VZCZCXRO2118
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3628/01 3210637
ZNR UUUUU ZZH
R 160637Z NOV 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 0408
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 03 BAGHDAD 003628 
 
USDOC for 4530/ITA/MAC/IIRTF/Shamrock-Mann 
USDOC for 3131/ITA/USFCS/RD/ANESA/CReed 
USDOC please pass to USTR for A/USTR MDelaney 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD EFIN PGOV CVIS IZ
SUBJECT: US-IRAQ DIALOGUE HIGHLIGHTS IMPEDIMENTS TO BUSINESS AND 
INVESTMENT 
 
REF: A. BAGHDAD 3597; B. BAGHDAD 3097; C. BAGHDAD 1061 
 
SUMMARY 
------- 
 
¶1. (SBU) On November 1, Deputy Treasury Secretary Robert Kimmitt, 
Deputy Commerce Secretary John Sullivan, and Assistant US Trade 
Representative Mike Delaney participated in the Iraqi-U.S. Dialogue 
on Business and Investment (DBIC).  During the day-long event, which 
also included American and Iraqi business executives, senior Iraqi 
Government officials, the U.S. Chamber of Commerce, and the World 
Bank, participants candidly discussed key challenges to doing 
business and investing in Iraq.  Participants identified U.S. visa 
procedures for Iraqi nationals, the lack of political risk 
insurance, the absence of implementing regulations for the National 
Investment Law, high interest rates charged by Iraqi banks, and 
unwillingness by American banks to move Iraq-bound transfers as 
significant obstacles to increased business and investment links. 
American private sector representatives also emphasized that a 
failure to pass the Status of Forces Agreement (SOFA) would have 
severe consequences for Iraq's foreign investment prospects.  The 
USG and GOI agreed to hold another Dialogue on Economic Cooperation, 
to be scheduled for the first half of 2009.  End Summary. 
 
¶2. (U) Vice President Adel-Abdel Mahdi led the Iraqi delegation, 
which also included Deputy Prime Minister Rafae Issawi, Minister of 
Finance Bayan Jabr, Minister of Planning Ali Baban, Minister of 
Industry and Minerals Fawzi Hariri, Chairman-designate of the 
National Investment Commission Ahmed Ridha, Chairman of the Council 
of Representatives Economic Committee Haidar al Abadi, Chairman of 
the Council of Representatives Finance Committee Ayad al-Samarae, 
Chairman of the Prime Minister's Advisory Committee Thamir Ghadban, 
Senior Advisor to the VP Aziz Jafar, and five provincial governors. 
DepSec Kimmitt led the US delegation, which included DepSec 
Sullivan, A/USTR Delaney, Ambassador to Iraq Ryan Crocker, 
Coordinator for Economic Transition in Iraq Ambassador Marc Wall, 
Task Force for Business and Stability Operations (TF-BSO) Deputy 
Major General 'Butch' Pair, and MNF-I CJ9 representative Major 
General Mark Zamzow.  Deputy Prime Minister Barham Salih conceived 
the DBIC as a complement to the ongoing Dialogue on Economic 
Cooperation (DEC). 
 
¶3. (U) The difference between the DBIC and previous bilateral 
economic events was the participation of American private sector 
representatives.  With support from TF-BSO, representatives from BAE 
Systems (defense), C3 Investments (private equity), Daimler Benz 
(automotive), and The Marshall Fund (private equity), and the U.S. 
Chamber of Commerce traveled to Iraq to participate in the event. 
 
¶4. (U) Given the Dialogue's emphasis on candid and open discussion, 
most of the sessions were closed to the press.  The opening and 
closing ceremonies, however, were broadcast via live television 
throughout the country.  Correspondents from the New York Times, 
CBS, the Wall Street Journal, and Reuters also provided coverage of 
the event. 
 
U.S. VISA POLICY 
---------------- 
 
¶5. (SBU) Both American and Iraqi participants identified improving 
the issuing of visas to Iraqi businesspeople as an important step to 
facilitate investment.  They pointed out many Iraqi businesspeople 
cannot carry out business development due to the difficulties in 
obtaining visas in a timely manner.  Some Iraqis do not even attempt 
to get a visa since they are dissuaded in advance by the process, or 
select to do business with other countries, in Europe for example, 
where procuring a visa is simpler.  One business representative 
stated there was a need to bring over Iraqi managers to the US for 
key training, but the Iraqis and their American sponsors were both 
discouraged by the complex application procedures and extensive 
processing wait times. 
 
