VZCZCXRO9244
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHMOS
DE RUEHKUK #0112/01 1300736
ZNR UUUUU ZZH
P R 100736Z MAY 06
FM REO KIRKUK
TO RUEHC/SECSTATE WASHDC PRIORITY 0655
RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0617
INFO RUCNRAQ/IRAQ COLLECTIVE
RUEHKUK/REO KIRKUK 0683

UNCLAS SECTION 01 OF 02 KIRKUK 000112 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAID EFIN EINV PGOV PREL IZ
SUBJECT: KRG WOOING "COWARDLY CAPITAL" WITH NEW INVESTMENT STRATEGY 
 
REF: 2005 BAGHDAD 4006 
 
KIRKUK 00000112  001.2 OF 002 
 
 
SENSITIVE BUT UNCLASSIFIED, PROTECT ACCORDINGLY 
 
¶1. Summary: The KRG is attempting to win-over hesitant foreign 
investors with a combination of new airports, trade shows, and 
investment incentives.  In a meeting April 22 with KRG Deputy 
Finance Minister Abdullah Abdulrahim, Abdulrahim told Emboffs 
that he welcomed input and U.S. technical assistance to develop 
KRG banking and investment laws.  He said that of the 2,500 
companies registered in the KRG, 309 were foreign; the vast 
majority of these are contracting and construction forms 
however, bringing almost no actual investment.  Abdulrahim made 
a strong pitch for a U.S. Consulate in Erbil.  End Summary. 
 
¶2. (SBU) In a meeting on April 22 in Erbil with KRG Deputy 
Finance Minister Abdullah Abdulrahim and Director General of 
Trade Aziz Abdo, Baghdad EmbOffs, USAID Representative, and IPAO 
discussed the KRG's strategy for attracting new investment to 
the region and bolstering both investment laws and the banking 
sector. 
 
"Cowardly Capital" and KRG's Investment Strategy 
--------------------------------------------- --- 
 
¶3. (SBU) Abdulrahim attributed the lack of foreign investment in 
the Kurdistan Region to what he called "cowardly capital," which 
he explained is a deterrence from investing by foreign companies 
due to a misperception that the security situation is poor all 
over Iraq.  He expressed frustration over investors' continuing 
hesitancy, despite a concerted KRG effort to market the message, 
that northern Iraq is safe and ready for investment. 
 
¶4. (SBU) Abdulrahim said that the KRG's Ministry of Finance 
(MinFin) viewed the Kurdish region as the ideal starting point 
for foreign companies seeking to enter Iraq.  He identified 
infrastructure development - including two new regional 
airports, trade shows, and investment incentives as efforts made 
by the KRG to attract foreign capital.  He also admitted the 
need to establish international banking services and codify the 
proposed KRG Investment Law. 
 
¶5. (SBU) The KRG wants to host national trade shows that can't 
be held in Baghdad because of security concerns.  He said Erbil 
hosted the DBX trade show last year where over 300 well-known 
companies successfully participated, networked locally, and 
assessed the situation first-hand (Reftel).  The KRG planned to 
hold several events in the next year, including trade shows, 
book shows, and industry expos, with the hope that potential 
international investors would participate. 
 
Draft Investment Law Awaits Merge of KRGs 
----------------------------------------- 
 
¶6. (SBU) Abdulrahim said that the KRG government in Sulaymaniyah 
already had tourism and tax laws relevant to investors. 
However, there is a new draft Investment Law agreed to by KRGs 
in both Sulaymaniyah and Erbil that is awaiting approval by the 
Kurdistan National Assembly once the two KRGs merge.  (Note:  We 
received a copy of the investment law and are having it 
translated).  He welcomed U.S. technical assistance to improve 
the law, and said its content already reflected KRG MinFin's 
efforts to learn from other countries. 
 
¶7. (SBU) Investment incentives in the draft Investment Law 
include: 
Joint ventures and 100% foreign ownership permitted; 
100% repatriation of profits; 
10 years of tax-free status; 
No restriction on use of imported labor; and 
Land either provided by the KRG or leased on, for example, in a 
99-year contract. 
 
