KUWAITIS KEEN TO INVEST IN IRAQ, BUT SECURITY AND

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 000218

SIPDIS

SIPDIS

STATE FOR NEA/ARP, NEA/I, AND EBB
BAGHDAD FOR ECON AND OSD - ROBERT LOVE

E.O. 12958: DECL: 02/14/2017
TAGS: ECON BEXP ETRD PREL PGOV KU IZ
SUBJECT: KUWAITIS KEEN TO INVEST IN IRAQ, BUT SECURITY AND
CORRUPTION CONCERNS REMAIN

Classified By: CDA Matt Tueller for Reasons 1.4 (b) and (d)


1. (C) Summary and Comment: On February 11, Director of the
OSD Task Force to Support Business and Stability Operations
in Iraq Robert Love met separately with prominent Kuwaiti
investors to enlist their support for revitalizing the Iraqi
economy through investment and facilitating access to
external markets. Love encouraged Kuwaiti investors to seek
opportunities to invest in Iraqi companies to connect them to
markets outside Iraq. Tarek Sultan of Agility (formerly PWC)
said his company has a number of projects in Kurdistan and a
few joint ventures in Baghdad. Sultan cited the lack of GOI
decision-making as a problem, but said he is very interested
in developing a free trade zone near the Kuwait-Iraq border
as well as distributing Iraqi products through Agility's
network. (Note: Following the meeting, Econoff received an
email from Sultan indicating that Agility has set aside USD
10 million for such projects, pending business due
diligence.) Rabah Al-Rabah of the Kuwait Chamber of Commerce
and Industry said "security is the first and last issue in
Iraq," but agreed that rebuilding Iraq's economic base is in
Kuwait's interests over the long term. Rabah agreed to host
a conference of Kuwaiti and Iraqi businessmen in the
April/May timeframe to help expand the trade relationship.
Wadih Al-Absi of First Kuwait Trading and Construction, lead
contractor for the new U.S. embassy in Baghdad, said his
company has 7-8 major projects in Iraq, but stated his
frustration and concern with the security situation. Al-Absi
said he currently sources almost all materials from Kuwait,
but would gladly buy Iraqi goods if the U.S. military would
guarantee vehicle escorts to ensure entry into coalition
installations. Al-Absi also argued that Iraqis seen
connected in any way to MNF-I efforts are targets for
insurgents, and asked that Iraqi workers be allowed to live
inside coalition compounds. Dr. Nasser Behbehani of Awraq
International complained about GOI corruption and a lack of
contract enforcement.


2. (C) All interlocutors agreed that there are business
opportunities to pursue in Iraq, and that relieving
unemployment through a revitalization of Iraq's economy is in
Kuwait's interest. Predictably, security concerns and GOI
corruption were cited repeatedly as barriers to investment,
but OSD's Love stated that he could address some of their
concerns through his direct dealings with Deputy PM Barham
Salih. Connecting Iraqi producers to companies that can buy
and transport their products to markets is key. Swift
follow-up will be important to building and sustaining
Kuwaiti interest in this initiative. Kuwaiti companies in
Iraq that do not currently employ many Iraqis or buy
materials in Iraq will be hesitant to change their business
models unless they see genuine USG commitment to solving
transparency problems and facilitating relationships between
Iraqi and foreign companies. End Summary and Comment.

Long Term, "More Risky Not to Invest" in Iraq
--------------


3. (C) On February 11, Director of the OSD Task Force to
Support Business and Stability Operations in Iraq Robert Love
met with prominent Kuwaiti investors to enlist support for
revitalizing Iraq's economy through investment and
facilitating access to external markets for Iraqi products.
Tarek Sultan, Chairman and Managing Director of Agility
(formerly PWC, one of the world's leading logistics
companies),was upbeat on the long-term investment prospects
for Iraq, said he was "already sold on Kurdistan" and that
the regional government's red tape is the only hindrance to
doing business there. In central and southern Iraq, where
security is much more of a concern, Sultan said Agility has a
few joint ventures, but the lack of GOI decision-making is a
serious problem despite Agility's readiness to enter into
contracts. Sultan said he is very interested in establishing
a free trade zone on the Iraqi side of the Kuwait-Iraq
border, and would also like to get involved with the Um Qasr
South port, cement production, scrap metal processing, and
oil-sector logistics contracts. Sultan was very receptive to
Love's argument about opportunities to invest in Iraqi
companies and distribute Iraqi goods, saying that Agility can
channel business to Iraq by virtue of its size. In an email
sent to Econoff later the same day, Sultan wrote that his
company had "allocated an immediate budget of USD 10 million
for any specific projects that you wish to pursue, subject to
the completion of business due diligence."

