VZCZCXRO4954
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0747/01 0731307
ZNR UUUUU ZZH ZDK
P 131307Z MAR 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 6208
INFO RUCNRAQ/IRAQ COLLECTIVE
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 05 BAGHDAD 000747 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAID IZ
SUBJECT: MND-C ECONOMIC SITUATION: A VIEW FROM MND-C POLAD 
 
BAGHDAD 00000747  001.2 OF 005 
 
 
 ¶1. SENSITIVE BUT UNCLASSIFIED -- ENTIRE TEXT. 
 
¶2. (SBU)  SUMMARY. In the Multi-National Division Center 
(MND-C) area of responsibility (AOR) improved security, the 
return of stability and normalcy, the emergence of economic 
activity and our increasing ability to engage with Iraqis 
have combined to create a window of opportunity to generate 
sustainable jobs, income and economic growth.  However, 
maintaining positive momentum will be a challenge as 
Commander,s Emergency Response Program (CERP) and USG 
civilian agency funding shortfalls constrain our ability to 
continue both local reconstruction projects and micro grants 
programs to spur local economic activity.  Government of Iraq 
(GOI) funding processes are not yet efficient enough to 
compensate.  Transitioning from security and stability 
operations to building government capacity at the nahiya, 
qada and provincial level is crucial.  With the passage of 
the 2008 national budget, substantial new funding will be 
allocated to the provinces in the MND-C AOR (Baghdad, Babil, 
Wasit, Karbala and Najaf).  Provincial level governments must 
demonstrate that they can execute their budgets to complete 
sorely needed reconstruction and infrastructure projects and 
to provide basic services. 
 
3 (SBU).  MND-C has effectively used micro grants to kick 
start local economic activity; however, this nascent economic 
activity may not be sustainable without access to credit 
resources that can offer loans at reasonable interest rates. 
The need for USG civilian agency resources and expertise is 
increasing as are opportunities for private sector 
investment, particularly in industrial, agricultural and 
tourism enterprises.  We are at the front edge of 
reestablishing vocational training facilities in the MND-C 
AOR but much greater effort and resources will be needed in 
this area to prepare Iraqis to rejoin the civilian workforce. 
 A concerted national and provincial level effort to enact 
policies, direct resources and support initiatives such as 
&Buy Iraqi First8 to capitalize on ongoing business 
development and to encourage private investment appears to be 
lacking.  MND-C Commanders are concerned that without 
continued emphasis and resources directed at developing 
long-term, sustainable economic growth that this window of 
opportunity may close.  Of particular concern is the 
transition of Sons of Iraq from their current security roles 
to the civilian workforce.  END SUMMARY. 
 
MND-C AOR ) ECONOMIC DEVELOPMENT HURDLES 
---------------------------------------- 
 
¶4. (SBU)  MND-C,s AOR consists of the southern rural 
districts of Baghdad (Mahmoudiyah and Madain qadas), Babil, 
Wasit, Karbala and Najaf provinces.  Farmland makes up 70% of 
the MND-C, with the land between the Tigris and Euphrates 
Rivers renowned for its fertility.  However, Saddam era 
policies, wars and neglect have set the agribusiness sector 
back twenty years.  Many other factors exist that inhibit 
economic development throughout the area: provision of basic 
services such as drinking water, sewer, electricity, and fuel 
is inconsistent; infrastructure such as water pumps, 
irrigation canals, water treatment plants, electrical 
substations and power lines is insufficient, damaged and/or 
destroyed; formulation and execution of government budgets is 
halting and slow; existing state run enterprises are 
non-operational or only in the beginning stages of 
revitalization; there is insufficient investment into the 
private sector and credit resources are lacking.  As a 
result, unemployment and underemployment rates are high. 
Currently, the largest single employers in the MND-C AOR are 
the GOI (both security forces and civilian workers) and the 
U.S. military (through the Sons of Iraq security program). 
SECURITY IMPROVING 
------------------ 
 
¶5. (SBU)  MND-C,s relentless pursuit of the enemy, combined 
with more capable Iraqi Security Forces (ISF) and bolstered 
by Sons of Iraq (SOI) has created security conditions that 
allow for a return to normalcy/stability in virtually the 
entire MND-C AOR.  MND-C forces live among the population on 
56 patrol bases and combat outposts throughout the MND-C AOR 
providing security and bringing stability to local 
communities.  Joint operations between MND-C and ISF are 
increasing with ISF often taking a lead role.  SOIs operate 
in their local communities manning check points, providing 
intelligence that has led to the capture of nearly 500 
insurgents and locating and turning-in weapons caches and 
IEDs. Since June 2007, attacks in the MND-C AOR have 
decreased by 77%.  Civilian casualties have decreased by 61%, 
MND-C casualties have decreased 67% and Iraqi security force 
casualties have decreased 87%.  During the final week of 
February MND-C forces did not suffer a single casualty ) a 
 
BAGHDAD 00000747  002.3 OF 005 
 
 
significant milestone. 
 
