VZCZCXRO3836
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #2651/01 2321144
ZNR UUUUU ZZH
P 191144Z AUG 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 8942
INFO RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 BAGHDAD 002651 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV ETRD EFIN IZ
SUBJECT: THE TWO BIGGEST CONCERNS OF LOCAL BUSINESSMEN 
 
REF: BAGDHDAD 2489 
 
Sensitive But Unclassified.  Please protect accordingly. 
 
¶1. (U) This is a joint Baghdad ePRT 2 and Embassy reporting 
cable. 
 
SUMMARY 
------- 
 
¶2. (SBU) During a luncheon with Embassy econoffs and Baghdad 
ePRT #2 members, businessmen from the Karada district of 
Baghdad said lack of affordable credit and reliable 
electricity were the two biggest impediments to business 
growth.  A private banker defended lending practices, 
claiming interest rates were "market-based" and encouraging 
more deposit business with the private banks.  A commercial 
real estate developer also expressed concern over housing 
regulations that prohibit him from selling deeds of 
individual residential units.  End Summary. 
 
¶3. (SBU) On August 12, Embassy Econoffs and Baghdad ePRT #2 
members attended a luncheon with prominent businessmen from 
the Karada district of Baghdad (Comment: Karada was 
historically an upscale shopping and residential district and 
today is one of the most secure areas of the city.  End 
note.)  The meeting took place at the Economic and 
Development Progress Center (EDPC), a business development 
and training center established with Quick Reaction Funds 
requested by Baghdad ePRT #2.  Iraqi businessmen included the 
owners of a flour mill, a commercial real estate development 
firm, an aluminum construction materials plant, a plastics 
factory, a retail food market, a food distribution company, 
and an air freight company. 
 
BUSINESSMEN RAIL AGAINST BANKS 
------------------------------ 
 
¶4. (SBU) The businessmen cited poor access to affordable 
credit as a key impediment to business growth.  The owner of 
a flour mill said the high cost of credit meant his company 
could not use bank loans to expand.  He also said Ministry of 
Industry and Mineral loans of up to USD 50,000 USD for small 
to medium-sized businesses (reftel) were too small to be 
useful; such a loan would not even cover diesel fuel costs to 
support his generators for more than a few months.  A shop 
owner in the Karada market, said he never had access to 
credit.  In addition to high interest rates, he complained 
about the banks' requirements for loan guarantors.  A 
commercial real estate developer said his company faced 
difficulty borrowing against assets.  "How can I grow, if I 
can't mortgage my properties?"  He put part of the blame on 
the lack of credit bureaus that would allow banks to rate the 
reliability of borrowers.  As a result, he said, people are 
normally able to borrow only from people who know them well, 
so that access to credit is based almost exclusively on 
family connections. 
 
...AND THE BANKER RESPONDS 
-------------------------- 
 
¶5. (SBU) The president of a large private bank explained that 
interest rates depend on market conditions.  "There is 
nothing for free," he said.  He said his bank offers 
short-term loans of one year, and long-term loans of up to 
three years.  But most entrepreneurs in Iraq do not 
understand what banks can do, how they manage risks, or how 
to do business with them, he said.  The banker stated 
potential borrowers should first set up deposit accounts with 
the banks.  By establishing such a relationship first, he 
explained, bankers will have greater knowledge of borrowers' 
ability to pay back loans.  The businessmen, however, 
expressed reluctance to deposit money at private banks 
because they lack the full faith and credit of the 
government.  "We will only put our money with the state 
banks, where it is safe," said the Karada market shop owner. 
 
ELECTRICITY NEEDS 
----------------- 
 
¶6. (SBU) All businessmen in attendance said the lack of 
reliable electricity and the high cost of diesel fuel to 
power their own generators significantly affect their 
businesses.  The owner of Al-Haibd Distribution Company 
stated his company was forced to purchase diesel fuel from 
the black market for both cold storage and his fleet of 
trucks.  Having to pay black market prices, he explained, was 
therefore driving up the price of food.  Due to such 
challenges with cold storage, his company does not import any 
 
BAGHDAD 00002651  002 OF 002 
 
 
products requiring refrigeration.  In addition, he complained 
that the Ministry of Electricity arbitrarily estimates an 
increase in electricity usage when billing his business each 
month.  Security problems had kept the Ministry from sending 
people out to read meters.  The Karada market shop owner said 
electricity was an even greater problem than lack of credit, 
stating, "Relatives can give me money, but they can't give me 
electricity."  He estimated 75 percent of his profit margin 
goes to covering his electricity costs, and complained his 
electricity often fails during peak business hours.  Both he 
and the flour mill owner said monthly diesel fuel costs to 
run a generator average 1.5 million IQD (1,285 USD). 
 
REAL ESTATE CONCERNS ALSO SURFACE 
--------------------------------- 
 
¶7. (SBU) While highlighting Iraq's high demand for housing, 
the commercial real estate developer said antiquated housing 
regulations are deterring him from building apartments to 
meet this demand.  He specifically criticized a law that 
prevents private developers from selling title to individual 
apartment units.  Under this regulation, he said, home buyers 
can purchase an equity share in the building, but not 
purchase a unit - with deed - individually.  He stated this 
discouraged him from building private residential units, 
explaining, "I do not want to be a landlord. I want to build, 
sell, and take my profit."  He and other developers 
reportedly met recently with Deputy Prime Minister Barham 
Salih to raise this issue, but there had been no progress on 
it.  The developer also said Baghdad has a significant 
deficit of hotel rooms, with only 2,000 available in the 
city.  He said he wanted to build a hotel, but complained 
about a municipal regulation that prohibits the construction 
of hotels over eight stories. "Let's get this changed, and I 
will build a huge hotel," he said. 
 
COMMENT 
------- 
 
¶8. (SBU) Despite the many challenges they face, all of these 
businessmen said they are making money in the Iraqi economy. 
All were also reluctant to become engaged politically to 
bring about the changes they claimed were necessary. 
Security was a theme that came up less frequently than 
expected.  Several acknowledged that the security situation, 
while fragile, was no longer the most challenging obstacle to 
do business.  EPRT #2 will continue working with these and 
other business owners through the EDPC to build a business 
association that could mobilize support for regulatory and 
legal changes to stimulate further business growth.  End 
Comment. 
CROCKER