Cablegate: Prt Tikrit: Salah Ad Din Leaders Face Tough Economic

VZCZCXRO2238
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK RUEHROV
DE RUEHGB #2200/01 1841216
ZNR UUUUU ZZH
P 031216Z JUL 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 2017
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RUCNRAQ/IRAQ COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 03 BAGHDAD 002200

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON EAGR IR IZ
SUBJECT: PRT TIKRIT: SALAH AD DIN LEADERS FACE TOUGH ECONOMIC
QUESTIONS

REF: BAGHDAD 996

1. This is a PRT Tikrit, Salah ad Din cable.

2. This is the first of two cables regarding the Salah ad Din
Business Investment Conference.

3. Sensitive but unclassified, entire text.

4. SUMMARY. The Governor of Salah ad Din hosted a gathering of over
100 public and private sector leaders for a Business and Investment
Conference at Tikrit University on June 23. Ground-breaking due to
its size and scope, the conference provided provincial leaders an
opportunity - in the national spotlight - to outline a vision of
economic growth for the province. While no panaceas were announced,
and an infusion of foreign capital into SaD is probably not
imminent, the meeting provided provincial leaders a platform to
offer a message of hope to a downtrodden populace. Most
importantly, the event helped to further legitimize in the public's
eye a government increasingly adept at exploiting the power of the
media. END SUMMARY.

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A New Economic Approach in Salah ad Din
---------------------------------------

5. A former military and governmental stronghold under the previous
regime, Salah ad Din (SaD) is home to an economy gutted by
de-Baathification and a weak, underdeveloped private sector, even
when measured by Iraqi standards (reftel). The chief impediments to
economic growth - the lack of access to capital, a challenging
security situation, dilapidated infrastructure, regulatory and
bureaucratic hurdles to registering a business, and chronic
inflation - hardly, if at all, improved in 2006-2007. Moreover,
many of these challenges lie outside of the purview of provincial
governance.

6. Instead, the conference represented a growing awareness by
provincial leaders that the future of SaD depends - not upon
governmental subsidies and state-owned enterprises - but instead on
foreign and domestic investment. (NOTE: In being dominated by
officials with ties to the old regime, SaD is certainly not alone.
However, the lack of private sector experience in the upper echelon
of government (the Governor was a schoolteacher, the Deputy Governor
a Brigadier General) may have led provincial leaders to often view
the private sector as a threat to their power base. As a result,
the public and private sector rarely communicate here, with the
business community largely isolated from the provincial decision
making process, reftel. END NOTE.) Critically, the conference
discussion did not degenerate - as it often does - into a "gripe
session" revolving around corruption at the Bayji oil refinery and
the consequent shortages of refined fuel.

7. Consistent with the expectation that the national investment law
will mandate a business investment committee seated in each
province, the Governor announced the formation of a group that would
"oversee investors in Salah ad Din and send me (the Governor)
recommendations." The Governor also announced that the committee
would consist of twelve members. However, balance yet may be an
issue - only two of the twelve were from the business community -
the rest members of the Deputy Governor's inner circle.

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A Better Mix
------------

8. Previous economic conferences in October 2006 and March 2007 here
were usually governmental or private sector and academia - but not
both. On June 23, SaD Governor Hamad Hamoud al Shakti invited 315
delegates to discuss a varied agenda of topics, ranging from the new
national investment law, to the (admittedly weak) level of SaD
business competitiveness. Although the conference was held on a
Saturday closely following several CF operations - likely
discouraging attendance - approximately 140 delegates attended the
event. Most importantly, the mix of delegates was robust; about 65
attendees represented the government, 35 from academia, and
approximately 55 from the private sector. The Governor provided the
highlight of the conference by stating, "We (the provincial
government) reach out to the private sector to create hope for the
people."

