldiers will support this effort
by facilitating engagements between USG and GOI government
officials. Additionally, MND-C units continue to gather
detailed information on local communities, infrastructure
needs and reconstruction projects. MND-C is providing this
information to nahiya, qada and provincial departments and
councils to assist in budget planning and execution.
NEED FOR CREDIT
---------------

BAGHDAD 00000747 003.4 OF 005

10. (SBU) MND-C has effectively used micro grants to spur
local economic activity, focusing on small businesses and
retail stores. The demand for grants is increasing and some
recipients are beginning to request additional grants to
expand their businesses or open additional businesses. In
Yusufiyah, a local businessman sought a $300,000 loan to
upgrade and expand an existing community produce, electronics
and general merchandise market. The USG has no assistance
program loans of this magnitude or nor does the Government of
Iraq loan programs operating in our AOR, therefore we cannot
direct Iraqis to them. USAID representatives have informed
us that current USAID Izdihar loan programs will continue to
operate but will not receive additional funding as USAID
transitions to the Provincial Economic Grown program. To
bridge this gap, USAID representatives operating in MND-C AOR
ePRTs/PRTs have offered to explore the possibility of
utilizing QRF as capital to set up micro loan programs at
local Iraqi institutions. Without better access to credit at
reasonable financing rates, the economic activity already
generated may not be sustainable. (EMBASSY COMMENT: USAID
Izdihar's current loan programs will have sufficient
operating expenses and loan capital to continue operating
efficiently for 3 to 6 months after Izdihar ends on March 31,
2008. USAID's new private sector development project, Tijara
or PEG, will assume technical oversight of the micro-finance
institutions (MFIs) after Izdihar ends, including provision
of additional loan capital to the MFIs. However, given the
high demand for micro-loans throughout the country and the
questions surrounding the availability of funds for Tijara,
USAID is encouraging PRTs/ePRTs to communicate the
microfinance needs of their areas of responsibility to Tijara
and consider utilizing QRF funds to provide loan capital and
operating expenses to existing and new MFIs. END EMBASSY
COMMENT.)

ECONOMIC DEVELOPMENT EMERGING
-----------------------------

11. (SBU) Iraqi farmers, sheiks, business people, government
officials and even religious leaders throughout the MND-C AOR
are reaching out to senior MND-C and USG officials to affirm
that they are ready to accept increased USG economic
development assistance. The need for USG civilian agency
assistance, resources and expertise is increasing as are
opportunities for private sector investment, particularly in
industrial, agricultural and tourism enterprises that are
emerging in the MND-C AOR.

12. (SBU) Two industrial complexes appear to be on the verge
of major breakthroughs in productivity and job creation. At
the Iskandariyah Industrial Complex (IIC), once moribund
state owned automotive and mechanical industries are back in
business. After investment by the Task Force for Business
and Stability Operations (TF BSO) to purchase equipment and
tractor kits, MND-C soldiers, ePRT business development
specialists and TF BSO industry and marketing professionals
worked alongside Iraqi plant managers on a daily basis to get
the complex back in operation. IIC is now producing tractors,
buses, dump trucks, container housing units and oil refinery
components and other production lines are under development.
Finalizing several major business contracts currently under
discussion would provide the impetus for a substantial
increase in utilization and employment. In Nahrwan,
privately owned and operated brick making facilities have
been restarted and are producing millions of bricks per week.
Since January employment has increased from 1500 to 3500 at
the complex. Plans to expand from 120 kilns to 180 kilns are
under consideration by the local brick makers, which could
increase employment to 10,000.

13. (SBU) Also at the IIC VOTECH seven technical classes are
being run and enrollment has increased from 23 students in
December to over 400 in March. USAID,s Community
Stabilization Program (CSP) representatives are working with
the VOTECH to provide stipends to students. Under current
projections, enrollment is expected to increase to over 1000
by July. Recently CSP representatives informed us that a
major U.S. contracting firm operating in Iraq is considering
hiring up to 5000 Iraqis nationwide and could utilize the IIC
VOTECH as a training site. (EMBASSY COMMENT: It is not
correct to assume that all of these individuals would train
only through the Iskandariyah VoTech. They could be trained
at any of the other CSP VoTech sites. It is also unclear
what positions KBR is seeking to fill and whether MoLSA's
VoTechs even teach the skills KBR is looking for. END
EMBASSY COMMENT.)

