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Cablegate: Us-Iraq Dialogue Highlights Impediments to Business And

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E.O. 12958: N/A
TAGS: ECON EINV ETRD EFIN PGOV CVIS IZ
SUBJECT: US-IRAQ DIALOGUE HIGHLIGHTS IMPEDIMENTS TO BUSINESS AND
INVESTMENT

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game," business executives said the GOI needed to help facilitate
political risk insurance. One representative explained to Iraqi
officials that in discussion with other potential investors in the
US, the availability of political risk insurance was invariably one
of their primary concerns.

Banking Sector Needs International Capacity
-------------------------------------------

8. (SBU) Business participants explained that transferring money
into the country is amongst the greatest challenges to doing
business in Iraq. For example, one of the private equity firms
could not find a bank in the U.S. that was willing to accept funds
destined for the Iraqi market due to money laundering and corruption
concerns, and ultimately used Hong Kong Shanghai Banking Corporation
(HSBC). A manager for Al-Warka bank (the largest private Iraqi
bank) agreed that Iraqi banks are not able to provide all the
services that U.S. financial institutions provide; he called for the
need to strengthen partnerships between Iraqi and U.S.
institutions.

IMPLEMENTING REGULATIONS FOR INVESTMENT LAW
-------------------------------------------

9. (SBU) In a strongly-worded speech, Chairman-designate of the
National Investment Commission Ahmed Ridha lambasted the Council of
Ministers (COM) for their tardiness in approving investment
licenses; according to Ridha, of the US$ 74 billion in projects he
has signed for, US$68 billion is languishing in the COM awaiting
approval. (Note: The following day, the Council of Ministers voted
to remove Ridha from his position. End note).

10. (SBU) Private sector participants suggested that the Iraq
regulations governing foreign investment be transparent and more
widely disseminated. If investors are more aware of the investment
law and regulations in place, they said, this would attract greater
interest by international investors. In response to Commerce Deputy
Secretary Sullivan pressing the Iraqis on the status of the
investment law's implementing regulations, GOI officials responded
that these were with the Council of Ministers and should be
published "within a few days." (Comment: This was a highly unlikely
prospect even before the sacking of Ridha. End comment.)

CORRUPTION AS A DETERRENT TO INVESTMENT
---------------------------------------

11. (SBU) A representative from BAE Systems raised the issue of
transparency and corruption as a major factor in a country's
business and investment climate. In his view, corruption will
remain a grave impediment to foreign investment in Iraq unless the
Iraqi Government takes concrete steps to combat it. He also
stressed that U.S. and foreign investors must also do their part to
combat corruption by complying with the Foreign Corrupt Practices
Act (FCPA).

PARTNERSHIP AND MOMENTUM
------------------------

12. (U) For successful long-term investment, private sector
representatives stated that partners need a shared vision and
commitment. The representatives suggested that Iraqis need to also
contribute financially to an investment in order for both partners
to feel committed and have unity of purpose. One U.S. private
sector representative noted that U.S. investors often ask before
investing in Iraq how much the Iraqis are investing themselves. At
the same time, they argued that the Iraqi government should embrace
those foreign companies already on the ground and help their deals
succeed, since other investors will be drawn to this success. A
representative from Daimler-Benz noted that investors are motivated
by two factors, fear and greed, and that the Iraqi government had to
take steps so that greed outweighed fear.

U.S. CHAMBER OF COMMERCE PRESENTS "12 CRITERIA"
--------------------------------------------- --

13. (U) Senior U.S. Chamber of Commerce Advisor Aram Zamgochian set
out twelve criteria used by international investors in evaluating
markets: the existence of internal markets, freedom of access to
these markets, existence of a qualified labor force and raw
materials, protection from currency devaluation, the ability to
remit dividends, property rights, the ability to export, low
regulatory burdens, tax incentives, low political risk, predictable
macroeconomic conditions and management, and reliable infrastructure
support. He concluded that the Iraqi market boded favorably on
these criteria. The World Bank also provided a tool to evaluate
Iraq's business and investment climate.


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VIEW FROM THE WORLD BANK
------------------------

14. (SBU) World Bank Country Manager Jean-Michel Happi presented
findings from the World Bank's 2009 Doing Business Report on Iraq,
in which Iraq ranked 152 out of 181; in the Middle East Iraq ranked
next to last. The Report's findings suggest that Iraq can achieve
improvement by simplifying the procedures, time, and cost required
to start a business, for instance through one-stop shop; by
streamlining import and export regulations through a trade
facilitation program; and by improving access to credit information
for borrowers and lenders. Reforms should aim at modernizing
commercial laws, with a view to improving commercial dispute
settlement (both in and out of bankruptcy procedures), enforcing
contracts, and protecting investors. USTR cited the advantages to
joining the World Trade Organization and how it would further signal
that Iraq is open for business.

IRAQI PRIVATE SECTOR
--------------------

15. (SBU) Representatives of the Iraqi private sector identified the
limitations they also face in doing business. For instance, they
complained about the high cost of borrowing capital and their
inability to compete with foreign companies. After two such
interesting comments, however, Finance Ministry Jabr stated that
there would be other occasions to deal with particular Iraqi
problems.

IRAQIS STRAY FROM AGENDA
------------------------

16. (SBU) During the Dialogue's last sessions, the Iraqi moderator
unexpectedly gave the floor to five provincial governors, who then
went on to give speeches on the various merits of their individual
provinces and potential for investment. This abruptly halted the
dialogue with the American side. In fact, the Governor of Anbar
Province began his remarks by stating, "I am not here to talk about
the obstacles to investment since there are so many opportunities."
The provinces focused on opportunities in areas such as oil,
industrial production, telecom, housing, minerals, water, tourism,
and textiles. They described the thousands of engineers and
academics who form a ready group of skilled employees. Some also
cited the number of companies and their countries of origin that
were already operating in their province.

NEXT STEPS
----------

17. (SBU) Finance Minister Jabr closed the DBIC by agreeing with
DepSec Sullivan to continue the process of investment reform through
the bilateral Dialogue on Economic Cooperation (DEC), to be next
held in the first half of 2009. USTR also expressed desire to get a
discussion with the GOI on the Trade and Investment Framework
Agreement (TIFA) underway.

COMMENT
-------

18. (SBU) The DBIC helped advance the bilateral discussion on
reforms and conditions needed to create a better investment climate
in Iraq. The private sector, U.S. Chamber of Commerce, and World
Bank's participation helped reinforce the importance of these
reforms and provided further credibility to our ongoing bilateral
dialogue with the Iraqis on private sector development. The Embassy
will now work with the GOI (and specifically with DPM Barham Salih
when he returns to Baghdad) to seek GOI engagement on issues
identified at the DBIC. We will use the planned DEC in the first
half of 2009 as a target for GOI action. Separately post will
provide thoughts for Washington on how to address the impediment to
business posed by U.S. visa regulations. End Comment.

19. (U) Deputy Secretary Sullivan cleared this cable.

CROCKER

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