Identifier
Created
Classification
Origin
09BAGHDAD597
2009-03-08 11:15:00
UNCLASSIFIED
Embassy Baghdad
Cable title:  

WINNERS AND LOSERS IN THE BAGHDAD RUSTBELT

Tags:  ECON ETRD EINV EFIN PGOV IQ 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHGB #0597/01 0671115
ZNR UUUUU ZZH
R 081115Z MAR 09
FM AMEMBASSY BAGHDAD
TO SECSTATE WASHDC 2043
UNCLAS BAGHDAD 000597 

SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EINV EFIN PGOV IQ
SUBJECT: WINNERS AND LOSERS IN THE BAGHDAD RUSTBELT

REF: A) 08 BAGHDAD 3924, B) BAGHDAD 522


UNCLAS BAGHDAD 000597

SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EINV EFIN PGOV IQ
SUBJECT: WINNERS AND LOSERS IN THE BAGHDAD RUSTBELT

REF: A) 08 BAGHDAD 3924, B) BAGHDAD 522



1. This is a Baghdad EPRT-2 reporting cable.


2. SUMMARY: While many of Iraq's state-owned enterprises are
doomed to extinction (ref A),some are thriving. Among firms in
which the GOI has only a partial stake -- so-called mixed
enterprises -- market sector and leadership appear to be the
decisive factors that differentiate winners and losers. This cable
describes four mixed enterprises, two in growing sectors and two in
sectors dominated by imports. There is little the GOI can do to
secure a long-term future for the weakest of these firms, but even
the stronger ones will struggle if the GOI fails to improve the
investment climate. END SUMMARY.
Modern Paints Industries -- Good Prospects for a Turnaround
--------------

3. Modern Paints Industries (MPI) is a mixed enterprise in the
Zafaraniyah area of eastern Baghdad whose primary business is the
production of decorative and industrial paints. MPI employs around
245 people, of whom only 150 are actively working. While MPI's
share of Iraq's paint market has declined since 2003, its capital
facilities remain functional. As is true of other state-owned
enterprises, the Ministry of Industry and Minerals appoints a
director general (DG) as the firm's top manager. MPI's DG, Abdul
Karim, took the helm in June 2008 and has taken steps to turn the
company around. Abdul has a degree from a western university and
strong free-market instincts. More important, he understands and
accepts the fundamental changes in Iraq's markets.

4. With training and assistance from EPRT2, MPI has started new
advertising and sales initiatives, refocused on the more lucrative
segments of the market, and begun searching for joint-venture
partners outside of Iraq. Abdul Karim expects growth next year as
private-sector and government spending increases on reconstruction
projects in the industrial and housing sector. That should boost
demand for MPI's products.
National Foods Industries: -- Pulling out of the Tarpit
--------------

5. When EPRT2 visited National Food Industries (NFI) in April 2007,
the mixed enterprise company had not been in production since 2003.
Before 2003 NFI produced soda, juice concentrates, and beer. The

company was in desperate need of new equipment, working capital, and
electricity. All requests for help from the GOI had gone
unanswered.

6. In November 2008, EPRT2 met with NFI's new DG, Intisar Kathim
Chawi. The company had restarted production and opened new
production lines. Of a total (approximate) workforce of 360 people,
150 were working every day and 100 were working increasingly
regularly to help with the company's expanding production. The
credit for this revival goes to DG Intisar, one of the few female
executives in Iraq. A 1982 chemical engineering graduate of Baghdad
University, she rose from production engineer to become the DG in

2003. She has travelled and trained throughout Europe and the U.S.
and has a strong grasp of finance and free-market concepts. Through
Intisar's efforts, NFI was able to secure a three year loan for
approximately $1.5 million from Warka Bank earlier this year at 17
percent for equipment upgrades and working capital. Intisar plans
to keep expanding and diversifying NFI's product lines.
Electronics Industries Company -- Success is tenuous
--------------

7. Before 2003, the Electronics Industries Company (EIC) in the
Karada District in eastern Baghdad assembled everything from
televisions and radios to computers and voltage converters. EIC
used to employ 1,500 workers and 70 engineers. Now the company is
down to fewer than 200 workers and 5 engineers. Production lines
Qdown to fewer than 200 workers and 5 engineers. Production lines
are all but dead now. EIC's facilities were damaged in 2003 by
bombing and looting. Annual output is now just a few thousand
telephones and voltage converters.

8. EIC's managing director, A.R. Al-Uraiby, has been running the
company since its founding in 1973. Al-Uraiby talks about a
turnaround; he would like to retool for updated consumer
electronics. EIC applied for a GOI loan and sought a grant from the
USG's Task Force for Business Stability Operations in the summer of

2008. Neither loan has come through yet. Al-Uraiby's backup plan
is to sell pieces of company land to raise the capital.
Unfortunately, success for EIC may be out of reach. Al-Uraiby does
not have a detailed plan for a turnaround, and Asian imports
dominate the market for EIC's products. Barring prohibitive
tariffs, it is unlikely that any Iraqi firm will be able to fend off
foreign competition in this sector.
National Chemicals and Plastics Industries - "Just one word:
plastics"
--------------

9. National Chemicals and Plastics Industries (NCPI) is a producer
of injection molded plastic products, polyethylene sheeting, and
other finished plastics products. Before the 1990 embargo, the
company employed around 1500 people. In recent visits the company
appeared to employ around 320, most of whom rarely work. Currently
production is almost nonexistent. Efforts over the last 18 months
by EPRT2 to spur production through relationships with USG
contractors and direct purchases for agricultural projects have
largely fallen flat because of NCPI management's failure to follow
up. Recently EPRT-2 conducted a small price comparison study with
various imported materials ("Operation Mrs. Robinson") and found
that most products were being sold for 15-25 percent less than
NCPI's cost of materials. In its present condition, NCPI cannot
compete.

10. NCPI's DG Abbas took control of the company in July of 2008. He
studied agricultural business and has had no exposure outside of
Iraq. Abbas started his tenure with grandiose plans for marketing
and sales, but within a month he had given up. "I'm shocked that
no one wants to pay for quality, [they] care only about price,"
Abbas laments. He believes that private investment will "be good
only for the investor and the workers will suffer." Abbas would
rather focus on returning to past protectionist policies, telling us
that, "[NCPI] will be prosperous if the regulations go back to
Saddam's time."
Comment
--------------

11. Despite the challenges faced by the Iraqi economy and mixed
enterprises, some of these companies are experiencing a rebound.
Food products companies have promise and have been a growth sector.
Construction materials continue to do well as reconstruction efforts
expand. However, sectors that were supported by the previous
regime's protectionism and direct support are suffering. Companies
manufacturing consumer goods face stiff competition from advanced
foreign competitors and face a tenuous future.

12. A crucial factor is the quality of management. A DG's ability
to accept and embrace the transition to a free market is a vital
ingredient to recovery. As shown in these examples, a DG willing to
accept the new market conditions, and skilled enough to change the
direction of the company, can save a mixed enterprise. Conversely,
a company with a DG longing for the days of a controlled economy and
state support, or unable to cope with the free markets, will likely
continue to falter.

13. In view of the scarcity of bank financing and the low
likelihood of a GOI-financed rescue, private investment may be the
only way ahead for potential winners. In July 2008, the GOI
promised the mixed sector USD 85 million in subsidized loans. But
now GOI officials say new fiscal pressures mean loans for mixed
enterprises may not be funded in the 2009 budget. For potential
winners in Baghdad's rustbelt, private investment may be the only
hope.


BUTENIS