"Security is the First and Last Issue in Iraq"
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KUWAIT 00000218 002 OF 003




4. (C) Rabah Al-Rabah, Deputy Director General of the Kuwait
Chamber of Commerce and Industry (KCCI) said that while
Kuwaiti investors are eager to re-establish trade links,
security is the foremost barrier to investment. Al-Rabah
also noted confusion about the procedures for establishing
businesses in Iraq. He was adamant that doing business in
Iraq was vital to Kuwait's interests, saying that "this is
our neighbor; we have to live with, deal with, and cooperate
with them." He said there is substantial Kuwaiti capital
seeking an investment outlet, noting that Kuwait is the
biggest source of foreign investment in Jordan and the number
two source for Egypt, and that if security conditions were
better much of that money could be invested in Iraq.
Al-Rabah stated that identifying the most promising sectors
would help investors know where to focus, and highlighted
telecommunications, machinery, hotels, and banking as some of
the sectors to which investors should be directed. At Love's
prompting, Al-Rabah agreed that the KCCI would host a
conference to bring together Kuwaiti and Iraqi investors,
with an aim to having the event in April or May. Al-Rabah
welcomed the attendance of American businesses, but urged
that the USG should not be a visible presence.

If Escorts Were Guaranteed, Would Source from Iraq
-------------- --------------


5. (C) Wadih Al-Absi, Managing Director of First Kuwaiti
Trading and Contracting, which is the primary contractor for
the new U.S. Embassy in Baghdad, expressed concern about the
difficulty of employing Iraqis on his company's projects,
relating several stories of Iraqi employees and suppliers who
were killed because their work was related to MNF-I support.
He argued in favor of allowing Iraqis to live inside
coalition compounds to reduce the danger of being seen by
insurgents entering and exiting the installations. Al-Absi
said First Kuwaiti has 7-8 major projects in Iraq and spends
between USD 2-2.5 million per month in local procurement.
However, the vast majority of First Kuwait's materials are
procured in Kuwait, both because of reliable availability and
because of the onerous security requirements for entry into
MNF-I camps. He explained that materials trucked in from
Kuwait travel with U.S. military convoys and are therefore
considered secure enough to enter the camps. Locally
procured materials, however, (he cited gravel as an example)
must be dumped in a buffer zone outside the camps and then
re-loaded onto different trucks for entry, a dual-handling
procedure that dramatically increases costs and makes it
impractical to source from Iraqi suppliers. Al-Absi stated
clearly that he would "gladly buy supplies in Iraq if the
U.S. military would guarantee an escort just like they do
from Kuwait," to which Love responded that he would raise the
matter with military officials in Baghdad. Al-Absi agreed
that Kurdistan is now secure enough to be an attractive
investment destination, but noted that the logistics of
transporting vehicles and materials to Kurdistan (through
other, less secure provinces) is "still too dangerous."

Corruption and Contract Problems
--------------


6. (C) In a meeting with Dr. Nasser Behbehani, General
Manager of Awraq International General Trading and
Contracting, and his associate Yasser Al-Jaafar of United
International Holding Company, both men expressed frustration
with GOI corruption and a lack of contract sanctity. Jaafar
said Iraqi officials routinely ask for payoffs and inflate
contracts to include kickbacks. Iraqi border guards often
demand bribes, he said. Behbehani complained that although
he "works with the Iraqi Ministries, provincial governors,
the Prime Minister and his advisers," key officials change so
frequently that it is difficult to build relationships with
reliable GOI officials. Turning to contracts, Behbehani said
GOI officials routinely sign contracts despite lacking
authorization to do so, and that even authorized contracts
are not reliably honored. Responding to Love's question
about buying materials from Iraqi suppliers, both Behbehani
and Jaafar said they would do so if the security situation
permitted. Jaafar added that the cost of security for
transporting goods is nearly always more than the value of
the goods themselves.


7. (U) OSD Love did not have a chance to clear this cable
before departing Kuwait.

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For more reporting from Embassy Kuwait, visit:

KUWAIT 00000218 003 OF 003


http://www.state.sgov.gov/p/nea/kuwait/?cable s

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