VZCZCXRO5461
RR RUEHBC RUEHDA RUEHDH RUEHKUK
DE RUEHGB #0165/01 0221619
ZNR UUUUU ZZH
R 221619Z JAN 10
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 6239
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 02 BAGHDAD 000165 
 
SBU 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EINV EFIN
SUBJECT: PRT DIWANIYAH: CHALLENGES TO INVESTMENT IN 
DIWANIYAH PROVINCE (CORRECTED) 
 
REF: BAGHDAD 32 
 
¶1. (SBU) SUMMARY:  Big dreams and bigger obstacles define the 
investment climate in Diwaniyah Province.   Provincial 
authorities are aiming high, but the province,s business 
leaders dismiss recent announcements of large investment 
deals in housing, hospitals, and construction as media 
events.  Business leaders tell the PRT that national laws are 
part of the problem and that the provincial government is 
unaware of their needs and unresponsive to their efforts to 
cooperate.  For its part, the provincial government seems 
ill-equipped to tackle the challenge of stimulating 
investment in this predominately agricultural province. 
Nonetheless, the province enjoys some comparative advantages 
that, highlighted through better marketing, could draw in 
more investments in various sectors.  END SUMMARY 
 
¶2. (U) In recent days, the PRT has forged a positive 
relationship with the Diwaniyah chapter of the Iraqi 
Businessmen,s Union (IBU).  The IBU brings together most of 
the province,s top business leaders.  This forum allowed the 
PRT to build on the discussions with Governor Salim Alwan, 
Provincial Council (PC) members, and smaller business owners 
about the province,s business climate. 
FEW PROJECTS MATERIALIZE 
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¶3. (SBU) Provincial authorities have signed numerous 
Memorandums of Understanding (MOUs) with foreign investors 
for the development of projects ranging from housing to 
hospitals to a recycling plant.  Details on these projects 
are sketchy, however, and there is no evidence that they are 
materializing.  The PRT  knows of only one project, an Omani 
firm,s plans to develop a commercial center in Diwaniyah 
City, which appears to be coming to fruition.  The PRT has 
unverified information about several housing projects that 
reportedly are underway.  The failure of other MOUs to result 
in real projects so far has evoked some discontent among the 
population (reftel), and our IBU contacts scornfully 
dismissed the MOU announcements as nothing more than media 
events. 
NATIONAL HURDLES ABOUND 
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¶4. (SBU) Both Governor Salim and the PRT's IBU interlocutors 
voiced frustration that national legislation complicated the 
investment process, particularly by creating hurdles to land 
transfers to investors.  Business leaders also took aim at 
national government policies and practices. Several of the 
business leaders characterized Iraq as proceeding down a path 
towards socialism.  They argued that the national government 
is focused on keeping foreign development funds looped within 
the government instead of pushing funds out to the private 
sector.  The business leaders characterized the continued 
support of the food distribution system, state-owned 
enterprises, and government procurement practices as evidence 
of the trend towards socialism.  They posited that the 
government is on the wrong track investing in these areas 
without utilizing the private sector, and criticized the 
government,s practice of importing heavy equipment without 
going through the Iraqi private sector.  (Note: At least one 
of our IBU interlocutors is an importer of heavy construction 
equipment. End note.) 
¶5. (SBU) Business leaders and government officials alike 
assailed high interest rates as a key impediment to 
investment.  While loans are available through small banks in 
the province, they said, the interest rates of 9 to 12% are 
too high to stimulate the use of loans for business 
investment.  The business leaders suggested a rate of 2 to 3% 
as being more affordable for local businesses and as more 
Qas being more affordable for local businesses and as more 
likely to increase the use of loans for business development. 
 Local banking officials, however, have told us their 
commercial interest rates of 10% equate to approximately 6-7% 
in the United States due to the different method of 
calculating interest over the life of the loan.  According to 
the bankers, a significant share of the monthly payment is 
applied to the principle throughout the life of the loan, 
thereby reducing the total interest over the loan period. 
¶6. (SBU) Issues of specific interest rates aside, the IBU 
leaders identified access to banking and financial 
institutions as another key impediment.  They noted that the 
planned opening of a branch of the National Commerce Bank in 
Diwaniyah had never materialized, and said that no other 
sizable financial institutions exist in the province to 
provide lending services to businesses.  The business leaders 
requested PRT assistance to identify and support the opening 
of an American financial institution in Diwaniyah to 
demonstrate confidence in the province,s security and 
stability to outside investors.   They also criticized the 
GOI,s permission for the opening of an Iranian bank with an 
office in neighboring Najaf without requiring a Diwaniyah 
branch as well. 
¶7. (SBU) Among national impediments to investment, the 
 
