IRAQI BUSINESS EXPATRIATES-WATCHING AND WAITING IN

UNCLAS SECTION 01 OF 02 BAGHDAD 004990

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON ETRD IZ
SUBJECT: IRAQI BUSINESS EXPATRIATES-WATCHING AND WAITING IN
JORDAN

SENSITIVE BUT UNCLASSIFIED - GOVERNMENT DISTRIBUTION ONLY
NOT FOR INTERNET DISTRIBUTION



1. (SBU) SUMMARY: Iraqi business expatriates in Amman
assess opportunities in Iraq to be uncertain at present.
They focus on 1) getting Iraqi businesses involved in doing
reconstruction, 2) improved security and stability to permit
investment, and 3) opening of competitive opportunities via
privatization and/or elimination of State Owned Enterprises
(SOEs). The recent referendum approving the Constitution
was assessed favorably for stimulating possible provincial
competition in tax and investment environments. Economic
diversification, especially in agriculture and tourism was
flagged as necessary to secure more balanced economic
development. Other necessary incentives to secure a return
of expatriate business interests include improved education
and stable, market-oriented, legislation. END SUMMARY


2. (SBU) Three Iraqi business contact roundtables were
hosted in Amman on November 30 for visiting Baghdad Econoff
by Embassy Amman Econ section. Iraqi attendees included
members of the banking, insurance, and financial
communities, women entrepreneurs, construction
representatives and real estate operators. The goals of the
meetings were to determine concerns of the Iraqi expatriate
business community, their views on appropriate actions to
enhance economic growth in Iraq, and what barriers needed to
be removed to entice expatriate Iraqi investment back to
Iraq.

Key Concerns
--------------

3. (SBU) For their part, the Iraqi business expats focused
on getting the Iraqi businesses involved in USG
reconstruction work, as opposed to third country firms using
expatriate labor, improving the security and stability of
communities so investment could safely occur and people
could work without fear of kidnapping, injury, or death, a
pressing need for administrative and legislative stability,
and privatization and/or elimination of State Owned
Enterprises to permit competition.


4. (SBU) High unemployment was seen as related to the
support of the insurgency - offering a pool of young men for
recruitment. The business people felt that increased
permanent employment, and not short-term hiring, would
alleviate much of the desperation and unrest in Iraq. They
also emphasized that there was great anger over the hiring
of non-Iraqis for Iraqi projects, while they alleged that
Iraqi firms could operate much more efficiently and cheaply.
The participants also claimed that money earned by the non-
Iraqi expatriates did not go back into the Iraqi economy to
employ other Iraqis, but was instead for other activities
abroad. A telling comment, "Don't waste dollars on security,
hire Iraqis," was repeated in the discussions.

New Opportunities in Decentralization
--------------

5. (SBU) Decentralization of the government and the
enhanced role provided to the provinces and regions under
the new Constitution were seen as encouragements to
investments. Participants suggested that local approvals
for business ventures also were much easier to obtain than
is normally the case in dealing with approving authorities
at national ministries. Some additionally suggested that
fewer levels of corruption would be encountered.


6. (SBU) Local taxation policies were also discussed, with
our Iraqi contacts saying that the provinces would be in
competition for investments with each other in the future.
The provinces that were smartest would offer favorable
incentives for investors, and other areas of the country
would soon realize the advantages of enticing investors to
their regions. The payoff to the local communities and
regions for good investment climates would be seen in terms
of new jobs and expanded employment for the local populace.

Economic Transition still Required
--------------

7. (SBU) Diversification of the Iraqi economy was
considered a requirement for a growing economy.
Participants emphasized the roles of agriculture and tourism
as being key to balance over-reliance on oil production.
They also suggested the religious tourism cities of Najaf
and Karbala should be starting points for encouragement of
the tourist industry, while also flagging tourist interest
in ancient sites such as Ur. The agriculture sector was
suggested to have the potential to become the largest
employer in Iraq. Participants strongly advocated USG
support to the sector, to include micro lending, training in
marketing, assistance for purchase of U.S.-origin equipment
and opening of markets for Iraqi products in the U.S., EU
and Middle East.


8. (SBU) State Owned Enterprises were denigrated by the
roundtable attendees as inefficient and as a major source of
corruption. They recommended privatization of viable firms
via auction and closure of the remainder. Concern for the
future unemployed workers was discussed, as was the need for
the private sector to expand to provide jobs for those who
would become unemployed as the state owned firms were
downsized and streamlined. The primary concern and
emphasis, however, was to remove the government from
business and get rid of corruption--"get the government out
of business".


9. (SBU) Import and export specialists complained of
multiple sets of regulations put in place via bilateral
trade agreements and favored more general rules to ease
international commerce.

Importance of Ordinary Issues - Safety and Good Schools
-------------- --------------

10. (SBU) Many of the participants said they were
incubating ideas and projects for future investment in Iraq;
however, the lack of security was slowing down their
implementation. One woman, who is the general manager of a
construction company, said she had been kidnapped and her
family was required to pay a $500,000 ransom for her return.
She said this lack of security made her move to Amman and
put many of her construction projects on hold. Another
participant (a banker) said he was holding up a decision to
invest $34 million in the banking sector in Kurdistan. The
banker said he would weigh his potential investment in Iraq
against alternatives elsewhere, balancing expected returns
and risks.


11. (SBU) Iraqi investments in education were advocated by
several participants. Those with children or grandchildren
of school age were concerned with the education their
children could obtain in Iraq. One woman with two small
children said she would not move back to Iraq because her
children could not get a good basic education. Another
gentleman suggested asking the Jesuits to return to Baghdad
College. He stated that it had been known as the best
educational institution in the country. He said that the
nation of Iraq needed better college opportunities to entice
the better educated Iraqi expatriates to return to Iraq.
All participants, including a recent Iraqi college graduate,
said there needed to be additional emphasis on support for
youth and opportunities for them in Iraq. There were no
organized sports for the young adults and teenagers to play,
and no place safe for them to socialize. And despite the
private business activities of our interlocutors, many
maintained that the government needed to provide jobs for
new college graduates, so that they would stay in Iraq.


12. (SBU) There was also concern about the lack of
expertise in the Iraqi government regarding business.
Ministerial personnel and those running for office in this
week's national election were seen as having little or no
experience with free markets. This failing was seen as
possibly hindering the introduction of market-opening
measures in Iraq.

Comment
--------------

13. (SBU) Our Iraqi attendees were delighted to share their
views and provide input on what they wanted in the economic
future of Iraq. Most, but not all, desire to return to Iraq
to live, but will not do so until the security situation
improves. Those with dual passports intend to maintain dual
citizenship as a hedge against continued poor security and
instability. All participants were carefully monitoring the
ongoing election campaign in Iraq, and had specific parties
and candidates they were backing. Finally, they emphasized,
"Iraqis were willing to follow the West. Please don't lose
patience."