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Cablegate: Germany's Business Ties with Iraq -- A Slow, But

VZCZCXRO8704
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHRL #0786/01 1651252
ZNR UUUUU ZZH
P 131252Z JUN 08
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC PRIORITY 1446
RUEHGB/AMEMBASSY BAGHDAD 0219
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNMEM/EU MEMBER STATES
RUCNFRG/FRG COLLECTIVE

UNCLAS SECTION 01 OF 02 BERLIN 000786

SIPDIS


E.O. 12356: N/A
TAGS: ETRD PREL BEXP IR GM
SUBJECT: GERMANY'S BUSINESS TIES WITH IRAQ -- A SLOW, BUT
PROMISING BEGINNING

REF: BERLIN 474


1. SUMMARY: The Ministry of Economics and German business
organizations are cooperating closely in seeking to rebuild
Germany's significant business ties with Iraq. The first
important step is the planned June 30-July 1 meeting in
Berlin of the German-Iraq Joint Economic Commission after a
more than 20-year hiatus. Despite this historic step,
German companies continue to approach Iraq with
considerable trepidation due to concerns over security,
Iraq's lack of a legal structure for doing business,
excessive bureaucracy, and difficulties moving goods across
borders. Many of the formerly significant business
connections with Iraq have been lost with time and major
German firms hold mixed attitudes about re-entering the
market. From a longer term perspective, however, the
German business community (especially SMEs) recognizes that
opportunities may be significant and is therefore beginning
to lay the groundwork. Much will depend on Iraq's ability
to develop a business climate that is favorable to renewed
German trade and investment. End Summary

Germany Sends a Political Signal on Business Ties
--------------------------------------------- ----
with Iraq
---------

2. Several high-level Iraqi delegations have visited
Germany in the last several weeks including one headed by
Trade Minister Hadi Al-Hamiry, where the main topic of
discussion was the planning for the first German-Iraq Joint
Economic Commission meeting in more than 20 years. The
German Ministry of Economics will co-host the meeting with
BDI (Federation of German Industries); Al-Hamiry is
expected to lead the Iraqi delegation. The intent is to
begin a dialogue with Iraq aimed at restoring Germany's
historically robust business ties with Iraq. Total trade
between Germany and Iraq in 2007 was a mere 360 million
Euros and Iraq ranked 96th in the list of Germany's top
trade partners, just ahead of Uruguay and Uzbekistan. This
is a far cry from the trade levels seen in the 1980's, when
Iraq was Germany's largest trading partner in the region.


German Companies Are Interested but Remain Cautious
--------------------------------------------- ------

3. Though the ambition and interest is high, both
government and industry recognize that it will take time
for German business to reengage in Iraq. Several factors
account for the continuing reluctance:

-- Security: German companies were heavily criticized in
the German press several years ago when they sent personnel
to Iraq. The press created the perception that corporate
Germany was putting German citizens unnecessarily at risk.
Bucking the fear factor, Daimler announced several weeks
ago that it is opening a rep office in Baghdad, but no
other major German company has followed suit. The Daimler
decision is viewed as an exception.

-- Business Climate: Germany's major business organizations
say that apart from security, the cost of doing business
with Iraq is too high -- excessive bureaucracy,
difficulties in negotiating contracts with Iraqi companies,
and border crossing difficulties were cited as significant
barriers.

-- Government Procurement Policies (or lack thereof): BDI
specifically mentioned that the lack of transparency in
Iraqi government procurement procedures has dissuaded
German companies from pursuing larger infrastructure
projects.

-- Competition for German Goods: German exports to the
Middle East are flourishing and demand is increasing
rapidly. According to BDI and DIHK (German Chamber of
Commerce), German companies already have "about as much
business as they can handle" in the Middle East. Iraq will
need to compete more effectively with its neighbors to lure
German companies back. (Comment: Of course, some of these
German companies would have more capacity to trade with
Iraq if they were willing to reduce their economic ties to
Iran, a point we have tried to drive home with German
contacts. End Comment.)

BERLIN 00000786 002 OF 002

-- Traditional Ties Broken: Major German companies such as
Siemens and HochTief (construction company) were big
players in developing Iraqi infrastructure in the 1980's.
With the passing of 20 years, the personal relationships
have been broken. As DIHK explained to us, doing business
in Iraq is heavily based on personal relationships; new
relationships will need to be developed and this will take
time. (Note: according to DIHK, Siemens has no current
plans to re-enter the Iraqi market.)


First Ventures Will Be In the North
-----------------------------------

4. German business organizations repeatedly point to the
significantly better business climate in northern Iraq,
where security is less of a concern and where access to the
market is better. They cited factors such as the existence
of commercial flights (from Vienna) into northern Iraq
(Lufthansa is expected to open a route soon from Germany as
well). Germany recently opened a Consulate in Erbil,
another reassuring sign. Both government and business
contacts noted that German companies typically consult the
German foreign ministry's travel advisory for guidance on
doing business in foreign countries. DIHK explained that
the MFA's travel advisory for Iraq was recently modified,
lifting the advisory against travel to northern Iraq, but
leaving it in place for the rest of the country. This is a
key factor as the MFA's travel advisory determines whether
companies can get insurance and other cover for their
operations. BGA (the German organization which represents
over 4,000 SME export-importers) confirmed that German
business activity in northern Iraq has picked up, primarily
consisting of truck sales and various replacement parts for
equipment.


Trade Missions: What is the U.S. Doing?
---------------------------------------

5. German business organizations are also looking at U.S.
business activity for cues on re-entering Iraq. DIHK
inquired as to whether the U.S. was organizing trade
missions to Iraq and what other planning was underway to
reestablish business relations. DIHK said that it might
consider a trade mission to Iraq based on what the U.S.
experience is. BGA asked for any information the U.S.
could share on business opportunities in Iraq. Currently
only a handful of German companies export to Iraq with
their relations built on long-term personal connections.
Thus, there is very little in the way of Iraq experience
left in the German business community.


Comment
-------

6. Despite the hesitation of German companies, both the
government and business organizations recognize that the
opportunities in Iraq are increasingly looking brighter and
that Germany is relatively well poised to reclaim its share
of the Iraqi market. Much will depend on Iraq -- its
ability to maintain stability, develop a legal structure
conducive to business, and efficiently move goods across
borders. Northern Iraq will be the pilot testing ground
for initial German forays and may set the stage for a more
significant comeback for German business.

Timken Jr

© Scoop Media

 
 
 
 
 
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