US embassy cable - 04ADANA18

UNCLAS SECTION 01 OF 03 ADANA 0018 
 
SIPDIS 
 
 
 
 
BUSINESS SENSITIVE 
 
 
ANKARA PASS TO IZMIR 
 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ETRD, BEXP, BTIO, TU, IZ, ADANA 
SUBJECT:  BUSINESS COMMENTS ON IMPACT OF IRAQ 
TRADE ON SE TUREKY 
 
1.(SBU)  Summary:  Southeast Turkey business 
people have demonstrated continuing interest in 
doing business in Iraq in discussions with 
consulate personnel, but have yet to commit 
significant resources pending resolution of 
questions regarding security, export status of 
goods and business viability assessments, 
including business licensing and financing 
issues.  Agricultural trade, primarily cotton, 
and textile manufacturing are at the center of 
much local Turkish business interest.  Meanwhile, 
residents of the two closest Turkish border towns 
to Iraq, Cizre and Silopi, note the negative 
impacts of border trade on their incomes and 
quality of life. End Summary. 
 
 
2.(SBU-BUS SENS)  A prominent Adana-based SABANCI 
Holdings representative told PO recently that the 
SABANCI group is disappointed that it recently 
lost a small-medium bus manufacturing joint 
venture bid in Iraq, but said it is determined to 
find long-run investments in Iraq to pursue.  He 
offered AKBANK involvement in the Trade Bank of 
Iraq as proof as well as the soon-to-open SABANCI 
representative office in Irbil.  He wondered how 
textile exports from Iraq to the U.S. might be 
viewed, too.  Meanwhile he said that there are 
some steady sales of SABANCI Group HAYAT bottled 
water into Iraq, as well as LASSA tire sales 
through Turkish-based retail distribution re-sale 
to independent Iraqi outlets.  He closed the 
discussion by saying that the SABANCI Group is 
also very interested in investing in state 
enterprises once privatization commences, 
mentioning specific interest in the cement 
sector. 
 
 
3.(SBU-BUS SENS)  When asked where he thought 
there might be evidence of recent heavy U.S. 
investment positively affecting southeast 
Turkey's economy, he discounted the impact that 
the 2003 U.S. government approximately 700 
million dollar in purchases would have locally. 
He said most of the U.S. purchases were devoted 
to fuels and that those monies stayed in Istanbul 
or offshore.  He said that drivers recruited from 
southeast Turkey to deliver fuels and perishables 
to Iraq were being paid low wages and now had to 
declare income openly that they pre-war had 
shielded from tax authorities.  He also said that 
many local agha's in the southeast played a major 
role in regional trucking and were receiving the 
lion's share of transportation expenditures.  He 
described this group as having " little tradition 
of save and re-invest in the region," saying they 
may have started purchases of construction 
commodities related to new up-scale personal 
housing, but that most money had probably found 
its way to Istanbul or elsewhere outside the 
region. 
 
 
4.(SBU)  EUCOM Forward liaison contacts who have 
been working the ground line of communications 
since Spring 2003 note some economic development 
along the approximately 600 KM route, including 
more available consumer goods in Silopi and the 
appearance of several truck stop-like break areas 
on the western and central parts of the route. 
They note, however, that the roadbed on the route 
is in bad repair, especially sections between 
Gaziantep and Sanliurfa, and in Mardin and Sirnak 
provinces.  Comment: Consulate concurs based on 
its own recent travel along route. End Comment.) 
 
 
5.(SBU-BUS SENS)  SANKO representatives have 
indicated that they have little exposure to 2003 
Iraq border  trade beyond significant sales of 
SANKO-Group NESTLE joint venture bottled water. 
They described these plants as working at almost 
full capacity, but declined to consider expanding 
bottling capacity, viewing the market as 
profitable, but short term since Iraqi water 
bottling soon would start. They said that they 
would await further security stabilization before 
considering participation in the Iraqi market, 
focusing instead on increasing efficiency in high 
value-added textiles and expanding their 
synthetic textile production. 
 
 
6.(SBU-BUS SENS)  The SANKO representative hinted 
that the group would like an outside investor to 
join them in significantly expanding their small 
naptha-cracking facility in Yumurtalik, near 
Adana,  to build their synthetic fiber source 
base, among other uses.  They said that they 
already have more than adequate land at the 
existing site for significant plant expansion. 
 
 
7.(SBU-BUS SENS) A young, yet successful and 
quickly rising, member of a Diyarbakir integrated 
textile firm which is entirely owned by a 
prominent Kurdish family told PO in late January 
that he had visited Iraq twice recently and found 
it highly underdeveloped.  Nevertheless, seeking 
early access to projected later growth sectors, 
he wanted to buy a currently empty entire textile 
factory in Kirkuk and added that he was willing 
to buy all northern Iraqi cotton output for 2004 
to get the plant running. He projected that he 
could employ up to 400-500 people should he be 
able to complete the sale.  He said that 
completing the transaction was still unclear 
because his family found it somewhat "disloyal" 
for him to invest in Iraq now because the 
southeast Turkish economy was suffering so. 
Nevertheless, he said that he had found a good 
Iraqi lawyer to "work the system in northern 
Iraq" and would proceed over family whisper 
dissent if he could find adequate trustworthy 
Iraqi management for the enterprise and a manner 
to secure a durable business license and 
transparent tax treatment.  He also strongly 
stressed his desire to see at least the U.S. 
import Iraqi-source textiles on a quota-free 
basis. 
 
 
8.(SBU-BUS SENS)  In the interim, he said that he 
was starting a northern Iraqi-based water 
bottling business, even though he had little 
experience in the sector, in conjunction with a 
more experienced Turkish partner.  He said that 
he found a suitable source when looking for 
textile factory sites during a November 2003 
visit to Iraq. 
 
 
9.(SBU-BUS SENS)  A Cizre local contact presented 
another side of the Iraqi border trade to PO 
recently.  He said that the heavy truck traffic 
heading into/out of Habur Gate had heavily 
damaged area roads and created environmental 
damage, including major air and water pollution. 
(Comment:  Silopi and Cizre municipal officials 
and local travel corroborate this statement. End 
Comment)  This contact also noted that local 
traders now have to pay "rich businessmen" for 
the right to carry a legitimate cargo into Iraq 
in order to buy low-cost Iraqi fuel to bring back 
to Turkey to sell on the gray market. Given 10-12 
day transit times through Habur and the 100 
dollar a load "cargo access fee" supposedly 
involved, he said local truckers were getting by 
on perhaps 500-600 dollars a month, much of which 
they had to spend on food and board in Iraq 
waiting to clear lengthy Turkish customs 
procedures on each trip. He said that this was 
deepening the "rich-poor divide" in deep 
southeast Turkey and building resentment at the 
border trade situation. 
REID