UPDATE ON INVESTMENT IN IRAQ

UNCLAS SECTION 01 OF 02 BAGHDAD 002727 SIPDIS E.O. 12958: N/A TAGS: EINV ETRD IZ SUBJECT: UPDATE ON INVESTMENT IN IRAQ REF: A. BAGHDAD 2299 ¶B. BAGHDAD 2267 ¶C. BAGHDAD 2501 ¶1. (SBU) SUMMARY. Over the recent months, Iraq has seen some early but significant successes in attracting foreign (and, to a lesser extent, domestic) investment. The Ministry of Industry and Mining has moved several SOEs toward point of sale or joint venture status and received 56 JV bids. The National Investment Commission is finding its mission and has announced a handful of fairly big-ticket investments, especially in the hospitality sector. As security improves, Iraqi officials are cautiously optimistic that these small early successes will lead to additional investment inflows, as investors -- particularly from Asia and the Middle East -- begin to believe the security gains are for real and start to "smell the money." END SUMMARY. INDUSTRY MINISTRY REPORTS 56 BIDS FOR SOE JOINT VENTURES -------------- -------------- ¶2. (SBU) On July 31, the tender period ended for bids on joint venture (JV),production-sharing agreements with 36 state factories, with the Ministry of Industry and Minerals (MIM) reportedly receiving some 56 bids. Munqith Al-Baker, adviser to Industry Minister Fawzi Hariri, told us that more than 160 companies had purchased MIM investment files. In the end, 56 investors bid on agreements to rehabilitate, manage, and capture a share of the production from these factories. The factories open for such JVs included cement, steel, petrochemicals, food, tobacco, and textiles. The greatest number of bids were placed on cement factories, with Ninewa's Sinjar and Badoosh cement factories attracting eleven and five bids, respectively; the Karbala Factory receiving ten bids; and the Fallujah Factory six. Ninewa's Mishraq Sulfur State Company received six bids; the Beiji Fertilizer State Company received four; and the Basrah Iron and Steel Factory received two, including one from multinational steel giant ArcelorMittal. ¶3. (SBU) According to Al-Baker, MoIM will now evaluate the bids and shortlist firms. MIM plans to sign agreements during the last quarter of 2008 (Comment: We are not quite as optimistic. End comment). In April, MIM signed two joint venture, production-sharing agreements worth approximately 150 million USD each with a Romanian and German consortia for cement plants in Anbar and Kirkuk provinces. Management of the factories is scheduled to formally transition on August 
¶22. PROGRESS ON NIC-LICENSED PROJECTS -------------- ¶4. (SBU) The National Investment Commission (NIC) has also licensed significant projects. On July 17, the Summit Group laid the foundation stone for a USD 120 million hotel in the International Zone. The deal, signed in April 2008, was the first foreign investment to be licensed and approved through the NIC. In June, the NIC granted a 248 million USD investment license to a Kuwaiti company for the construction of 8,000 apartment units in Najaf. In July, the NIC granted the Iraqi Investment Company a USD 21 million investment license to develop a luxury hotel in Baghdad's al-Utifiya district, and a second USD 5 million license to the same firm for development of a commercial mall in Rustafa district. The NIC reports the hotel project is aimed at supporting religious tourism and pilgrimages to Buratha Mosque and the shrines of the seventh and ninth Shiite Imams. In addition, the NIC granted a 50 million USD license to Kuwaiti firm, Al-Aqeelah, to further develop Najaf International Airport (Reftel A). INCREASING INTEREST IN ASIA, THE MIDDLE EAST, EUROPE -------------- -------------- ¶5. (SBU) On July 2-3, the Government of Japan sponsored the First Annual Japan-Iraq Business Forum in Amman, Jordan, bringing together more than two hundred participants. Senior Vice Minister of Economy, Trade and Industry (MITI) Masashi Nakano and Vice Minister for Foreign Affairs Osamu Uno led the Japanese delegation, while Minister of Industry and Minerals Fawzi Hariri led the GOI delegation. Executives from more than 100 Japanese companies attended, including heavyweights in trading, oil and gas, cargo, construction, and heavy industry. The agenda addressed political, economic, and security developments, with a