¶6. (SBU)  As a result of the improved security environment, 
MND-C soldiers and embedded Provincial Reconstruction Teams 
(ePRT) and Provincial Reconstruction Team (PRT) members are 
able to regularly operate in local communities developing and 
strengthening relationships with Iraqi citizens, business 
organizations, agricultural unions, governing councils and 
tribal sheiks.  &Security can no longer be used as an excuse 
not to conduct business in the MND-C AOR.8 
 
CERP 
---- 
 
¶7. (SBU)  To stabilize communities, spur reconstruction and 
kick start local economic activity, MND-C forces have 
utilized Commander,s Emergency Response Program (CERP) funds 
throughout the MND-C AOR.  CERP has funded humanitarian 
assistance, community clean-up, reconstruction (government 
buildings, schools, medical facilities, water treatment 
facilities, water pumping stations) canal cleaning, road 
maintenance, bridge repairs, market development, training 
opportunities and quality of life projects (athletic fields, 
parks), etc.  MND-C has initiated over 1200 CERP projects, 
infusing $137 million into the economy and has paid out 
nearly $750,000 in micro grants for small business start-ups. 
 In many Iraqi communities throughout MND-C AOR, MND-C 
soldiers are seen as effective agents of reconstruction and 
assistance.  CERP funds also pay the salaries of over 35,000 
SOIs in the MND-C AOR - $11 million per month.  Not only has 
the SOI program improved security and made Iraqis feel safer 
in their own communities; it also provides jobs and incomes 
for military aged males, and an infusion of cash into these 
communities. 
 
¶8. (SBU)  MND-C soldiers and interagency ePRT/PRTs have 
successfully developed and implemented reconstruction 
projects and programs in cities, towns and villages 
throughout the MND-C AOR utilizing CERP funds.  In Jurf As 
Sakhr, a town that had once been an Al Queda stronghold, 
MND-C soldiers secured the town and established a local 
patrol base.  USAID representatives in the local ePRTs were 
then able to launch a program to identify and train local 
merchants and craftsmen, assist in the development of 
business plans and then provided $14,000 in micro grants that 
financed the establishment of forty-five small businesses. 
In Salman Pak, MND-C soldiers routed Al-Queda and then 
rebuilt the local governance center, a medical facility, 
schools and a marketplace.  After almost five years of having 
to operate in another town, the Madain qada council was able 
to return to its traditional seat in Salman Pak.  MND-C has 
worked in conjunction with Iraqi government entities 
throughout the area to repair pump stations and clean 
irrigation canals.  While there is still work to do, water 
flow has been reestablished in much of the irrigation system, 
resulting in irrigation water reaching large swaths of 
farmland.  Where water flow has been restored farmers are 
plowing fields, planting crops and vegetables and raising 
livestock.  However, CERP and other USG funding limitations 
will constrain our ability to execute these types of local 
reconstruction projects and micro grant programs; while GOI 
funding processes are not yet efficient enough to compensate. 
 
CAPACITY BUILDING AND BUDGET EXECUTION 
-------------------------------------- 
 
¶9. (SBU)  Per Operation Marne Fortitude II launched on 
January 1, 2008, MND-C is endeavoring to increase the 
capacity of provincial governments, strengthen Iraqi Security 
Forces and create economic growth while maintaining the 
security gains from the force surge.  MND-C,s transition 
from stability operations to capacity building is currently 
underway.  MND-C and the ePRT/PRTs are engaging nahiya, qada 
and provincial departments and councils throughout the AOR. 
USAID,s Local Governance Program provides training and 
guidance and continues to assist with strengthening linkages 
between levels of government.  With the passage of the 2008 
national budget, substantial new funding will be allocated to 
the provinces in the MND-C AOR (Baghdad, Babil, Wasit, 
Karbala and Najaf).  In February, Ambassador Crocker directed 
PRTs that "Improving budget execution must be our top 
priority this year."  MND-C soldiers will support this effort 
by facilitating engagements between USG and GOI government 
officials.  Additionally, MND-C units continue to gather 
detailed information on local communities, infrastructure 
needs and reconstruction projects.  MND-C is providing this 
information to nahiya, qada and provincial departments and 
councils to assist in budget planning and execution. 
NEED FOR CREDIT 
--------------- 
 
BAGHDAD 00000747  003.4 OF 005 
 
 
 
