IRAQ'S PRIVATE SECTOR INDUSTRIALISTS LOOK FOR LEG

UNCLAS SECTION 01 OF 03 AMMAN 003514

SIPDIS

USDOC FOR 6100/KMURPHY
OSD FOR OCPA
STATE PASS USTR FOR NED SAUMS

E.O. 12958: N/A
TAGS: EINV ETRD PREL IZ JO
SUBJECT: IRAQ'S PRIVATE SECTOR INDUSTRIALISTS LOOK FOR LEG
UP

REF: A. AMMAN 3190

B. AMMAN 3456


1. (u) Summary: In a meeting with econoff hosted by the
local AmCham, a visiting delegation from the Iraq Federation
of Industries requested a meeting with CPA Chief Ambassador
Bremer, and sought support for the establishment of a joint
US-Jordanian-Iraqi Chamber of Commerce. Federation Board
Members described the state of key industrial sectors and
asked for help in re-constituting private sector industry in
Iraq through sector reform and match-making with potential
foreign joint venture partners. While conditions in industry
were described as seriously deficient, the Federation is
confident Iraqi private sector businesses can help now to
rebuild the country's infrastructure, if they are given the
opportunity. An overview of selected sectors as provided by
federation is listed at the end of this cable. End Summary.

IRAQI INDUSTRIALIST SEEKS SPECIAL SOMEONE


2. (u) Five board members of the Iraqi Federation of
Industries, visiting Amman to participate in a June 5
reconstruction conference (ref b),met econoff June 10 at the
Amman Chamber of Industry to describe the state of their
industries and to request assistance in jumpstarting Iraq's
private manufacturing sectors. The Federation met earlier in
the week with GOJ economic ministries and technical staff,
and inked a "cooperation agreement" with the Jordan
Businessmen's Association (a business executives'
association) on June 9.


3. (u) Federation Vice President Hamzah Habib said the
first priority of the Federation was to gain a meeting with
CPA head Ambassador Bremer. Habib said Iraqi private sector
companies were being left out of the rebuilding effort, and
said the Federation believed an introduction to OCPA would
give them a chance to show their capabilities and offer their
services. To this end, Habib asked that Embassy pass Bremer
a verbal invitation to visit the Federation's "provisional"
office (the previous office has been bombed, burned out, and
looted) at the al Auchi building, opposite the old
Agriculture Ministry and next to the Babylon Bank.


4. (u) Habib said the Federation hoped to create soon a
joint U.S.-Jordanian-Iraqi Chamber of Commerce that could
facilitate match-making and other commercial activity among
associations from the three countries. He said he had
already spoken with the Amman Chamber of Industry and the
Jordanian AmCham, JABA (both of whom were present) about
cooperation in this regard. Econoff noted there would
undoubtedly be interest in the U.S. and Jordanian private
sectors in business opportunities in Iraq, and welcomed the
Federation's cooperation with JABA and ACI as a first step
toward exploring those opportunities with the U.S. private
sector. (JABA reps later told econoff they were developing a
plan to serve as a bridge between the National U.S.-Arab
Chamber of Commerce and/or the U.S. Chamber of Commerce with
credible Iraqi businesses.)

ADVENTUROUS SPIRIT A PLUS


5. (u) Habib said the Federation represented over 25,000
private sector entities covering all sectors of the Iraqi
private economy. These entities, he said, collectively
employed over 3 million people in their heyday. He noted,
though, that since the Saddam Hussein regime began funneling
production away from the private sector and into the hands of
State-Owned Enterprises (SOE's) and foreign firms in 1995,
the private sector had stagnated. As a result, Habib
estimated 90-95% of private businesses were non-operational
and virtually all employees were out of work. He attributed
lack of access to contracts and raw materials since 1995 as
key contributors to the collapse of the private sector,
adding that these troubles continued in the present day and
were compounded by the absence of a financial system - which
had already wiped out business savings and frozen out access
to credit for rebuilding businesses. Nevertheless, he said,
some businesses were still operating, and could prove willing
and able partners to foreign firms with a high tolerance for
adventure (i.e., risk and ambiguity).

