US embassy cable - 03AMMAN3456

UNCLAS SECTION 01 OF 03 AMMAN 003456 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USTR FOR NED SAUMS 
USDOC FOR 6100/KMURPHY 
 
E.O. 12958: N/A 
TAGS: EINV, ETRD, EAID, IZ, JO 
SUBJECT: JORDAN IRAQ CONFERENCE SENDS NEEDED MESSAGE 
 
REF: AMMAN 3190 
 
Sensitive but unclassified; please protect accordingly. 
 
1.  (sbu)  Summary:  The June 5 "Doing Business With Iraq" 
conference organized by four leading Jordanian business 
associations left local businessmen better informed and 
better prepared to take advantage of opportunities.  Despite 
a vocal minority of "old economy" businessmen who grilled 
U.S. speakers about compensation claims and complained that 
"Jordan's share" of reconstruction contracts wasn't doled out 
at the conference, a solid majority of business 
representatives, including delegations from a dozen countries 
from East Asia to Eastern Europe, used the conference to gain 
information about new business realities in Iraq and to 
network with contractors and attending Iraqi businessmen. 
The conference highlighted the widening gap between a fading 
breed of old economy traders and a new breed of professionals 
in Jordan and the region who are positioning themselves to 
capitalize on free-market opportunities in Iraq.  End summary. 
 
CONFERENCE DRAWS GLOBAL INTEREST 
 
2.  (u)  Attendance at the day-long June 5 "Doing Business 
With Iraq" conference surpassed the most optimistic 
predictions of the conference's organizers.  Over 1,200 
people attended, including business delegations from Turkey, 
Japan, India, Bulgaria, and throughout the Gulf, among 
others.  Also in attendance were key Iraqi business figures 
in Jordan, and self-styled representatives of Iraqi chambers 
of industry and commerce.  The conference featured speakers 
from major humanitarian assistance organizations, primary 
contractors for the reconstruction process (including 
Bechtel, ABT, and Creative Associates), and representatives 
from the Coalition Provisional Authority (CPA).  Trade 
Minister Bashir opened the conference, and the Ambassador 
spoke at the conference lunch event. 
 
KEY MESSAGES 
 
3.  (u)  Following a background briefing by McKinsey and Co. 
highlighting Iraq's projected reconstruction needs (roughly 
$500 billion to regain 1980 levels; a similar figure to 
modernize), conference participants heard three main messages 
repeated by virtually all the speakers throughout the day's 
events.  First, speakers emphasized that reconstruction 
contracts represented a tiny fraction of Iraq's long-term 
rebuilding and commercial needs, and noted further that 
competition for sub-contracts under existing awards was 
fierce.  Bechtel repeated a theme from presentations 
elsewhere that strong interest from globally competitive 
companies was already well in evidence - over 8,000 
applications had been submitted through the Bechtel website 
for reconstruction subcontracting.  Bechtel said companies 
should be realistic about their expectations of winning 
subcontracts, highlighting the competitive nature of the 
bidding process. 
 
4.  (u)  Second, speakers repeated the refrain "go to 
Baghdad," noting that the bulk of economic activity in Iraq 
would be done on the ground, in the private sector, by 
companies with initiative that were willing to take risks. 
They acknowledged that there still existed in Iraq 
significant risk factors, both on the security side and on 
the legal/investment protection side, but noted that many 
companies are already trading with Iraqi importers, some are 
setting up offices, and others are actively seeking Iraqi 
investment partners.  This message contrasted sharply with 
what local businessmen said they had been hearing on the 
street and unofficially from returnees from Baghdad, who had 
(prior to June 5) discouraged travel into Iraq on security 
grounds. 
 
5.  (u)  Third, speakers from the CPA acknowledged that the 
disposition of outstanding contracts with the Saddam Hussein 
regime were a thorny issue.  They stressed, though, that it 
was too early to be able to answer specific questions about 
specific contracts, especially since the UNSC had not yet 
made a final determination regarding how uncompleted 
contracts would be treated, or indeed whether or not pending 
contracts could be executed.  Regarding outstanding contracts 
under other mechanisms (i.e., the bilateral Jordan-Iraq 
protocol and commercial contracts with formerly state-owned 
enterprises), Trade Minister Bashir told the conference 
settlement of claims would have to await the standing up of 
an Iraqi counterpart ministry with which to discuss the issue. 
 
VOCAL MINORITY VENTS OVER CONTRACTS 
 
6.  (u)  An angry knot of several dozen Jordanian businessmen 
grilled speakers from CPA, Bechtel, and McKinsey about 
outstanding contracts.  One businessman used a Q&A session 
following the initial presentation to accuse the U.S. of 
"wanting to invest in war, but not in peace," an assertion 
that met with some applause.  Primarily, this group of local 
businessmen used the Q&A session to ask a dozen varieties of 
the same question:  "how will I be compensated for my 
specific outstanding contract?"  Speakers repeated the 
message above regarding the complexity of the situation, an 
unpopular response among those who had been trading with the 
Saddam regime in the months leading up to war. 
 
