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Cablegate: Business Comments On Impact of Iraq

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 ADANA 0018

SIPDIS


BUSINESS SENSITIVE


ANKARA PASS TO IZMIR


E.O. 12958: N/A
TAGS: ECON EFIN ETRD BEXP BTIO TU IZ ADANA
SUBJECT: BUSINESS COMMENTS ON IMPACT OF IRAQ
TRADE ON SE TUREKY

1.(SBU) Summary: Southeast Turkey business
people have demonstrated continuing interest in
doing business in Iraq in discussions with
consulate personnel, but have yet to commit
significant resources pending resolution of
questions regarding security, export status of
goods and business viability assessments,
including business licensing and financing
issues. Agricultural trade, primarily cotton,
and textile manufacturing are at the center of
much local Turkish business interest. Meanwhile,
residents of the two closest Turkish border towns
to Iraq, Cizre and Silopi, note the negative
impacts of border trade on their incomes and
quality of life. End Summary.


2.(SBU-BUS SENS) A prominent Adana-based SABANCI
Holdings representative told PO recently that the
SABANCI group is disappointed that it recently
lost a small-medium bus manufacturing joint
venture bid in Iraq, but said it is determined to
find long-run investments in Iraq to pursue. He
offered AKBANK involvement in the Trade Bank of
Iraq as proof as well as the soon-to-open SABANCI
representative office in Irbil. He wondered how
textile exports from Iraq to the U.S. might be
viewed, too. Meanwhile he said that there are
some steady sales of SABANCI Group HAYAT bottled
water into Iraq, as well as LASSA tire sales
through Turkish-based retail distribution re-sale
to independent Iraqi outlets. He closed the
discussion by saying that the SABANCI Group is
also very interested in investing in state
enterprises once privatization commences,
mentioning specific interest in the cement
sector.


3.(SBU-BUS SENS) When asked where he thought
there might be evidence of recent heavy U.S.
investment positively affecting southeast
Turkey's economy, he discounted the impact that
the 2003 U.S. government approximately 700
million dollar in purchases would have locally.
He said most of the U.S. purchases were devoted
to fuels and that those monies stayed in Istanbul
or offshore. He said that drivers recruited from
southeast Turkey to deliver fuels and perishables
to Iraq were being paid low wages and now had to
declare income openly that they pre-war had
shielded from tax authorities. He also said that
many local agha's in the southeast played a major
role in regional trucking and were receiving the
lion's share of transportation expenditures. He
described this group as having " little tradition
of save and re-invest in the region," saying they
may have started purchases of construction
commodities related to new up-scale personal
housing, but that most money had probably found
its way to Istanbul or elsewhere outside the
region.


4.(SBU) EUCOM Forward liaison contacts who have
been working the ground line of communications
since Spring 2003 note some economic development
along the approximately 600 KM route, including
more available consumer goods in Silopi and the
appearance of several truck stop-like break areas
on the western and central parts of the route.
They note, however, that the roadbed on the route
is in bad repair, especially sections between
Gaziantep and Sanliurfa, and in Mardin and Sirnak
provinces. Comment: Consulate concurs based on
its own recent travel along route. End Comment.)


5.(SBU-BUS SENS) SANKO representatives have
indicated that they have little exposure to 2003
Iraq border trade beyond significant sales of
SANKO-Group NESTLE joint venture bottled water.
They described these plants as working at almost
full capacity, but declined to consider expanding
bottling capacity, viewing the market as
profitable, but short term since Iraqi water
bottling soon would start. They said that they
would await further security stabilization before
considering participation in the Iraqi market,
focusing instead on increasing efficiency in high
value-added textiles and expanding their
synthetic textile production.


6.(SBU-BUS SENS) The SANKO representative hinted
that the group would like an outside investor to
join them in significantly expanding their small
naptha-cracking facility in Yumurtalik, near
Adana, to build their synthetic fiber source
base, among other uses. They said that they
already have more than adequate land at the
existing site for significant plant expansion.


7.(SBU-BUS SENS) A young, yet successful and
quickly rising, member of a Diyarbakir integrated
textile firm which is entirely owned by a
prominent Kurdish family told PO in late January
that he had visited Iraq twice recently and found
it highly underdeveloped. Nevertheless, seeking
early access to projected later growth sectors,
he wanted to buy a currently empty entire textile
factory in Kirkuk and added that he was willing
to buy all northern Iraqi cotton output for 2004
to get the plant running. He projected that he
could employ up to 400-500 people should he be
able to complete the sale. He said that
completing the transaction was still unclear
because his family found it somewhat "disloyal"
for him to invest in Iraq now because the
southeast Turkish economy was suffering so.
Nevertheless, he said that he had found a good
Iraqi lawyer to "work the system in northern
Iraq" and would proceed over family whisper
dissent if he could find adequate trustworthy
Iraqi management for the enterprise and a manner
to secure a durable business license and
transparent tax treatment. He also strongly
stressed his desire to see at least the U.S.
import Iraqi-source textiles on a quota-free
basis.


8.(SBU-BUS SENS) In the interim, he said that he
was starting a northern Iraqi-based water
bottling business, even though he had little
experience in the sector, in conjunction with a
more experienced Turkish partner. He said that
he found a suitable source when looking for
textile factory sites during a November 2003
visit to Iraq.


9.(SBU-BUS SENS) A Cizre local contact presented
another side of the Iraqi border trade to PO
recently. He said that the heavy truck traffic
heading into/out of Habur Gate had heavily
damaged area roads and created environmental
damage, including major air and water pollution.
(Comment: Silopi and Cizre municipal officials
and local travel corroborate this statement. End
Comment) This contact also noted that local
traders now have to pay "rich businessmen" for
the right to carry a legitimate cargo into Iraq
in order to buy low-cost Iraqi fuel to bring back
to Turkey to sell on the gray market. Given 10-12
day transit times through Habur and the 100
dollar a load "cargo access fee" supposedly
involved, he said local truckers were getting by
on perhaps 500-600 dollars a month, much of which
they had to spend on food and board in Iraq
waiting to clear lengthy Turkish customs
procedures on each trip. He said that this was
deepening the "rich-poor divide" in deep
southeast Turkey and building resentment at the
border trade situation.
REID

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