INVESTMENT HINGES ON SOFA 
------------------------- 
 
¶6. (SBU) A primary recommendation from the private sector was for 
the U.S. and Iraqi governments to agree on a Strategic Framework 
Agreement (SFA) and Status of Forces Agreement (SOFA).  Without such 
frameworks in place, business representatives noted that the ensuing 
uncertainty would be a huge obstacle to future investment.  "Pass 
the SOFA first," one private sector representative urged to Iraqi 
officials. 
 
POLITICAL RISK INSURANCE NEEDED 
------------------------------- 
 
¶7. (SBU) Stating the Iraqi Government needed to "get skin in the 
 
BAGHDAD 00003628  002 OF 003 
 
 
game," business executives said the GOI needed to help facilitate 
political risk insurance.  One representative explained to Iraqi 
officials that in discussion with other potential investors in the 
US, the availability of political risk insurance was invariably one 
of their primary concerns. 
 
BANKING SECTOR NEEDS INTERNATIONAL CAPACITY 
------------------------------------------- 
 
¶8. (SBU) Business participants explained that transferring money 
into the country is amongst the greatest challenges to doing 
business in Iraq.  For example, one of the private equity firms 
could not find a bank in the U.S. that was willing to accept funds 
destined for the Iraqi market due to money laundering and corruption 
concerns, and ultimately used Hong Kong Shanghai Banking Corporation 
(HSBC).  A manager for Al-Warka bank (the largest private Iraqi 
bank) agreed that Iraqi banks are not able to provide all the 
services that U.S. financial institutions provide; he called for the 
need to strengthen partnerships between Iraqi and U.S. 
institutions. 
 
IMPLEMENTING REGULATIONS FOR INVESTMENT LAW 
------------------------------------------- 
 
¶9. (SBU) In a strongly-worded speech, Chairman-designate of the 
National Investment Commission Ahmed Ridha lambasted the Council of 
Ministers (COM) for their tardiness in approving investment 
licenses; according to Ridha, of the US$ 74 billion in projects he 
has signed for, US$68 billion is languishing in the COM awaiting 
approval.  The following day, the Council of Ministers voted to 
remove Ridha from his position (reftel A). 
 
¶10.  (SBU) Private sector participants suggested that the Iraq 
regulations governing foreign investment be transparent and more 
widely disseminated.  If investors are more aware of the investment 
law and regulations in place, they said, this would attract greater 
interest by international investors.  In response to Commerce Deputy 
Secretary Sullivan pressing the Iraqis on the status of the 
investment law's implementing regulations, GOI officials responded 
that these were with the Council of Ministers and should be 
published "within a few days." (Comment: This was a highly unlikely 
prospect even before the sacking of Ridha.  End comment.) 
 
CORRUPTION AS A DETERRENT TO INVESTMENT 
--------------------------------------- 
 
¶11. (SBU) A representative from BAE Systems raised the issue of 
transparency and corruption as a major factor in a country's 
business and investment climate.  In his view, corruption will 
remain a grave impediment to foreign investment in Iraq unless the 
Iraqi Government takes concrete steps to combat it.  He also 
stressed that U.S. and foreign investors must also do their part to 
combat corruption by complying with the Foreign Corrupt Practices 
Act (FCPA). 
 
PARTNERSHIP AND MOMENTUM 
------------------------ 
 
¶12. (U) For successful long-term investment, private sector 
representatives stated that partners need a shared vision and 
commitment.  The representatives suggested that Iraqis need to also 
contribute financially to an investment in order for both partners 
to feel committed and have unity of purpose.  One U.S. private 
sector representative noted that U.S. investors often ask before 
investing in Iraq how much the Iraqis are investing themselves.  At 
the same time, they argued that the Iraqi government should embrace 
those foreign companies already on the ground and help their deals 
succeed, since other investors will be drawn to this success.  A 
representative from Daimler-Benz noted that investors are motivated 
by two factors, fear and greed, and that the Iraqi government had to 
take steps so that greed outweighed fear. 
 