BAGHDAD 00000165  002 OF 002 
 
 
business leaders also pointed to the lack of stable economic 
growth as resulting in a lack of specialization and training 
within the private sector.  Many businessmen switch from one 
business to another or operate multiple businesses in an 
attempt to find whatever is profitable at the moment.  Citing 
themselves as examples, the IBU leaders said that it is 
normal for a businessman in the province to operate a 
construction company, an import business, a market, and an 
agricultural venture at the same time, or to jump around from 
one field to another.  The business leaders posited that this 
trend results because of the government,s lack of planning 
and analysis of market trends.  They voiced concern that it 
is leading to failure to develop specialists in particular 
fields, and to lack of exposure to western business 
practices.  The economic isolation of the Saddam era has left 
them behind in terms of modern practices, our IBU 
interlocutors concluded, adding that their organization is 
encouraging business leaders to attend more conferences 
abroad, visit western countries, meet business leaders 
outside Iraq, and find western businesses to work with. 
(AND PROVINCIAL-LEVEL HURDLES RANKLE 
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- - - - - - - - - - 
¶8. (SBU) Despite their many complaints about nationally-based 
hurdles, issues with the provincial and local governments 
dominated the businessmen,s list of provincially-based 
impediments to economic development, and these seemed to 
rankle our interlocutors more.  Above all, they argued that, 
IBU efforts notwithstanding, the members of the PC do not 
understand the needs of the private sector.  The business 
leaders pointed to few, if any, PC efforts to attract 
business and encourage private sector development in 
Diwaniyah, and argued that the PC and Governor had taken a 
&haphazard approach to bQiness,8 especially by failing to 
plan for the future. 
¶9. (SBU) For his part, the Governor has shown increasing 
frustration that efforts to attract investment have not come 
to fruition.  He recently complained to PRTOffs about the 
shortcomings of Diwaniyah,s Provincial Investment 
Commission, suggesting that it was poorly run and was not 
reaching out to investors, including foreign ones, as 
actively as it should.  He indicated that he is considering 
pushing to change the PIC,s membership to include more 
business owners, in hopes that this might make the 
organization more assertive in pushing for investments in 
Diwaniyah.  He also expressed regret that no Diwaniyah 
business leaders had been invited to the recent Washington 
Investment Conference, a view shared by the IBU leaders. 
¶10. (SBU) For its part, the PRT has sometimes found 
provincial authorities to be difficult partners.  Our 
multiple attempts to follow up with both the Governor and the 
PIC on the Washington Investment Conference, for instance, 
have resulted only in vague promises that they will provide 
the PRT with results of the province,s efforts to nurture 
contacts made there.  Conversations with the PC,s Industry 
Committee Chair brought nothing more than appeals for massive 
amounts of funding for the province,s struggling SOEs. 
COMMENT 
- - - - - - - - - 
¶11. (SBU) Despite its many shortcomings, Diwaniyah Province 
has some comparative advantages, including a good security 
situation and central location in southern Iraq.  Provincial 
authorities have highlighted these, but could do a far better 
job of marketing the province.  Beyond that, we see little 
evidence that either the provincial authorities or the 
business community are pressing Baghdad to address 
Qbusiness community are pressing Baghdad to address 
national-level problems.  The PRT will continue to work with 
all these entities to address both the national and 
provincial hurdles that have them hamstrung and somewhat 
discouraged. 
HILL