Not All Companies Staying Away 
------------------------------ 
 
¶8. (SBU) According to Trade DG Abdo, over 2,500 companies have 
registered with the KRG MinFin, including 309 international 
companies, predominantly in the construction industry.  The 
international companies include: 201 Turkish, 12 Iranian, 10 
Lebanese and nine British companies.  The five American 
companies are Mid-Atlantic Construction, Washington 
International Construction, Paranto Security, Lincoln Group 
Construction, and the Andora Group. 
 
¶9. (SBU) Abdo noted that virtually all of the foreign companies 
in the Kurdistan Region are contractors, however, not/not actual 
investors.  He expressed the need for the IRG to see increased 
capital flows into the region, noting that investment in the 
region now currently comes almost entirely from local Kurds, 
with a small percentage coming from Baghdad.  Abdo said it 
pained him to see "southern" Iraqis take their capital and 
 
KIRKUK 00000112  002.3 OF 002 
 
 
investment to Jordan or elsewhere in the Middle East, instead of 
the Kurdish region.  He claimed this is an investment mentality 
held-over from the Ba'athists. 
 
Weak Banking Sector Stymies Investment 
-------------------------------------- 
 
¶10. (SBU) Abdulrahim said the region's banking system lacked 
sophistication and deterred investment.  He described the 
Central Bank in Baghdad and the Harim Bank, which has branches 
in the Kurdistan Region, as "big safes to store money in, not a 
banking system attractive to investors."  Abdulrahim requested 
U.S. assistance in encouraging international banks, especially 
from the U.S., to enter the market.  (NOTE: HSBC reported March 
3 that they have received their licenses to operate in Irbil and 
Sulimaniyah. END NOTE).  The Kurds feels left out from any 
national strategy for development of the banking sector (NOTE: 
Despite regular meetings between Harim Bank's general director 
with Central Bank officials in Baghdad, the DG says he still 
feels "remote" from events in the capital.  END NOTE). 
Abdulrahim insisted that he wants a strategic partnership with 
Baghdad on all issues including banking, but believes Baghdad 
needs to make ministerial level changes before a good 
relationship can be established. 
 
¶11. (SBU) Abdulrahim highlighted the negative fall-out of poor 
communication between the KRG and the central government, 
stating that although the MinOil in Baghdad signed all fuel 
contracts since January, including one with Turkey, the public 
still blames the KRG for fuel shortages.  He warned that things 
were linked:  If the oil shortage continued, 1000s of families 
would suffer, and eventually, if things were not resolved 
quickly, security would become an issue. 
 
Relationship with Central Government Needs Nurturing 
--------------------------------------------- ------- 
 
¶12. (SBU) Abdulrahim felt it was critical that the KRG be 
involved in central policy decisions in order to defend itself. 
In addition to coordination on banking and oil issues, he added 
that coordination on consumables is vital.  It is the 
responsibility of the Ministry of Trade in Baghdad to sign 
contracts in regards to delivery and the quality of food 
provided under the Public Distribution System (PDS); however, 
the KRG still took the blame for shortages in the region, he 
claimed. 
 
¶13. (SBU) Abdulrahim urged the formation of a coordination 
committee to define a strategy for financial and revenue 
development.  Three years passed, but so far not a single GOI 
MinFin official delegation has visited Erbil, despite repeated 
invitations.  Abdulrahim expected the KRG merger to improve the 
situation, however, but added that the political reality is such 
that some Kurds believe that the national government in Baghdad 
will make decisions contrary to the KRG's best interests. 
 
Request for US Consulate in Erbil 
--------------------------------- 
 
¶14. (SBU) Abdulrahim made a concerted push for the U.S. to 
establish a consulate in Erbil to "better facilitate KRG 
communication with the U.S. government" and benefit the Kurdish 
community at-large.  He claimed a permanent physical U.S. 
presence would provide people a peace of mind and help adjust 
their thinking towards more optimistic and forward leaning 
strategies in all fields, including the economy and investment. 
 
BIGUSBELL