Cablegate: Egypt-Iraq Bilateral Economic Cooperation

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DE RUEHEG #0123/01 0241426
ZNY CCCCC ZZH
R 241426Z JAN 10
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 0033
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHEG/AMEMBASSY CAIRO

C O N F I D E N T I A L CAIRO 000123

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E.O. 12958: DECL: 2020/01/24
TAGS: ETRD EG IZ EINV ECON
SUBJECT: EGYPT-IRAQ BILATERAL ECONOMIC COOPERATION

REF: 09CAIRO1370; 09CAIRO2194

CLASSIFIED BY: Donald A. Blome, Minister-Counselor, Dept. of State, ECPO; REASON: 1.4(B), (D)

1.(C) Key points: -Egypt's trade with Iraq remains small despite the Egypt-Iraq Joint High Committee talks and the GAFTA agreement. -The GOE is not moving quickly to deepen investment and trade ties with Iraq in the near term, but some private Egyptian companies are exploring investing in Iraq. -The outstanding Saddam-era debt owed to Egypt and Egyptian workers and the unstable security situation in Iraq remain major hurdles to expansion of the bilateral economic relationship. --------------------------------------------- ----- Trade Remains Small Despite Joint Committee, GAFTA --------------------------------------------- -----

2.(SBU) Ahmed El-Feky, the Head of the Arab States Department at Egypt's Ministry of Trade and Industry (MOTI), told EconOff on January 5 that Egypt's trade with Iraq remains small despite both nations' participation in the duty-free General Arab Free Trade Agreement (GAFTA) and the recent efforts to expand economic cooperation in the Egypt-Iraq Joint High Committee talks. El-Feky said that between January and June 2009, Egypt exported $154 million in goods to Iraq (mostly food and agricultural products, as well as some medical products and durable goods) and imported a miniscule $1.4 million in Iraqi goods, mainly sulfur. (Note: Egypt had been Iraq's fifth largest trading partner before 2003, with bilateral trade reaching nearly $2 billion in 2002 on the strength of Iraqi oil exports to Egypt).

3.(SBU) Egypt's volume of imports from Iraq could grow substantially if Egypt's Ministry of Petroleum decides to purchase Iraqi natural gas, a move that is reportedly under consideration (septel). --------------------------------------------- ------------ GOE Will "Wait and See" While Private Sector Studies Iraq --------------------------------------------- ------------

3.(C) El-Feky noted that MOTI has not yet sent a commercial attache to Iraq despite the recent return of an Egyptian ambassador to Baghdad (ref. A). El-Feky told us that while MOTI is "interested for sure" in expanding Egypt's trade ties with Iraq, it is taking a "wait and see" approach until Egypt's Ministry of Foreign Affairs (MFA) gives the go-ahead to send official commercial advisers. In a separate meeting, however, MFA Iraq desk officer Marwa El-Husseiny Shawat told EconOff on January 14 that the MFA had no plans to advise MOTI to send a commercial attache, as Egypt's current staff at its embassy in Baghdad remains minimal.

4.(C) Shawat told us that a consortium of major Egyptian companies interested in investing in Iraq had met with MFA officials and were planning to travel to Iraq soon to study investing there. Shawat mentioned that potential investors included the Orascom Group, one of Egypt's largest firms. Ahmed Heikal, the Chairman of Citadel Capital, a Cairo-based venture capital firm with over $8 billion in investments, told EconOffs recently that he has traveled to Iraq several times in the past year assessing investment leads, and has already made investments in Iraqi Kurdistan. --------------------------------------------- ----------- Debt, Security Remain Hindrances to Closer Economic Ties --------------------------------------------- -----------

5.(C) As part of their ongoing Joint High Committee talks, the governments of Egypt and Iraq have focused extensively on the Saddam-era Iraqi debt owed to Egypt (ref. B). Shawat called debt the "core issue" in the Iraqi-Egyptian talks and the main obstacle to progress. Shawat said that while Egypt is "flexible" in its willingness to forgive Iraqi government debt, personal debt owed to Egyptian citizens who had worked in Iraq is another matter. Shawat said that Iraq has offered to pay back its debt to Egyptian citizens without interest, but that Egypt is insistent on receiving what it estimates to be roughly $400 million in interest on top of a $400 million principal. Debt owed to Egyptian companies, Shawat said, will probably be solved through a deal offering the companies new investment opportunities in Iraq in lieu of cash payments.

6.(SBU) The security situation is the other major factor keeping Egypt from moving quickly in expanding its economic relationship with Iraq. El-Feky told us that many Egyptian exporters have reported their shipments to Iraq have been stolen upon arrival and never reached the importers. Some Egyptian exporters have resorted to shipping their goods to free zones in Jordan for their Iraqi partner to pick up, in order to avoid the shipping uncertainties inside Iraq. ------- Comment -------

7.(C) Despite the Joint High Committee talks to boost economic and political cooperation, we expect that the GOE will remain aggressively focused on the politically charged issue of resolving outstanding debt before moving to deepen trade and investment ties with Iraq. At least a few major players in the Egyptian private sector, however, appear to be interested in investing in Iraq as the security situation in the country permits. SCOBEY

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