MUST HAVE OWN RAW MATERIALS


6. (u) Habib said the primary hurdle to restarting
production was lack of access to raw materials. Under
Saddam, what little raw materials Iraq had were funneled to
SOE's, which were also subsidized when buying inputs from
abroad. Private sector enterprises, by and large, could not
compete with SOE's preferential treatment or economies of
scale. Similarly, private sector companies during the
sanctions years lost all access to spare parts and
replacement equipment. As a result, Habib said that the
small percentage of operational equipment in the private
sector was at least a decade old, and some machinery dated
back to the 1970's. He said this resulted in Iraqi
businesses being relatively more labor-intensive than
regional counterparts. He noted further that, despite the
age of much of the equipment, industries in lower-tech
sectors like construction materials and wood working could
still be relied on to produce for the local market.

GULF NEED NOT APPLY


7. (u) Habib said Iraqis were eager to see SOE's privatized
as soon as possible, and said his members looked forward to
having opportunities to enter into joint ventures with
prospective buyers of existing SOE's. He added that
preserving SOE's as active entities remaining under state
control would be totally unacceptable to the Iraqi people.
Habib expressed the opinion that the CPA "should not let
companies from the Gulf" take over privatized SOE's. He said
sale to the Gulf of these key Iraqi assets would deeply anger
many Iraqis, who had poor relations with, and deep distrust
of, their Gulf neighbors. Habib said the only "acceptable"
partners for Iraqi interests in the privatization process
were "the Americans and the Jordanians," the former because
they had freed the Iraqi people and the latter because they
had strong ties to the Iraqis.

SNAPSHOT ATTACHED


8. (u) Following are brief outlines of selected industry
sectors provided to econoff by the Federation. The numbers
are probably not accurate, but could serve as good ballpark
figures.

Woodworking --

Number of private sector entities: 2,000
Entities with "significant" employment (>50 workers): 20%
Entities currently active: 5-10%
Sector employment: 500,000
Critical needs: raw materials, equipment upgrades
Specializations: doors/treatments, furniture, school desks

Contact: Engineer Sabah Kubba
Tel (Thuraya): 00-88-216-2166-3554
e-mail: mawi@uruklink.net

Construction Materials --

Number of Private sector entities: 12,000
Entities with "significant" employment (>100 workers): 10%
Entities currently active: 5-10%
Sector Employment: 600,000
Critical needs: raw materials, access to contracts, spare
parts
Specializations: cement, brick, marble, granite, mosaic tile,
ready-mix concrete

Contact 1: Mr. Saleh al Jalaby (Chalaby)
Tel (Thuraya): 00-88-216-2123-4043
e-mail: s.chala@uruklink.net

Contact 2: Mr. Ahmad Abu Jiss
Tel (Thuraya): 00-88-216-5115-9744
e-mail: objuss@uruklink.net

Chemicals --

Number of private sector entities: 1,500
Sector Employment: 750,000-1,000,000
Critical needs: access to raw materials
Specializations: paints, solvents, detergents, emulsions
Prior business: claims prior business interest from Proctor
and Gamble

Contact: Mr. Hamzah Habib
Tel (Thuraya): 00-88-216-2123-7982
e-mail: none

Engineering/Machinery/Metalworking --

Number of Private Sector entities: 7,000
Entities currently active: 20%
Sector Employment: 3-400,000 (production and servicing)
Critical needs: raw materials, spare parts
Specializations: machinery, spare parts, steel finished
goods (incl. furniture, doors, etc.)

Contact: Dr. Thabet al Badawi
c/o Federation of Industries (or Mr. Habib above)

Note: Badawi believes the machinery sector can provide an
immediate benefit to reconstruction efforts. He noted that
Bechtel's assessment of priorities at ref b conference
highlighted the contractor's commitment to, in the first
stage, repairing existing equipment instead of upgrading or
replacing equipment. Badawi said Iraqi firms are uniquely
placed to be able to service and fabricate parts for this
outdated equipment, alleviating the need for Bechtel to find
outside companies that can reverse-engineer old parts and
machinery.
GNEHM