¶10. (SBU)  MND-C has effectively used micro grants to spur 
local economic activity, focusing on small businesses and 
retail stores.  The demand for grants is increasing and some 
recipients are beginning to request additional grants to 
expand their businesses or open additional businesses.  In 
Yusufiyah, a local businessman sought a $300,000 loan to 
upgrade and expand an existing community produce, electronics 
and general merchandise market.  The USG has no assistance 
program loans of this magnitude or nor does the Government of 
Iraq loan programs operating in our AOR, therefore we cannot 
direct Iraqis to them.  USAID representatives have informed 
us that current USAID Izdihar loan programs will continue to 
operate but will not receive additional funding as USAID 
transitions to the Provincial Economic Grown program.  To 
bridge this gap, USAID representatives operating in MND-C AOR 
ePRTs/PRTs have offered to explore the possibility of 
utilizing QRF as capital to set up micro loan programs at 
local Iraqi institutions.  Without better access to credit at 
reasonable financing rates, the economic activity already 
generated may not be sustainable.  (EMBASSY COMMENT:  USAID 
Izdihar's current loan programs will have sufficient 
operating expenses and loan capital to continue operating 
efficiently for 3 to 6 months after Izdihar ends on March 31, 
¶2008.  USAID's new private sector development project, Tijara 
or PEG, will assume technical oversight of the micro-finance 
institutions (MFIs) after Izdihar ends, including provision 
of additional loan capital to the MFIs.  However, given the 
high demand for micro-loans throughout the country  and the 
questions surrounding the availability of funds for Tijara, 
USAID is encouraging PRTs/ePRTs to communicate the 
microfinance needs of their areas of responsibility to Tijara 
and consider utilizing QRF funds to provide loan capital and 
operating expenses to existing and new MFIs.  END EMBASSY 
COMMENT.) 
 
ECONOMIC DEVELOPMENT EMERGING 
----------------------------- 
 
¶11. (SBU)  Iraqi farmers, sheiks, business people, government 
officials and even religious leaders throughout the MND-C AOR 
are reaching out to senior MND-C and USG officials to affirm 
that they are ready to accept increased USG economic 
development assistance.  The need for USG civilian agency 
assistance, resources and expertise is increasing as are 
opportunities for private sector investment, particularly in 
industrial, agricultural and tourism enterprises that are 
emerging in the MND-C AOR. 
 
¶12. (SBU)  Two industrial complexes appear to be on the verge 
of major breakthroughs in productivity and job creation.  At 
the Iskandariyah Industrial Complex (IIC), once moribund 
state owned automotive and mechanical industries are back in 
business.  After investment by the Task Force for Business 
and Stability Operations (TF BSO) to purchase equipment and 
tractor kits, MND-C soldiers, ePRT business development 
specialists and TF BSO industry and marketing professionals 
worked alongside Iraqi plant managers on a daily basis to get 
the complex back in operation. IIC is now producing tractors, 
buses, dump trucks, container housing units and oil refinery 
components and other production lines are under development. 
Finalizing several major business contracts currently under 
discussion would provide the impetus for a substantial 
increase in utilization and employment.  In Nahrwan, 
privately owned and operated brick making facilities have 
been restarted and are producing millions of bricks per week. 
 Since January employment has increased from 1500 to 3500 at 
the complex.  Plans to expand from 120 kilns to 180 kilns are 
under consideration by the local brick makers, which could 
increase employment to 10,000. 
 
¶13. (SBU)  Also at the IIC VOTECH seven technical classes are 
being run and enrollment has increased from 23 students in 
December to over 400 in March.  USAID,s Community 
Stabilization Program (CSP) representatives are working with 
the VOTECH to provide stipends to students.  Under current 
projections, enrollment is expected to increase to over 1000 
by July.  Recently CSP representatives informed us that a 
major U.S. contracting firm operating in Iraq is considering 
hiring up to 5000 Iraqis nationwide and could utilize the IIC 
VOTECH as a training site.  (EMBASSY COMMENT:  It is not 
correct to assume that all of these individuals would train 
only through the Iskandariyah VoTech.  They could be trained 
at any of the other CSP VoTech sites.  It is also unclear 
what positions KBR is seeking to fill and whether MoLSA's 
VoTechs even teach the skills KBR is looking for.  END 
EMBASSY COMMENT.) 
 
¶14. (SBU)  Sustainable agricultural development is critical 
to MND-C AOR,s economic well-being.  MND-C along with 
 
BAGHDAD 00000747  004.4 OF 005 
 
 
provincial governments continues to repair and improve water 
pumps and irrigation canals.  MND-C and ePRT/PRT members are 
encouraging local farmers to form agriculture associations to 
give the farmers a collective voice and facilitate consistent 
access to seed, fertilizer and pesticides.  Mahmoudiyah 
poultry farmers and ePRT/PRT agribusiness experts conducted a 
detailed assessment of the poultry industry and hatched a 
plan to revitalize this industry that included the repair of 
hatcheries, feed mills and a processing plant. In Babil, PRT 
and USAID INMA representatives along with Iraqi owners of the 
Euphrates Fish Farm have studied the potential of the fish 
farm industry in North Babil and spawned a plan to revitalize 
several fish farms in the area. 
 
