VZCZCXRO2032
PP RUEHROV
DE RUEHGB #0996/01 0810644
ZNR UUUUU ZZH
P 220644Z MAR 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 0311
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 03 BAGHDAD 000996 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAGR IR IZ
SUBJECT: PRT TIKRIT: SALAH AD DIN BUSINESS LEADERS STEP 
FORWARD 
 
REF: 06 BAGHDAD 4728 
 
¶1. This is a PRT Tikrit, Salah ad Din cable. 
 
¶2. Sensitive but unclassified, entire text. 
 
¶3. SUMMARY.  Leaders from Salah ad Din,s emerging private 
sector met on March 15 for an inaugural provincial business 
and investment conference.  The talks, held in Tikrit, 
brought together 36 delegates representing a wide spectrum of 
industries.  In addition to discussing possible solutions for 
the chief obstacles to economic growth - the abysmal security 
situation, the lack of adequate banking/financial services, 
and distrust of local government - as well as potential 
solutions, attendees also broke ground at the conference. 
They expressed frustration with a provincial governance 
process perceived to lack transparency and unresponsive to 
the business community, representatives took the first 
tentative steps toward political mobilization.  The 
conference, sponsored by the PRT but primarily organized by 
local leadership, provided a forum for enhanced dialogue 
between important players in the business community.  Even 
more importantly, it may serve as a springboard to greater 
public inclusion in the political process in Salah ad Din by 
providing a platform for citizens to demand accountability on 
the part of the provincial government.  END SUMMARY. 
 
---------------- 
Swimming Upstream 
----------------- 
 
¶4. The private sector in Salah ad Din is struggling to 
establish itself in a province devastated economically by 
lingering insurgent war, a de-Baathification program which 
forced a high percentage of SaD professionals out of their 
jobs, and extreme refined fuel shortages.  In addition to 
these problems, the private sector here is nascent.  During 
the previous regime, the government and military were the 
leading employers in Salah ad Din; when those jobs 
disappeared in 2003, so did much of the economic life blood 
of the province.  Facing a still uncertain future, an 
assembly of leaders representing a wide spectrum of the 
provincial economic scene ) from construction contractors to 
university economics professors - met on March 15 in Tikrit 
to discuss challenges and opportunities for the business 
community.  Several themes materialized from a free-wheeling 
discussion lasting over five hours.  Potential 
investors/entrepreneurs are hamstrung by a range of 
challenges ) the appalling security situation, a lack of 
banking/financial services, a shortage of trained personnel, 
etc.  In dialogue which knew few limitations, delegates 
blamed the poor state of affairs in SaD on everything from 
undue influence by Iranian &insects8 at the Bayji oil 
refinery to the lack of a five-star hotel in Tikrit. 
However, moderate heads prevailed, and conference attendees 
remained largely focused on practical issues. 
 
¶5. Reflecting a widespread frustration with perceived 
corruption and lack of accountability to the public within 
the provincial government, conference attendees demanded 
increased visibility in the provincial governance process on 
the part of the business community.  For the first time seen 
here, representatives began to discuss the organization of a 
lobbying group capable of projecting influence during the 
provincial budgeting process.  Significantly, attendees also 
called for increased use of the media in order to communicate 
directly with the public and to promote policies beneficial 
to the private sector. 
 
------------------------------- 
Lack of Security Still Paramount 
-------------------------------- 
 
¶6. The present security situation negatively affects almost 
every walk of life in SaD, creating a climate extremely 
non-conductive to domestic and international investment 
alike.  In some ways the analysis for those considering 
investment is clear: the potential benefits of investing in 
many areas of Salah ad Din do not yet outweigh the potential 
costs.  However, beyond this calculation may lay a more 
fundamental impediment to the opening of new shops, market 
stalls, and other bedrocks of economic growth.  Nearly every 
attendee emphasized the ubiquitous fear which permeates the 
lives of most SaD residents, fostering a risk-averse climate 
and deterring many from investment.  According to most of the 
participants, until a majority of citizens feel a significant 
improvement in their personal security, economic life in SaD 
is unlikely to blossom.  Nearly all conference attendees 
emphasized the critical importance of the local ISF to 
increase its capabilities to provide security, especially in 
the larger cities. 
 
 
BAGHDAD 00000996  002 OF 003 
 
 
-------------------------- 
The Mattress is Still Handy 
--------------------------- 
 
¶7. There are presently four government-run banks in Salah ad 
Din: the Al Rashid, the Al Rafadan, the Agriculture, and the 
Real Estate banks.  According to atmospheric reports and 
interviews in Tikrit and Bayji, government banks are viewed 
by many to be plagued by mismanagement and corruption, and to 
also lack vital services.  (NOTE: For example, during 
interviews conducted in a Samarra marketplace on February 14, 
entrepreneurs and shop owners overwhelmingly voiced distrust 
with local financial institutions, claiming that their money 
would be stolen either by bank employees or armed 
&bandits8.  END NOTE.)  (COMMENT: This failure of 
government banks to provide necessary financial services 
appears to be a significant impediment to economic growth: 
several shop owners told IPAO that they would consider 
expanding the scope of their business if they had access to a 
loan.  END COMMENT.)  Echoing concerns heard on the street, 
conference attendees highlighted the limitations of 
government banks: low accessibility for loans for most 
residents (extremely high collateralization required), lack 
of electronic transfer capabilities, and weak (if any) 
financial protection (septel).  Khatan Rahim Wahib, chairman 
of the Department of Economics at the University of Tikrit, 
spoke for most representatives when he described the 
government banks as &a dead body, affecting the economy in a 
bad way.8 
 
