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Cablegate: Prt Ninewa: Local Business Say What It Would Take

VZCZCXRO8627
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3672/01 3100317
ZNR UUUUU ZZH
P 060317Z NOV 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 4226
INFO RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RUEKJCS/DIA WASHDC PRIORITY
RHMFISS/HQ USCENTCOM MACDILL AFB FL PRIORITY
RHMFISS/HQ USEUCOM VAIHINGEN GE PRIORITY

UNCLAS SECTION 01 OF 02 BAGHDAD 003672

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV PREL EAGR EAID PTER IZ
SUBJECT: PRT NINEWA: LOCAL BUSINESS SAY WHAT IT WOULD TAKE
TO BOOST COMMERCE

REF: BAGHDAD 3349

1. This is a Ninewa Provincial Reconstruction Team (PRT)
message.

Summary
-------

2. (SBU) Provincial Reconstruction Team Ninewa (PRT)
regularly engages the Iraqi private sector in and around
Mosul, a region known for its historically active traders,
agricultural processors and construction material
manufacturers. However, the restrictive security
environment, an energy crunch (reftel), a lack of credit
(septel) and an ignorance of market economy operations
constrain these potentially profitable industries in this
northern Iraqi province. This cable condenses the views of
provincial entrepreneurs, as described to the PRT over the
last three months.

Security Constrains Market Activity
-----------------------------------

3. (SBU) Security, particularly in the sense of
transportation security and extortion by criminal or
terrorist elements, is a clear hindrance to both trade and
the development of any profitable -- and, thus, high-profile
-- business in Ninewa. Coalition Forces and the Iraqi
Security Forces are addressing this issue, which also
includes security-related delays at the province,s Syrian
border crossing. Nonetheless, business owners in Mosul and
outlying towns complain that they cannot move safely between
towns and to the border.

Fuel Shortages, Dual Price Structure Hurt Business
--------------------------------------------- -----

4. (SBU) Fuel and electricity shortages are macro-level
issues that directly and negatively affect all commercial
activity in Ninewa. Legal provincial fuel deliveries depend
solely on the huge Baiji Oil Refinery, Salah ad Din province,
which is incapable of meeting the province,s demand. The
Ministry of Oil allocation for Ninewa is estimated to cover
only 50 percent of the province,s need, while security and
other factors limit the delivery of even that meager amount
to about 75 percent of the allocation (about 35 to 40 percent
of demand). This fuel shortage impedes commercial transport
and agricultural operations (reftel). (Note: The allocation
problem persists even though the Governor speaks daily with
the Oil Distribution Manager for northern Iraq.) Further, in
an environment of unmet electricity delivery off the national
grid, this fuel shortage is particularly harmful since many
Ninewa businesses and irrigation pumps rely on gasoline- and
diesel-fed generators. GOI support for artificially low gov
ernment fuel prices, together with impediments to official
and private fuel imports, impede supply and create a black
market in fuels. Support for increased government and
private imports and a unified fuel price structure where the
official fuel price matches the world market price are
systemic changes in the fuel economy that would have direct
benefits for Ninewa businesses, eliminate rent-seeking
behavior and cut out black market profiteers.

Credit Crunch Limits Commerce
-----------------------------

5. (SBU) Access to increased credit is the third major
commercial issue in Ninewa. While local businesses may
initially say that they want more "foreign investment," they
will explain that what they actually want is direct
assistance to overcome high prices and low supplies of fuel,
electricity and other inputs. Rather than direct cash
assistance, increased access to credit would help them solve
their own problems through a system of revolving credit,
purchase and repayment. Support for increased lending at the
state-owned banks and lending institutions, a reduction in
the Central Bank of Iraq deposit rate, and bottom-up support
of microlending institutions would all help increase the
credit available to entrepreneurs who already have the
commercial skills and connections to be successful in Ninewa.

Training, Preparation for Int'l Market Important, Too
--------------------------------------------- --

6. (SBU) In the context of the four major commercial issues
facing Ninewa,s immature commercial environment -- security,
energy, credit and training -- assistance in training and

BAGHDAD 00003672 002 OF 002


mentoring to build commercial skills and connections is the
area that American companies could be most effective.
Emerging from decades of state direction and subsidization
under Saddam,s regime, Iraqi businesses lack the skills,
first, to manufacture internationally competitive products
and, second, to effectively market them on the international
stage. Capacity building to boost the Iraqi ability to
engage the newly liberalized Iraqi market could include
training in accounting, business model creation, proposal
writing and market research to help Iraqi companies identify,
produce for and sell to local and regional markets.

Comment: Areas for Specific US Opportunities
--------------------------------------------

7. (SBU) In specific industries, the most promising
possibilities in Ninewa for American investment and
cooperation are in the construction and agricultural
processing fields. Building on the backbone of an existing
state-owned cement factory that is in the process of
privatization, coupled with a high -- and domestically unmet
-- demand for building materials, American public and private
engagement with the construction and construction material
industry may be particularly fruitful. Iraqi companies are
already asking about everything from large-scale investment
in the cement plant to project-level coordination on civic
structure construction.

8. (SBU) Similarly, American engagement with downstream
agricultural processors to capitalize on Ninewa,s robust
farming economy would likely offer a profitable means to help
meet the domestic shortage of basic foodstuffs. In this
field, businessmen are already reaching out to American
investors interested in supporting local tomato and sesame
processing plants. In both construction and agricultural
processing, there is an established production base, a known
market and, given Ninewa,s location near Syria and Turkey,
an opportunity to expand incrementally beyond the Iraqi
market as local capacity develops.
CROCKER

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