DUTCH DELEGATION TO MADRID BUSINESS CONFERENCE AND

UNCLAS SECTION 01 OF 02 THE HAGUE 002675

SIPDIS

EUR/UBI, EB FOR BILL GRANT, NEA/NGA FOR MMCCOWAN

E.O. 12958: N/A
TAGS: EAID IZ NL PREL
SUBJECT: DUTCH DELEGATION TO MADRID BUSINESS CONFERENCE AND
RESULTS OF FACT-FINDING MISSION

REF: A. THE HAGUE 02142


B. STATE 287995


1. (SBU) Summary. The following Dutch companies will
attend the Iraq business forum in Madrid: Shell, Philips,
ABN Amro, Nedeco, and Friesland Coberco. Dutch businesses,
with the financial and moral support of the government, are
positioning themselves for entree into Iraq "as soon as the
security situation improves." Industry and government have
organized themselves under an umbrella group called "Task
Force Iraq" which has staged two conferences in the
Netherlands and launched a fact-finding mission to the
region, visiting Turkey, Jordan, Kuwait, and Dubai. Future
plans include a proper trade mission to Baghdad, the
establishment of Dutch-Iraqi Commercial Center in Baghdad,
and a third conference in Jordan in January 2004. A report
from the fact-finding mission finds that it is too early to
invest in Iraq because of the security situation, lack of
political continuity, and lack of finance. The report also
criticizes the bidding process on U.S.-government funded
contracts, saying it lacks transparency and is rigged in
favor of U.S. companies. Dutch industry is encouraging the
MFA to fund private sector support programs in Iraq. The
Ministry of Economic Affairs' EUR 3 million "Iraq Facility"
has been put on indefinite hold. Dutch business has made it
clear it wants to see the Foreign Ministry make pledges to
Iraq reconstruction. End Summary.

Task Force Iraq
--------------


2. (U) The Dutch Ministry of Economic Affairs has
informed post that at the October 23 Madrid Conference on the
Role of the Private Sector in Iraq, Dutch industry will be
represented by Shell (energy),Philips (electronics and
medical),ABN Amro (financial services),Nedeco
(engineering/construction),and Friesland Coberco (dairy).
Each company will report back to its respective sector after
the conference. These companies have been integrally
involved in "Task Force Iraq," a joint venture by the
Ministry of Economic Affairs, the Chamber of Commerce, and
the Dutch Trade Promotion Council (NCH) On September 17, Task
Force Iraq held its second symposium for businesses
interested in Iraq. There were 250 attendees on hand at the
half-day event, although the Task Force claims a total of 700
members. A significant portion of the members are Iraqis
residing in the Netherlands. This is the second event they
have held -- the first was in Rotterdam in May. The Dutch
Trade Promotion Council will co-host a conference on
"Rebuilding Iraq" in Amman January 10-13 along with American
partner The Kallman Group, L.L.C. The Task Force is asking
Dutch businesses to sign up as sponsors of a future
Dutch-Iraqi Commercial Center in Baghdad which will provide
business consultation services to prospective Dutch investors.

What Business Requests of the Government
--------------


3. (SBU) The Ministry of Economic Affairs' had set aside
EUR 3 million for the creation of an "Iraq Facility"
dedicated to funding opportunities for Dutch companies to get
a foothold in Iraq reconstruction (ref A). This money is
designed to fund needs assessments and grant awards to Dutch
companies in specific sectors. However, the initiative has
been placed on hold until further notice due to security
conditions. The business sector has asked for the Facility
to be activated as soon as possible and for the MEA to
proceed with a trade mission as soon as the security
situation allows it. The business sector has also expressed
frustration at the MFA's reluctance to make an aid pledge to
Iraq. (Note: new indications are that the Dutch may make a
small pledge at the October 23 conference. End Note.) The
Task Force recommends the MFA begin a bilateral "thematic"
program in Iraq focused on private sector development and
that it further support opportunities for Dutch NGOs in Iraq.
In addition the Task Force requests stronger representation
in Iraq including a commercial support office, a Dutch
delegate in the CPA (which has so far been resisted by the
MFA),and a fully-staffed embassy.