¶8. The embryonic private banking industry experienced limited 
success thus far in filling the growing demand for financial 
services.  The first privately owned bank in SaD, Al Mosul, 
opened in September 2006.  One of three branches recently 
opened (the others are in Sulaymaniya and Mosul, with another 
soon to open in Kirkuk), Al Mosul has experienced respectable 
if inconsistent growth.  Hussein Mahmoud Alkhalidi, the 
Tikrit branch general manager, emphasized that while the bank 
grew significantly in 2006 (from 2 billion ID in February 
2006 to 25 billion ID by March 2007), it still suffers from a 
number of technical challenges.  He blamed the Ministry of 
Communications (MoC) for failing to establish the necessary 
communications infrastructure to support critical business 
services such as electronic fund transfers.  The bank also 
may lack basic expertise in areas fundamental to business 
success, for example, marketing; Alkhalidi,s primary means 
of advertising ) hand-out flyers ) may be a difficult 
proposition, especially considering the dire security 
situation.  (COMMENT: Another private bank, the Al Asher, is 
expected to be opened within several months, but it is likely 
that this institution will suffer some of the same problems 
initially as Al Mosul.  END COMMENT.) 
 
--------------------------------------------- --- 
Contractors Frustrated with Contracting Process, 
Corruption 
--------------------------------------------- --- 
 
¶9. Totaling 117 million USD in 2007, the provincial budget ) 
mainly manifested by capital projects - provides the chief 
economic stimulus in SaD.  However, conference attendees 
voiced frustration with a provincial contracting process 
perceived by many to be unfair and lacking accountability, 
stating that there did not appear to be a transparent system 
stipulating the awarding and payments of contracts. 
Suspecting fraud, Mansoor Hamed Saleh, a Tikrit businessman 
representing the construction trade, told IPAO that he was 
unaware of how the provincial council made its contracting 
decisions.  According to Saleh, contracts were often doled 
out to more expensive companies which were unable to perform 
the tasks for which they were hired.  (COMMENT: The 
propensity of contactors believing that it is a mistake to 
hire their competitor is not unique to Iraq.  However, the 
veracity of this sentiment may be supported by the previous 
ad hoc provincial government contracting process (before the 
new Ministry of Finance regulations), which was often carried 
out with little accountability or oversight, reftel.  END 
COMMENT.) 
 
¶10. Reflecting a common sentiment, conference attendees 
almost unanimously expressed disgust with a provincial 
government perceived to be rife with corruption.  Expressing 
disdain for the various committees appointed by the 
Provincial Council in part to fight corruption, Abdul Shihab 
Ahmed, a professor at the University of Tikrit, asked &how 
can corrupt committees eliminate corruption?8  It was a 
question left unanswered. 
 
------------------ 
Let,s Get Together 
------------------ 
 
 
BAGHDAD 00000996  003 OF 003 
 
 
¶11. For the first time, delegates began to discuss organizing 
into a group capable of exerting influence. The potential 
purpose of this group took several forms during the 
discussion.  While some attendees saw its role as attracting 
foreign investors, others envisioned a committee representing 
private industry which would be engaged with local 
decision-makers in the formation of the 2007 provincial 
budget.  Several attendees urged the creation of a committee 
charged with attracting international investors to the 
province, urging greater use of the media ) namely SaD TV ) 
as a means of leveraging public opinion. 
 
------ 
Comment 
------- 
 
¶12. There is no panacea for immediately improving the 
business climate in SaD.  Many of the challenges in 
attracting foreign investment, such as the poor security 
situation, will likely take years to overcome.  Due to its 
previous status as a government/military hub, there is 
probably not a sufficient amount of human capital ) 
salesmen, artisans, machinists, etc. - which form the heart 
of a private sector workforce and could support an immediate 
surge of business development.  Overcoming other thorny 
issues, such as the lack of modern financial services, will 
require a significant commitment from GOI - especially from 
the MoC - to upgrade and maintain essential communications 
infrastructure. 
 
¶13. However, the willingness of members of the private sector 
to meet and to come to a consensus regarding the difficult 
challenges facing them was an important step forward.  The 
greatest immediate impact will not likely be economic, but 
political (which may later lead to economic improvements). 
The movement stirring within the business community to 
mobilize and exert greater influence upon a provincial 
government largely unaccountable to its constituents in the 
past is potentially a significant step forward.  The 
proposals from numerous attendees to form a lobby group and 
exploit the mass media (SaD TV) in order to communicate their 
platform to the public suggests a new savvy emerging within 
the private sector, an awareness of the hard realities of 
functioning within a ) albeit embryonic ) democratic 
process.  This development may bode very well for the 
encouragement of more transparent and inclusive governance in 
SaD. 
 
¶14. The lack of clarity for many in the business community 
regarding the provincial contracting process underscores the 
importance of the recently released Ministry of Finance 
regulations, which mandate an open and transparent process. 
Failure on the part of provincial governments to implement 
this promising system could represent a significant setback 
regarding the establishment of greater credibility for 
provincial governments in the eyes of their citizens. 
 
¶15. PRT Salah ad Din will continue to strongly encourage 
participation of the private sector in the provincial 
government budget execution process in 2007.  END COMMENT. 
 
¶16. For additional reporting from PRT Tikrit, Salah ad Din, 
please see our SIPRNET reporting blog: 
http://www.intelink.sgov.gov/wiki/Tikrit. 
 
 
 
 
 
 
KHALILZAD