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Cablegate: Jordan Iraq Conference Sends Needed Message

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 AMMAN 003456

SIPDIS

SENSITIVE

STATE PASS USTR FOR NED SAUMS
USDOC FOR 6100/KMURPHY

E.O. 12958: N/A
TAGS: EINV ETRD EAID IZ JO
SUBJECT: JORDAN IRAQ CONFERENCE SENDS NEEDED MESSAGE

REF: AMMAN 3190

Sensitive but unclassified; please protect accordingly.

1. (sbu) Summary: The June 5 "Doing Business With Iraq"
conference organized by four leading Jordanian business
associations left local businessmen better informed and
better prepared to take advantage of opportunities. Despite
a vocal minority of "old economy" businessmen who grilled
U.S. speakers about compensation claims and complained that
"Jordan's share" of reconstruction contracts wasn't doled out
at the conference, a solid majority of business
representatives, including delegations from a dozen countries
from East Asia to Eastern Europe, used the conference to gain
information about new business realities in Iraq and to
network with contractors and attending Iraqi businessmen.
The conference highlighted the widening gap between a fading
breed of old economy traders and a new breed of professionals
in Jordan and the region who are positioning themselves to
capitalize on free-market opportunities in Iraq. End summary.

CONFERENCE DRAWS GLOBAL INTEREST

2. (u) Attendance at the day-long June 5 "Doing Business
With Iraq" conference surpassed the most optimistic
predictions of the conference's organizers. Over 1,200
people attended, including business delegations from Turkey,
Japan, India, Bulgaria, and throughout the Gulf, among
others. Also in attendance were key Iraqi business figures
in Jordan, and self-styled representatives of Iraqi chambers
of industry and commerce. The conference featured speakers
from major humanitarian assistance organizations, primary
contractors for the reconstruction process (including
Bechtel, ABT, and Creative Associates), and representatives
from the Coalition Provisional Authority (CPA). Trade
Minister Bashir opened the conference, and the Ambassador
spoke at the conference lunch event.

KEY MESSAGES

3. (u) Following a background briefing by McKinsey and Co.
highlighting Iraq's projected reconstruction needs (roughly
$500 billion to regain 1980 levels; a similar figure to
modernize), conference participants heard three main messages
repeated by virtually all the speakers throughout the day's
events. First, speakers emphasized that reconstruction
contracts represented a tiny fraction of Iraq's long-term
rebuilding and commercial needs, and noted further that
competition for sub-contracts under existing awards was
fierce. Bechtel repeated a theme from presentations
elsewhere that strong interest from globally competitive
companies was already well in evidence - over 8,000
applications had been submitted through the Bechtel website
for reconstruction subcontracting. Bechtel said companies
should be realistic about their expectations of winning
subcontracts, highlighting the competitive nature of the
bidding process.

4. (u) Second, speakers repeated the refrain "go to
Baghdad," noting that the bulk of economic activity in Iraq
would be done on the ground, in the private sector, by
companies with initiative that were willing to take risks.
They acknowledged that there still existed in Iraq
significant risk factors, both on the security side and on
the legal/investment protection side, but noted that many
companies are already trading with Iraqi importers, some are
setting up offices, and others are actively seeking Iraqi
investment partners. This message contrasted sharply with
what local businessmen said they had been hearing on the
street and unofficially from returnees from Baghdad, who had
(prior to June 5) discouraged travel into Iraq on security
grounds.

5. (u) Third, speakers from the CPA acknowledged that the
disposition of outstanding contracts with the Saddam Hussein
regime were a thorny issue. They stressed, though, that it
was too early to be able to answer specific questions about
specific contracts, especially since the UNSC had not yet
made a final determination regarding how uncompleted
contracts would be treated, or indeed whether or not pending
contracts could be executed. Regarding outstanding contracts
under other mechanisms (i.e., the bilateral Jordan-Iraq
protocol and commercial contracts with formerly state-owned
enterprises), Trade Minister Bashir told the conference
settlement of claims would have to await the standing up of
an Iraqi counterpart ministry with which to discuss the issue.

VOCAL MINORITY VENTS OVER CONTRACTS

6. (u) An angry knot of several dozen Jordanian businessmen
grilled speakers from CPA, Bechtel, and McKinsey about
outstanding contracts. One businessman used a Q&A session
following the initial presentation to accuse the U.S. of
"wanting to invest in war, but not in peace," an assertion
that met with some applause. Primarily, this group of local
businessmen used the Q&A session to ask a dozen varieties of
the same question: "how will I be compensated for my
specific outstanding contract?" Speakers repeated the
message above regarding the complexity of the situation, an
unpopular response among those who had been trading with the
Saddam regime in the months leading up to war.