U.S. CHAMBER OF COMMERCE PRESENTS "12 CRITERIA" 
--------------------------------------------- -- 
 
¶13. (U) Senior U.S. Chamber of Commerce Advisor Aram Zamgochian set 
out twelve criteria used by international investors in evaluating 
markets: the existence of internal markets, freedom of access to 
these markets, existence of a qualified labor force and raw 
materials, protection from currency devaluation, the ability to 
remit dividends, property rights, the ability to export, low 
regulatory burdens, tax incentives, low political risk, predictable 
macroeconomic conditions and management, and reliable infrastructure 
support.  He concluded that the Iraqi market boded favorably on 
these criteria.  The World Bank also provided a tool to evaluate 
Iraq's business and investment climate. 
 
 
BAGHDAD 00003628  003 OF 003 
 
 
VIEW FROM THE WORLD BANK 
------------------------ 
 
¶14. (SBU) World Bank Country Manager Jean-Michel Happi presented 
findings from the World Bank's 2009 Doing Business Report on Iraq, 
in which Iraq ranked 152 out of 181; in the Middle East Iraq ranked 
next to last.  The Report's findings suggest that Iraq can achieve 
improvement by simplifying the procedures, time, and cost required 
to start a business, for instance through one-stop shop; by 
streamlining import and export regulations through a trade 
facilitation program; and by improving access to credit information 
for borrowers and lenders.  Reforms should aim at modernizing 
commercial laws, with a view to improving commercial dispute 
settlement (both in and out of bankruptcy procedures), enforcing 
contracts, and protecting investors.  USTR cited the advantages to 
joining the World Trade Organization and how it would further signal 
that Iraq is open for business. 
 
IRAQI PRIVATE SECTOR 
-------------------- 
 
¶15. (SBU) Representatives of the Iraqi private sector identified the 
limitations they also face in doing business.  For instance, they 
complained about the high cost of borrowing capital and their 
inability to compete with foreign companies.  After two such 
interesting comments, however, Finance Ministry Jabr stated that 
there would be other occasions to deal with particular Iraqi 
problems. 
 
IRAQIS STRAY FROM AGENDA 
------------------------ 
 
¶16. (SBU) During the Dialogue's last sessions, the Iraqi moderator 
unexpectedly gave the floor to five provincial governors, who then 
went on to give speeches on the various merits of their individual 
provinces and potential for investment.  This abruptly halted the 
dialogue with the American side.  In fact, the Governor of Anbar 
Province began his remarks by stating, "I am not here to talk about 
the obstacles to investment since there are so many opportunities." 
The provinces focused on opportunities in areas such as oil, 
industrial production, telecom, housing, minerals, water, tourism, 
and textiles.  They described the thousands of engineers and 
academics who form a ready group of skilled employees.  Some also 
cited the number of companies and their countries of origin that 
were already operating in their province. 
 
NEXT STEPS 
---------- 
 
¶17. (SBU) Finance Minister Jabr closed the DBIC by agreeing with 
DepSec Sullivan to continue the process of investment reform through 
the bilateral Dialogue on Economic Cooperation (DEC), to be next 
held in the first half of 2009.  USTR also expressed desire to get a 
discussion with the GOI on the Trade and Investment Framework 
Agreement (TIFA) underway. 
 
COMMENT 
------- 
 
¶18. (SBU) The DBIC helped advance the bilateral discussion on 
reforms and conditions needed to create a better investment climate 
in Iraq.  The private sector, U.S. Chamber of Commerce, and World 
Bank's participation helped reinforce the importance of these 
reforms and provided further credibility to our ongoing bilateral 
dialogue with the Iraqis on private sector development.  The Embassy 
will now work with the GOI (and specifically with DPM Barham Salih 
when he returns to Baghdad) to seek GOI engagement on issues 
identified at the DBIC.  We will use the planned DEC in the first 
half of 2009 as a target for GOI action.  Separately post will 
provide thoughts for Washington on how to address the impediment to 
business posed by U.S. visa regulations.  End Comment. 
 
¶19. (U) Deputy Secretary Sullivan cleared this cable. 
 
CROCKER