¶15. (SBU)  Najaf,s and Karbala,s importance as centers for 
Shia religion and culture is attracting increasing numbers of 
tourists as the security environment improves.  In January, 
the Ashura commemoration attracted 2 million visitors to 
Najaf, while in February, over 6 million pilgrims made their 
way to Karbala.  Even without these major annual events, 
religious-based tourism continues to grow in Najaf and 
Karbala.  In Babil, the historical significance of the Ruins 
of Babylon also has the potential to attract large numbers of 
tourists.  However, Najaf, Karbala and Babil currently lack 
modern infrastructure, hotel space and other modern amenities 
to support international tourism.  Najaf is taking an 
important step in its plans to develop and construct an 
airport.  MND-C does not have significant troop presence in 
either Najaf or Karbala (both have achieved Provincial Iraqi 
Control status).  Najaf and Karbala PRTs are often the lead 
USG presence in these provinces, but are currently working 
out of REO Hilla in Babil province.  MND-C is constructing 
office and housing facilities in Najaf and Karbala provinces 
so the PRT members can live, work and conduct engagements 
directly in these provinces. 
 
SUPPORT NEEDED TO MAKE IT SUSTAINABLE 
------------------------------------- 
 
¶16. (SBU)  A concerted national and provincial level effort 
to enact policies, direct resources and support initiatives 
such as &Buy Iraqi First8 to capitalize on ongoing business 
development and to encourage private investment appears to be 
lacking.  Currently, the IIC,s major customers are Iraqi 
ministries and provincial level governments.  Sealing 
potential deals with the Ministry of Interior to conduct 
vehicle maintenance and with the Babil provincial government 
to produce 1300 tractors would provide the impetus for major 
growth and significant increases in employment.  In Nahrwan, 
damage to an electric substation and inconsistent electrical 
power supply through the national grid often results in lack 
of electricity to power the brick kilns during manufacturing 
periods.  Resolving this power issue would support major 
expansion plans; however, thus far no government efforts to 
repair the electrical substation have been initiated. 
Working with ITAO Electric, MND-C is seeking to promote a 
special power district to improve electricity availability to 
the private brick factories.  In the Agriculture sector there 
does not yet appear to be a national plan to develop 
agribusiness capacity.  Provincial level officials in Babil 
seemed surprised recently when MND-C requested that they 
share the costs of refurbishing the Hillah Cold Storage 
facility, which has been identified in the National 
Development Strategy as a key agribusiness node. 
 
¶17. (SBU)  In Agriculture sector, ePRTs/PRTs and local USAID 
representatives are stepping in to fill the void with 
detailed assessments and plans for revitalizing the poultry 
and fish farm industries.  However, only one agriculture 
project out of more than 50 submitted in the MND-C AOR has 
been funded by INMA.  In Najaf, the airport project is 
proceeding but waiting for the USG contracting system to hire 
an airport consultant to ensure that the airport meets ICAO 
standards.   Attracting foreign investment and operational 
management expertise would help, but thus far foreign 
investor interest has been tentative.  (EMBASSY COMMENT. The 
number of job orders received from Hillah/Babel is 11 not 50. 
 Two (not one) are underway and third (bee-keepers) is being 
consolidated with others for a national program.  Inma is 
planning a joint campaign with the military that will broaden 
Inma participation in the area.  The text in the cable may 
have been written before the planning meeting USAID had with 
General Lynch's staff a couple of days ago.  Inma will be 
doing much more than the fish farm near Hillah.  END COMMENT.) 
 
SOIs ) A DOUBLE EDGED SWORD 
--------------------------- 
 
¶18. (SBU)  MND-C Commanders are concerned that without 
continued emphasis and resources directed at developing 
 
BAGHDAD 00000747  005.3 OF 005 
 
 
long-term, sustainable economic growth that this window of 
opportunity may close.  Of particular concern is the 
transition of Sons of Iraq from their current security roles 
to the civilian workforce.  If we are not able to transition 
SOIs from security roles to the civilian workforce, the 
security improvements and goodwill gained may evaporate.  The 
Joint Technical Education and Reintegration Program (JTERP) 
and Civil Service Corp programs received $155 million in DDR 
funds to assist in transitioning SOIs to civilian employment 
and the GOI has also committed to transitioning approximately 
25 percent of SOIs to positions in Iraqi Security Forces. 
However, despite the presence of the JTERP/DDR programs and 
the GOI commitment, few SOIs in the MND-C AOR have been 
successfully moved from their SOI roles to the civilian 
workforce.  Developing a sound, self-sustaining economy that 
can create jobs and opportunities is crucial. 
CROCKER