7.  (sbu)  Following the conference, a number of like-minded 
local businessmen complained that the meeting had been 
mis-advertised.  Rather than the subcontracts for 
reconstruction they expected to be handed to them on a silver 
platter at the conference, these businessmen were confronted 
with the reality that subcontracts would be competed 
transparently and on the basis of quality and initiative from 
competing firms.  Some 200 attendees left the conference 
early, bringing local media with them to vent further about 
how little they got out of the conference. 
 
SILENT MAJORITY NETWORKS, LEARNS, EARNS 
 
8.  (u)  Those who stayed, however, had significant and often 
rewarding opportunities to network with third-country 
investors looking for partners, with Iraqi businessmen 
looking for partners/suppliers, and with contractors.  Many 
local participants commented at the end of the conference 
that they had done more business that day than in the 
previous month.  Contractors and CPA officials also held 
break-out sessions with small groups of interested 
businesses, and Bechtel and CPA officials held an additional 
five hours of one-on-one sessions with individual businessmen 
throughout the conference day.  Key Iraqi business leaders in 
Amman took over one of the break-out rooms early in the day 
and could be seen "holding court" with interested parties 
both from Jordan and from third country delegations. 
 
9.  (sbu)  Representatives from primary contractors were 
impressed at the professionalism and capabilities of the 
Jordanian companies with which they met.  Both the Bechtel 
and the ABT reps noted that they had developed solid leads 
for suppliers as a result of the conference. 
 
KEY JORDANIANS RECEIVE PERSONAL MESSAGE 
 
10.  (sbu)  Following the conference, the Ambassador held an 
informal round table for key Jordanian business leaders with 
CPA officials and primary contractors.  The business leaders 
appreciated CPA's views on the on-the-ground realities in 
Baghdad, and came away reassured that the USG is focused on 
what the key short- and long-term issues are for Iraq, and 
that the CPA had a plan to address those issues 
systematically.  Business leaders stressed that the single 
most critical piece of infrastructure holding back commerce 
in Iraq was the re-establishment of financial institutions 
and a banking sector.  Following closely behind as a key need 
was the establishment of civil courts to provide a measure of 
protection for investors. 
 
11.  (sbu)  Some business leaders noted that ultimately, 
those who were sincere about taking advantage of 
opportunities would just have to jump in with both feet, 
accepting the inherent security and financial risk in 
exchange for potentially significant rewards.  At the same 
time, some business leaders observed that financial risks for 
Jordanian companies were, on the whole, relatively higher 
than for businesses in, for example, Kuwait - mostly because 
of greater availability of venture/risk capital in the Gulf. 
Business leaders said they would welcome the establishment of 
some sort of umbrella arrangement by the CPA to provide some 
measure of investor protection. 
 
12.  (sbu)  Ultimately, many business leaders agreed that the 
optimal business plan for now would be to partner with a 
knowledgeable Iraqi counterpart, both to spread the risk and 
to take advantage of the local market expertise of Iraqi 
partners.  An Embassy contact at the palace told us 
separately that his family was already renewing dormant 
relationships with Iraqi importers and investment partners to 
restart businesses that had been thriving prior to the onset 
of UNSC sanctions. 
 
ASSESSING THE CONCERNS 
 
13.  (sbu)  This conference highlighted the thirst for any 
information about Iraq, both in Jordan and in the surrounding 
region.  It also showed the deepening frustration many 
companies are feeling over the inability to get an answer 
regarding compensation claims for outstanding contracts - 
both under the OFF program and through other trade 
arrangements.  We believe a decision on handling of 
outstanding OFF contracts, and rapid placement of COTECNA 
inspectors at border points to stamp documents would go a 
long way toward dispelling much of the frustration and anger 
in local business communities over contracts they feel they 
entered into in good faith with the UN. 
 
14.  (sbu)  On a similar note, the conference also 
highlighted changing realities on the local business scene. 
It is becoming increasingly apparent, even to old economy 
stalwarts, that the "old ways" of doing business through 
guaranteed carve-outs in protected markets for 
non-competitive goods and services are rapidly falling by the 
wayside.  One telling example:  Kellogg Brown and Root (KBR) 
recently tendered the construction of a bypass road to 
facilitate the rebuilding of a bridge in an Iraqi town.  A 
Jordanian consultant assessed the project at $300,000.  Three 
Jordanian bidders then colluded on their bids, putting in 
offers starting at $1.2 million for the project.  KBR was 
forced to reject all three bids, giving the project instead 
to an Iraqi firm for around $300,000.  This sort of 
self-destructive behavior is typical of old economy Jordanian 
companies, and it is the sort of behavior that will 
ultimately push them out of the reconstruction effort unless 
they change their ways.  The meteor of open competition has 
struck the Jordanian business world, and those dinosaurs that 
cannot adapt will ultimately fade away. 
GNEHM