TFIZ01: SOME GOOD EFFECTS, SOME BAD, BUT MOSTLY

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001603

SIPDIS

DEPT FOR IRAQ TASK FORCE, NEA/RA, NEA/ARP, EB/CBA

E.O. 12958: DECL 04/02/08
TAGS: BEXP BBSR ECON ETRD EINV TC
SUBJECT: TFIZ01: SOME GOOD EFFECTS, SOME BAD, BUT MOSTLY
JUST WAITING -- UAE BUSINESS FEELS THE IMPACT OF WAR



1. (U) Classified by DCM Richard A. Albright for reasons
1.5 (B) and (D).


2. (C) Summary and Comment: Continued high oil prices have
largely immunized the UAE economy from any major fall-out
from the ongoing Iraq war. On a micro level, Kuwaiti
traders are said to be placing large orders for commodities
in local markets (particularly Dubai, from whence 20 to 30
trucks per day leave for Kuwait),and local construction
companies have begun raising their fees in anticipation of a
post-war run on building supplies. More significantly,
hotel occupancy and travel are down sharply. Even UAE
residents are spending more time at home watching the war on
television than in the many restaurants and shopping malls
here. Other negative impacts include increased shipping
costs because of higher insurance premiums and higher
overland transportation charges because of a shortage of
heavy trucks. But the overall sense is more one of drift
than actual loss. Small and medium-sized businesses here
report that orders (especially those for non-oil activities)
are in a slump, volume on the UAE's stock exchanges is at
best a trickle, and most local investment is on hold until
the situation in Iraq is resolved. Our business contacts
say the war is clearly depressing the local economy, but
hope that -- as long as it doesn't drag out too long -- the
benefits of trade with a liberated Iraq will more than
offset the current losses. End summary and comment.

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Trading Becomes More Expensive
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3. (C) The UAE, as a major logistics and transportation
hub, is suffering from higher war-induced insurance
premiums. The insurance premium on shipments by sea and air
has increased in recent weeks from 0.0275 percent of the
total value of the shipment to 0.095 percent an increase
of 71 percent. The war risk on road transportation
insurance premiums, likewise, has increased approximately 22
percent since the onset of hostilities in Iraq.


4. (U) Local newspapers report that the wholesale prices of
sugar, oil, medicines, readymade garments, and flour have
increased in Dubai by 25 percent in the last two weeks, due
to the increase in the demand of these goods by traders in
Kuwait. The National Committee for Supply and Shipping in
Dubai estimates 20 to 30 trucks each day travel from Dubai
to Kuwait, in addition to the many sea vessels carrying
consumer goods. According to the same article, a prominent
businessman in Dubai said that traders in the construction
sector have increased prices of building materials, and
expect an increase in demand for these goods for the
reconstruction of Iraq. The construction of a 4,000 square
foot villa usually costs 420,000 dirhams, but has increased
in recent weeks by 26 percent to 530,000 dirhams.


5. (C) A prominent local businessman and owner of a chain
of retail clothing stores, Mohan Jashanmal, said that his
business had already suffered from the global recession.
The war with Iraq - nd fear of attacks from Iraqi and
other terrorists in the UAE - owever, had devastated
business. He noted to Econoff on 3/31 that people are now
afraid to go to the malls, and prefer to stay home to watch
events in Iraq unfold on television. (Note: Embassy
personnel have heard frequent false rumors of bomb threats
at Abu Dhabi malls since the onset of hostilities with Iraq.
It is not surprising that Jashanmal reports that local mall
attendance is down. End note.)

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Local Investors Wary
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6. (C) Deputy Director General of the Abu Dhabi Stock
Exchange told Econoff 3/29 that the volume of trading on the
Abu Dhabi Stock Market fell from 141 million dirhams to 55
million dirhams the first week of the war, but has since
rebounded somewhat. He perceives that local investors are
leery of new investments, and are waiting to see how the war
bears out.


7. (C) UAE Ministry of Oil, Director of Economic Affairs
(and private businessman/ local investor) Hamdan Al-Akbari
told Econoff on 3/31 that, although the local economy seemed
unaffected by the war, he had decided to divest certain
holdings and delay plans for new investments. Al-Akbari
said that he was aware of a number of minor oilfield
services and construction contracts that had been put on
hold recently. He felt that he should wait until the
political environment in the region stabilized before
pursuing new investments.

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Tourism Is Down
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8. (C) A sales associate from the Intercontinental Hotel
recently told Econoff that the local hospitality industry is
suffering through a difficult time because of the war. She
estimated that Dubai hotels are at 40 percent occupancy
rates and Abu Dhabi, slightly less. (Note: Dubai hotels
target both tourists and business people while Abu Dhabi
attracts business people. End note.) Sales targets for
March are off considerably from earlier this year, and the
sales associate already knows she won't make her April
quota. She forecasts tough times through the summer,
fearing that people will avoid the region even after the
conclusion of hostilities because of the threat of terrorism
and continuing fiscal restraint by companies regionally as
well as globally.

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American Businessmen Fear Longer-Term Repercussions
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9. (C) An Arab-American and long-time importer of American
products in Abu Dhabi told Econoff on 3/26 that U.S.
businesses were hurting only one week after the onset of
hostilities in Iraq. One of his major projects outfitting ADNOC gas
stations with American lube equipment
and state-of-the-art car washes was put on hold
indefinitely within the last week by ADNOC, and without
justification. He heard that ADNOC Distribution was talking
to a European firm to do the same work.


10. (C) The American businessman also noted that the slogan
"Made in the USA" once was a marketing tool that increased
sales of certain products. Within the last week, local
retail outlets had requested the slogan be removed; it's
perceived that the "made in the USA" slogan will deter sales
given events in the region.


11. (C) Another American businessman told Econoff 3/28 that
a quick resolution to the war will be better for U.S.
businesses here in the short-term, but the USG will have to
do a lot of work to improve its image and that of U.S.
companies in the long-term. Rumors of secret contracts
awarded to American firms (especially Halliburton)
perpetuated the theory that this war is only about money,
and U.S. business ultimately pay the price. "They [Arabs]
think we're all mercenaries," said the American businessman.
To counter this perception, the businessman donated loading
equipment valued at $62,000 USD to the UAE Red Crescent
Authority to load humanitarian supplies at Mina Zayid.

Wahba