14. (SBU) Sustainable agricultural development is critical
to MND-C AOR,s economic well-being. MND-C along with

BAGHDAD 00000747 004.4 OF 005


provincial governments continues to repair and improve water
pumps and irrigation canals. MND-C and ePRT/PRT members are
encouraging local farmers to form agriculture associations to
give the farmers a collective voice and facilitate consistent
access to seed, fertilizer and pesticides. Mahmoudiyah
poultry farmers and ePRT/PRT agribusiness experts conducted a
detailed assessment of the poultry industry and hatched a
plan to revitalize this industry that included the repair of
hatcheries, feed mills and a processing plant. In Babil, PRT
and USAID INMA representatives along with Iraqi owners of the
Euphrates Fish Farm have studied the potential of the fish
farm industry in North Babil and spawned a plan to revitalize
several fish farms in the area.

15. (SBU) Najaf,s and Karbala,s importance as centers for
Shia religion and culture is attracting increasing numbers of
tourists as the security environment improves. In January,
the Ashura commemoration attracted 2 million visitors to
Najaf, while in February, over 6 million pilgrims made their
way to Karbala. Even without these major annual events,
religious-based tourism continues to grow in Najaf and
Karbala. In Babil, the historical significance of the Ruins
of Babylon also has the potential to attract large numbers of
tourists. However, Najaf, Karbala and Babil currently lack
modern infrastructure, hotel space and other modern amenities
to support international tourism. Najaf is taking an
important step in its plans to develop and construct an
airport. MND-C does not have significant troop presence in
either Najaf or Karbala (both have achieved Provincial Iraqi
Control status). Najaf and Karbala PRTs are often the lead
USG presence in these provinces, but are currently working
out of REO Hilla in Babil province. MND-C is constructing
office and housing facilities in Najaf and Karbala provinces
so the PRT members can live, work and conduct engagements
directly in these provinces.

SUPPORT NEEDED TO MAKE IT SUSTAINABLE
-------------------------------------

16. (SBU) A concerted national and provincial level effort
to enact policies, direct resources and support initiatives
such as &Buy Iraqi First8 to capitalize on ongoing business
development and to encourage private investment appears to be
lacking. Currently, the IIC,s major customers are Iraqi
ministries and provincial level governments. Sealing
potential deals with the Ministry of Interior to conduct
vehicle maintenance and with the Babil provincial government
to produce 1300 tractors would provide the impetus for major
growth and significant increases in employment. In Nahrwan,
damage to an electric substation and inconsistent electrical
power supply through the national grid often results in lack
of electricity to power the brick kilns during manufacturing
periods. Resolving this power issue would support major
expansion plans; however, thus far no government efforts to
repair the electrical substation have been initiated.
Working with ITAO Electric, MND-C is seeking to promote a
special power district to improve electricity availability to
the private brick factories. In the Agriculture sector there
does not yet appear to be a national plan to develop
agribusiness capacity. Provincial level officials in Babil
seemed surprised recently when MND-C requested that they
share the costs of refurbishing the Hillah Cold Storage
facility, which has been identified in the National
Development Strategy as a key agribusiness node.

17. (SBU) In Agriculture sector, ePRTs/PRTs and local USAID
representatives are stepping in to fill the void with
detailed assessments and plans for revitalizing the poultry
and fish farm industries. However, only one agriculture
project out of more than 50 submitted in the MND-C AOR has
been funded by INMA. In Najaf, the airport project is
proceeding but waiting for the USG contracting system to hire
an airport consultant to ensure that the airport meets ICAO
standards. Attracting foreign investment and operational
management expertise would help, but thus far foreign
investor interest has been tentative. (EMBASSY COMMENT. The
number of job orders received from Hillah/Babel is 11 not 50.
Two (not one) are underway and third (bee-keepers) is being
consolidated with others for a national program. Inma is
planning a joint campaign with the military that will broaden
Inma participation in the area. The text in the cable may
have been written before the planning meeting USAID had with
General Lynch's staff a couple of days ago. Inma will be
doing much more than the fish farm near Hillah. END COMMENT.)

SOIs ) A DOUBLE EDGED SWORD
---------------------------

18. (SBU) MND-C Commanders are concerned that without
continued emphasis and resources directed at developing

BAGHDAD 00000747 005.3 OF 005


long-term, sustainable economic growth that this window of
opportunity may close. Of particular concern is the
transition of Sons of Iraq from their current security roles
to the civilian workforce. If we are not able to transition
SOIs from security roles to the civilian workforce, the
security improvements and goodwill gained may evaporate. The
Joint Technical Education and Reintegration Program (JTERP)
and Civil Service Corp programs received $155 million in DDR
funds to assist in transitioning SOIs to civilian employment
and the GOI has also committed to transitioning approximately
25 percent of SOIs to positions in Iraqi Security Forces.
However, despite the presence of the JTERP/DDR programs and
the GOI commitment, few SOIs in the MND-C AOR have been
successfully moved from their SOI roles to the civilian
workforce. Developing a sound, self-sustaining economy that
can create jobs and opportunities is crucial.
CROCKER

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