THE NEED FOR OPIC FINANCING OF PROJECTS IN IRAQ

UNCLAS BAGHDAD 003949 SIPDIS NEA-I ECON PLEASE PASS TO OPIC E.O. 12958: N/A TAGS: EINV ECON IZ SUBJECT: THE NEED FOR OPIC FINANCING OF PROJECTS IN IRAQ ¶1. (U) SUMMARY AND ACTION REQUEST: Embassy Baghdad strongly urges the Board of Directors of the Overseas Private Investment Corporation (OPIC) to increase its participation in projects in Iraq. Specifically, the Board should consider on an urgent basis debt financing for the Summit Group's hotel development project in Baghdad's International Zone. A five-star, business-friendly hotel is crucial to private sector development in Iraq. We make this strategic recommendation regarding OPIC's involvement based on the factors detailed below. END SUMMARY. THE SUMMIT GROUP'S PROPOSAL -------------- ¶2. (SBU) In March 2008, the Goverment of Iraq's (GOI) National Investment Commission (NIC) announced that it had issued a license to Summit Group for the construction of an international standard, five-star hotel with 300 rooms in Baghdad's International Zone (IZ). This project was the first major investment license to be signed by the NIC, following an arduous inaugural licensing process involving several different GOI ministries. The Defense Department's Task Force for Business and Stability Operations (TF BSO) provided extensive logistical and procedural support to Summit Group representatives. In addition, both the former and current commanding generals of Multinational Forces - Iraq lauded the project for its strategic and intrinsic value to the Iraqi economy. Marriott was initially to manage the hotel upon completion, but declined further involvement following the bombing of its hotel in Islamabad in September. The Emirati hotel chain Rotana, however, quickly stepped in and now plans to manage the hotel. ¶3. (SBU) Hotel options for business executives, foreign government officials, and others that visit Iraq are extremely limited and require improved security and infrastructure. There is currently only one hotel in the International Zone (Al Rasheed),and its physical condition is deteriorating. The chairman of a five-star US hotel chain recently told the Ambassador that even though his firm is not involved in the Summit Group's deal, he fully supports the endeavor because many foreign investors will not even consider entering Iraq's market until they have a business class hotel to serve as a base of operations. THE TIME IS NOW -------------- ¶4. (SBU) More generally, the Iraqi economy is at critical juncture. Hard-earned security gains have created unprecedented opportunities for investment and for the Iraqi private sector to take its first meaningful steps toward development. These gains are fragile, however, and private investment is needed in order to solidify the improved security climate and diversify the economy. The importance of private investment is even greater today with the fall in oil prices, which has reduced GOI budget resources and underscores the need for investment-led growth in non-oil sectors. In addition, last month's signing of the U.S.-Iraq Strategic Framework Agreement and an impending multi-billion dollar sale by GE to the GOI for 56 generators and turbines that could double Iraq's energy capacity both offer an excellent opportunity for OPIC to further strenghten our bilateral commercial relationship. A STRONG SIGNAL -------------- ¶5. (SBU) The long-term success of our efforts in Iraq depends on economic revitalization, which, in turn, relies on private investment. By acting now on the Summit Hotel deal, OPIC will send a fundamental signal that investors and companies Qwill send a fundamental signal that investors and companies can do business in Iraq. At the same time, OPIC financing can directly contribute to a project that will pay dividends by opening doors to other foreign direct investment. We strongly urge the OPIC Board to act now on its decision to finance the IZ hotel project and consider increasing its level of participation in other projects in Iraq. CROCKER