7. (sbu) Following the conference, a number of like-minded
local businessmen complained that the meeting had been
mis-advertised. Rather than the subcontracts for
reconstruction they expected to be handed to them on a silver
platter at the conference, these businessmen were confronted
with the reality that subcontracts would be competed
transparently and on the basis of quality and initiative from
competing firms. Some 200 attendees left the conference
early, bringing local media with them to vent further about
how little they got out of the conference.

SILENT MAJORITY NETWORKS, LEARNS, EARNS

8. (u) Those who stayed, however, had significant and often
rewarding opportunities to network with third-country
investors looking for partners, with Iraqi businessmen
looking for partners/suppliers, and with contractors. Many
local participants commented at the end of the conference
that they had done more business that day than in the
previous month. Contractors and CPA officials also held
break-out sessions with small groups of interested
businesses, and Bechtel and CPA officials held an additional
five hours of one-on-one sessions with individual businessmen
throughout the conference day. Key Iraqi business leaders in
Amman took over one of the break-out rooms early in the day
and could be seen "holding court" with interested parties
both from Jordan and from third country delegations.

9. (sbu) Representatives from primary contractors were
impressed at the professionalism and capabilities of the
Jordanian companies with which they met. Both the Bechtel
and the ABT reps noted that they had developed solid leads
for suppliers as a result of the conference.

KEY JORDANIANS RECEIVE PERSONAL MESSAGE

10. (sbu) Following the conference, the Ambassador held an
informal round table for key Jordanian business leaders with
CPA officials and primary contractors. The business leaders
appreciated CPA's views on the on-the-ground realities in
Baghdad, and came away reassured that the USG is focused on
what the key short- and long-term issues are for Iraq, and
that the CPA had a plan to address those issues
systematically. Business leaders stressed that the single
most critical piece of infrastructure holding back commerce
in Iraq was the re-establishment of financial institutions
and a banking sector. Following closely behind as a key need
was the establishment of civil courts to provide a measure of
protection for investors.

11. (sbu) Some business leaders noted that ultimately,
those who were sincere about taking advantage of
opportunities would just have to jump in with both feet,
accepting the inherent security and financial risk in
exchange for potentially significant rewards. At the same
time, some business leaders observed that financial risks for
Jordanian companies were, on the whole, relatively higher
than for businesses in, for example, Kuwait - mostly because
of greater availability of venture/risk capital in the Gulf.
Business leaders said they would welcome the establishment of
some sort of umbrella arrangement by the CPA to provide some
measure of investor protection.

12. (sbu) Ultimately, many business leaders agreed that the
optimal business plan for now would be to partner with a
knowledgeable Iraqi counterpart, both to spread the risk and
to take advantage of the local market expertise of Iraqi
partners. An Embassy contact at the palace told us
separately that his family was already renewing dormant
relationships with Iraqi importers and investment partners to
restart businesses that had been thriving prior to the onset
of UNSC sanctions.

ASSESSING THE CONCERNS

13. (sbu) This conference highlighted the thirst for any
information about Iraq, both in Jordan and in the surrounding
region. It also showed the deepening frustration many
companies are feeling over the inability to get an answer
regarding compensation claims for outstanding contracts -
both under the OFF program and through other trade
arrangements. We believe a decision on handling of
outstanding OFF contracts, and rapid placement of COTECNA
inspectors at border points to stamp documents would go a
long way toward dispelling much of the frustration and anger
in local business communities over contracts they feel they
entered into in good faith with the UN.

14. (sbu) On a similar note, the conference also
highlighted changing realities on the local business scene.
It is becoming increasingly apparent, even to old economy
stalwarts, that the "old ways" of doing business through
guaranteed carve-outs in protected markets for
non-competitive goods and services are rapidly falling by the
wayside. One telling example: Kellogg Brown and Root (KBR)
recently tendered the construction of a bypass road to
facilitate the rebuilding of a bridge in an Iraqi town. A
Jordanian consultant assessed the project at $300,000. Three
Jordanian bidders then colluded on their bids, putting in
offers starting at $1.2 million for the project. KBR was
forced to reject all three bids, giving the project instead
to an Iraqi firm for around $300,000. This sort of
self-destructive behavior is typical of old economy Jordanian
companies, and it is the sort of behavior that will
ultimately push them out of the reconstruction effort unless
they change their ways. The meteor of open competition has
struck the Jordanian business world, and those dinosaurs that
cannot adapt will ultimately fade away.
GNEHM

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