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Security First
--------------

9. Significantly, provincial leaders - especially the Deputy
Governor - accepted responsibility for the unstable security
situation in Salah ad Din, agreeing that there could be no economic
development without stability. The Deputy Governor declared that

BAGHDAD 00002200 002 OF 003

"security is the foundation of economic growth, and we assure any
investor that we will provide it for them." The ability of the
provincial government to fulfill the assurance notwithstanding, the
governor's message was unequivocal.

-------------------
"More Hope in Doha"
-------------------

10. It would be premature to recast SaD provincial leaders as
enthusiastic, budding capitalists. In other provincial issues such
as security and budget execution (septel) the tendency to
(over)centralize authority in Tikrit usually rules the day
(sometimes in spite of the best efforts of the PRT). If a Sunni
government held power in Baghdad, the same approach likely would be
applied to economic growth. However, increasingly - as hopes for
reconciliation fade here - a sobering reality appears to be setting
in. This sentiment was reflected by Deputy Governor Abdullah in an
interview with IPAO on June 21, "We have more hope in our people in
Doha or Dubai than in Baghdad." The message for SaD leaders is
clear: attract investors from Dubai or Doha to the province before
it is too late, for soon Salah ad Din will be on its own. In this
context, the oft-repeated request for an airport in Tikrit by
provincial leaders is more easily understood.

------------------
Tariffs, Please...
------------------

11. The newfound commitment to the free market, however, did not
preclude most speakers at the conference to call for stiff new
duties on all imports at ports of entry. The fact that many
products are imported from abroad rankles provincial leaders and the
general population alike; local farmers struggle while foodstuffs
flow in from Iran and Turkey (the ultimate archenemy in the minds of
many SaD residents).

-----------------------------------------
Local Business Competitiveness Questioned
-----------------------------------------

12. Most speakers questioned the competitiveness of businesses in
SaD. Significantly, the Provincial Council Chairman, Sheikh Rashid
- one of the most conservative, nationalistic members of the council
whose commitment to democracy, much less free markets, once appeared
to be in question - strongly supported a future foreign economic
presence in SaD. Rashid also demonstrated a desire to encourage
business reform through consolidation, streamlining, and increased
competitiveness in SaD - if perhaps by the wrong method (government
mandate rather than market forces) - by stating that "we (the
provincial government) should reorganize the businesses of SaD by
combining five into one."

13. The business community in SaD is also hamstrung by rampant
hostility between the two principal private sector organizations:
the Businessman's Union and the Chamber of Commerce. Driven by a
personal feud between the two leaders, Raad al Ali, President of the
Union, and Dhamer Muhklif, President of the Chamber of Commerce, the
rival camps actually attempt to sabotage opposing group initiatives
and investments in the province rather than supporting the business
community as a whole. (NOTE: These institutions are also highly
distrusted by the general population, as they were used as
intelligence gathering organizations in the past. END NOTE.) Deputy
Governor Abdullah called them to task at the conference, however,
stating that "The Chamber of Commerce doesn't do anything right now
except print ID cards."

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

14. Tikrit will not be the next Dubai anytime soon. The near-term
value of the provincial government's outreach to the private sector
and encouragement - however nascent - of foreign investment will
likely be political rather than economic. The advent of a business
investment committee which can take steps towards the attraction of
foreign investment - and coordinate USG initiatives (such as the
Task Force for Improved Business and Stability Operations - Iraq
project) - is a significant economic capacity building measure.
However, the true value of the conference and the initiative from
which it will hopefully spring was the message of economic growth
and the hope of future prosperity. This could be a powerful counter
to the growing extremism here, especially given the provincial
government's budding ability to utilize the provincial and even the
national media. The prospect of economic growth (dependent upon
improved security) will also remain a valuable carrot which can be
leveraged to encourage the provincial government to continue to take
the difficult steps necessary to improve the security situation. The
PRT will remain highly engaged on this critical issue throughout the
summer/fall 2007. END COMMENT.

BAGHDAD 00002200 003 OF 003

15. For additional reporting from PRT Tikrit, Salah ad Din, please
see our SIPRNET reporting blog:
http://www.intelink.sgov.gov/wiki/Tikrit.

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