Fact-Finding Mission to the Region
--------------


4. (U) In September, a consortium of Dutch government and
industry went on a fact-finding mission to Turkey, Jordan,
Kuwait and Dubai to seek out partners to sow future business
seeds in Iraq and to get an overview of the present and
future challenges. The 25-person trip was led by Ministry of
Economic Affairs Director General for Foreign Economic
Affairs Dirk Bruinsma and sponsored by the Dutch Trade
Promotion Council (NCH). Bruinsma broke away from the group
at one stage, heading briefly into Baghdad to meet with UN
officials, Ambassador Bremer, and entrepreneurs.


5. (SBU) The private sector-led Dutch Trade Promotion
Council wrote a report at the end of the trip summarizing
their findings. The report states that there are numerous
short-term business opportunities available, linked to Iraq's
desperate need to import most consumables at this time, but
it is still too early to invest for the long-term. The basic
conditions that are necessary to business are not in place
yet. These are security, trustworthy partners, continuity of
government leadership, financing, and legal protections. The
report criticizes the degree of transparency in the
subcontracting process for U.S.-funded projects. In
addition, it notes that there is criticism outside the U.S.
that non-U.S. companies have little chance in the bidding
process. "One can hope that the process will be improved and
that funding from the Development Fund for Iraq will play a
larger role." Investing in any newly-privatized companies
would be risky if there is a lack of legal protection. Even
if privatized, industries will remain heavily regulated and
subsidized. Business-to-business contacts offer the best
potential, and Dutch companies are looked at favorably by
Iraqis. It is important to work with local Iraqis but hard
to find trustworthy partners; there is an abundance of
middlemen. The local business sector is aware of these
handicaps and is beginning to organize itself in response.
Iraqi Business Councils outside Iraq offer some hope as does
the CPA's "Business Support Center." It is important that in
a future Iraq, a handful of families is not permitted to
control the economic means of the country.


6. (SBU) The report identifies three major obstacles:
political risk, security risk, and a lack of finance.

-- Political Risk -- Iraqi businessmen in and outside of
Iraq think it is too early for large investments due to
political risk. It is essential to have legitimate
government but the interim authority does not have this
legitimacy.

-- Security Risk -- According to people the mission
encountered, the explosive security situation is linked to
the United States' failure to properly prepare for the peace.
The combination of 140,000 released prisoners and the
disbanding of the army and police was a fatal combination.
The thousands of newly unemployed creates an ideal reservoir
for terrorist and criminal organizations. The CPA is,
however, working hard to make the streets more secure.
Developments over the next few months will be crucial. Few
Dutch companies are willing to take these risks. The Foreign
Ministry maintains a travel advisory and the Dutch embassy is
down to two people as a result of the UN HQ bombing.

-- Lack of Finance -- The country faces a lack of
international donor support and crippling debt levels. There
is a need for medium-term finance. While the CPA is working
on new investment-friendly laws, it remains to be seen
whether a future Iraqi government will stay on course or turn
back to the old, restrictive system.


7. (SBU) All the countries the mission visited presented
themselves as the "springboard" to Iraq. The report calls
Turkey the gateway to Northern Iraq and says Turks are keen
to partner with Dutch firms. Turkish construction companies
are already active in Iraq and seem willing to take the
associated risks. In Jordan, the mission was impressed by
the large number of Iraqis with strong ties to businesses in
Iraq. Jordan is described as having vibrant commercial links
with Baghdad and the advantage of a free trade agreement with
the U.S. Kuwait has the advantage of proximity to Basra and
strong companies, but Kuwaitis do not have a good reputation
in Iraq, according to the trade mission. Dubai is also an
excellent platform from which to do business in Iraq, but is
rather far. All four countries have developed free trade
zones oriented toward trade with Iraq. The business sectors
in each country see the regime change in Baghdad as positive
for business opportunities.
SOBEL