THE DIFFICULTIES OF DOING BUSINESS IN ABU DHABI

C O N F I D E N T I A L ABU DHABI 000936 SIPDIS STATE FOR NEA/ARP, NEA/RA, EB/CBA AND EB/ESP USDOC FOR 4530/ITA/MAC/ONE/DGUGLIELMI, 4520/ITA/MAC/ONE/CLOUSTAUNAU, 4500/ITA/MAC/DAS/WILLIAMSON, 3131/CS/OIO/ANESA E.O. 12958: DECL: 2/25/2008 TAGS: ECON PGOV EINV TC SUBJECT: THE DIFFICULTIES OF DOING BUSINESS IN ABU DHABI ¶1. (U) Classified by DCM Richard Albright for reasons 1.5 (b) and (d). ¶2. (C) In a 2/19 meeting with Econ FSN, an Emirati businessman from one of Abu Dhabi's lesser families harshly criticized the local business climate, particularly in contrast with the relative simplicity and openness of Dubai. Abdullah Al-Mehrazi is the owner of a large construction business and also serves as a senior official at the UAE's telecoms monopoly Etisalat; nonetheless, he hails from a modest family of limited political connections -- a fact which no doubt influences strongly his view that business in the UAE capital has more to do with political connections and influence than entrepreneurial skill. ¶3. (C) The Emirati businessman noted that applications for necessary permits and licenses often languish for two years or more in the Abu Dhabi bureaucracy -- by which time conditions have often changed to the point that the original business idea is no longer relevant to the market. Nor are such delays simply procedural; Al-Mehrezi noted that delays often are deliberate in order that those with greater influence (wasta) could fill the market need -- in some cases the bureaucrats themselves simply lift the business model of an applicant and implement it through their own private firms (or those of friends and relatives). Such an environment serves only to reduce investor confidence, he observed -- this in contrast to Dubai which is introducing e-government, streamlining procedures, and actively courting business. ¶4. (C) Al-Mehrezi mentioned a number of specific examples of corruption. He stated that the Al-Jaber group, headed by Obaid Al-Jaber, is given more business than other companies in Abu Dhabi due to Al-Jaber's close relationships with UAE President (and Abu Dhabi ruler) Sheikh Zayed and Sheikh Mohamed Bin Butti Al-Hamed (the head of Abu Dhabi Municipality). Compliant (and interested) bureaucrats often will inflate costs on a project awarded to a preferred bidder, driving up budgets by as much as two or three times -- with the resultant extra profits divided all around. ¶5. (C) Comment: It is unusual for an Emirati businessman to be so open regarding the shortcomings of the local commercial environment. We attribute Al-Mehrazi's outspokenness to the lack of influence (wasta) of his family, an unfortunate fact which is compounded by his choice of business -- construction -- which here is widely regarded as one of the most corrupt sectors of the local economy where an informal cartel of the politically influential effectively excludes most outside competition. Wahba