focus on infrastructure, oil and gas opportunities, and the investment climate. Japanese interlocutors told us the security situation remains the largest obstacle to Japanese investment in Iraq, but Japanese companies are keenly interested in revitalizing business relations. ¶6. (SBU) In June, the Government of the Republic of Korea BAGHDAD 00002727 002 OF 002 also sponsored a trade delegation, including executives from Hyundai Industries. The conglomerate is interested in setting up a vehicle manufacturing facility in Iraq to supply GCC neighboring countries. Press reports indicate Kia is also considering such investment. Likewise, at the request of German investors, the German Government recently concluded an Investment Promotion Agreement with the GOI that protects investors against government interference and confiscation and includes dispute resolution mechanisms (Reftel C). Former German Interior Minister (now an MP) Otto Schilly accompanied a group of businessmen from the IT, energy and construction sectors on a visit to Iraq August 20-22. ¶7. (SBU) On June 29-July 1, an Omani delegation of 19 government officials and business executives, led by the Secretary General of the Ministry of National Economy Mohammed bin Nasser al Khusaibi, visited Baghdad to discuss investment protocols to facilitate public-private sector joint ventures and partnerships, including a bilateral tax agreement. The delegation reportedly met with the Iraqi Ministers of Finance, Trade, and Housing and Construction; Deputy Ministers of Industry and Minerals; and the Prime Minister, Deputy Prime Minister Barham Salih, and one of the GOI's Vice Presidents. STEADY STREAM OF POTENTIAL INVESTORS VISIT IRAQ -------------- -- ¶8. (SBU) Deputy Undersecretary of Defense Paul Brinkley's Task Force for Business and Stability Operations - Iraq (TFBSO) has provided logistical support for several visits by marquee multinational companies exploring investment opportunities in Iraq. In July, Lakshmi Mittal, the CEO of ArcelorMittal, the world's largest steel company, visited Iraq to meet with Minister Hariri, Minister of Finance Bayan Jabr, Vice President Tariq Hashimi, Vice President Ala Abd al-Mahdi, Minister of Electricity Karim Walid, and the PM's spokesman Ali Dabbagh. ArcelorMittal expressed interest in developing the steel industry in Iraq, citing examples of their work in developing or post-conflict countries in Central Asia, Africa, and Eastern Europe. The company reportedly bid on a joint venture, production-sharing agreement with Basra State Steel Company. ¶9. (SBU) In July, senior executives from Hyatt Hotels, fertilizer producer CF Holdings, and Morgan Stanley traveled to Baghdad to meet with senior GOI officials and explore business and investment opportunities (reftel B). Fertilizer producer CF Holdings expressed interest in establishing a fertilizer plant to utilize large quantities of flared natural gas, and, over the longer term, Hyatt Hotels is considering hotel management contracts. Praising the improved security situation, the executives also said they wanted to become goodwill Ambassadors between Iraq and the United States. Other companies interested in various levels of operation in Iraq include Daimler AG, which signed an MOU with the PM in July that will pave the way for truck and bus assembly at a state-owned factory in Iskanderiya, as well as Caterpillar and General Motors, which plans to open a spare parts dealership on Camp Victory to source Coalition Forces. COMMENT -------------- ¶10. (SBU) As the security situation continues to improve we, like many Iraqi officials, are becoming more hopeful that these early investment successes will build toward greater future success. Indeed, the signals are positive and should strengthen as the NIC further defines its mission and gains confidence, and as the range of potentially profitable SOEs move toward sale over the medium term. Challenges, in addition to security, of course remain, to include a long list of legislation that must be enacted in order to bolster investor confidence and move Iraq toward WTO compatibility. Still, as slow as that process may be, potential investors from Europe, Asia and the Middle East are beginning to smell the money that can ultimately be made in Iraq. End Comment. BUTENIS